Private member bills rarely become law. However Ontario Bill 54, An Act respecting retirement savings plans for employees and for self employed persons, 2010 has passed second reading and is now before the Standing Committee on Finance and Economic Affairs. This private bill was proposed by a member of the governing party, so it may simply be a trial balloon for further discussion.
The bill essentially proposes that the government adopt a number of the recommendations in the Canadian Life and Health Insurance Association’s recent discussion paper, Saving More for the Future: An Achievable Goal for Canadians.
The bill at a glance …
• The bill would allow insurance companies and other designated types of financial institutions (including banks, credited unions) to create a class of retirement savings plans that would be open to unrelated employers, but which would be mandatory for any employer with more than 20 Ontario employees.
• An “employer” could include the self-employed and sole proprietors.
• Employees would be automatically enrolled on hire but, subject to certain conditions related to plan type could opt out.
• Employers could contribute to these plans but wouldn’t be forced to do so.
• Employees would be required to contribute and the plan could include an automatic contribution escalation feature up to a prescribed maximum percentage specified by the plan.
A new plan type
At the heart of the proposed bill is the creation of multi-employer defined contribution (DC) pension plans for unrelated employers, self-employed persons, or sole proprietors. The bill appears to contemplate that this new plan type will be sponsored and administered by financial institutions and must be a DC plan type.
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Employers can already create a voluntary group RRSP that will provide their employees with the opportunity to save for retirement with only employee contributions. However, the bill takes this further. It proposes that a retirement savings plan be mandatory if an employer has 20 or more employees in Ontario. It proposes that any employer contributions to a multi-employer DC plan would be locked-in until retirement (unlike group RRSPS). The plan would be registered as a pension plan even if it only requires employee contributions. (Currently this is contrary to both the Income Tax Act and the Ontario Pension Benefits Act.)
Another distinction between a group RRSP and the new multi-employer DC plan is the belief that larger plans will have lower fees. Currently the investment manager fees for large multi-employer plans are considerably lower than for individuals in their RRSPs. However, it remains to be seen if a large multi-employer DC plan sponsored by a profit-oriented entity can deliver on low investment manger fees and low administration fees.
Governance and competition
In addition, there are governance issues and potential conflicts of interest since the sponsor would be both the investment manager and the administrator. If insurance company A decides they have a fiduciary responsibility to the multi-employer DC plan members, would it be obliged to pick insurer B’s investment fund or select a third-party administrator if that could deliver better results for the members? These issues don’t arise in a group RRSP, since it is merely a collection of individual RRSPs with a contract between the individual employee and the entity issuing the RRSP. These issues aren’t addressed in the bill.