Registering and Administering a Pooled Registered Pension Plan Webinar

Transcript

Video length: 38 minutes, 22 second

Welcome to the Pooled Registered Pension Plan webinar with the Office of the Superintendent of Financial Institutions and the Canada Revenue Agency.

I'm your host, Anju Battu. I am a manager at the Registered Plans Directorate (RPD) of the Canada Revenue Agency (CRA).

RPD is responsible for administering and registering pension plans.

In today’s presentation, we will discuss the steps to register and administer a pooled registered pension plan (PRPP).

The content of this webinar applies to federally regulated pooled registered pension plans, also known as PRPPs.

Note that the responsibility for pension plans is shared between the federal and provincial governments. A number of provinces have either passed, or are considering passing, legislation to allow similar pension plans in their jurisdiction. So far, though, only the federal PRPP legislation and regulations have been brought into force.

The provisions of the Pooled Registered Pension Plans Act, which we will refer to as the PRPP Act, and regulations apply only to federal PRPPs. The rules of the Income Tax Act will apply to all PRPPs, federal or provincial.

Under the federal PRPP Act, the Office of the Superintendent of Financial Institutions (OSFI) is responsible for supervising PRPPs provided to employees whose work falls under federal jurisdiction. I will be providing more information on this later when I describe who can be a member of a federal PRPP.

(Slide 2)

To make it easy for you to find the information you need most, we have divided this webinar into four short segments:

Part One – Introduction

Part Two – Registering a PRPP

Part Three – Administering a PRPP

Part Four – Questions and Answers

In part four, we will answer questions that were previously submitted to us and any other questions that you might have.

Feel free to submit your questions at any time during this webinar.

(Slide 3)

Part One – Introduction

What is a Pooled Registered Pension Plan (PRPP)?

A PRPP is a new retirement savings option for employed and self-employed Canadians who do not have access to a workplace pension plan.

In general terms, PRPPs are intended to work similarly to a money purchase registered pension plan, but with certain features drawn from the registered retirement savings plan and registered retirement income fund systems.

(Slide 4)

What are the key features of a PRPP?

They are intended to provide a new accessible, straightforward retirement savings option for employers to offer their employees at low administrative costs.

They allow individuals who currently might not participate in a pension plan, such as people who are self-employed and employees of companies that do not offer a pension plan, to use this new type of pension plan.

Members’ assets will be pooled together. This will enable investment and savings opportunities at lower administration costs.

Since PRPPs are also transferable, they can move with their members from job to job.

Employer participation in a PRPP is voluntary.

Employees will automatically participate in the plan chosen by the employer, but will have the option to opt out of the PRPP within 60 days.

(Slide 5)

Who can be a member of a PRPP?

Individuals who have a valid social insurance number can participate in a federal PRPP if they meet either of the following conditions:

• They are employed or self-employed in Yukon, the Northwest Territories or Nunavut; or
• They work in a federally regulated business or industry for an employer who chooses to participate in a PRPP.

Examples of areas of employment that fall under federal jurisdiction include work in connection with navigation and shipping, banking, interprovincial transportation and telecommunications.

Once PRPP legislation is in place in the provinces, broader participation in this new type of pension plan will be possible.

(Slide 6)

What are the roles and responsibilities of the OSFI?

Under the federal PRPP Act, the OSFI is responsible for issuing licenses to administrators, for registering PRPPs under the PRPP Act, and for supervising PRPPs that fall under federal jurisdiction.

The federal PRPP Act and regulations establish minimum standards that all federal PRPPs and PRPP administrators must meet.

The PRPP Act authorizes the federal government to enter into agreements with the provinces to streamline the regulation and supervision of this new type of pension plan.

(Slide 7)

What are the roles and responsibilities of the CRA?

The CRA is responsible for administering, registering, and auditing pooled pension plans under the new section 147.5 of the Income Tax Act.

The Income Tax Act places limits on how much money can be contributed to a PRPP and how long it can remain in the tax-assisted retirement system, before retirement income must start to be paid to the member.

(Slide 8)

Part Two – Registering a PRPP

What are the steps to registering a PRPP?

