While plan providers have heaviest responsibility, payroll departments do have some administrative duties
With governments across Canada enacting laws to allow for pooled registered pension plans (PRPPs) and voluntary retirement savings plans (VRSPs), payroll professionals may need to become as familiar with these terms as they are with registered pension plans (RPPs) and registered retirement savings plans (RRSPs).
Legislation to allow for PRPPs has been slowly rolling out across Canada over the last few years, beginning in 2012 for employers and employees under federal jurisdiction and for those in the territories (including the self-employed).
Last year, governments in British Columbia, Nova Scotia, Ontario and Saskatchewan enacted PRPP laws. Alberta has passed, but not yet brought into effect, its PRPP legislation. In Manitoba, a PRPP bill is before the provincial legislature.
PRPPs are defined contribution pension plans that are administered by a third party (such as a financial institution) instead of an employer. They provide a way of saving for retirement for individuals whose employer does not have a registered pension plan or for those who are self-employed.
“There was a lot of work done to identify all of the normal responsibilities of a (pension plan) sponsor and move as many of them as possible into the hands of a financial services provider,” says Tom Reid, senior vice-president of Group Retirement Services at Sun Life Financial Canada.
PRPPs are voluntary, meaning that it is up to employers to determine whether they want to sign up for one. If they do, employees are automatically enrolled, but can opt out.
Quebec has its own version of the PRPP, called the VRSP. Unlike PRPPs, Quebec is making VRSPs mandatory for employers who do not have an RPP or offer employees payroll deductions for a designated RRSP or tax-free savings account. Employers with at least five employees with a minimum of one year of uninterrupted service will have to offer a VRSP.
The deadline for offering a plan depends on the employer’s size. Employers with 20 or more eligible employees as of June 30, 2016 had to sign up for a plan by the end of 2016. Employers with 10 or more eligible employees as of June 30 this year will have until the end of 2017 to offer a VRSP. The government has not yet set a date for when employers with five to nine employees must comply.
“There has been a tremendous amount of activity around VRSP in Quebec,” Reid says. “As it got closer to the end of (2016), the number of phone calls we got from either advisors or employers escalated pretty dramatically,” he adds.
Reid also notes that PRPPs are new and interest in them may grow over time. “If you look back to when RRSPs were created by legislation in the 1950s, they did not take off until the late ’70s and into the ’80s when the mutual fund industry dramatically evolved and there were more useful vehicles to contribute to an RRSP. These things can take a long time to take root and get traction,” he says.
While it is too soon to know how popular PRPPs could become, payroll professionals who want to stay on top of legislative developments should become familiar with PRPPs and VRSPs in case their employer chooses to offer one or, in the case of Quebec, is required to have a plan.
Even though it is the plan provider rather than the employer who is responsible for administering a PRPP/VRSP, employers will have some administrative duties that could affect payroll/HR, including:
Selecting a plan: Employers will need to do some homework to find a licensed PRPP/VRSP provider that best meets their needs. The provider can then work with them to set up a plan. Plans can be an “off-the-shelf” package or be customized for the workplace. Plan providers will offer investment options for the employees.
Communication: Employers must give employees at least 30 days’ advance notice before they sign a contract. The notice must include information on any business relationship that the employer has with the plan administrator and the right employees have to object to the plan for religious reasons.
The notice must also inform employees that they will be enrolled automatically in the plan, but may opt out (and explain how they do that). Once the contract is signed, the employer or the plan provider must notify employees of investment options, contribution rates, fees, and other information.
Membership/Enrolment: For PRPPs, employers can choose which classes of employees they will sign up. Full-time employees in those classes will be enrolled automatically. Employers must enrol part-time workers after they have completed 24 months of continuous employment, although they can choose to do it earlier.
Employers covered by the mandatory VRSP requirement must enrol all eligible employees, as well as those who request to be signed up. Eligible employees are those who are at least 18 years old, are considered an employee under the Act respecting labour standards and have at least one year of uninterrupted service (defined under labour standards).
Employees who do not wish to take part in the plan can opt out by giving their employer notice within 60 days of the date the employer informs them of its intention to sign a PRPP/VRSP contract.
Employers can send enrolment information to the plan provider themselves or set up an arrangement to have their payroll service provider do it.
“The way it is working most efficiently in Quebec is that the payroll providers are providing information directly (to plan providers),” Reid says. “In terms of getting the demographic information — the names and address, etc. — of new employees or employees who leave that employer, the payroll provider is actually well set up to provide that information, so you can kind of take the employer out of the loop to a large extent.”
Contributions: Employers are responsible for deducting PRPP/VRSP contributions from employees. The plan provider can work with the employer to set contribution rates.
In Quebec, the government has set a default rate for employees who do not choose one. Until the end of 2017, the rate is two per cent of gross salary. It will rise to three per cent in 2018 and to four per cent as of 2019.
“That was a unique feature that Quebec implemented because they wanted to get to a larger contribution rate,” Reid says.
“It’s one of the things that we tried to advocate for in all of the other provincial jurisdictions because we think there are pockets of under saving across Canada, not just in Quebec, and there is a need for low-cost workplace savings plans across Canada,” he adds. “Even at four per cent, you could argue, you don’t get to the retirement outcomes that you need for middle-income Canadians.”
Employer contributions are optional. If they choose to contribute to a PRPP/VRSP, employer contributions will not result in a taxable benefit for the employees, but will affect an employee’s RRSP contribution room for that year.
Remittances: Employers are responsible for remitting employee (and any employer) contributions to the plan provider. By law, employers have to send in remittances at least monthly. Reid says it is easiest to base remittances on an employer’s payroll cycle.
“We don’t alter the schedule. If it’s biweekly, then that’s fine. If it’s monthly, that’s fine too. We are set up to do it anyway that the employer does it,” says Reid.
Employers who use payroll service providers can set up a system whereby the payroll provider deducts and remits the contributions, similar to the way it handles statutory source deductions.
Changes/Terminations: Employers must notify the plan provider of new hires joining the plan and of employees whose employment terminates. Employees leaving their job can choose to keep their money in the plan or transfer it to another retirement savings plan. All PRPP contributions are locked-in. For VRSPs, only employer contributions are locked-in. Plan providers generally allow employees who want to change their contribution rate, opt out or make other changes, to do so themselves through online access to the provider’s website or by calling them, says Reid.
“The goal for ourselves, and I think every provider, was to make it as easy as possible for the payroll functions within employers and we will continue to evolve until everyone agrees that that is exactly what we have done.”
