The Quebec election has put a fly in the ointment of the province’s employer pension plan picture, and maybe for the entire country as well. The change in provincial government will likely delay the launch of the voluntary retirement savings plan (VRSP), Quebec’s version of the pooled registered pension plan (PRPP).
This means the only PRPP expected to be on offer in January 2013 is the federal one — a watered-down version that doesn’t actually require employers to offer a PRPP.
Last year, the federal government introduced Bill C-25, the proposed Pooled Registered Pension Plans Act. The intent was to fill the gap for the 50 per cent to 75 per cent of working Canadians who don’t have a company pension plan.
This is especially the case with employees of small and medium-size businesses, and also owner-managed businesses. PRPPs would be run by a regulated administrator and offer a low-cost, accessible pension plan that would help people meet retirement goals.
In a nutshell, the objective is twofold:
• Reduce pension plan fees for small businesses, and ultimately for the employee who pays into it, by pooling a very large number of small pension plans into a single program.
• Reduce employer obligations that would involve having to administer and oversee the plan, which can be a real deterrent for small business, and shift that responsibility onto the shoulders of third-party providers.
PRPPs, however, will be inherently difficult to administer. It’s a lot harder to run a pension plan on behalf of 100 employers, with five employees each, than for a single 500-employee company. The idea behind PRPPs is to mitigate the challenges with massive scale — perhaps as many as one million plan members nationwide.
Broad adoption needed
This scale will only be achieved, though, with a very high level of PRPP adoption. Broad PRPP growth will put pressure on companies to abandon employer-sponsored programs in favour of the cheap and cheerful model.
But we may not see very large takeup of PRPPs after all. The principal weakness of the federal version of PRPPs is it is optional for an employer to offer the plan and for a member employee to take advantage of it, while the intent of the Quebec plan — the VRSP — was to make it mandatory for any business with more than five employees unless there was a group savings plan already in place.
That was to have taken effect in January 2013 but the election of the new Quebec government changes all that, leaving us in limbo.
What’s more, the Ontario government has come out against the program, apparently preferring to have the federal Canada Pension Plan expanded, while other provincial jurisdictions have been silent on the issue.
For sure, the Quebec model would have helped mitigate the problem of small-business employees and owner-managed businesses that lacked a company pension plan. But this sort of thing requires political will on both the provincial and federal fronts.
Another point to remember about the federal model is it never really considered the position of the plan provider — it’s one thing to have the legal machinery in place for a PRPP, but if the optional and limited jurisdictional application means it’s not profitable for any carrier to run it, there will be no such plan.
Making the concept of a PRPP work requires the larger provinces to adapt a model similar to the Quebec version, with mandatory offering of the program and automatic enrolment of members.
Plan sponsors should be watchful of the situation but not count on the program being launched in the next 12 months, or perhaps longer.
How employers should react
Here is some advice for employers:
• Don’t make any changes to short-term goals concerning employee retirement savings plans.
• In the longer term, adopt a wait-and-see attitude. Within Quebec, the new provincial government doesn’t seem to be against the idea but don’t hold your breath about something happening quickly on the pension front.
• Quebec companies that have a pension plan should keep it for the time being.
• It would be a mistake for an employer to say it’s not in its interest to continue with an existing program and default to the federal government model, which won’t have much relevance if carriers don’t play ball.
Still, all parties involved recognize there is a problem. Sooner or later, something has to give, but what exactly it will be and when it will happen are up for grabs.
Idan Shlesinger is managing partner of defined contribution pensions and savings plans at Morneau Shepell in Toronto. He can be reached at email@example.com.