Pension Plan Regulatory Relief and COVID-19 Relief Measures: Draft Amendments to Income Tax Regulations

6 juillet 2020 | Kim Ozubko

( Disponible en anglais seulement )

In this summary update (July 6, 2020), we highlight the recent announcement by the federal government of draft amendments to the Income Tax Regulations in response to COVID-19. The amendments are intended to provide relief to participating employers and employees of registered pension plans. The updates are identified below as “NEW”.

NEW: Federal – Income Tax Regulations

On July 2, 2020, the federal government published the following draft amendments to the Income Tax Regulations (“Tax Regulations”) in respect of registered pension plans.

Borrowing

Under the Tax Regulations, a registered pension plan is usually prohibited from borrowing, except in limited circumstances. Under the draft amendments,  it is proposed that the 90-day limit on borrowing and the prohibition on a borrowing being part of a series of loans or repayment be temporarily suspended. A registered pension plan would be permitted to enter into a loan or a series of loans after April 2020 as long as the loan or series is repaid by no later than April 30, 2021.

Catch-up 2020 DC Contributions

Under the draft amendments, subject to three conditions, it is proposed that the Tax Regulations be amended to allow a retroactive contribution to be made to an employee’s money purchase (DC) account, in respect of the 2020 calendar year. The conditions that must be met are as follows: a retroactive contribution must be made by the employee (or the employee must make a written commitment to do so) after 2020 and before May 2021; a contribution must be made by the employer after 2020 and before May 2021 (or, if later, the employer matches the contribution that the employee committed to making) and the contribution must replace in whole or in part the contribution that would otherwise have been required for 2020. If these conditions are met, the retroactive contributions would be added to the employee’s pension adjustment for 2020.

Pension Coverage during Periods of Reduced Pay

Under the draft amendments, it is proposed that the definition of “eligible period of reduced pay” during which full pensionable service can be recognized be amended in 2020.  The amendment will (i) remove the requirement that an employee must be employed for at least 36 months in order to qualify; and (ii) remove the requirement that a reduction in pay must be generally commensurate with a reduction in work hours.

Federal – Canada Revenue Agency

Under the Income Tax Act (Canada), contributions made by an employer under a defined contribution provision must be determined in a manner acceptable to the Minister of National Revenue (the “Minister”). Under Pension Reform Update No. 91-4R, the Minister requires a minimum employer contribution of 1% of total pensionable earnings of all active members participating under the provision each year. On May 5, 2020, the Minister announced a waiver of the 1% rule for the remainder of 2020 if the plan is amended to suspend contributions and the amendment is submitted to the Registered Plans Directorate, Canada Revenue Agency.

On April 29, 2020, the federal Department of Finance (“Finance Canada”) issued a comfort letter confirming that it will recommend to the Minister an extension of the deadline in respect of periods of reduced pay that were completed in 2019. Under the current rules, a member of a defined benefit registered pension plan who has completed a period of reduced pay may make an election by April 30 of the year following the year in which the eligible period of reduced pay ends to include the period as pensionable service under the plan. Similarly, under a defined contribution registered pension plan an election may be made by April 30 to allow retroactive employer and / or member contributions to be made in respect of such period. Finance Canada has proposed an extension of the April 30, 2020, deadline to June 1, 2020, or such later date as is acceptable to the Minister for eligible periods of reduced pay that ended in 2019.

Federal – OSFI

Deadline Extensions

On March 27, 2020, the Office of the Superintendent of Financial Institutions (“OSFI”) announced a number of filing deadline extensions for administrators of federally regulated private pension plans, including the following:

  • Extension of the deadline for filing annual information returns, certified financial statements and actuarial reports and actuarial information summaries by 3 months.
  • Extension of the deadline for issuing annual statements to members and former members and spouses or common-partners by 3 months, although it is recommended that administrators notify recipients of the expected delay.

Portability Freeze (Defined Benefit Provisions)

Effective March 27, 2020, OSFI also announced a full freeze on portability transfers and annuity purchases related to defined benefit provisions of federally regulated pension plans. The freeze is intended to be temporary in nature and has been implemented to protect the benefits of plan members and beneficiaries in light of the impact of current financial market conditions on the funded status of pension plans. It will be reviewed in the coming months.

During the freeze period, plan administrators may request consent to a transfer or annuity purchase based on plan specific or special circumstances. The payment of pensions to retirees and other beneficiaries is not impacted by the freeze.

