Pooled Registered Pension Plan (PRPP) - Questions and answers for administrators
- Q1. What is a pooled registered pension plan (PRPP)?
- Q2. How does a PRPP work?
- Q3. Who can administer a PRPP?
- Q4. What process do I follow to register and offer PRPPs to individuals and employers?
- Q5. Who can open a PRPP account at this time?
- Q6. Can an individual who does not have an employer participating in the plan become a member?
- Q7. How much can an individual contribute to a PRPP?
- Q8. Can an Indian (as defined by the Indian Act) contribute to a PRPP based on his or her tax-exempt income?
- Q9. What are the rules for transferring money from a PRPP account to the different types of retirement vehicles on a tax-exempt basis?
- Q10. What happens if an individual over-contributes to a PRPP during the year?
- Q11. Are there any restrictions on withdrawals from a PRPP?
- Q12. Do withdrawals from PRPPs affect an individual’s old age security (OAS), guaranteed income supplement (GIS), or any other federal or provincial benefits?
- Q13. What kind of investments can I, as the administrator, offer in a PRPP?
- Q14. Where can I get more information on PRPPs?
A1. A PRPP is a new kind of deferred income plan designed to provide retirement income for employees and self-employed individuals who do not have access to a workplace pension.
Because individuals’ assets will be pooled, the PRPP will offer investment and savings opportunities at lower administration costs.
Investment options in a PRPP are similar to those available in a registered pension plan.
A2. A PRPP is a defined contribution-style plan that you (a corporation resident in Canada that has been licensed to act as an administrator) set up and administer. This means that, unlike most workplace pensions, the PRPP is not managed by the employer, but by you, the administrator.
Once an individual has a PRPP account, his or her contributions and the contributions made for him or her by a participating employer are credited to the individual’s account. Contributions made by the employer and the individual are deductible in calculating their respective incomes, in line with the requirements of the Income Tax Act. The funds in the individual’s account are pooled with the other funds in the plan.
The funds in the individual’s account accumulate tax-deferred and must be used to provide retirement income. Amounts paid to the individual must be included in his or her taxable income.
An individual can be enrolled in a PRPP by his or her employer, if the employer chooses to participate in the plan. A self-employed individual and an individual whose employer chooses not to participate can open a PRPP account by approaching you directly.
A3. The Income Tax Act states that, to be an administrator of a PRPP, you have to be a corporation resident in Canada and be authorized under the Pooled Registered Pension Plans Act or a similar law of a province to act as an administrator for one or more pooled pension plans.
For more information about getting authorization to act as a PRPP administrator, visit the Pooled Registered Pension Plan Web page of the Office of the Superintendent of Financial Institutions Canada’s Web site.
A4. If you want to be licensed as an administrator, you have to submit an application for licensing to the appropriate pension supervisory authority. Right now, the Office of the Superintendent of Financial Institutions Canada is the only supervisory authority that permits the PRPP. A PRPP must be registered with the pension supervisory authority before it can be registered with the Canada Revenue Agency (CRA).
For more information on what has to be in the application package, see Administrative Procedures. You can also contact the Registered Plans Directorate or the appropriate pension supervisory authority.
A5. Right now, only an individual who falls under the authority of the Pooled Registered Pension Plans Act can participate in a PRPP. The Act applies to PRPPs offered to employees whose employment falls under federal jurisdiction, including banking and inter-provincial transportation, and Canadians who are employed or self-employed in the Yukon, Northwest Territories and Nunavut.
As provinces enact legislation governing PRPPs, the plans will become available in more jurisdictions.
For more information, visit the Pooled Registered Pension Plan Web page of the Office of the Superintendent of Financial Institutions Canada’s Web site.
A6. Yes. As long as the individual lives or works in a jurisdiction that has enacted PRPP legislation, he or she is eligible to join a PRPP.
An individual’s participation in a PRPP is not dependent on an employer being involved. This is one of the differences between PRPPs and other types of pension plans.
A7. The PRPP contribution limit is based on the individual’s registered retirement savings plan (RRSP) contribution limit. Contributions to a PRPP are counted against RRSP contribution room.
Information about an individual’s RRSP contribution room can be found on his or her notice of assessment issued by the CRA, and also found inside My Account. Contributions to the individual’s RRSP or to his or her spouse’s or common-law partner’s RRSP will reduce the amount that the individual can contribute to a PRPP.
A8. Yes, for the purposes of making a contribution to a PRPP, the Income Tax Act allows tax-exempt income earned by an Indian to be included in the calculation of his or her RRSP contribution limit for the year. PRPP contributions made from tax-exempt income are not deductible for income tax purposes.
However, an Indian cannot contribute to an RRSP based on his or her tax-exempt income.
A9. An individual can transfer money from his or her PRPP account to another of his or her own PRPP accounts, to a registered pension plan, to an RRSP, to a registered retirement income fund, to the Saskatchewan Pension Plan, or to a licensed annuities provider to get an annuity that meets certain conditions.
A10. PRPP over-contributions are taxed at the same rate as over-contributions to an RRSP.
For more information on RRSP contributions, go to RRSPs and related plans.
A11. Under the Income Tax Act, an individual can withdraw the value of his or her account at any time, and the amount withdrawn is counted as taxable income in the year that it is withdrawn. However, some jurisdictions put limits on withdrawals. Please check with the appropriate pension benefit standards legislation in the appropriate province to verify the requirements that apply. The locking-in rules are consistent with the conditions that apply to funds transferred from pension plans under the Pension Benefits Standards Act, 1985.
A12. Income-based benefits may be affected if the PRPP withdrawals make the individual’s income go over a threshold that would reduce or eliminate the benefits.
A13. Generally, there are no restrictions on the types of investments you can offer. A PRPP can hold assets such as a debt, equity, or other securities. Investments within a PRPP are similar to those available in registered pension plans.
However, under the Income Tax Act,you have to follow the rules that apply to closely held investments.
More information is also available on the Pooled Registered Pension Plan Web page of the Office of the Superintendent of Financial Institutions Canada’s Web site.
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