Step one: Before seeking to register a PRPP, a corporation resident in Canada must apply to the OSFI to become a licensed administrator under the PRPP Act.

Step two: Once licensed, the administrator must apply to the OSFI to register its PRPP.

Step three: After the plan is registered with the OSFI, the plan must be formally registered with the CRA.

In the following slides, we will explain these three steps.

(Slide 9)

Step One – Getting a PRPP administrator licence from the OSFI

Upon receiving an application from a corporation for a PRPP administrator licence, the OSFI will send an acknowledgment letter that gives the name and contact information of the person working on the file.

All questions about the status of the file or the OSFI’s process should then be addressed to the OSFI contact.

The OSFI will follow up with the applicant either by phone or by email if further information is needed.

Once the OSFI makes a decision about the licence, the OSFI will communicate its decision to the applicant in writing.

If a licence is being issued, the licence will be attached to the letter.

Turnaround times for the OSFI’s review of licence applications will depend on the information received in the application package. Therefore, there is no set time frame for issuing a decision once an application is received.

(Slide 10)

What information should be included in a PRPP administrator licence application?

There is no licensing application form.

However, the OSFI has posted on its website a number of Questions and Answers that identify the information to be included in a licence application so a corporation can show that it meets the licence requirements.

(Slide 11)

PRPP administrator licence requirements

Section 7 of the PRPP Regulations sets out the requirements that a corporation must meet before the OSFI can issue it a licence. Specifically, a corporation must have:

• the financial resources necessary to administer a PRPP;
• procedures that are sufficient to identify, manage, and control risks associated with the PRPP;
• the operational capability to administer a PRPP; and
• officers and directors of good character.

To help the OSFI determine whether the corporation has the operational capability to administer a PRPP, the applicant should provide evidence that they are of sufficient size and have the experience necessary to administer a PRPP.

The applicant should also provide an overview of their investment approach including whether the administrator intends to offer investment options to PRPP members or intends to invest members’ assets on their behalf. If it intends to offer investment options, it should include information about those options.

Section 7 of the PRPP Regulations also requires that a corporation submit a five-year business plan.

Again, more details on the information that should be included in a licence application are provided in the Qs and As on OSFI’s web site.

(Slide 12)

PRPP Low cost requirement

The PRPP Act requires that PRPPs be provided to members at a low cost.

Section 20 of the PRPP regulations specifies that costs have to be at or below those incurred by members of defined contribution plans that provide investment options to groups of 500 or more members.

Costs are defined in the PRPP Regulations as any and all fees, levies, or other charges that reduce a member’s return on investment other than those that are triggered by the actions of the member. Fees triggered by the actions of a member could include, for example, fees for investment advice, and transferring funds.

The policy objective is that PRPP costs have to be in line with the fees that large defined contribution plans are able to offer members rather than the retail fees that an individual investor might typically be charged.

(Slide 13)

Step two – Registering a PRPP with the OSFI

After getting a licence from the OSFI, an administrator can apply to register a PRPP with the OSFI.

(Slide 14)

What documents must be sent to the OSFI?

To register a PRPP with the OSFI, a licensed administrator will need to file the following documents with the OSFI:

First, the prescribed Form RC364 - Application to Register a Pooled Registered Pension Plan. ^{Footnote 1}

In an effort to reduce the administrative burden for PRPP administrators, the OSFI and the RPD have jointly developed this application form. We are now having discussions with other jurisdictions to follow the same practice.

Second, a copy of the Plan.

For example, this would include employer and member application forms, and any information booklets that explain how the plan works.

Third, the trust deeds, insurance contracts, agreements and any other documents that create or support the Plan.

Fourth, a declaration, signed by the administrator, that the plan complies with the provisions of the PRPP Act and the PRPP regulations. This includes compliance with the low-cost requirement.

(Slide 15)

What is the OSFI’s PRPP registration process?

Based on the information received, the OSFI will make a determination whether to register the plan.

The OSFI will then communicate its decision to the applicant in writing.

Turnaround times for the OSFI’s review of registration applications will depend on the information received in the application package. The OSFI will not begin to review a registration application if the applicant has not first been issued a licence to administer a PRPP.

