On March 20th, the Quebec government introduced its 2012-2013 Budget. The Budget included a section on “Retirement”, which notes the “insufficient savings” of some Quebec workers and, in response, proposes the implementation of Voluntary Retirement Savings Plans (VRSPs).
VRSPs would include the following features:
- Mandatory Participation: Employers with five or more employees who have at least one year of uninterrupted service and who do not have a retirement savings plan funded through payroll deductions will be required to: (i) choose a VRSP to offer to their employees; (ii) enrol all their employees with more than one year of uninterrupted service in the plan; and (iii) withhold their employees’ contributions at source. Employers will have until January 1, 2015 to comply with this obligation.
- Contributions: Employers will not be required to contribute to a VRSP. Employer and employee contributions to VRSPs, combined with other RRSP contributions, will be subject to the same annual cap as RRSPs (i.e., a maximum of 18% of annual earnings).
- Auto-Enrolment: Employees will be automatically enrolled in the plan, but may elect to opt out within 60 days of enrolment. (VRSP participants may also voluntarily decide to cease to contribute for a certain time and then resume contributing at a later date.)
- Additional Optional Enrolment: Those not automatically enrolled, such as self-employed workers or individual savers, may enrol in a VRSP by contacting a plan administrator directly.
- Locking-in: While contributions by an employer to a VRSP will be locked in and may not be withdrawn before age 55, employees may withdraw their contributions to a VRSP (subject to income tax deductions).
- Investments: There will be a default investment option based on a “life cycle” approach (i.e., the risk level will be adjusted based on the participant’s age.) To limit the complexity of VRSPs, administrators may also offer a maximum of five other investment options with varying risk levels.
- Administration: VRSPs will be completely administered by the third parties (e.g., financial institutions or investment fund managers) who hold a permit issued by the Autorité des marchés financiers. Each VRSP will also have to be registered with the Régie des rentes du Québec.
Also of note is the fact that VRSPs will be implemented through separate legislation (not through an amendment to the Québec Supplemental Pension Plans Act or an exempting regulation). A bill should be introduced before the National Assembly within the next few months.
The implementation of VRSPs remains conditional, however, upon the adoption of certain amendments to the federal Income Tax Act.
An interesting point mentioned in the budget is that “the main parameters of the [VRSPs] will be harmonized with the new Canadian plan, the pooled registered pension plan (PRPP)”. It remains to be seen how harmonized this new scheme will really be once the federal and provincial governments have each adopted their respective framework for PRPPs / VRSPs. Considering the current patchwork of pension legislation in Canada, one can only be cautiously optimistic about the prospect of a truly harmonized pension scheme in Canada.
Lastly, the Budget reiterates an earlier announcement regarding the establishment of expert committees to review target benefit pension plans, municipal retirement plans, and Québec’s retirement system generally. The recommendations of these committees, which are expected during 2012, will provide “a basis for proposing sustainable and realistic solutions to the challenges pension plans face.”