On March 11, 2020, the World Health Organization declared COVID-19 a pandemic. As financial markets became turbulent and many plan sponsors were forced to alter their businesses due to COVID-19 precautions, pension regulators across Canada responded by announcing special measures to help protect the interests of pension plan members, assist pension plan administrators and ensure the ongoing financial health of pension plans. These measures included deadline extensions, restrictions on transfers from pension funds and funding relief.
Now 15+ months into the COVID-19 pandemic, this post looks at what COVID-19 relief measures remain in place for western Canadian pension plans (BC, Alberta, Saskatchewan and Manitoba) as well as federally regulated pension plans.
From the outset of the pandemic, B.C. has adopted a restrained approach to COVID-19-specific relief measures. Rather B.C. pension plans have been able to take advantage of existing provisions in the B.C. Pension Benefits Standards Act.
Restrictions on Transfers:
- Unlike some other jurisdictions, B.C. did not introduce any new restrictions on transfers from pension plans. Instead, the BC Financial Services Authority (BC FSA) reminded plan administrators of the existing rule in section 72(3) of the Pension Benefits Standards Act that prohibits the transfer of assets out of a pension fund (without the consent of the Superintendent) if the transfer would impair the solvency of the plan. As this transfer restriction was an existing provision of the Pension Benefits Standards Act, it was applicable prior to the pandemic and continues to apply to transfers.
- The only funding relief introduced in B.C. in the last year was not announced until late December 2020. This relief was not specifically identified as a “COVID-19” measure, but does give temporary relief for current funding requirements for target benefit pension plans. Target benefit plans can elect an exemption from funding the provision for adverse deviation (PfAD) for a period that begins on the review date of the plan (between December 31, 2019 and December 30, 2022) and ends before the following review date.
- B.C. likely did not introduce further funding relief, in part, due to the defined benefit funding changes that came into effect at the end of 2019, which reduced solvency funding requirements to 85% and increased going concern funding requirements to 100% + a PfAD. These funding rules were a permanent change to the funding requirements in the Pension Benefits Standards Act and continue to apply.
- BC FSA initially announced extensions to deadlines for filing actuarial valuation reports, annual information returns and financial statements, as well as for providing certain member statements. However, these extensions have now expired and the regular deadlines set out in the Pension Benefits Standards Act and its regulations apply.
Like B.C., Alberta pension plans were able to rely on many existing provisions in the Employment Pension Plans Act. Although, the Alberta Treasury Board and Finance also introduced some COVID-19-specific funding relief.
Restrictions on Transfers:
- The Alberta Employment Pension Plans Act contains similar restrictions as the B.C. legislation on transfers that would impair the solvency of the pension fund. The Alberta Treasury Board and Finance reminded plan administrators of section 74(3) of the Employment Pension Plans Act that prohibits administrators from transferring assets out of the pension fund if the transfer would impair the solvency of the plan, without the consent of or being directed to do so by the Superintendent. These restrictions existed prior to the pandemic and they continue to apply.
- At the end of June 2020, Alberta announced targeted funding relief measures:
- Suspension of special payments (for both solvency deficiencies and unfunded liabilities) for defined benefit and target benefit plans until the end of 2020.
- Exemption from applying the PfAD on current service contributions for collectively bargained multi-employer plans. This exemption applies to any valuation with an effective date on or before December 31, 2019.
- Increased use of funding excess. Normally, defined benefit plans that are funded to more than 105% on a going concern basis can use funding in excess of that to reduce or eliminate current service contributions, provided that not more than 20% of the excess can be used each fiscal year. This relief permitted plans to increase this to 40% of the excess that may be applied to current service costs, which would provide relief by freeing up funds that would otherwise be required as contributions.
- All these measures required plans to apply to and obtain the consent of the Superintendent to take advantage of them. They primarily applied to contributions and special payments to be made in 2020. The regular funding rules set out in the Employment Pension Plans Act and regulations apply for 2021.
- Alberta Treasury Board and Finance also announced extensions to deadlines for filing actuarial valuation reports, annual information returns and financial statements, as well as for providing certain member statements. However, these extensions have now expired and the regular deadlines set out in the Employment Pension Plans Act and its regulations apply
- Alberta was the only jurisdiction to introduce new legislation for electronic communications for pension plans. This was driven by COVID-19 but the amendments are permanent and will be a welcome change for plan administrators beyond the pandemic.
- The regulations under the Employment Pension Plans Act were amended to explicitly permit any notice, statement or other document required to be provided under the the Employment Pension Plans Act and its regulations to be provided electronically in accordance with the Electronic Transactions Act. The Electronic Transactions Act is the legislation that specifies the rules surrounding electronic signatures and delivery.
- Also, in December 2020, the Wills and Succession Act was amended to permit electronic beneficiary designations. Again this is subject to the requirements of the Electronic Transactions Act.
In contrast to B.C. and Alberta, Saskatchewan announced COVID-19-specific transfer restrictions and other relief measures shortly after the start of the pandemic.