On May 7, 2020, OSFI announced an amendment to the restrictions on portability transfers in the form of revised Directives of the Superintendent pursuant to the Pension Benefits Standards Act, 1985 (“Directives”). The Directives were revised to ease the restrictions on portability for members who are eligible for early retirement. Provided certain conditions are met, the Superintendent’s consent will automatically be provided for portability transfers to locked-in vehicles for members who are within 10 years of pensionable age.

FAQs

Following the March 27 announcement, OSFI released a number of FAQs for federally regulated private pension plans which address the portability freeze as well as other relief measures. The FAQs have been updated a number of times since first published and are a good source of information for administrators and sponsors of federally regulated private pension plans.

Solvency Funding Moratorium

On April 15, 2020, the federal government announced that it was providing immediate temporary relief to sponsors of federally regulated defined benefit registered pension plans in the form of a moratorium on solvency payments under such plans through the remainder of 2020. Recognizing the potential impact that the COVID-19 crisis could have on defined benefit plan assets and liabilities and solvency funding obligations under such plans in 2021, the federal government also indicated that it will consult with stakeholders over the coming months to provide relief from 2021 funding obligations, as necessary.

Effective May 27, 2020, the Solvency Special Payments Relief Regulations, 2020 came into force (“Solvency Relief Regulations”). Under the Solvency Relief Regulations, which apply to federally regulated defined benefit registered pension plans: (i) from May 27, 2020 until December 30, 2020, the amounts of any solvency special payments that are due are reduced to zero; and (ii) the amounts of any solvency special payments made from April 1, 2020 until May 27, 2020 may be deducted from the plan’s normal cost contributions or going concern special payment requirements that become due in the period between May 27, 2020 and December 30, 2020.

British Columbia

On March 30, 2020, the British Columbia Financial Services Authority (“BCFSA”) published Pension Bulletin 20-002, COVID-19: Relief Measures for Pension Plans in British Columbia, in which it announced the following measures for pension plans registered in British Columbia:

  • Extension of the deadline to provide annual statements to active members and persons receiving pensions by 60 days for all plans required to provide such statements between March 30 and December 29, 2020.
  • For collectively bargained multi-employer plans, extension of the deadline to prepare termination of active membership statements for plans with a March 30, 2020, deadline, by 30 days. For all other plans, the prescribed timelines for preparation of such statements has not been extended but plan administrators may apply to BCFSA for an extension.
  • Extension of the due date for all plans required to file annual information returns and financial statements between March 30 and December 29, 2020, by 60 days.
  • Extension of the deadline for the filing of actuarial valuation reports and actuarial information summaries by 90 days for reports with a review date of December 31, 2019, and / or a due date in 2020.

On April 24, 2020, BCFSA published Pension Bulletin 20-004, COVID-19: Frequently Asked Questions. Among other issues addressed in the document is the ability of defined contribution pension plans to suspend contributions as a result of the COVID-19 crisis. BCFSA has advised that, as provided under the Pension Benefits Standards Act (British Columbia), a plan administrator may reduce the level of employer or employee contributions to a defined contribution plan on a going forward basis by filing a plan amendment. BCFSA also reminds plan sponsors that with respect to defined benefit plans, extensions to the amortization periods for unfunded liabilities and / or solvency deficiencies are subject to approval from the BC Superintendent of Pensions

Alberta

On April 1, 2020, the Alberta Superintendent of Pensions (“Alberta Superintendent”) released EPPA Update 20-01, COVID-19 Relief Measures (“Alberta Update”), pursuant to which the Alberta Superintendent immediately provided certain administrative relief to all pension plans registered under the Employment Pension Plans Act (Alberta) (“EPPA”), including the following measures:

  • Extension of the deadline for the filing of annual information returns and associated annual fees, audited financial statements and/or actuarial valuation reports and cost certificates that are due to be filed between March 31 and prior to July 1, 2020, by 180 days.
  • Extension of the deadline to issue annual statements to active or retired members that are due to be issued between March 31 and prior to July 1, 2020, by an additional 180 days.
  • Extension of the deadline to issue a plan summary or member-driven event disclosure statement (e.g., termination statement) that is due to be issued between March 31 and prior to July 1, 2020, by an additional 90 days.

In the Alberta Update, it is recommended that any plan administrator that elects to complete an actuarial valuation report, as at the plan’s review date but sooner than the usual 3-year triennial review cycle, contact the Alberta Superintendent as soon as possible. Administrators are reminded that under the EPPA, a plan text may be amended to provide for a review date which is other than the fiscal year end of the plan. However, if the plan text is amended to provide for such a review date, it may not be so amended to further change that review date within the 9 year period immediately following the effective date of the amendment.

It is also recommended in the Alberta Update that extensions to the amortization periods for unfunded liabilities and / or solvency deficiencies as well as the deadline for the remittance of employer and employee contributions be discussed on a case-by-case basis with the Alberta Superintendent.

