LEGISLATION
BILL C-69: AMENDMENTS TO THE PBSA, PRPPA, ITA AND CPP
Bill C-69, Budget Implementation Act, 2024, No. 1, has received Royal Assent and amends the following statutes:
- Pension Benefits Standards Act, 1985 (PBSA) to require the Superintendent of Financial Institutions to publish, annually, information on the investments of certain registered pension plans, effective on proclamation
- Canada Pension Plan and Canada Pension Plan Regulations with respect to death benefits, children’s benefits, and eligibility for a survivor’s pension (various effective dates)
- Pooled Registered Pension Plans Act to require plan administrators to provide information to persons joining the plan, effective on proclamation
- Income Tax Act (ITA) and Income Tax Regulations (ITR) to increase the Home Buyers’ Plan RRSP withdrawal limit from $35,000 to $60,000, effective for the 2024 and subsequent taxation years, and to defer the repayment period by three additional years
BILL C-59: AMENDMENTS TO THE ITA AND ITR
Bill C-59, Fall Economic Statement Implementation Act, 2023, received Royal Assent and amended the ITA, with retroactive effect to March 28, 2023, to remove the requirement to pay 50% refundable tax on standby fees or premiums for letters of credit or surety bonds that secure liabilities under supplemental employee pension plans. As well, benefit payments made after 2023 using employer assets will trigger a refund of refundable tax previously paid, beginning in 2025 with the filing of the RCA T3 for 2024.
Technical ITA and ITR amendments related to the first home savings account were made, effective April 1, 2023.
PBSA AMENDMENTS IN EFFECT: NEGOTIATED CONTRIBUTION PLANS
On May 24, 2004, amendments to the PBSA and Pension Benefits Standards Regulations, 1985 (PBSR) relating to multi-employer plans (MEPPs) that are negotiated contribution (NC) plans took effect:
- Amendments to the regulations exempt NC plans from solvency funding requirements and establish enhanced going concern (GC) funding standards
- Amendments to the PBSA require NC plans to have a funding policy and a governance policy, each with prescribed requirements, in place before filing for plan registration, or within one year if the plan was already registered before May 24, 2024
DRAFT PBSR AMENDMENTS
The Department of Finance has released draft amendments to the PBSR to support earlier amendments to the PBSA and allow for the establishment of solvency reserve accounts (SRAs) (see sections 186 and 188(1) of Budget Implementation Act, 2022, No. 1). Requirements for payments into and withdrawals from the SRA are set out, as are the disclosure requirements for members and retirees in the annual statement.
The draft Regulations would also lower the required solvency ratio, from 100% to 85%, for five federally regulated multi-employer pension plans that are not NC plans (see above).
DRAFT ITA AMENDMENTS
The federal government has released draft amendments to the ITA that would increase the capital gains inclusion rate from one-half to two-thirds for gains in excess of $250,000, for the 2024 and subsequent taxation years. Explanatory Notes are also available. Among other amendments, section 110(1) of the ITA would reduce, from one-half to one-third, the deduction where a taxpayer has included an amount in income on the disposition of employer shares received on their retirement or withdrawal from a deferred profit sharing plan.
ONTARIO TARGET BENEFIT DEVELOPMENTS
The 2024 Budget Bill has received Royal Assent, and contains various amendments to the target benefit provisions (not yet proclaimed) under the Pension Benefits Act (PBA). These include:
Ontario also released a Regulatory Proposal setting out draft regulations to support implementation of a permanent target benefit framework, which is expected to take effect on January 1, 2025. The Proposal includes a Review Guide and nine additional documents which together outline:
- The government’s final policies on use of surplus to fund normal cost, adjusting special payments, eligibility criteria for separation of assets, and disclosure
- Requirements for various written policies
- Rules on converting benefits under a MEPP to target benefits
- Provision of information on various topics
ONTARIO DRAFT JSPP AMENDMENTS
Ontario has proposed amendments to the General Regulation under the PBA relating to certain jointly sponsored pension plans (JSPPs). The amendments, effective January 1, 2025, would introduce a funding concerns test based on a 90% GC funding threshold, and exempt these JSPPs from having to disclose transfer ratio information in the annual or biennial statements.
ONTARIO DRAFT AMENDMENTS TO THE SUCCESSION LAW REFORM ACT
Ontario has released a proposal to amend the Succession Law Reform Act (SLRA) that would make it easier for a substitute decision-maker to name a beneficiary for a plan participant’s death benefits. It would also allow pension plan administrators and financial institutions to streamline their operations when dealing with substitute decision makers who are converting instruments and maintaining beneficiary designations on behalf of incapable individuals.
