Pooled Registered Pension Plan (PRPP) - Questions and answers for employers

Q1. What is a pooled registered pension plan (PRPP)?

A1. A PRPP is a new kind of deferred income plan designed to provide retirement income for employees and self-employed individuals who do not have access to a workplace pension.

Because individuals’ assets will be pooled, the PRPP will offer investment and savings opportunities at lower administration costs.

Investment options in a PRPP are similar to those available in a registered pension plan.

Q2. How does a PRPP work?

A2. A PRPP is a defined contribution-style plan that is set up and administered by a corporation resident in Canada that has been licensed to act as an administrator. This means that, unlike most workplace pensions, you do not manage the PRPP for your employees, an administrator does.

Once your employee has a PRPP account, his or her contributions and the contributions you make for him or her are credited to the employee’s account. Contributions made by you and your employee are deductible in calculating your respective incomes, in line with the requirements of the Income Tax Act. The funds in your employee’s account are pooled with the other funds in the plan.

The funds in the individual’s account accumulate tax-deferred and must be used to provide retirement income. Amounts paid to the individual must be included in his or her taxable income.

You can enroll your employee in a PRPP, if you choose to participate in the plan. If you choose not to participate, your employee can open a PRPP account by approaching a PRPP administrator directly.

Q3. Who can administer a PRPP?

A3. The Income Tax Act states that an administrator of a PRPP is a corporation resident in Canada that is responsible for administering the plan and is authorized under the Pooled Registered Pension Plans Act or a similar law of a province to act as an administrator for one or more pooled pension plans.

Q4.  How do I set up a PRPP for my employee?  

A4. Contact a PRPP administrator to find out how to sign up for a PRPP.  

Q5. Who can open a PRPP account at this time?

A5. Right now, only an individual who falls under the authority of the Pooled Registered Pension Plans Act can participate in a PRPP. The Act applies to PRPPs offered to employees whose employment falls under federal jurisdiction, including banking and inter-provincial transportation, and Canadians who are employed or self-employed in the Yukon, Northwest Territories and Nunavut.

As provinces enact legislation governing PRPPs, the plans will become available in more jurisdictions.

For more information, visit the Pooled Registered Pension Plan Web page of the Office of the Superintendent of Financial Institutions Canada’s Web site.

Q6. What’s the difference between a PRPP and a group Registered Retirement Savings Plan (RRSP)?

A6. There are many differences between a group RRSP and a PRPP. One important distinction is that, for a PRPP, you contribute to the PRPP directly and get a corresponding tax deduction. And, your PRPP contributions are not taxable income to your employee. For a group RRSP, amounts you designate as contributions are taxable income to your employee.

Q7. What tax rules apply to a PRPP?

A7. All contributions you make to your employee’s PRPP account in a year or within 120 days after the end of the year (as long as they weren’t already deducted) are deductible for income tax purposes by you (but not by your employee).

Q8. Is there a maximum amount that I can contribute to my employee’s PRPP account?

A8. You can only make contributions to the plan in a calendar year for your employee up to the employee’s RRSP dollar limit for that year.  An exception to this rule applies when your employee gives you written direction to contribute more.

Q9. How much can my employee and I contribute?

A9. The PRPP contribution limit is based on your employee’s RRSP contribution limit for the year.  All contributions to your employee’s PRPP account are counted against his or her RRSP contribution room.

Information about your employee’s RRSP contribution room can be found on his or her notice of assessment issued by the CRA, and also found inside My Account. Contributions to his or her own RRSP or to his or her spouse’s or common-law partner’s RRSP will reduce the amount that can be contributed to a PRPP.  

Q10. If I contribute to my employee’s PRPP account, does the amount I contribute affect his or her RRSP contribution room and RRSP deduction limit?

A10. Yes. Contributions you make to your employee’s PRPP account in a given year count against his or her RRSP contribution limit for that year. The employee’s RRSP and PRPP deductions will be limited to the lesser of the employee’s RRSP and PRPP contributions and the amount by which his or her RRSP deduction limit exceeds your contributions to his or her PRPP.

Q11. If I have an employee who is considered an Indian (as defined by the Indian Act), can he or she (or I as his or her employer) contribute to a PRPP based on his or her tax-exempt income?

A11. Yes, for the purposes of making a contribution to a PRPP, the Income Tax Act allows tax-exempt income earned by an Indian to be included in the calculation of his or her RRSP contribution limit for the year. PRPP contributions made from tax-exempt income are not deductible for income tax purposes.

However, an Indian cannot contribute to an RRSP based on his or her tax-exempt income.

Q12. What kind of investments can an administrator offer in a PRPP?

A12. Generally, there are no restrictions on the types of investments an administrator can offer. A PRPP can hold assets such as a debt, equity, or other securities. Investments within a PRPP are similar to those available in registered pension plans.

However, under the Income Tax Act, an administrator has to follow the rules that apply to closely held investments.

Q13. Where can I get more information on PRPPs?

A13. Please check back at The Pooled Registered Pension Plan (PRPP) and Registered plans administrators often, since our Web pages will be updated as more information becomes available.

More information is also available on the Pooled Registered Pension Plan Web page of the Office of the Superintendent of Financial Institutions Canada’s Web site.

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