Under proposed regulations, PRPPs take shape

On Aug. 11, the federal government pre-published its first package of proposed regulations for the Pooled Registered Pension Plan (PRPP) Act, opening a 30-day public comment period prior to final consideration. A second package of regulations under the PRPP Act will follow at the earliest opportunity, the Department of Finance promises.

This first package of proposed regulations addresses the following provisions:

ï the licensing conditions for a potential administrator of a PRPP;

ï the management and investment of funds in members' accounts;

ï details with respect to the investment options offered to members;

ï criteria against which the requirement to provide low-cost PRPPs can be assessed;

ï conditions under which a PRPP member is allowed to set his or her contribution rate to 0%; and

ï information that plan administrators must disclose to plan members, employers and the Superintendent of Financial Institutions.

As the government's impact analysis statement explains:

ï The Office of the Superintendent of Financial Institutions (OSFI) will be the licensing body for PRPP administrators. Any Canadian corporation may administer a PRPP providing it submits a five-year business plan, demonstrates that it has the financial resources and operational capacity required to administer a PRPP, demonstrates that the officers and directors are of good character, and provides any other information required by OSFI. Licensing fees will be levied on a cost-recovery basis.

ï To provide a minimum level of protection for plan holders, the Regulations will curtail concentration risk by limiting the amount of assets an individual member can invest in any one entity or associated entities to a maximum of 10%; provide a quantitative limit on control of corporations (i.e. a maximum of 30% on voting rights to elect directors); and, limit administrators' investments in related parties.

ï Administrators may provide plan members with a maximum of six investment options, including a default option, that represent a mix of risk and expected returns. If a plan member does not communication his or her choice within 60 days, the default option would automatically apply.

ï A member may set his or her contribution rate to 0% at any time after 12 months from when he or she begins to contribute to a PRPP account. The rate can stay at 0% for between three months and five years. There will be no limit on the number of times that the contribution rate may be set to 0%.

ï To facilitate transparency and comparability across PRPPs, industry standards relating to the disclosure of mutual funds and capital accumulation plans will apply to PRPPs, as appropriate. Administrators will provide information on a website and on the request of a member or employer, such as a description of each investment option, a statement of transfer options available to plan members, and a description of any fees, charges or other levies. A written annual statement will include information such as the investment option in which the member is invested in, account balance information, a summary of transactions and specific information related to the member's investment option.

The second package of regulations will address the transfer of funds from a member's account, the manner and frequency of remittances, the form and content of notices, locking-in rules, variable payments, electronic communications, and other technical rules related to the implementation of the framework.