On June 3, 2020, the Alberta Superintendent released EPPA Update 20-03, Additional COVID-19 Relief Measures (“Alberta Update #3”). As explained in Alberta Update #3, the Alberta President of Treasury Board and Minister of Finance has exercised his authority under the Public Health Act (Alberta) to, effective March 17, 2020, issue an order modifying certain provisions under the EPPA: (i) the need for a witness signature on spousal waiver forms; and (ii) the requirement to provide advance notice to members of a reduction in member contribution rates (the “Order”). Under the Order, a witness signature on a spousal waiver form is still required but may be delayed by up to 60 days during which time the plan administrator may pay benefits in accordance with the waiver. If a fully executed waiver is not received within 60 days, the administrator will be required to adjust benefits accordingly. In addition, under the Order, advance notice of changes to member required contributions is no longer required; notice can now be provided up to 60 days after implementation of the change.

On June 24, 2020, the Alberta Superintendent released EPPA Update 20-04, Additional COVID-19 Relief Measures (“Alberta Update #4”). Alberta Update #4 summarizes the changes to the EPPA Regulations which came into force on June 24, 2020, including the following changes:

  • a temporary suspension of unfunded liability and solvency deficiency payments until the end of 2020 for defined benefit or target benefit plans, upon approval by the Alberta Superintendent of an application for such relief, which approval may be retroactive but cannot begin any earlier than June 24, 2020;
  • an increase to the limit of funding excess to reduce or eliminate contributions for a single fiscal year of a plan, subject to approval by the Alberta Superintendent for an exemption from such limit, which approval may be retroactive but cannot begin any earlier than June 24, 2020; and
  • clarification and confirmation that a statement, notice, document or other record or information required or permitted under the EPPA may be provided, sent, delivered or filed by electronic means in accordance with the Electronic Transactions Act (Alberta). Note that the ability to communicate via electronic means does not apply to beneficiary designations.

Saskatchewan

Deadline Extensions

On April 2, 2020, the Saskatchewan Financial and Consumer Affairs Authority (“FCAA”) announced the following extensions for certain filing and disclosure deadlines for pension plans registered under The Pension Benefits Act, 1992 (Saskatchewan):

  • Extension of the due date for all plans required to file their annual information return between March 31 and July 31, 2020, by 3 months.
  • Extension of the deadline to provide annual statements to members by 3 months for all plans required to provide members with annual statements between March 31 and July 31, 2020.

Portability Freeze

Effective April 16, 2020, The Pension Benefits Regulations, 1993 (“Saskatchewan Regulation”), were amended to require plan administrators to obtain prior written consent from the Saskatchewan Superintendent of Pensions (“Saskatchewan Superintendent”) to transfer monies or make a payment out of a defined benefit plan if, in the Saskatchewan Superintendent’s opinion, the transfer or payment would impair the solvency of the pension fund. By notice dated April 16, 2020 (the “Notice”), the Saskatchewan Deputy Superintendent of Pensions advised that, in her opinion, given the current financial market conditions, transfers and payments out of defined benefit plans would impair the solvency of the pension fund. The effect of the amendment to the Saskatchewan Regulation and the Notice is, with very limited exceptions, the implementation of a temporary freeze on transfers and payments out of defined benefit plans. Plan administrators may request the Saskatchewan Superintendent’s consent to a transfer or payment based on plan-specific or special circumstances.

The FCAA has also issued a Questions and Answers document which provides further information on the temporary freeze. The temporary freeze does not affect ongoing pension payments from a pension plan or the commencement of new periodic pension payments to retirees, surviving spouses, or spouses or former spouses with respect to a division of pension benefits on spousal relationship breakdown.

Defined Contribution Plans

On May 6, 2020, the FCAA announced that, subject to the terms of the applicable plan and collective agreement as well as any other applicable restrictions,  it will allow amendments to suspend employer contributions to defined contribution registered pension plans provided that: the amendment also provides for the suspension of employee contributions; the amendment is on a go-forward basis only and the amendment defines the time period for the suspension. FCAA indicated that, subject always to its ability to act upon the facts of a particular case, it will not terminate a plan solely because of the suspension of contributions if the suspension lasts no longer than December 31, 2020.

Manitoba

The Manitoba Office of the Superintendent – Pension Commission has released Communique #1 – COVID-19 Administrative Matters (“Manitoba Communique”). The Manitoba Communique provides general guidance on a number of matters, including regulatory filing extensions, commuted value transfers, review dates for actuarial valuation reports and electronic communications.