Where a PRPP has been registered with the OSFI, a certificate of registration will be included with the letter confirming registration.

The certificate of registration will include the PRPP’s registration number.

The OSFI will inform the CRA that the plan has been registered under the PRPP Act.

The Financial Consumer Agency of Canada will post information pertaining to the PRPP’s costs on their website.

The OSFI will require that an administrator file the first three contracts that the administrator enters into with an employer or a self-employed person. Subsequent contracts do not need to be filed with the OSFI unless they amend the terms of the PRPP, including any amendments to costs and fees.

(Slide 16)

Step Three – Registering a PRPP with the CRA

The PRPP registration process requires that the PRPP be registered first with OSFI before being eligible for registration under the Income Tax Act.

The CRA will accept and review applications for registration under the Income Tax Act before the OSFI has registered the plan. The CRA will comment in writing about the acceptability of the plan under the Income Tax Act.

Please note that if subsequent changes are made to the plan documents, those changes must also be sent to RPD for review and approval.

The plan will not be formally registered under the Income Tax Act until the OSFI has notified the CRA that the plan has been registered.

Once approved, RPD will issue a CRA registration number.

Turnaround time for the registration of the plan will depend on the information received in the application package and when the plan is registered under the PRPP Act.

(Slide 17)

What documents must be sent to the CRA?

An application to register a PRPP must contain the following documents:

First, the prescribed Form RC364 - Application to Register a Pooled Registered Pension Plan.

Second, the Plan Text and any other documents that include the terms of the plan.

For example, this includes employer and member application forms, and any booklets that explain how the plan works.

Third, trust deeds, insurance contracts, agreements, and any other documents pertaining to the funding of the benefits under the plan.

The CRA will review these documents to make sure that they comply with the Income Tax Act.

(Slide 18)

What are the conditions of registration under the Income Tax Act?

The registration conditions are detailed in subsection 147.5(2) of the Income Tax Act. For your convenience, we have summarized some of the conditions here:

1. The main purpose of the plan is to provide retirement income to members.
2. A separate account is maintained for each member.
3. The amount in the member’s account will be used to determine the member’s benefits.
4. All plan earnings must be allocated to the members’ accounts at least annually.
5. All amounts contributed or allocated to the member's account vest immediately.
6. The plan permits the payment of an amount to a member to reduce the amount of tax that would be payable by the member under Part X.1.
7. Any amount payable after a member’s death is payable as soon as practicable.
8. There is no reason to expect that the plan may become a revocable plan.

We will discuss condition number 6 in the upcoming slides.

You can find more information about these conditions in the CRA’s Information Circular IC13-1R1, Pooled Registered Pension Plans. ^{Footnote 2}  

Note that the Income Tax Act does not allow a plan to be registered if there is a reason to expect that the plan may become revocable.

(Slide 19)

When does a plan become revocable?

Subsection 147.5(3) of the Income Tax Act describes situations where a PRPP becomes a revocable plan.

For your convenience, we have summarized some of the situations here:

1. A contribution is made other than by the member, a member’s employer or former employer or as a permitted transfer from other tax deferred savings plans.
2. A contribution is made after the year in which the member turns 71.
3. An employer makes a contribution in excess of the RRSP dollar limit for the year.
4. The PRPP acquires property that the administrator knew or ought to have known is a restricted investment.
5. The administrator borrows money or other property.

We will discuss situation number 3 in the upcoming slides.

(Slide 20)

What is the employer contribution limit?

The rules regarding employer and member contributions impact the PRPP differently.

A PRPP becomes revocable when the employer contribution limit is exceeded.

All PRPP contributions made during the calender year by an employer on behalf of a PRPP member are limited to the RRSP dollar limit for the year, unless the member directs the employer to contribute more than this amount.

(Slide 21)

When would a member direct an employer to contribute more than the RRSP dollar limit for the year?

A PRPP member may direct an employer to contribute more than the RRSP dollar limit for the year if the plan member has unused RRSP room.

For example, Sonia is a PRPP member. She has $40,000 worth of unused RRSP room from previous years. ABC Inc. currently employs Sonia and participates in a PRPP. In 2013, ABC Inc. contributed, on Sonia’s behalf, the RRSP dollar limit of $23,820.

