QUÉBEC – DRAFT REGULATION FOR VOLUNTARY RETIREMENT SAVINGS PLANS (VRSP)
The Autorité des marchés financiers du Québec (AMF) and the Régie des rentes du Québec (RRQ) each recently published draft regulations respecting voluntary retirement savings plans (VRSP) in the March 12th Gazette officielle du Québec (herein referred to as “draft VRSP Regulations”). Since then, the AMF regulation was approved and comes into effect on April 16. Under the RRQ Voluntary Retirement Savings Plans Act, the draft VRSP Regulation should take effect on July 1, 2014 (see the December 2012 issue of News & Views).
Whereas the draft AMF regulation defines levels for capital requirements and liability insurance, as well as the fees that apply to eventual VRSP administrators, the draft RRQ regulation sets out the measures that apply to administrators with respect to registering and administering the VRSP, and formulates certain rules that apply to plan members. The following are highlights of provisions that will affect employers and their employees:
- The total of the basic fees charged to members for the default investment option (“lifecycle” approach) must be less than or equal to 1.25% of the average plan assets.
- The total of the basic fees charged to members for other investment options must be less than or equal to 1.50% of average plan assets.
- However, these two amounts may not exceed the fees charged under the federal Pooled Registered Pension Plans Act (see the January 2013 issue of News & Views).
- In addition to these investment fees, it will be possible to charge separate fees for a transfer to another plan (maximum $50), a reimbursement of funds, financial planning services, requests for financial advice and a transfer of benefits between spouses.
The default contribution rate is set at:
- 2% of gross salary, from July 1, 2014 to December 31, 2017;
- 3% of gross salary, from January 1, 2018 to December 31, 2018;
- 4% of gross salary, as of January 1, 2019.
Note, however, that employees will be allowed to choose another contribution rate and will be permitted to opt-out of participation in a VRSP.
Employee contributions will not be locked in, but the employer’s contributions will be locked-in, although the employer is not required to contribute.
Following employment termination, as of age 55, or after the introduction by the employer of a new registered retirement savings plan, tax-free savings account or registered pension plan, the member may transfer the balance of his or her locked-in account to one of the following plans:
- a supplemental pension plan;
- a life income fund;
- a locked-in retirement account;
- an annuity contract;
- the locked-in account of another VRSP.
The regulations provide for certain special situations where the member may unlock his or her assets, namely in the event of disability leading to reduced life expectancy, if the member no longer resides in Canada, or if the locked-in balance upon termination of employment is less than 20% of the Year’s Maximum Pensionable Earnings as established under the Québec Pension Plan.
As of age 55, a member may also request variable payments, if the plan offered by the administrator permits. If the member has a locked-in account, the variable payment must take into account the tax limits that normally apply to withdrawals from locked‑in accounts.
All VRSP administrators must offer a default investment option based on a “lifecycle” approach where the degree of risk, based on the member’s age, will be adjusted as the member approaches retirement age.
In addition to the default option, administrators must offer all members three to five other investment options, with different levels of risk and returns. The allowable investment options are as follows:
- an insurance product or annuity;
- a money deposit in Canadian funds at an institution that holds a license;
- investment fund securities;
- a bond or other debt security issued or guaranteed by a government in Canada, by one of its agencies, or by a municipality in Canada.
Before administrators can offer a VRSP, they must receive a licence from the AMF and register their plans with the RRQ.
To help employers select a supplier, the RRQ will publish a list of registered VRSP administrators on its website, along with the administration fees for each plan offered.
Interested parties may send comments in writing by April 26. For more info, you may contact the RRQ.