With respect to regulatory filing deadlines, the Manitoba Pension Commission confirms, in the Manitoba Communique, that the deadlines for the filing of annual information returns have been extended to the following:

  • June 30, 2020 in the case of a plan whose last fiscal year ended in October 2019;
  • July 31, 2020 in the case of a plan whose last fiscal year ended in November 2019; and
  • August 31, 2020 in the case of a plan whose last fiscal year ended in December 2019.

Ontario

On June 18, 2020, the Ontario government filed Regulation 287/20 and Regulation 288/20 which amended certain regulations under the Pension Benefits Act (Ontario) (“OPBA”) (“Amending Regulations”). The changes provide extensions to deadlines for certain filings. For more information on the changes, please see further “UPDATED” references below. With respect to filings for which the Amending Regulations do not provide an extension, FSRA recommends that a plan administrator contacts its designated pension officer and describe the circumstances and relief sought.

The Ontario pension regulator, the Financial Services Regulatory Authority (“FSRA”), has issued a number of statements in response to the COVID-19 crisis. FSRA reminds stakeholders that it expects plan sponsors and administrators to focus on managing risks while meeting obligations to: pay benefits; make and remit contributions; file required filings, or advise FSRA immediately where an extension is needed; and provide member communications in a timely manner or advise FSRA immediately if the applicable statutory requirement cannot be met.

Regulatory Filings

Effective June 18, 2020, as a result of the Amending Regulations, a number of regulatory filing deadlines have been extended. These include:

  • Extension of the deadline to file a valuation report from 9 months to 12 months after the valuation date, if the valuation date is December 31, 2019 or January 1, 2020.
  • Extension of the deadline to file an annual information from 6 months after the plan fiscal year end for defined contribution plans or 9 months after the plan fiscal year end for defined benefit plans to December 31, 2020, if the return is due on or after June 18, 2020 and before December 31, 2020.
  • Extension of the deadline for filing of financial statements from 6 months after the plan fiscal year end to December 31, 2020, if the statements are due on or after June 18, 2020 and before December 31, 2020.

Disclosure Statements

Effective June 18, 2020, as a result of the Amending Regulations, the deadline for issuing member annual statements and former and retired member biennial statements has been extended from 6 months after the plan fiscal year end to December 31, 2020, if such statements are due on or after June 18, 2020 and before December 31, 2020. FSRA must be notified in advance of the delay.

The deadline for issuing notices to members of plan amendments has been extended from 60 days after registration of the amendment to 120 days, if the notice is due on or after June 18, 2020 and before November 1, 2020.

For member-focused communication deadlines that have not been extended, FSRA recommends that a plan administrator, that is facing challenges in complying with the applicable deadline, contacts its designated FSRA pension officer as soon as possible and in advance of the deadline. FSRA has indicated that provided that it has been notified of such challenges and has received a reasonable proposed plan of action, administrative monetary penalties will not be levied with respect to late member communications. It further indicates that sending a notice to a member by a certain deadline may be a precondition to receiving FSRA’s consent.

Assessments

On March 27, 2020, FSRA announced that, until further notice, it was deferring the issuance of F2020-21 invoices for fees payable under FSRA’s Fee Rule 2019-01.

Defined Contribution Plans

Among the more significant issues addressed by FSRA in its updated FAQs is the cessation of contributions to defined contribution registered pension plans. FSRA reminds plan sponsor employers that any change to employer or member-required contributions can only be on a go-forward basis and must be supported by an amendment to the plan text. Whether or not such an amendment can be made by the plan sponsor depends on the terms of the applicable plan text and applicable collective agreement, if any, and is also subject to potential employment law implications and member notice requirements. FSRA has advised that, until further notice, and subject always to its ability to act upon the facts of any particular case, it will not order a plan to be wound up solely because the plan has, as a result of the COVID-19 disruption, been amended to temporarily suspend contributions for a portion of the 2020 calendar year.

Defined Benefit Plan Funding

With respect to funding of defined benefit plans, FSRA has made a number of comments on the preparation of actuarial valuation reports and has confirmed that it does not have the authority to permit the non-payment or delay of a PBGF assessment or to waive interest penalties related to a late payment.

As a result of an amendment to the PBA Regulations, the 20% penalty that would otherwise be payable on the late payment of PBGF assessments that are due on or after April 30, 2020 has been removed (provided the PBGF assessment amount, plus interest, is paid on or before December 31, 2020). Interest will accrue on the outstanding amount, at the chartered banks’ rate on prime business loans as of the date the amount is due, plus 3 per cent.

