VRSP stands for “Voluntary Retirement Savings Plan” and was introduced in March 2012 by the Province of Quebec. There are more than 1.1 million Quebecers who don’t have access to a workplace savings plan, and one of the government’s goals for the VRSP is to address this problem. The plan is tailored to meet the needs of small business owners and the self-employed. These plans will not be burdened with the administrative responsibilities of a traditional pension plan, so they will be very simple for business owners to manage.
When introducing the VRSP, Quebec announced it will require businesses with five or more employees to offer a retirement savings plan by the end of 2014. That’s over 55,000 employers who will need to have a plan in place over the next two years, and for a number of reasons they’ll choose a VRSP.
One can only imagine the chaos that will ensue when 3/4 of those 55,000 plan sponsors try and establish their plans in the 2nd year of the grace period.
Here in Ontario, the federal government has introduced the concept of a Pooled Registered Pension Plan. The voluntary nature of such a plan has resulted in a tremendous amount of backlash from those who say a voluntary system lacks bite and will end up the same way as the failed model attempted in the United Kingdom, before that model was scrapped and converted to a Mandatory Pension arrangement (like the one proposed Quebec).
Ontario for its part is not rushing to embrace the federal initiative (legislation passed in June 2012) and is looking at a better solution. Opponents of the plan feel that the plan too closely resembles the current Registered Retirement Savings Plans (RRSP) and that lower to mid-income employees will be better off using Tax Free Savings Accounts, where they will lose less money over time versus PRPP’s where tax rules could see their Old Age Security and Guaranteed Income Supplements clawed back at higher interest rates than if the money was contributed elsewhere.
It is only a matter of time before a Mandatory initiative is put in place here in Ontario. Although it is unlikely that the PRPP model will survive in its current form, some rendition of a mandatory plan will take shape. When that happens, we suspect that companies will be funnelled into programs that they may not have time to properly evaluate or address with their members etc.
Employers looking to get ahead of the curve will want to talk with us here at Ideal Benefits about their options, in advance of this near-term eventuality.
For over 20 years, Chris Pryce of Human Capital Benefits has been advising employers on all aspects of managing employee benefits programs and related products. If you have any questions, you can contact Chris at 416.924.8280 or by email at firstname.lastname@example.org