Ontario has dealt a blow to Ottawa's pension reform initiatives by slamming the federal government's effort to create pooled registered pension plans.
Ottawa has been working on PRPPs for some time, but provinces must pass legislation before the plans can get up and running.
The Ontario government decided to make its position on the matter clear in its 2012 budget Tuesday – and it was unequivocal. The province outlined a number of serious concerns, including the notion that PRPPs might simply replace other forms of retirement savings instead of growing the overall pie.
It is also worried that compulsory contributions for employees of companies who sign on might not take into consideration life events such as divorce or financial hardship, and it said it is not yet clear that the plans will truly be low cost. In addition, it noted that provinces would need to establish licensing and regulatory regimes, and that they'll have to find a cost efficient way to do that.
"Ontario will continue to work collaboratively with other provinces and the federal government to develop this model," the budget stated. "However, Ontario believes the implementation of pension innovation should be tied to CPP enhancement as part of a comprehensive approach."
The province's position illustrates the hurdles that Ottawa still has to surmount in its efforts to reform the country's retirement savings system just as the baby boomers are beginning to draw on it. Ted Menzies, the federal minister responsible for PRPPs, urged Ontario to move ahead with the plan.
"The federal government cannot unilaterally change the CPP, and many provinces and small business are opposed to CPP premium hikes," said the minister's spokesman in an e-mail. "But we can and are moving forward with PRPPs to give a low-cost pension option to the 60 per cent of Canadians without a workplace pension plan. I would hope Dwight Duncan would not deny this viable low-cost option to hard working Ontario families."
PRPPs are supposed to make it easier for self-employed individuals and employees of small firms to save for retirement by allowing them to tap into a large pension plan. The plans would be administered by insurers and other financial institutions.
The provincial government pointed to the fact that these companies would be making money off PRPPs, and said that "in a for-profit environment, priority must be given to the interests of plan members."
The federal government thought that it had unanimous agreement among the provinces at the end of 2010 to move forward with a framework for PRPPs, and it introduced a bill last year, the Pooled Registered Pension Plans Act, to get the ball rolling. But the plans can't become a reality without provincial legislation and regulations.
"PRPPs will be a broad-based, low-cost, defined contribution pension vehicle that will be available to employers, employees and self-employed individuals," the federal government has said.
Ontario has long advocated for an expanded Canada Pension Plan as its preferred option for improving pension coverage, says pension expert Mitch Frazer of Toronto law firm Torys. Now the province seems to be taking a tougher stance and is insisting on CPP reform in exchange for support for the PRPP program.
"Ontario is clearly drawing a line in sand and saying these PRPPs are not enough," Mr. Frazer said.
"I think they're probably just fed up with the federal government not doing anything on CPP [reform]and they're saying you give us CPP and then we'll do PRPPs."
David Vincent, a pension specialist at Norton Rose LLP in Toronto, said Ontario's new stance is a blow to the federal government's plans for a PRPP program across Canada.
The federal government has shown no inclination to expand the CPP, Mr. Vincent said, so Ontario's position appears to create a road block in the country's largest province with the greatest concentration of companies with a national scope.
"That's a significant blow to the PRPP concept, which the feds have obviously embraced," Mr. Vincent said.
Quebec took the lead among provinces in supporting the initiative.
In an interview earlier this month, Tom Reid, senior vice-president for Group Pension business for Sun Life, said it was not clear when other provinces would be joining in to the PRPP system.
At the time, Mr. Reid was very hopeful that Quebec's enthusiasm for the program would spread across the country.
"Quebec is really breaking new ground here," he said. "It really does feel like this will be a profound change in the pension landscape in Canada. This is substantive. It's real."
Mr. Reid said he didn't expect any other provinces would be ready to join Quebec in having a plan ready for 2013, but others could have plans in place for 2014. He also listed B.C., Alberta and Ontario as provinces that had been asking a lot of detailed questions about how PRPPs would work.
Mr. Reid said the fact that Quebec is willing to make it mandatory for businesses that don't currently offer a pension to auto-enroll employees will go a long way in addressing the fact that many Canadians without a workplace pension aren't saving enough for retirement.
Frank Swedlove, head of the Canadian Life and Health Insurance Association, said he thinks that Ontario's concerns can be addressed.
The Ontario budget also announced new measures to assist private-sector pension plan sponsors, saying companies will granted a further time extension to fund shortfalls in their pension plans similar to measures introduced during the financial crisis in 2009.
Employers will also be allowed to use letters of credit to cover up to 15 per cent of their liabilities in their pension plans, and will have the option of waiting a year to make their first payment when a new valuation of the pension plan shows special contributions are required to fund a shortfall.