Update: Federal budget bill introduced
On April 30, 2021, the federal government introduced Bill C-30, which will implement a number of measures that were introduced in the 2021 federal budget, which was discussed in the April 2021 News & Views. Bill C-30 passed first reading on April 30, 2021.
Funding and governance policies for negotiated contribution pension plans
Bill C-30 would amend the Pension Benefits Standards Act, 1985 (the PBSA) to require administrators of negotiated contribution plans to establish both a funding policy and a governance policy. This requirement builds on a proposal in the 2021 budget to establish a revised framework for negotiated contribution pension plans.
While the policies would not be required to be filed with the regulator, they must comply with the PBSA and the regulations made thereunder, and contain certain information which is to be prescribed by regulation.
Negotiated contribution plans that have already been registered will be required to establish funding and governance policies within one year of the requirement coming into effect. Those established after the requirement is in force must establish the required funding and governance policies before the plan is filed for registration.
Presently, negotiated contribution plans are exempt from the provision of the PBSA prohibiting amendments that would reduce a plan’s solvency ratio below a prescribed level. However, Bill C-30 would make any amendments to negotiated contribution plans subject to new regulatory requirements that have yet to be introduced.
Unclaimed property regime for terminated pension plans
The 2021 federal budget proposed to expand the federal unclaimed assets regime to include terminated federally regulated pension plans. Building on a proposal that was discussed in the August 2018 News & Views, Bill C-30 amends the provisions of the PBSA to allow the Minister of Finance and the cabinet to designate an entity under the Bank Act to receive pension plan assets relating to the pension benefit credit of a person who cannot be located. The 2018 proposal was that the Bank of Canada would be the designated entity.
The amendment allows the trustee or custodian of the pension fund of a terminated plan, in addition to the administrator, to transfer to the designated entity plan assets held in respect of the pension credit of any person who cannot be located. The administrator, trustee or custodian will be required to provide the designated entity with certain prescribed information relating to the pension credit, to the extent it is available.
Such a transfer can only be made with the prior consent of the Superintendent of Financial Institutions. If the plan has not been terminated in whole, the Superintendent may specify conditions that must first be met.
Under the new PBSA provisions, a transfer of plan assets in respect of a person who cannot be located will satisfy the plan’s obligation to provide a pension benefit, any other benefit relating to that pension benefit and any portion of surplus allocated in respect of that person.
The designated entity will then be permitted to distribute the assets in a lump sum. Prescribed persons will be able to make a claim for a lump sum payment from the designated entity up to the amount of the total value of those assets. The designated entity will be permitted to publish certain prescribed information relating to the pension assets it holds.
SMEP contribution restrictions
Bill C-30 amends the Income Tax Regulations (the ITR) to introduce additional restrictions on contributions made to specified multi-employer pension plans (SMEPs).
Under the new rules, employers will be prohibited from making contributions to SMEPs in respect of an employee after the calendar year in which the member attains 71 years of age. They will also be prohibited from contributing to a defined benefit (DB) provision of a SMEP in respect of a member while the member is receiving a pension from the plan’s DB provision, except under a qualifying phased retirement program.
The amendments restrict contributions to SMEPs made pursuant to any collective agreement that was entered into after 2019. In other words, if a new collective agreement is entered into in 2020 or later, the aforementioned restrictions on contributions in respect of members over 71 or in receipt of a pension from the plan will apply from the date the collective agreement is signed.
Individual pension plans
Bill C-30 introduces restrictions on crediting pensionable service under individual pension plans (IPPs), IPPs being DB plans with fewer than four members, at least one of whom is considered “related” to a participating employer (e.g., a controlling shareholder).
Under the amended tax rules, IPPs will be prohibited from providing retirement benefits in respect of past years of employment with an employer under a DB plan, where that employer is not a participating employer in the IPP (or its predecessor employer).
Assets transferred from a former employer’s DB plan to an IPP that relate to benefits provided in respect of prohibited service will be considered to be a non-qualifying transfer, and therefore would be required to be included in the member’s income for tax purposes.
Once the bill is passed, these provisions will be deemed to have come into force on March 19, 2019.
Variable payment life annuities
Bill C-30 also amends the ITR to establish rules for variable payment life annuities (VPLAs), which are annuities that provide payments that vary based on the investment performance of the underlying fund and on the mortality experience of the other annuitants.
Under the new VPLA rules, VPLA benefits can be paid to a member (or a member’s beneficiaries) because of a transfer of funds from the member’s account to the VPLA fund. Benefits may be indexed at a fixed rate capped at 2% per year or based on Consumer Price Index increases.
As proposed in the 2019 federal budget, VPLAs must have at least 10 retired members participating in the arrangement, and are subject to a number of other restrictions.
The VPLA provisions will be deemed to have come into force on January 1, 2020.
Advanced life deferred annuities
Bill C-30 also amends the Income Tax Act (the ITA) to establish rules for advanced life deferred annuities (ALDAs), which are life annuities whose commencement may be deferred until the end of the year in which the annuitant reaches age 85.
Under the ITA’s new ALDA provisions, individuals will be subject to a comprehensive lifetime ALDA dollar limit of $150,000 in 2020, indexed to inflation for each year thereafter, rounded to the nearest $10,000.
Bill C-30 introduces a number of other rules that will govern the terms and uses of ALDAs.
Old Age Security increase
Following the announcement of an increase to Old Age Security (OAS) benefits in the 2021 federal budget, Bill C-30 amends the Old Age Security Act to increase benefits for OAS recipients aged 75 and over by 10%. It also provides for a one-time payment of $500 to pensioners who are or will be 75 or over on June 30, 2022.