Ontario casts doubt on PRPPs

“[I]t is unclear if PRPPs’ fiduciary framework adequately protects plan members” and “whether compulsory employee contributions would be flexible enough to allow for various life events, such as divorce or periods of financial hardship,” the budget states.

Ontario also expressed concern over the costs for regulating PRPPs, pointing to the fact that each province would need to establish an effective licensing and regulatory regime—and this cost would be passed on to PRPP participants.

Ian Edelist, a principal at Eckler Ltd., says he echoes Ontario’s concerns regarding PRPPs. “If we’re trying to increase coverage of those who are self-employed, I think there are better ways to do it than with PRPPs,” he said.

He suggests that allowing self-employed people to join pension plans as we know them now, rather than having their own special vehicle, is one option. Pooled target benefit plans are another consideration, since they allow for shared risk and low costs.

One of the major concerns several critics, including Edelist, have expressed regarding PRPPs is their voluntary nature. Edelist says the U.K.’s stakeholder pensions, which were introduced five years ago, are an example of why voluntary plans don’t work. The U.K.’s system failed due to lack of member uptake and has since been replaced by a mandatory vehicle called the National Employment Savings Trust.

In its budget released last week, Quebec introduced its voluntary retirement savings plan (VRSP) model—a mandatory version of the PRPP. With Quebec’s alterations to the model and Ontario having now expressed its doubts regarding PRPPs, the question remains as to how Ottawa will respond.

Ontario has said it will work collaboratively with the feds and other provinces to develop the PRPP model, but it also said that any pension reform efforts should be tied to enhancements to the CPP—a pricey option that Ottawa doesn’t seem likely to consider right now.

Provincial pension reform
Ontario also announced that draft regulations regarding provincial pension reform would be posted later this spring. These regulatory changes are intended to clarify pension surplus rules, implement some of the pension asset transfer provisions for organizations that undergo restructuring and implement provisions that specify the “rights and responsibilities of retired members.”

Read: Ontario budget introduces major pension changes

Other proposed changes, which are scheduled for later this year, include amendments that will provide a “funding concerns” test for insolvent plans and eligibility conditions for contribution holidays for DB plans.

Effective July 1, 2012, the following provisions of the Pension Benefits Amendment Act, 2010, will be proclaimed in force:

• future partial plan windups will no longer be permitted;
• pension benefits will be vested immediately;
• multi-employer pension plans and jointly sponsored plans will be able to elect not to provide grow-in benefits; and
• grow-in benefits will be available to all eligible members terminated other than for cause.

The province has also announced plans to restructure the financial-hardship unlocking program in order to “create a simpler, more streamlined process to access locked-in funds.”

Under the revisions, locked-in account owners would no longer require the regulator’s consent in order to withdraw money for reasons of financial hardship, and could instead request withdrawals directly from their financial institution.

A draft of these regulatory amendments will be posted for public review, and the Ontario government has indicated it will monitor and evaluate the effectiveness of the program over the next two years.

The full 332-page Ontario budget is available here.