Electronic Communications and FSRA Forms

FSRA has also addressed a number of day-to-day plan administration issues, including the issuing of required communications by electronic means and the requirement for a witness signature on FSRA forms. With respect to electronic communications, FSRA has advised that plan administrators must continue to meet the preconditions for electronic communications under the OPBA. With respect to witness signatures, FSRA has advised that it will not object to administrators and financial institutions relying on a FSRA form without a witness provided that there is no evidence on record that the person signing the form does not understand what they are signing. It cautions, however, that it cannot comment on whether a court would decide otherwise and notes that financial institutions and administrators may consider supplemental confirmation, such as follow-up correspondence or virtual witnessing.

Beneficiary Designations

On May 12, 2020, the Ontario government passed Bill 190, COVID-19 Response and Reforms to Modernize Ontario Act, 2020 (“Bill 190”). Bill 190 includes amendments to the Succession Law Reform Act (Ontario) to permit electronic designation under plans, including registered retirement savings plans, retirement income funds, locked-in retirement accounts, life income funds and tax-free savings accounts. In 2018, the OPBA was amended to expressly allow beneficiary designations under pension plans. The designations must be made in accordance with the Electronic Commerce Act, 2000.

Commuted Value Transfers and Annuity Purchases

On May 22, 2020, FSRA announced that it had updated some of the responses in the FAQs released at the end of April and issued a new guidance approach on Limitations on Commuted Value Transfers and Annuity Purchases (DB Pension Plans) (“Approach Guidance”). The Approach Guidance has been developed to address events when the transfer ratio of a defined benefit pension plan has declined by ten per cent or more and the resulting transfer ratio is below 0.9. It replaces FSCO Policy T800-402, Commuted Value Transfers (until further notice) and addresses a number of issues, including the process that must be followed by a plan administrator in seeking approval by FSRA to continue commuted value transfers and annuity purchases in such circumstances.

Quebec

On April 16, 2020, Retraite Quebec (“Retraite”) announced the implementation of two temporary easing measures to assist administrators of registered pension plans during the COVID-19 crisis: the extension of deadlines for certain regulatory and legal obligations; and an update to the degree of solvency that must be taken into consideration for transfers and refunds under defined benefit pension plans.

With respect to the deadline extensions, the Retraite extended the deadline for providing certain documents to the Retraite and to members by three months. These documents include annual statements for members and beneficiaries; triennial or actuarial valuation reports and annual information returns. The deadlines for making payments into the pension fund and notifying the Retraite of any unpaid contributions have not been extended.

With respect to actuarial valuation reports, under the Supplemental Pension Plans Act (Quebec) (“SPPA”), an actuarial valuation is required to be produced at least every 3 years. The Retraite confirmed that under the SPPA, a plan could choose to produce an actuarial valuation as at December 31, 2019, regardless of whether it is required and without authorization from the Retraite.

On May 20, 2020 the Retraite published a questions and answers document regarding the temporary easing measures. The FAQs provide further information on a number of issues including the extension of deadlines for providing certain documents to the Retraite or members and the degree of solvency that must be taken into accounts for payments under a pension plan.

Newfoundland and Labrador

On April 6, 2020, the Government of Newfoundland and Labrador announced that plan administrators may request in writing an extension of the deadline for the filing of annual information returns with due dates between March 31 to June 30, 2020. Written extension requests must be submitted by email to the Newfoundland Superintendent of Pensions. The permitted extensions vary depending on the filing due date and are set out in the announcement.

Nova Scotia

On April 1, 2020, the Nova Scotia Finance and Treasury Board (“NS Finance”) announced that the deadline for filing annual information returns and actuarial valuation reports due on either March 31 or April 30 has been extended until May 31, 2020.

On May 6, 2020, NS Finance announced an additional extension for the filing of annual information returns and audited financial statements that were due between March 31, 2020, and June 30, 2020, until August 31, 2020.

New Brunswick

The New Brunswick Financial and Consumer Services Commission recently announced that the New Brunswick Superintendent of Pensions (“NB Superintendent”) has exercised her discretion under the Pension Benefits Act (New Brunswick) (“NBPBA”) to extend the time limit for filing any annual information return and actuarial valuation report due to be filed by April 30, 2020, by 30 days. Under the NBPBA, the NB Superintendent may extend any time limit in the legislation if she is satisfied that reasonable grounds exist for the extension. According to the announcement, the NB Superintendent is satisfied that the state of emergency declared in the province of New Brunswick is reasonable grounds to extend such time limits.

For further information or to discuss your obligations as a plan sponsor or administrator, please contact Kim Ozubko at kozubko@millerthomson.com or (416-597-4338), and subscribe to our A.M. Pension Blog series to stay informed on the latest developments.

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