On November 30, 2013, Sonia is due to receive a bonus of $15,000. Instead of receiving the cash payment, Sonia directs her employer to contribute the $15,000 into her PRPP account.

If Sonia had not directed ABC Inc. in this manner, any of ABC’s contribution above $23,820 would put the PRPP in a revocable position.

(Slide 22)

Excess contributions to a PRPP

Member contributions to a PRPP do not affect the plan’s registered status.

Contributions to a PRPP are deemed to be contributions made to an RRSP by the member for the purpose of Part X.1 of the Income Tax Act, which generally imposes a tax of 1% per month on the portion of the unused contributions that exceeds the RRSP deduction limit by more than $2,000.

Generally, PRPP members have excess contributions if the sum of their undeducted PRPP and RRSP contributions from prior years and current calendar year contributions are more than their RRSP deduction limit shown on their latest notice of assessment or notice of reassessment, or a T1028, Your RRSP Information for 2013, plus $2,000.

If an excess contribution situation arises, the Income Tax Act allows for a return of contributions to reduce the amount of tax that would otherwise be payable under Part X.1.

To help PRPP members avoid excess contributions, the CRA asks administrators to remind members to diligently keep track of their contributions and contributions made on their behalf.

(Slide 23)

Part Three – Administering a PRPP

In this section, we cover topics that may arise while you administer a PRPP.

We have selected the following topics based on the feedback we got from interested stakeholders and based on our assessment of what areas warranted more information.

Some topics relate exclusively to the PRPP Act and its regulations, others relate exclusively to the Income Tax Act and its regulations and others are covered by both sets of legislation. When both sets of legislation apply, we will bring the dual application to your attention.

(Slide 24)

Is there a minimum contribution level?

The PRPP Act does not prescribe minimum contribution levels. It is the administrator who sets the contribution levels.

This includes selecting the default contribution rate which applies when a member does not select a contribution rate, and any increases to contribution rates.

PRPPs are voluntary.

An employer does not have to contribute to a member’s PRPP account but may choose to do so.

The PRPP regulations also provides that, regardless of the contribution rate set by the administrator a member may, after notifying the administrator, set their contribution rate to 0% if 12 months have elapsed since the member’s contributions to the PRPP began.

The member may set their contribution rate to 0% for a period of between 3 and 60 months. There is no limit on the number of times that the contribution rate may be set to 0%.

(Slide 25)

Locking-in rules

The PRPP Act provides that contributions and any funds transferred into the PRPP will generally be locked in. Except in the circumstances described below, a member may not withdraw the funds in their account while they are still a member of the PRPP:

• A PRPP may provide that if the member becomes disabled, the member may withdraw the funds in their account.
• In addition, the PRPP may provide that funds in a member’s account be withdrawn if the funds in their account are less than 20% of the yearly maximum pensionable earnings for the year in which the member dies, terminates employment, or terminates plan participation.

(Slide 26)

Locking-in rules also do not apply in the following situations:

• When a member has ceased to be a resident of Canada for at least two calendar years and has ceased employment with the employer who is participating in a PRPP.
• When an amount is withdrawn from a member’s account to reduce tax that would otherwise be payable under Part X.1 of the Income Tax Act to the extent that the reduction cannot be achieved by withdrawing funds from an RRSP.
• When an amount is withdrawn from a member’s account to avoid revocation of registration under the Income Tax Act.
• Where a PRPP provides variable payments from the plan and the member has reached age 55 and elects to receive variable payments from the funds in their account.

(Slide 27)

Transfer of funds rules

Though funds are generally locked in while a person is a member of a PRPP, subsection 54(1) of the PRPP Act provides that the following persons may transfer or use funds from their account with a PRPP:

(a) a member who is no longer employed by an employer that is participating in the PRPP;

(b) a self-employed member who has provided notice that they wish to terminate their membership in the PRPP;

(c) a member of a plan that has been terminated; or

(d) the survivor of a member.

