Things to know
- Subject to one exception in Québec (discussed below), there is currently no legislative requirement for employers to establish or participate in any type of employer sponsored retirement plan for the benefit of their employees (i.e., it is a voluntary system). However, where employers establish retirement plans for their employees, the employer must comply with the governing legislative requirements.
Private pension and retirement savings arrangements can be divided between the broad categories set out below:
Registered Pension Plans (RPP)
- RPPs are plans designed and administered to provide pension benefits to employees and to which the employer is required to contribute.
- RPPs must comply with federal or provincial pension standards legislation (as applicable), which imposes various requirements in respect of matters such as eligibility for membership, vesting, locking in, retirement age, forms of pension, funding, duties of plan sponsors and administrators, and pension plan investments.
- To qualify for a preferential tax treatment, pension plans must also comply with the federal Income Tax Act (ITA). The ITA essentially limits the amount that may be contributed to a RPP on a tax-sheltered basis and limits the benefits that may be paid from a RPP.
Other Registered Retirement Arrangements
- Other tax-assisted retirement savings arrangements that an employer may sponsor include a group retirement savings plan (RRSP), a deferred profit sharing plan (DPSP) or a group tax-free savings account (TFSA). These plans are defined contribution in nature. Contributions are typically invested at the direction of the employees and the benefits payable are equal to the balance of the member’s account. These plans are not subject to minimum standard legislation, but are regulated by the ITA.
- Another arrangement is a pooled registered pension plan (PRPP) (known as a voluntary retirement savings plan (VRSP) in Québec), which is also a defined contribution arrangement, but the individual’s assets are pooled. These plans are subject to their own minimum standards legislation.
- An employer with at least 10 Québec employees is required to join a VRSP if the employer does not offer a RPP, group RRSP or group TFSA. The employer is not, however, required to contribute to a VRSP.
Unregistered Retirement Plans
- Supplemental plans may be established to allow employees to “top up” their pension benefits above the ITA limits applicable to RPPs. They are not subject to minimum standards legislation. The plan may be classified as a retirement compensation arrangement under the ITA if funded and will be subject to particular tax requirements.
- Employers may also set up non-registered defined contribution plans for amounts in excess of what is allowed under the ITA limits. Contributions to these plans are not tax deductible and income earned in these plans is not tax exempt.
A new player
- In Québec, the National Assembly recently passed Bill 68, which will allow employers to introduce a new type of pension plan that is more adapted to today's reality. Target benefit plans offer better protection than defined contribution plans while sharing the risk between the employer and the employee. However, when establishing this type of plan, the corrective measures must be clear from the beginning.
Things to do
- Consider whether your retirement program is consistent with your business objectives, including as it relates to workforce recruitment and retention.
- It is imperative to implement and regularly review the governance of your retirement plans to ensure that it establishes clear responsibilities and accountability for compliance with minimum standards legislation, the ITA and other laws and regulatory requirements applicable to private retirement plans.