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Pooled registered pension plans introduced in legislature

senior-manOn November 17, 2011, Bill C-25, An Act relating to pooled registered pension plans and making related amendments to other Acts, received first reading in the House of Commons. This Bill follows the pooled registered pension plan (PRPP) framework published in 2010 and discussed in a previous post on First Reference Talks.

There is a bit of controversy about this Bill… let’s take a look.

The goal of the Bill is to address the fact that about 60 percent of Canadian employees in the private sector and self-employed individuals currently do not participate in an employer-registered pension plan. The Bill aims to have administrators provide pooled registered pension plans at a “low cost” to members that would include employees and self-employed persons.

The plan would apply mainly to small businesses in the private sector, with a couple of minor exceptions. If the Bill is enacted, provincial jurisdictions will have to table their own legislation or regulation for the PRPP to have full force. But before that could happen, regulations and changes to tax legislation would need to be created by the Federal Government.

Note that this proposed Act does not apply in respect of a member of a pooled registered pension plan who (a) is not employed in included employment, other than a member who is a self-employed person in Yukon, the Northwest Territories or Nunavut; or (b) is employed in included employment but whose employer does not participate in the plan, other than a member who is employed in included employment in Yukon, the Northwest Territories or Nunavut.

Now, this Bill is a bit controversial; some are of the view this is a great initiative that will address the gap in Canada’s retirement scheme that leaves many people behind. But some say this is a method of allowing employers to unilaterally decide if they will force employees to save for their retirement. And others say this is no pension plan at all, and the wiser way to address the retirement issue in Canada is to expand the already existing CPP/QPP.

Why the controversy?

The main reason is that, for this type of proposed plan, employees would be required to pay set premiums into the plan, but employers can decide whether they will offer the plan to a class of employees and whether they will make contributions to the plan for the benefit of the employees.

That is, this is the first plan ever that offers an employer the choice to make no contribution whatsoever.

Also, the plan would not be designed or administered by the employer. The employer would decide if it wants to buy a package from an administrator, such as a financial institution, containing set employee contribution amounts.

So, in addition to the modified role of the employer, another reason for the controversy is that the banks may make a little money from this initiative.

Another thing that is raising some eyebrows is the fact that employees must join the plan if the employer establishes one, unless they opt out in the 60-day opt-out period, or if they choose not to participate due to religious reasons. Some believe this is a bit pushy.

One of the most serious concerns is that, while this initiative may appear virtuous on its face, it could lead to problems. Given that this is the only plan that doesn’t require employers to make minimum contributions and takes most administration out of their hands, it may be tempting for employers to transfer to this plan from a more substantial pension plan, such as a defined benefit or defined contribution plan (for example, starting with new hires).

However, from a human resources perspective, employers are more likely to achieve recruitment and retention goals by offering the more attractive pension plan. Top employees are more likely to sign with an employer that values investing in employees’ futures.

What do you think? Is this a good idea? Is it inappropriate to call this proposed plan a “pension plan”? Is it acceptable to unilaterally decide that a class of employees should invest in the plan unless they opt out at an early stage? Would expanding the CPP/QPP be a better option?

Christina Catenacci
First Reference Human Resources and Compliance Editor

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Christina Catenacci

Christina Catenacci, BA, LLB, LLM, was called to the Ontario Bar in 2002 and has since been a member of the Ontario Bar Association. Christina worked as an editor with First Reference between February 2005 and August 2015, working on publications including The Human Resources Advisor (Ontario, Western and Atlantic editions), HRinfodesk discussing topics in Labour and Employment Law. Christina has decided to pursue a PhD at the University of Western Ontario beginning in the fall of 2015. Read more
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4 thoughts on “Pooled registered pension plans introduced in legislature
  • Thanks for your comment, Suzanne. You are not alone – the message I am getting from people I have been chatting with is that most agree the CPP should be expanded rather than implementing this pooled registered pension plan regime.

  • Christina, thank you for the information. There are obvious issues in employers offering a specific plan that employees did not choose. The long-term implications are that people who are not viewed as ’employees to attract with a good pension plan package’ will automatically be offered this type of plan. To date, if the company offers a plan, everyone is usually invited to participate. My choice is to fix the Canada Pension Plan. Since childbirth (mine) we have known the age demographics, not including immigration and have been aware the plan will be depleted without new revenues. Do I know the fix? No, the fix should have come a longtime ago. Any late stage fix will cost people more than they can afford in a recession. The idea in the last few decades was the new generation pays for the last one but the numbers retiring are overwhelming. Only idea I have is more employment in new fields as the only way to ease the burden. Since my specialty is accessibility for people with disabilities, I strongly believe working forward on this constructive goal will increase employment and innovations. Then there will be more people contributing to a plan that may not go bankrupt.

  • Thanks for your comment, Shawn.

  • Shawn Patton says:

    Thank you for a thoughtful article that raises a number (but not all) of issues, concerns and opportunities that may unfold due to the launch of PRPPs.

    HR and finance professionals in your audience might want to consider: 1.checking out some resources we have compiled at our website (over 30 quotes on PRPPs and list of Best of the Web article links on PRPPs) 2. joining a LinkedIn “Group” where there are a number of discussions

    Shawn Patton
    Ampersand Advisory Group