(Slide 28)

Subsection 54(2) of the PRPP Act provides that the funds in the member’s account may be:

(a) transferred to an account for the member with a pooled registered pension plan or another pension plan, if that plan permits it;

(b) transferred to a locked in registered retirement savings plan (an LRSP), a life income fund (LIF) or a restricted life income fund (RLIF); or

(c) used to purchase an immediate or deferred life annuity.

The funds that are transferred from a PRPP are accepted and retained on a locked in basis in accordance with the rules applicable to the receiving plan, retirement savings vehicle or annuity.

Members may also elect to leave their funds in the PRPP until December 31 of the year in which they reach 71 years of age. Further details related to this will be provided later in the webinar.

Members opting to transfer their PRPP are subject to the “transfer out rules” under subsections 147.5(21) and (22) of the Income Tax Act.

(Slide 29)

How are variable benefits paid to a member from a PRPP?

Subsection 147.5(5) of the Income Tax Act provides that the only benefits that may be paid are payment of a single amount from the member's account, as described in the previous slide, and variable benefits.

Variable benefits must meet the following conditions:

• they must be paid to the member from the member's account;
• the variable payments must cease when the member dies; and
• If this option is offered, the member can leave the funds in their PRPP account and start to receive an annual variable benefit from the plan. The amount of variable benefit cannot be less than the minimum amount rule under the Income Tax Act and is also subject to variable payment rules under the PRPP Act and its regulations.

Note that the plan terms must clearly state all the options available to the member.

Similar to RRIF, the minimum amount is nil in the year if the member had not attained 71 years of age at the end of the preceding calendar year. Otherwise, the minimum amount is determined by a formula.

If there is any possibility that members will have amounts remaining in their account past the end of the year in which they turn 71, the minimum amount requirements have to be outlined in the plan terms.

(Slide 30)

How to amend a PRPP

To amend a PRPP, the following documents must be sent to the OSFI and the CRA no later than 60 days from the date the amendment was made:

1. A completed Form RC365, Application to amend a pooled registered pension plan; and
2. A certified copy of the amendment, plan revisions, or change in the funding media.

The OSFI and the CRA are working together to develop a joint amendment form. We will let you know when this has been completed. We are also having discussions with other jurisdictions to follow the same practice.

Remember that the PRPP as amended must comply with the PRPP registration conditions under the Income Tax Act and the PRPP Act and its Regulations.

(Slide 31)

Annual information return reporting

A PRPP administrator must file an annual information return (the AIR) with the OSFI and the CRA.

The OSFI and the CRA are working together to develop a joint annual information return. We will let you know when this has been completed. We are also having discussions with other jurisdictions to follow the same practice.

(Slide 32)

General information about filing PRPP contribution receipt slips

There is no CRA form for the PRPP contribution receipt slip.

PRPP filing follows the RRSP model.

A PRPP administrator has to include, in the CRA filing, one contribution receipt slip for every contributor and for every plan.

If a PRPP administrator prepares more than one PRPP contribution receipt slip, they also have to complete and file a PRPP contribution receipt summary with the CRA.

(Slide 33)

How to file a PRPP contribution receipt slip with the CRA

The administrator must file with the CRA by Internet file transfer (XML) ^{Footnote 3}  or by Web Forms ^{Footnote 4}  through either My Business Account ^{Footnote 5} , or through their secure website.

The administrator must provide the contributor (employee only) a PRPP contribution receipt ^{Footnote 6}  similar to what must be provided to the RRSP contributor.

(Slide 34)

How to file a PRPP contribution receipt summary

The amounts to report on the summary are the total of the amounts in the corresponding boxes of the supporting slips.

The totals have to agree with the number of slips and the amounts you reported in the boxes of the slips. If there are errors or omissions, the CRA may contact the administrator for clarification. ^{Footnote 7}

(Slide 35)

Where can I find the CRA’s XML specifications and schema?

For XML specifications and for schema, go  to Filing Information Returns Electronically (T4/T5 and other types of returns) - Overview. 

(Slide 36)

Filing due date and late filing penalties

PRPP contribution receipts (slips and summary) are due on or before May 1 of the year in which the contribution year ends. ^{Footnote 8}  

PRPP contribution receipts (slips and summary) are subject to the legislated late filing penalties. ^{Footnote 9}  

Note that PRPPs are not subject to the CRA’s relieving administrative policy.

