Following the project announced by the Québec government in its 2012 budget, enterprises with five employees or more will be required to offer a retirement savings plan to their employees.
To mitigate the problem of decreasing income for generations of retirees, the Quebec government announced the implementation of a Voluntary Retirement Savings Plan (VRSP). Though the plan will be available as of 2013, employers will be required to offer it as of January 1, 2015.
Insufficient retirement savings
In 2009, according to the study entitled, Le point sur les pensions (Report on Pensions), by Claude Castonguay, a former minister considered to be the father of the Quebec health insurance program and Fellow of the Centre interuniversitaire de recherche en analyse des organisations (CIRANO), 2,600,000 workers, that is, almost two out of three, do not participate in any complementary retirement savings plan. Currently, one out of two Quebeckers aged 65 or over receive the Guaranteed Income Supplement (GIS). Again in 2006, according to the same study, only 7.1% of people aged 65 and over in Quebec use RRSPs as income. It was then found that a majority of workers are heading towards retirement with income that will not be sufficient to maintain a pre-retirement-level lifestyle.
Applying the VRSP plan
As of January 2013, SMEs of five employees or more that have at least one year of continued service, and that do not already have a retirement savings plan, will be required to offer the VRSP to employees. The deadline for enterprises to implement the plan will be January 1, 2015. By default, the employee contribution rate will be progressive:
- 2% for the period of January 1, 2013 to December 31, 2015
- 3% for the period of January 1, 2016 to December 31, 2016
- 4% as of January 1, 2017
Using an automatic registration mechanism, enterprises will be required to automatically register employees for the VRSP. After a period of 60 days, employees will have the option to withdraw from the program, change their contribution rate at any time, or stop contributing altogether. Enterprises are not obligated to contribute to their employees’ optional retirement savings plan but are encouraged to do so by the Quebec government.
Administering the plan
While enterprises are responsible for selecting plan management services, they are not responsible for its management and administration. Employers will need to hire an external VRSP manager, such as an insurance company or financial institution. Such management services must:
- Be licensed by the Autorité des Marchés Financiers
- Provide a single VRSP plan to all clients
- Standardize management fees for all participants
The Commission des normes du travail will ensure that employers follow the rules and withhold contributions on the employee payroll then transfer the amounts to the plan manager. As for the external managers, the Régie des rentes du Québec will monitor them and ensure that they abide by the law regulating these plans.
Self-employed workers will be able to contribute to a VRSP by registering through a financial institution or investment management services that offer such a plan.
Benefits for SMEs
Though it is not obliged to do so, if an employer chooses to contribute to employee VRSPs, it may receive a payroll tax exemption and taxable income deductions. The employer’s contribution will not be considered as a taxable benefit for the employee and will not be taxed before withdrawal.
Additionally, the enterprise contribution to employee VRSPs could yield a competitive advantage by attracting and retaining qualified workers, as opposed to enterprises without similar benefits.
Lastly, to the extent that VRSP management is performed externally and the role of the employer will essentially consist in registering employees, making source deductions and, as necessary, contributing to the plans, the system should not be very complicated to set up, especially since the deadline for implementing the plan is January 1, 2015.
Contributing to employee VRSPs is an option entrepreneurs should consider in light of the current skill shortage, as the plan could become beneficial in terms of attracting talent.