Pension Primer: Pooled Registered Pension Plans (“PRPPs”) in Nova Scotia
By Level Chan and Dante Manna
Pooled Registered Pension Plans (“PRPPs”) are closer to becoming a reality for Nova Scotian employers. PRPPs were established by the Federal government in an effort to address the lack of retirement savings options for moderate income employees of small or medium sized employers in Canada. Several provinces have since followed suit with their own versions of the legislation, using the Federal model as a guide. Nova Scotia was the first and so far the only Atlantic Canadian province to join the ‘pool party’ when it passed Bill No. 38, Pooled Registered Pension Plans Act (“PRPP Act”) in October 2014. While not yet in force, we recap the major features of the PRPP Act and profile new portability options that were added in December 2015 under Nova Scotia Bill No. 126.
Purpose of PRPPs
The purpose of PRPPs is to provide a low-cost, regulated pension option that is available to workers who are not currently under a pension plan or are self-employed. This legislation was developed by the Federal government in 2012 to provide another source of retirement income for Canadians (in addition to OAS/GIS, CPP/QPP, and RPPs/RRSPs). Pooling is intended to make pensions available to smaller employers while keeping the costs of administration low.
Nova Scotia PRPP Harmonization
The PRPP Act largely incorporates the Federal Pooled Registered Pension Plans Act (Canada), with minor modifications for the province. This is similar to what the legislatures in British Columbia, Ontario, and Saskatchewan have done.1 The main differences between the Nova Scotia and Federal Acts are procedural matters regarding withdrawal and transfer of funds and division of assets upon breakdown of a spousal relationship. Hence the Nova Scotia PRPPs will match the major facets of those other jurisdictions’ regimes.
Key Features of PRPPs
The PRPP Act adopts the following key PRPP features of the Federal Act:
- Employer participation is voluntary. Employers are not required to set up a PRPP.
- PRPPs are defined contribution plans.
- Administrative duties are carried out by licensed third party administrators rather than employers.
- Licensed administrators must provide the pension for “low cost”.
- An employer joins or sets up a plan by entering into a contract with an administrator that sets the amounts and frequency of employer and employee contributions.
- Employer contributions are voluntary and may be set at zero.
- Employees may also set their contribution rate to zero, or they can opt out entirely by notifying the employer within 60 days of receiving notice of their membership in the plan.
The Nova Scotia PRPP Act is similar to Saskatchewan, British Columbia and Ontario’s Pooled Registered Pension Plans Act. Like those acts, the Nova Scotia PRPP Act will apply to provincial employees, federal employees in the province who are not covered by a federally-governed PRPP, and the self-employed.
Multilateral Agreement
On July 15, 2015, Finance Canada published its proposal for the Multilateral Agreement Respecting Pooled Registered Pension Plans, an agreement designed to streamline administration and supervision of PRPPs, particularly those which operate in multiple jurisdictions. Any province that has passed PRPP legislation, including Nova Scotia, may become a signatory.
Under the terms of the proposed agreement, all signatory provinces would agree as follows:
- Federally licensed administrators are exempt from having to be licensed in the province or provinces in which they operate.
- Licensed administrators of VRSPs (the Quebec version of PRPPs) would not be required to obtain federal administration licenses.
- The Federal Office of the Superintendent of Financial Institutions (OSFI) is the regulatory authority for federally licensed administrators and all federally regulated PRPPs.
- The Federal PRPP Act applies to federally registered PRPPs that operate in the province, subject to minor exceptions in matters such as definition of spouse and death benefits.
The proposed agreement contains no provisions for federal or interprovincial recognition of provincially licensed PRPP administrators.
The release date of the Multilateral Agreement signaled the start of a 45-day public comment period. It has yet to be released in final form.
Transfers from PRPPs
In mid-November of 2015, amendments to the Nova Scotia PRPP Act were introduced (Bill 126). This Bill received Royal Assent on December 18, 2015 (S.N.S. 2015, c. 48). The amendments introduced two new transfer options to the PRPP Act:
- Funds in PRPPs can be transferred to retirement savings arrangements that are prescribed under the Pension Benefits Act. This makes it possible for funds to be transferred from a PRPP to a locked-in vehicle, such as a locked-in retirement account.
- A process was established for transferring funds as a result of division of assets (for example as the result of a relationship breakdown) from the PRPP to the plan of the member’s spouse upon division of asset funds in the member’s account. They may be transferred to a PRPP account of that person’s spouse, to the spouse’s pension plan, to a prescribed retirement savings arrangement for the spouse, or to purchase a life annuity for the spouse.
In addition, Bill 126 features ancillary amendments to allow for the process of transferring funds from one account to another.
The PRPP Act is sparsely drafted, leaving many aspects of PRPPs in Nova Scotia to be prescribed by regulations. Draft PRPP Act regulations were published for an open comment period between September 9 and October 15, 2015, but have yet to be finalized. Like the PRPP Act, the draft regulation is closely harmonized to its federal counterpart. For more details, see our previous update. The finalization of those regulations will open the door to Nova Scotia employers to offer PRPPs to employees. The bottom line – Nova Scotia is getting closer but is not (quite) there.
1 The provinces of Alberta and Quebec, by contrast, have introduced stand-alone legislation. In Quebec, enrollment in VRSPs (that province’s PRPPs) is mandatory for certain employers. Alberta generally follows the Federal scheme but with its own legislation.