On December 9, 2009, Ontario's Minister of Finance introduced Bill 236, The Pension Benefits Amendment Act, 2009. Much of the content of the Bill is based on recommendations from the report of Ontario’s Expert Commission on Pensions, which was released in late 2008. This legislation represents the first significant reform of the Pension Benefits Act in 20 years, and covers issues ranging from clarifying benefits for plan members and others to expanding the powers of the Superintendent of Financial Services.
This year, in light of the H1N1 virus, workplace pandemic preparedness is of particular interest to employers and employees who may be questioning their legal rights and obligations if a flu outbreak occurs in their workplace. Best practice in pandemic management involves overlapping and at times seemingly contradictory statutory duties.
Over the past year, several Canadian jurisdictions have implemented changes to pension funding rules in an effort to address the negative market conditions that have adversely affected many pension plans. Quebec and Nova Scotia have joined these jurisdictions to provide temporary relief to pension plan sponsors. Each province has introduced slightly different types of relief, with different criteria for plan sponsors.
The October 21, 2009 edition of the Gazette Officielle du Québec included a revised version of the Regulation to amend the Regulation respecting supplemental pension plans which will come into force January 1, 2010. The Revised Regulation does not address temporary solvency relief, for which a final regulation is expected this fall. However, plans that avail themselves of temporary solvency relief will be subject to the immediate application of the funding and solvency rules in Bill 30, including those set out in the Revised Regulation. The Revised Regulation contains several changes from the regulation introduced in April, made in response to stakeholder consultations and submissions.
The Court of Queen’s Bench of Alberta recently ruled in Halliburton Group Canada Inc. v. Alberta that it would not overturn the Superintendent’s decision that an employer with a final average earnings defined benefit pension plan could not freeze future earnings as they applied to service accrued prior to the plan’s conversion. The Court’s decision is important for any plan sponsor who is planning or has recently implemented a freeze of its FAE DB plan, although pending appeal, this may not be the final word on the issue.
On August 7, 2009, the Supreme Court of Canada released its long-awaited decision in Nolan v. Kerry (Canada) Inc. This case, which had a long history of hearings before the Financial Services Tribunal of Ontario and the province’s divisional and appellate courts, raises numerous issues relating to an employer’s obligations to members of its pension plan. In a decision welcomed by sponsors of employee pension plans, the majority of the SCC ruled in favour of the employer on all counts.
Sponsors of DB pension plans may not be aware that Regulation 239/09 published June 23, 2009 by the Ontario governement contained measures that are not directly related to funding relief. These include a permanent amendment to the rules regarding payment of commuted values from underfunded pension plans which effectively require administrators to monitor the approximate transfer ratio of their plans between valuation dates, and act when the ratio drops below a certain threshold.
On March 27, 2009, Finance Canada announced the release of the Temporary Solvency Funding Relief Regulations, 2009. The 2009 Regulations, published in the April 4, 2009 edition of the Canada Gazette, provide temporary solvency funding relief in response to the current economic crisis for federally regulated DB plans. A sponsor of such a plan may utilize one of four temporary solvency funding measures in respect of a solvency deficiency reported at a plan year-end date from November 1, 2008 to October 31, 2009.
On March 26, 2009, Ontario Minister of Finance Dwight Duncan tabled the 2009 Ontario Budget, which lays out a series of tax and infrastructure measures intended to help provincial residents and businesses weather the current recession, while positioning the province to be more competitive and productive once the economy rebounds. The Budget also contains additional information on a number of previously-announced pension reform measures and other matters relating to Ontario’s pension system.
In an attempt to help sponsors of defined benefit pension plans address their deteriorating solvency positions, many Canadian jurisdictions are conducting consultations and/or implementing changes to pension funding rules. Both Alberta and British Columbia have recently provided details on the funding relief available in their respective provinces, and are to be applauded for their timely action and for the pragmatic and business-like approach they have taken. This relief will force sponsors and trustees to take a hard look at the financing of benefits. It will provide opportunities for relief to sponsors and trustees with sound and realistic business plans, but will not afford automatic relief to those few whose expectations are unrealistic.
