What Is a PRPP/VRSP?

The Quebec government has adopted legislation requiring employers with five or more targeted employees¹ working in Quebec that do not already offer a group registered retirement savings plan (RRSP), a group tax free savings account (TFSA) or a registered pension plan to set up a Voluntary Retirement Savings Plan (VRSP).

This new kind of pension plan, which will start being implemented as of July 1, 2014, will make it possible for thousands of Quebecers to have easy access to an affordable retirement savings plan. Simply put, it is a flexible and low-cost solution to help employees save for retirement.

Individuals can also join a VRSP on their own.

What Are the Main Features of a VRSP?

The main features described below apply to employers with employees working in Quebec.

Employer membership

• Employers must implement a VRSP by the following deadline:
  • Employers with 20 or more targeted employees on June 30, 2016: December 31, 2016.
  • Employers with 10 to 19 targeted employees on June 30, 2017: December 31, 2017.
  • Employers with 5 to 9 targeted employees: a date to be determined by the government but not earlier than January 1, 2018.
• Employers who initially had more than 5 targeted employees and later fall below this threshold must continue to offer the VRSP.
• Employers who have fewer than 5 employees must verify every December 31 if this is still the case. If not, they have one year to implement a VRSP and enrol their eligible employees.
• Quebec employers who are operating in federally regulated industries—such as airports, air transportation, railways, banking, federal crown corporations, etc.—can offer a federally regulated Pooled Registered Pension Plan (PRPP) rather than a VRSP.

​Employee enrollment

• Once the employer establishes an agreement with a VRSP administrator, employees join the plan as follows:
  • Automatically for targeted employees. However, an employee can opt out within 60 days of the notice of membership sent by the administrator. If he/she does so, every two years, the employer must give the employee the option of joining the plan.
  • Voluntarily for all other employees: they may ask their employer to enroll them in the VRSP.
• Employees may terminate their membership at any time.

Employer contributions

• Voluntary.
• Deductible as a salary expense.
• Not subject to payroll taxes.
• Contributions are deposited in the employee’s personal account and immediately belong to the employee.
• Employer contributions are locked in until age 55, except in certain situations (e.g., shortened life expectancy, mental or physical disability, residency outside Canada for two years). This means that the employee cannot withdraw these contributions. The money must be used to provide retirement income.

Employee contributions

• Employees decide how much to contribute; otherwise, the default contribution rate applies.
• The regulation establishes a default employee contribution rate (percentage of base salary):
  • 2% of as of July 1, 2014.
  • 3% as of January 1, 2018.
  • 4% after January 1, 2019.
• Contributions (both employee contributions and employer contributions, if any) are subject to the employee’s RRSP contribution limit (18% of earned income in the preceding year, up to a maximum set by the Canada Revenue Agency).
• Contributions are made by automatic payroll deductions, which start at a minimum required level and could increase over time.
• Employees can change their contribution rate—or set it to zero—twice every 12 months, or more frequently if the employer allows it.
• If an employee sets his/her contribution to zero, then every two years, the employer must ask the employee if he/she wants to change the contribution rate.
• Contributions are deposited in a personal account.
• Employee contributions are not locked in; this means that they can be withdrawn before retirement, subject to withholding taxes. Employees can withdraw their contributions once every calendar year.

Investment options

• Employees decide how to invest contributions; otherwise, the default investment option applies.
• The default investment option is a lifecycle investment option, in which the investment mix is adjusted based on the employee’s age.
• The plan administrator must also offer from three to five additional investment options with various risk levels.
• The maximum fee is 1.25% for the lifecycle investment option and 1.5% for all other options.

Upon termination

• Employees are entitled to their account balance (contributions and investment earnings).
• Upon termination, employees may transfer the locked-in portion of their account balance to another locked-in account as provided by regulation, such as a locked-in retirement account or life income fund.
• Retirement income must begin no later than the end of the year in which the employee turns 71.

In the event of the employee’s death

• Spouse (or estate if there is no spouse) is entitled to the employee’s account balance.

¹Targeted employee means employees who:

• are age 18 or over;
• meet the definition of employee under the Quebec Act Respecting Labour Standards; and
• have completed one year of continuous service