On 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?
First Reference Human Resources and Compliance Editor