Ottawa publishes PRPP regulations

The Department of Finance indicates that regulations will follow to address a variety of other issues, including: 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.

“These proposed regulations take us one step closer to a new large-scale and low-cost defined contribution pension option for millions of Canadians currently without access to a workplace pension plan,” said Ted Menzies, minister of state (finance).

Under the proposed regulations, OSFI will license PRPP administrators that meet the conditions set out in the proposed regulations. Firms must submit a five-year business plan, demonstrate that they have the financial resources and operational capacity required to administer a PRPP, and demonstrate that their officers and directors are of good character, among other things. The superintendent will levy fees on firms to cover the cost of licensing and providing ongoing supervision of PRPPs.

The proposed regulations also include investment rules that aim to protect plan members’ interests, while also providing administrators with flexibility. This includes rules to limit concentration risk, voting control, and investments in related parties.

The rules would require that administrators provide plan members with a maximum of six investment options (including a default option); that the options must be the same for all members of a plan; and that a member would have 60 days to chose an option, or the default option will automatically apply. The default option would be required to be a portfolio of investments that takes into account a member’s age, such as a life cycle fund, or a balanced fund.

The rules also prescribe the incentives that PRPP administrators can offer an employer to establish a PRPP. And, the proposed regulations require that plan costs be at, or below, those charged to members of defined contribution plans that provide investment options to groups of 500 or more members.

Additionally, it proposes disclosure requirements that would apply similar standards as those imposed on mutual funds and capital accumulation plans. Administrators would be required to describe each investment option, a statement of transfer options available to plan members, and a description of any fees, charges or other levies. The proposed regulations would also require that members be provided with an annual account statement setting out their investment option, account balance, and transaction summary, among other things.

The proposed regulations will apply to federally regulated PRPPs, which will be supervised by OSFI. Ottawa may also enter agreements with provinces that enact similar legislation, allowing the federal government to authorize OSFI to provide supervision in the province, and to authorize provincial authorities to exercise any of the superintendent’s powers.

“The development of these regulatory proposals has benefitted from an extensive review process and collaboration with provincial-territorial officials,” noted Menzies.

The proposed regulations are being published for a 30-day public comment period. The second package of regulations will be issued “at the earliest opportunity” Finance says.

It notes that PRPPs will be available across Canada once federal tax legislation is passed and the provinces implement their PRPP legislation.