In April, the Government of Canada released Budget 2021: A Recovery Plan for Jobs, Growth, and Resilience. Characterized as a plan to finish the fight against COVID-19 and ensure a robust economic recovery to benefit all Canadians, it contained several measures that will impact pension and benefit plans.
The first steps to implementing many of these measures were taken with the introduction of Bill C-30, An Act to implement certain provisions of the budget tabled in Parliament on April 19, 2021 and other measures. Bill C-30, once passed, will give these measures effect through amendments to the Income Tax Act (Canada) and its regulations and to the Pension Benefits Standards Act, 1985. It received its first reading in the House of Commons on April 30, 2021.
This article discusses the pension and benefit measures announced in Budget 2021 and which of those measures will be implemented by Bill C-30.
Budget 2021 announced the following measures that are generally applicable to pension plans in all Canadian jurisdictions:
- Fixing contribution errors in defined contribution pension plans
The rules in the Income Tax Act (Canada) do not currently permit pension plan administrators to accept retroactive contributions to employee accounts under a defined contribution pension plan in order to correct under-contribution errors in respect of prior years. Further, the rules that allow some over-contribution errors to be corrected by refunding the excess to the contributor have been found to be overly cumbersome.
The proposals in Budget 2021 aim to provide more flexibility to defined contribution plan administrators to correct for both under-contributions and over-contributions by:
- permitting certain types of errors to be corrected by way of additional contributions to an employee’s defined contribution account to compensate for an under-contribution error made in any of the preceding five years, subject to a dollar limit;
- permitting plan administrators to correct for pension over-contribution errors in respect of an employee for any of the five years prior to the year in which the excess amount is refunded to the employee or employer who made the contribution; and
- simplifying the reporting requirements by requiring plan administrators to file a prescribed form in respect of each affected employee, rather than amend T4 slips for prior years.
These measures would apply in respect of additional contributions made, and amounts of over-contributions refunded, in 2021 and subsequent taxation years. Bill C-30 does not include provisions in respect of these measures.
- Electronic Information Returns
Budget 2021 proposes to amend the Income Tax Regulations to allow issuers of T4A (Statement of Pension, Retirement, Annuity and Other Income) and T5 (Statement of Investment Income) information returns to provide them electronically without having to also issue a paper copy and without the taxpayer having to authorize the issuer to do so. This measure would apply in respect of information returns sent after 2021. This measure does not form part of Bill C-30.
- COVID relief measures
Budget 2021 confirms the government’s intention to proceed with the COVID relief proposals announced on July 2, 2020 that are intended to provide relief for registered pension plans during the COVID-19 pandemic. These proposals include:
- removing restrictions that prohibit a registered pension plan from borrowing money;
- extending the deadline for decisions to retroactively credit pensionable service under a defined benefit plan or to make catch-up contributions to money purchase accounts;
- permitting catch-up contributions to registered pension plans to be made in 2021 to the extent that 2020 required contributions had been reduced;
- setting aside the 36-month employment condition in the definition “eligible period of reduced pay” for the purpose of using prescribed compensation to determine benefit or contribution levels; and
- allowing wage rollback periods in 2020 to qualify as an eligible period of reduced pay for prescribed compensation purposes.
These COVID relief measures are not dealt with in Bill C-30.
- Contributions to specified multi-employer pension plans (SMEP) for older members
Budget 2021 confirms the government’s intention to proceed with the SMEP contribution changes released on July 30, 2019 that limit contributions to SMEPs for certain older members. These proposals would amend the tax rules to prohibit contributions to a SMEP in respect of a member after the end of the year the member attains 71 years of age and to a defined benefit provision of a SMEP if the member is receiving a pension from the plan (except under a qualifying phased retirement program).
These measures are set out in Bill C-30 and would apply in respect of contributions made pursuant to any collective bargaining agreement entered into after 2019, except that it does not apply in respect of contributions made on or before the date the agreement is entered into.
Our blog post on these new SMEP contribution rules sets out the steps that plan administrators and the parties (employers/unions) that bargain contributions into collective agreements should consider in light of these new rules.
- Additional types of annuities
Budget 2021 confirms the government’s intention to proceed with the legislative proposals released on July 30, 2019 permitting additional types of annuities under registered plans. These proposals would permit two new types of annuities – advanced life deferred annuities and variable payment life annuities – under the tax rules for defined contribution registered plans.
These measures are set out in Bill C-30 and will be deemed to retroactively come into force on January 1, 2020.
The following Budget 2021 measures are generally applicable to federally regulated pension plans:
- Unclaimed assets
The government proposes to modernize the federal unclaimed assets regime by increasing the information available and use of electronic communication to match Canadians with their unclaimed assets, and to expand the scope of the regime to include unclaimed balances from terminated federally regulated pension plans by proposing amendments to the Pension Benefits Standards Act, 1985.
- Negotiated Contribution Pension Plans
The government proposes to introduce amendments to the Pension Benefits Standards Act, 1985 to establish a revised framework for multi-employer negotiated contribution pension plans that strengthens plan governance, transparency, and sustainability of benefits.
These amendments to the Pension Benefits Standards Act, 1985 are set out in Bill C-30 and will come into force on a day to be fixed by order of the Governor in Council.
- Employee Life and Health Trusts
Budget 2021 confirms the government’s intention to proceed with the legislative proposals announced on November 27, 2020 to facilitate the conversion of Health and Welfare Trusts to Employee Life and Health Trusts. These proposals are included in Bill C-30 and the majority of the amendments to the Employee Life and Health Trust rules in the Income Tax Act will be deemed to retroactively come into force on February 27, 2018.
Our blog post on the Employee Life and Health Trust rules in Bill C-30 sets out key points to considered for the health and welfare trust to ELHT conversion process.
- Enhanced trust reporting requirements
Budget 2021 confirms the government’s intention to proceed with the Budget 2018 proposals for enhanced reporting requirements for trusts. For trust returns that are required to be filed for the 2021 and subsequent taxation years, Budget 2018 proposed that certain trusts provide additional beneficial ownership information on an annual basis. As a result, these trusts will be required to file an annual T3 return even where one is not currently required. These proposals are not dealt with in Bill C-30.
The government repeated its commitment to work with provinces, territories and stakeholders toward the goal of a universal national program. It confirmed that it will proceed with its announced plan to provide ongoing funding of $500 million for the program for high-cost drugs for rare diseases. The government will also directly engage with willing partners on national universal pharmacare, alongside other important health priorities, that can be advanced at the provincial and territorial level.
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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