Under the SLRA, a plan can relate to pension, retirement, welfare or profit-sharing, or is with respect to the payment of periodic sums, and includes registered retirement savings plans (RRSPs), registered retirement income funds (RRIFs), home ownership savings plans, and tax free savings accounts.
REGULATORY UPDATE
NEW CAPSA GUIDELINES ON CAPITAL ACCUMULATION PLANS AND PENSION RISK MANAGEMENT
The Canadian Association of Pension Supervisory Authorities (CAPSA) released two new Guidelines. Both are effective September 9, 2024. CAPSA recommends that administrators and sponsors review and consider how to implement the practices noted in the Guidelines. Any required IT and administrative changes should be implemented by January 1, 2026.
- CAPSA Guideline No. 3 – Guideline for Capital Accumulation Plans (CAP Guideline) replaces the previous version released in 2004. It revises the responsibilities of CAP sponsors, plan administrators and service providers, including : establishment of a documented governance framework, decumulation, improved member education, fee transparency, and oversight of third party service providers. It was prepared with input from the Canadian Council of Insurance Regulators (CCIR) and the Canadian Securities Administrators (CSA).
- CAPSA Guideline No. 10 – Guideline for Risk Management for Plan Administrators (Risk Management Guideline) is a new Guideline. It sets out the leading practices in pension management and consolidates past approaches to pension risk management including: third-party risk; cyber security risk; investment risk governance; environmental, social and governance (ESG) considerations; and use of leverage.
OSFI ANNUAL RISK OUTLOOK
The Office of the Superintendent of Financial Institutions (OSFI’s) pension priorities for 2024-25, set out in its Annual Risk Outlook – Fisal Year 2024-2025, include:
- Monitoring and enforcing minimum funding, legislative and supervisory requirements
- Migrating to a new system that will support the supervisory framework for pensions
- Conducting thematic reviews on funding, investment and third-party risks
- Developing the Overall Risk Rating (ORR) of plans under the new Supervisory Framework
OSFI INFOPENSIONS ISSUE 30
- Results of the most recent survey of leverage used by large federally regulated plans (OSFI has no material concerns about liquidity risk exposures for most surveyed plans)
- Solvency funded status of defined benefit (DB) pension plans as at December 31, 2023
- Areas of concern in actuarial reports and from desk review examinations in 2023
FSRA GUIDANCE ON ADMINISTRATOR ROLES AND RESPONSIBILTIES
The Financial Services Regulatory Authority of Ontario (FSRA) has revised Interpretation Guidance PE0296INT: Pension Plan Administrator Roles and Responsibilities, effective June 5, 2024. It clarifies previous guidance and provides FSRA’s interpretation of the Pension Benefits Act and the role and responsibilities of plan administrators including:
- Responsibility for implementation of processes to manage plan risks (investment, funding, operational, legal)
- Records retention: Administrators must retain relevant records for as long as required both for plan administration and to show that obligations to plan beneficiaries have been met
- Complaints and inquiries: Policies and procedures should be accessible, fair, transparent, effective, and provided in a timely fashion
- Providing information to beneficiaries: Communications should be clear, accurate, up-to-date, and conform with administrator policies and procedures on accessible information and (if relevant) electronic communications
FSRA GUIDANCE ON PLAN AMENDMENTS
FSRA has released Guidance PE0301INT Pension Plan Amendments, effective June 4, 2024. The Guidance:
- Defines a Retroactive Adverse Amendment
- Explains when FSRA will use its discretion to register a retroactive amendment
- Notes that a retroactive amendment will not cure any non-compliance with the plan provisions or the PBA, and cannot be used to rectify a drafting error
- Sets out FSRA’s position with respect to amendments that intend to replace a variable indexation formula for past service with a fixed indexation rate
- Reviews notice requirements for prospective adverse amendments
- Sets out FSRA’s position with respect to penalties, compliance and enforcement
FSRA PRINCIPLES-BASED REGULATION GUIDANCE
FSRA has released its Approach Guidance on Principles-based Regulation, effective September 5, 2024. It sets out five Framework Principles that will guide FSRA’s approach: outcomes-focused, innovative, consumer-centric, risk-based, transparent and collaborative. Each sector-specific regulatory area within FSRA may implement complementary supervisory processes that reflect the unique regulatory issues, and the size, complexity and risk profile, of the regulated entities, persons and sectors it regulates.
