Quebec has announced that its long-awaited voluntary retirement savings plans (VRSPs) are slated to take effect Jan. 1, 2013. The new VRSPs, which were introduced in last year’s budget, are targeted to small and medium-sized enterprises and the self-employed.
The announcement came as part of the 2012 Quebec budget, tabled yesterday.
While VRSPs are similar to the federal government’s proposed pooled registered pension plans (PRPPs), the planned legislation contains one major difference: unlike PRPPs, VRSPs will be mandatory for employers.
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Industrial Alliance to offer VRSPsAll Quebec companies with five or more employees with at least one year of uninterrupted service, and who do not have a retirement savings plan in place, will be required to offer a VRSP for employees. Employers will not be required to contribute; however, if they do, those contributions will be tax-deductible and will not be subject to Quebec payroll taxes. Employers have until Jan. 1, 2015 to implement a VRSP.
Other proposed components of VRSPs include the following:
- VRSPs will be administered by third parties such as financial institutions or investment fund managers.
- Employees will be auto-enrolled into VRSPs, with the ability to opt out within 60 days of enrollment.
- The default investment option will be based on a “life cycle” approach in which the risk level is adjusted based on the participant’s age. There will be a maximum of five other investment options.
- Default contribution rates will be 2% from Jan. 1, 2013 to Dec. 31, 2015; 3% from Jan. 1, 2016 to Dec. 31, 2016; and 4% as of Jan. 1, 2017.
- Employees will be able to change their contribution rate and/or cease contributions for a certain period of time.
- Employees may continue contributing to the same plan if they change employers.
- As with RRSPs, employees may withdraw contributions to their VRSP before retirement. However, if an employer contributes to a VRSP, the employer’s contributions can only be withdrawn as of age 55.
- Employee contributions to a VRSP may be deducted from taxable income for Quebec and federal tax purposes. Contributions will be subject to the same annual cap as RRSPs (maximum of 18% of earned annual income).
The Quebec government plans to table the necessary legislative provisions for VRSPs in spring of this year.
Minister of Finance Raymond Bachand says that VRSPs will be a flexible and inexpensive solution to encourage Quebecers to save, while being easy for employers to administer. “Our objective is to simplify things: easier for the worker, simpler for the employer,” he said. But not everyone agrees.
Martine Hébert, vice-president of the Canadian Federation of Independent Businesses said she fears it will “create bureaucratic nightmares for both employees and employers,” reports the Montreal Gazette.
And Michel Arsenault, president of the Fédération des travailleurs et travailleuses du Québec, said few employees will be able to afford contributing to VRSPs, and the government should instead look to expanding the Quebec Pension Plan.
More information on Quebec’s VRSPs is available in the 2012 budget document, Quebecers and their Retirement: Accessible Plans for All.