Ontario has adopted regulations to make pooled retirement pension plans available to employees in the province, joining British Columbia, Saskatchewan, Quebec, Nova Scotia and federally regulated workplaces.
Read: PRPPs continue to languish as provinces vary in enthusiasm for new option
PRPPs are especially useful in helping small- and medium-sized businesses offer retirement savings plans, said Frank Swedlove, president of the Canadian Life and Health Insurance Association, in a release.”These low-cost, efficient solutions complement the recent proposal to expand the Canada Pension Plan, and provide precisely what millions of working Canadians need: a simple, viable way to build a comfortable retirement.”
Karen Tarbox, a senior consultant at Willis Towers Watson in Toronto, notes some characteristics of PRPPs, such as reduced fiduciary risk and a simple administration process, certainly make them suitable for smaller employers. On the other hand, “a [defined contribution] pension might still be a better fit for an organization that wants a retirement plan to be a distinguishing factor in its total rewards program, where they’re comfortable with the oversight responsibilities that come with a pension plan, and where the sponsor is in a position to negotiate fees with a DC record keeper,” she says.
Read: Ontario Budget: Province to introduce PRPP changes
Tarbox also notes larger organizations may be able to negotiate more competitive rates. According to federal and most provincial legislation, “[PRPP] member costs must not exceed those charged to members of DC plans that provide investment options where there’s groups of 500 or more members,” she says. “There’s a benchmark, if you will, that all the PRPP providers have to reference when setting their fee structure. That may be more or less than what an individual employer can negotiate.”
While PRPPs are less risky than defined contribution plans, they offer less flexibility, and employers still need to perform due diligence when selecting a provider, says Tarbox. Employers should also make sure the plan is actually helping employees save for retirement, since outside of Quebec, enrolment isn’t automatic.
“One of the attractive features of PRPP is it’s a little more hands off than a DC pension plan, but all that said, you still, as a sponsor, want to monitor . . . is it going to help them reach the levels of retirement income you want them to attain over their career,” she says.
Swedlove noted Ontario’s involvement in PRPPs might boost access to the plans. “We encourage the remaining provinces to quickly move to make PRPPs available to their citizens,” he said.