FSRA PENSION UPDATES
FSRA’s most recent Pension Updates, for June 26, 2024 and September 9, 2024, contain various reports (solvency, DB funding, etc.) as well as new FSRA processes, updates and reminders, most of which are covered above or in previous OBA Updates.
FSRA SERVICE STANDARD SCORECARD
According to its Service Standards Scorecard for the fourth quarter of fiscal 2023-2024, FSRA met or exceeded its performance targets in all five categories for the Pensions sector – i.e., percentage of:
- Inquiries responded to within 45 business days
- DB wind-up applications finalized within 120 business days
- Defined contribution plan (DC) wind-up applications finalized within 90 business days
- DB asset transfer applications finalized within 120 business days
- DC asset transfer applications finalized within 90 business days
FSRA WIND UP REPORT FOR DC PENSION PLANS
FSRA has updated Form PF-105, Wind Up Report For Defined Contribution Pension Plan. There are no substantive changes from the previous version of the Form issued in 2021.
FSRA FORM 8 UPDATES
FSRA has updated its Form 8 - Investment Information Summary (IIS) as of June 24, 2024. There are two minor changes:
- Line 5.12 was removed (because it referred to a provision of the Federal Investment Regulations that was repealed)
- Line 5.17 no longer references Line 5.16 (whether plan investments are invested in accordance with the SIPP) regarding changes affecting an answer by the time the IIS is filed
CASELAW
CLASS ACTION INDEXING DISPUTE SETTLED
The Ontario Superior Court of Justice (SCJ) approved a motion in Brewers Retail Inc. v. Campell to settle disputed amendments to the employer’s (BRI) salaried pension plan in 2013, under which future retirees would lose indexing for benefits relating to service before 2010. For most class members, BRI had started paying an annual adjustment of 0.9%, which will now be applied to service before 2010. However, for some class members (or their beneficiaries) who either had no remaining pension entitlement (and were therefore not receiving monthly payments) or who could show that they were otherwise entitled to participate, the settlement establishes an $800,000 fund for payment of up to $2,500 per member. Fees for class counsel payable out of the Plan were also approved.
CLASS ACTION INDEXING DISPUTE DISCONTINUED
In Perreault v. Bell Canada, the Ontario SCJ approved a request, brought by the plaintiffs with the consent of Bell, to discontinue a class action prompted by a dispute over cost-of-living allowance (COLA) increases to pension benefits. The dispute arose because Bell had rounded the COLA increase for 1998 down to 1%, instead of up to 2%. A similar dispute involving a COLA miscalculation in 2017 was addressed in an earlier decision, Austin v. Bell Canada, where the Court determined that Bell had erred in doing so. In this case, following OSFI’s intervention, Bell revised its calculations, gave notice to affected pensioners, paid $84.2 million to retroactively adjust the 1998 Pension Index, and has agreed to compensate any other pensioners who may come forward.
FSRA ENFORCEMENT PROCEEDINGS
In The Matter of Xylem Company Canada, the Financial Services Regulatory Authority of Ontario (FSRA) ordered the plan sponsor/administrator to submit outstanding regulatory filings for 2021 and 2022, within 10 days of July 31, 2024. Previously, FSRA had imposed administrative penalties totalling $175,000 against Xylem, which it paid.
TAXATION
CRA CONSULTATION ON QUALIFIED INVESTMENTS
The Canada Revenue Agency (CRA) has sought stakeholder input on Qualified Investments for Tax-Advantaged Savings Plans, and specifically on whether:
- Rules relating to investments in small businesses should be applied consistently to all registered savings plans, and if so how
- Annuities that are qualified investments only for RRSPs, RRIFs and registered disability savings plans should continue to be qualified investments
- Conditions that certain pooled investment products must meet to be a qualified investment, including formal registration, remain appropriate
- Qualified investment rules should promote Canadian-based investments, and if so, how
- Crypto-backed assets are appropriate as qualified investments for registered savings plans
ELECTRONIC FILING CHANGES
CRA reminds businesses that, effective January 2024, they must file six or more information returns (such as T4As) electronically, and could face penalties if they do not. In addition, starting January 2025, only a single information return type can be filed within the same file (CRA will not, for example, accept combining a T4A with a T4 in a single submission).
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