The second leg of PRPP regulations

Pooled Registered Pension Plans (PRPPs) are inching their way toward becoming a way for Canadians without a workplace pension plan to save for retirement.

 As October came to a close, the federal government announced it had finalized the initial tranche of PRPP regulations and introduced for a 15-day comment period the second tranche. The enacting legislation passed in June.

“As soon as this last package of regulations is finalized,” Minister of State (Finance) Ted Menzies said in a press release, “the federal Pooled Registered Pension Plans Act and regulations will be brought into force. PRPPs will then be available to the millions of Canadians without access to a workplace pension option as soon as provinces and territories implement their respective sides of the framework.”

It is the last part of Menzies’ statement that is slowing the advance of PRPPs. This past spring’s round of provincial budgets gave little indication that the provinces are about to enact the necessary legislation, making timing uncertain. In the meantime, PRPPs will be available to employees in sectors that are within the legislative authority of the federal government as well as persons employed in the Yukon, Northwest Territories and Nunavut.

Highlights of the proposed regulations include:

• Disclosure. An employer entering into a contract with an administrator to provide a PRPP must give employees 30-days advance notice. Likewise, an employer must notify employees if he or she automatically enrolls them in a PRPP. Once enrolled in a PRPP, employees can terminate their membership by notifying their employer in writing within 60 days of receiving notice of enrollment.

• Locking in. As the goal of PRPPs is to make sure people have savings for retirement, plan members will not be allowed to withdraw funds from their accounts expect in specific circumstances: divorce or separation; a mental or physical disability; a small balance; or, transfers.  Members who have not been Canadian residents for at least two years and are no longer employed by a participating employer are not subject to the locking-in rules and may withdraw the funds in their accounts.

• Transfer. Members can transfer funds from their PRPPs only if they retire, switch employers or if a plan is terminated. Self-employed members can transfer funds from their PRPP account at any time and the survivor of a member can transfer funds from the former member’s account. Funds can be transferred to another PRPP or pension plan; to “prescribed” retirement savings plans including locked-in RRSPs, life income funds (LIFs), restricted LIFs and restricted locked-in savings plans; or, used to purchase an immediate or a deferred life annuity.

Again, because the goal is retirement savings, plan members will not be able to make lump-sum withdrawals from their PRPPs prior to retirement except under exceptional circumstances: disability or severe financial hardship, small balance, or one-time unlocking privilege from a restricted LIF for individuals 55 years of age and over.

Note that the intention is that the proposed conditions on retirement savings plans and annuities will be consistent with the conditions that apply to funds transferred from pension plans subject to the Pension Benefits Standards Act, 1985.

 • Variable payments. PRPP members who reach the “prescribed age” of 55 may be able to receive payments from the plan, depending on the administrator, rather than transferring funds to a LIF of annuity. Members may choose the amount they will receive but the amount must be within a minimum determined by the Income Tax Act and a maximum determined by the member’s balance, his or her age and the yield on Government of Canada marketable bonds for the first 15 years in which a member receives variable payments, and 6% thereafter. The payment amount will be calculated using a formula which is consistent with the formula used for calculating payment amounts for LIFs under the Pension Benefits Standards Regulations, 1985.

The proposed regulations also address:

• Termination and winding up of a plan;
• The use of electronic means to satisfy requirements under the Act for communications with plan members; and
• Other technical rules related to the implementation of the framework.