Restrictions on Transfers:
- The initial transfer restrictions announced by the Saskatchewan Financial and Consumer Affairs Authority in April 2020 prohibited all transfers and payments out of defined benefit plans without the Superintendent’s consent. These restrictions have now been relaxed.
- Currently, all transfers and payments (except annuity purchases) are subject to the regular Saskatchewan Pension Benefit Act provisions that, similar to B.C. and Alberta, only restrict such transfers where they would impair the solvency of the plan. Transfers to purchase annuities are still restricted and require the prior written consent of the Superintendent.
- Saskatchewan has not announced any funding relief for pension plans due to COVID-19.
- The Saskatchewan Financial and Consumer Affairs Authority announced extensions to deadlines for filing annual information returns and for providing annual member statements. However, these extensions have now expired and the regular deadlines set out in the Pension Benefits Act and its regulations apply
Restrictions on Transfers:
- Manitoba did not introduce any new restrictions on transfers, but like B.C. and Alberta, Manitoba Finance reminded administrators of the existing rules restricting payments that would impair solvency. Section 4.30 of the regulations under the Pension Benefits Act restricts transfers out of a pension fund that would impair the solvency of the plan unless certain conditions are met or the Superintendent approves the transfer.
- At the end of December 2020, Manitoba announced a moratorium on special payments (both for unfunded liabilities and solvency deficiencies) for December 2020 and all of 2021.
- This is at the election of the plan sponsor (in single employer plans) or administrator (in multi-employer plans) and, unlike Alberta, does not require the Superintendent’s consent. However, notice must be given to employers and members.
- Manitoba Finance announced extensions to the deadline for filing AIRs, but this has now expired and the regular deadlines set out in the Pension Benefits Act and its regulations apply.
Restrictions on Transfers:
- Like Saskatchewan, the Office of the Superintendent of Financial Institutions (OSFI) initially prohibited all portability transfers and annuity purchases. These restrictions have now been relaxed.
- Currently, transfers are allowed if the amount of the initial payment does not exceed the commuted value of the benefit multiplied by the solvency ratio, in the most recently filed valuation. This is similar to the rules that were in place before the pandemic. Annuity purchases are allowed if the solvency ratio following the purchase is not less than 85% - either due to simply to the funded status or by additional employer contribution. These rules differ slightly for negotiated contribution plans.
- Like Manitoba, the federal government also implemented a moratorium on special payments. However, this only included payments for solvency deficiencies and not for unfunded liabilities. No elections or Superintendent approval were required to take advantage of this relief, but administrators who did suspend payments are required to report on this in their annual member statements.
- No special payments were due between May 27 and the end of 2020. Any payments due between April 1 and May 27, 2020 were also reduced zero and if they had already been paid, were permitted to be deducted from normal cost contributions or going concern special payments due before the end of 2020. This moratorium has now lapsed and special payments are due in the ordinary course.
- OSFI announced extensions to deadlines for filing annual information returns and financial statements and for providing annual member statements. However, these extensions have now expired and the regular deadlines set out in the Pension Benefits Standards Act, 1985 and its regulations apply
Tax Measures Applicable to Pension Plans
The federal Department of Finance and the Canada Revenue Agency have also introduced tax measures that apply to both provincially regulated and federally regulated pension plans.
Funding Relief (DC Plans):
- The most wide-reaching measure was the announcement at the beginning of May 2020 that the 1% minimum employer contribution rule was suspended for all defined contribution plans.
- Plans that wanted to take advantage of this were required to amend their plan texts to suspend all accruals. That is, both employer and employee contributions had to be suspended.
- The suspension only applied for 2020. So starting in January 2021, plans were again required to collect at least 1% of all pensionable earnings as contributions from employers.
Relaxed Borrowing Rules:
- The Department of Finance suspended the 90 day limit on borrowing and the prohibition on a borrowing being part of a series of loans or repayments. This measure allowed a plan to enter into a loan or series of loans after April 2020 as long as the loan or series is repaid no later than April 30, 2022.
Periods of Reduced Pay:
- The Department of Finance also relaxed the period of reduced pay rules. These rules allow plans to permit members who work less than full-time to “buy-up” or purchase their service to a full-time equivalent.
- Normally, in order to be eligible to make these service purchases, members must have worked for their employer for at least 36 months. This requirement was eliminated for 2020 and 2021.
- The measures also permit wage rollbacks (i.e. a reduction in salary without a corresponding reduction in hours worked) to qualify as an eligible period of reduced pay for 2020 and 2021.
- These measures were intended to give a greater number of plan members, including newer employees, the opportunity to participate in their pension plans as if they were earning full salary throughout the pandemic. These measures were initially only applicable for 2020, but in May 2021, the Department of Finance announced an extension of these measures to apply to periods of reduced pay in 2021 as well.
If you have any questions about any of these measures, please contact a member of our Pensions & Employee Benefits Group.
Lawson Lundell's Pension and Employee Benefits Law Blog provides updates on the most recent legal developments impacting pension and employee benefit plans. We cover a range of topics, including recent case law and changes to relevant provincial and federal legislation.
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