The filing due dates and late filing penalties webpages will soon be updated to include PRPPs.

Thank you for participating.

We hope to continue our pooled registered pension plan discussion with you soon.

Questions and answers for the PRPP webinar.

1. Is it mandatory for employers to offer PRPPs?

It is not mandatory under federal legislation for employers to offer PRPPs. However, participation will be mandatory in Quebec for employers with 5 or more employees. Therefore, depending on the supervisory authority, employer participation could vary. The level of employer participation in a PRPP could also vary from employer to employer, with some employers offering to contribute to their employee’s PRPP accounts. Other employers may offer a PRPP to their employees, but choose not to contribute.

2. What’s the difference between a PRPP and a group RRSP?

There are many differences between a group RRSP and a PRPP. One important distinction is that the employers in a PRPP contribute directly to the PRPP and receive a corresponding tax deduction. These employer contributions to the PRPP are not considered as taxable income to the employee. In a group RRSP, amounts that employers designate as a contribution are taxable income to the employee, and the employer does not receive a tax deduction.

3. Do you know the status of provincial legislation to enact PRPPs?

Alberta’s PRPP Bill was introduced at the Alberta Legislative Assembly in April 2013 and will come into force upon proclamation. The expected date is January 1, 2015. Saskatchewan’s Bill received Royal Assent on May 15, 2013 but the “Coming into Force” or “proclamation date” is to be determined. Quebec’s version of the PRPP is called the Voluntary Retirement Savings Plan (VRSP). The VRSP Bill received Royal Assent in December 2013 and comes into force on July 1, 2014. British Columbia’s PRPP Bill had first reading in February 2014. Other provinces are expected to introduce PRPP legislation. Please consult the appropriate jurisdiction for further information.

4. Is there a requirement to calculate and report a pension adjustment (a PA) for PRPPs?

Similar to RRSPs, a PA does not arise as a result of participating in a PRPP.

5. What is a Restricted Life Income Fund (RLIF)?

A restricted Life Income Fund (the RLIF) is similar to a Life Income Fund. However, the holder of a RLIF who has reached age 55 or in any subsequent calendar year is permitted to transfer 50% of the funds in their account to an RRSP or a RRIF within 60 days of the establishment of the RLIF. The RLIF holder is also required to provide an attestation that their spouse or common-law partner agrees to the unlocking.

6. Is it the Administrator’s responsibility to ensure that the Business Number of a company participating in the PRPP is accurate?

It is the responsibility of the administrator to ensure that all of the information necessary to complete a return is accurate. If an invalid Business Number is submitted on an information return, CRA will follow up with the administrator to rectify the error.

7. Can the PRPP be inherited, transferred or paid to the heirs or to the spouse?

A member of a federal PRPP can designate a beneficiary who will receive the balance of his or her account when he or she dies and can modify that designation at any time subject only to the legal restrictions. Regardless of the designated beneficiary, the spouse or common law partner of a member who dies is considered, if applicable, as the beneficiary within the meaning of the PRPP. Without a designated beneficiary or a spouse or common law partner at the time of the member’s death, the balance of the account will be paid to the estate.

OSFI contact information

For more information about registering PRPPs with the Office of the Superintendent of Financials Institutions, contact us by telephone or by email.

For service in English or French: 1-800-385-8647

Email: information@osfi-bsif.gc.ca

For more information about PRPPs, visit the OSFI website.

RPD contact information

For more information about registering PRPPs with the Registered Plans Directorate, you can contact us by telephone or by email.

By telephone

Toll-free in Canada and the United States: 1-800-267-3100.

If you are calling from outside of Canada or the United States, call us collect at 613-221-3105. The Registered Plans Directorate accepts collect calls.

By email

RPD.LPRA2@cra-arc.gc.ca

For more information about PRPP contribution receipts, call us.

For service in English: 1-800-959-5525

For service in French: 1-800-959-7775

See our website for more information about PRPPs.  

Several questions were asked at the end of the PRPP webinar. Responses are being prepared by the appropriate subject matter experts, and they will be posted as they become available.