PRPPs are a praiseworthy approach to pension reform

Originally published in Vancouver Sun.

With little fanfare, a piece of B.C. government legislation on pension reform passed its third and final reading on April 30 and is well on its way to becoming law. Following the enabling legislation passed by the federal government in 2012, British Columbia was the first province to table legislation for pooled registered pension plans, or PRPPs.

While B.C. was not the first or second province to pass the legislation — this distinction goes to Saskatchewan and Alberta, respectively — Minister of Finance Mike de Jong deserves praise for delivering on his PRPP promise.

For those operating or working for a small business in B.C., the arrival of PRPPs into the marketplace should be welcome news. Because PRPPs are expected to be administratively simple and more affordable for companies that provide them, many B.C. small businesses could one day be offering pension plans for their employees for the first time.

Minister de Jong must also be credited for his decision in December to reject a bid by Ontario, Prince Edward Island and other provinces to increase Canada Pension Plan premiums. Because B.C., Alberta, Saskatchewan were opposed, Canada’s finance ministers failed to reach a consensus on CPP increases. While de Jong has hinted the B.C. government may reconsider its position on CPP increases when the province’s economy strengthens, payroll-tax-weary small business operators hope he puts that decision off indefinitely.

Ontario small business operators, however, are not receiving the same cautious consideration from their provincial leaders. An election campaign is in full swing in Ontario, and one of the issues being debated is the incumbent Liberal party’s determination to establish a provincial pension plan, the Ontario retirement pension plan.

The ORPP has many of the hallmarks of the CPP increase rejected last December, but with notably higher costs to employers and employees. Mandatory employee contributions will be 1.9 per cent of earnings to a maximum of $90,000, with employers matching another 1.9 per cent. Depending on your salary, that may amount to $800 to over $1,600 in additional annual payroll taxes.

As the chief economist at the Canadian Federation of Independent Business says, the “unyielding math of pensions” is that to save more income for tomorrow, you need to make do with less today. Not only will Canadians have less income to invest in their retirement savings plans, but small business owners will have less to invest in their employees through increased hiring or salary increases.

CFIB vehemently opposes Ontario’s plan — which had P.E.I., Manitoba, Alberta and B.C. on an advisory body to review — because it will hurt small business owners and their employees by taxing everyone who issues and receives a paycheque and does not currently have a workplace pension. It hardly seems fair public-sector workforces and large companies with established pension plans will avoid contributing as well.

Instead, CFIB endorses PRPP not only because it is voluntary for employers, but for its many advantages over traditional pension plans.

For example, if an employer should choose to contribute to an employee’s PRPP, their contributions are deductible as an expense. That means they are not required to pay CPP and other applicable payroll taxes on the contribution. Unlike with a registered retirement savings plan, contributions to a PRPP also do not count as a taxable income to the employee.

In other words, it is a win-win for both employers and employees.

Government regulations should help keep fees low on PRPPs, and for employers the administration of PRPPs will be much simpler. Tasks such as completing an annual information return will not be the employer’s responsibility as with other benefit plans.

While PRPPs could change the landscape for pension savings in Canada, their success is far from guaranteed. There are still more steps.

First, the B.C. government must provide a regulatory framework so PRPPs can enter the marketplace, hopefully by 2015. Then financial institutions must put their marketing muscle behind promoting these new pension savings tools.

For B.C. small businesses, PRPPs can be a way to attract or retain employees. They can also be a way to stave off Ontario’s unwieldy ORPP plan from coming to our province.

Mike Klassen is the Canadian Federation of Independent Business’ director of provincial affairs for British Columbia, and is a member of the B.C. Small Business Roundtable.