On January 27, 2009, Finance Minister Jim Flaherty tabled the 2009 Federal Budget. In light of the current recession, the Budget outlines Canada’s Economic Action Plan, which includes personal tax relief, significant funding for infrastructure, funding for the Canadian Skills and Transition Strategy, measures to assist older workers, changes to the Employment Insurance Program, tax and other relief for businesses and measures designed to facilitate lending and strengthen Canada’s financial climate. The fate of the Budget is uncertain as, at the time of writing, both the Bloc Québécois and the NDP have indicated that they will vote against the Budget, while the Liberals have not indicated how they will vote.
On December 8, 2008, the Actuarial Standards Board of the Canadian Institute of Actuaries approved the Final Standard of Practice for Pension Commuted Values. With minor exceptions, it is identical to the Revised Exposure Draft published in October 2008. The new standard will be effective April 1, 2009 and will govern the calculation of most lump-sum settlements paid from registered defined benefit pension plans in Canada. It will also affect pension plan solvency measures and other administrative calculations. Plan administrators should take immediate steps to update their pension administration systems accordingly.
On November 28, 2008, the Alberta-British Columbia Joint Expert Panel on Pension Standards released its final report, Getting Our Acts Together. Formed by the Ministers of Finance from both provinces in October 2007, the Report makes over 130 distinct recommendations, many of which will require major legislative and regulatory change to implement. The Report acknowledges the importance of finding a balance between protecting the pension promise and encouraging the creation and maintenance of pension plans.
On November 20, 2008, the Ontario Expert Commission on Pensions released its final report, A Fine Balance: Safe Pensions, Affordable Plans, Fair Rules. The Commission was formed by the Minister of Finance in November 2006 with a mandate to conduct the first review of Ontario’s occupational pension system in over 20 years. The Report makes 142 wide-ranging recommendations for reforming Ontario’s system of pension regulation. Proposals address funding, the changing economy, plan failures, regulation and governance, and the future of the pension system.
On October 28, 2008, the Actuarial Standards Board released a Revised Exposure Draft for the Standards of Practice for Pension Commuted Values. The Revised Exposure Draft has been released for consultation in light of the significance of changes made to the original Exposure Draft, released on June 27, 2008. Comments on the Revised Exposure Draft must be sent to the ASB by November 28, 2008, which then expects to publish the final CV Standard in mid-December. It is hoped that all regulators across the country will swiftly confirm that their regulations will permit solvency valuations at December 31, 2008 to reflect the new CV Standard.
On September 11, 2008, the Federal Court of Canada released its decision in the ongoing case of Buschau v. The Attorney General of Canada and Rogers Communications Inc. The FCC allowed the judicial review of a previous decision of the Superintendent of the Office of the Superintendent of Financial Institutions, and held that the Superintendent’s decision to not terminate a closed pension plan was unreasonable. In the latest judicial pronouncement in this pension dispute, which has been before courts and regulators for over a decade, the FCC returned the matter to the Superintendent for re-determination. An appeal of this decision could clarify the legitimacy of extended contributions holidays and determine the weight that should be given to the intentions of the plan sponsor.
On September 18, 2008, the Canadian Securities Administrators issued the final amendments to Form 51-102F6, Statement of Executive Compensation and Consequential Amendments. All companies likely have some work to do to comply with the new disclosure rules and they need to start reviewing and updating their executive compensation accounting and disclosure policies now in order to comply with the new rules by the 2009 proxy season.
On July 14, 2008, the federal Department of Finance released draft legislative proposals to implement some outstanding tax measures from the 2008 Federal Budget, including clarifying the eligibility of medications for the medical expense tax credit. Unfortunately, the draft legislation considerably complicates matters for employers with private health services plans that cover over-the-counter drugs, especially those covering Quebec residents. While not all such plans cover OTCs, those that do will likely have to follow convoluted new rules to determine whether specific OTCs are eligible for the METC, and can therefore be covered under a PHSP.
Quebec’s Bill 68, An Act to amend the Supplemental Pension Plans Act, the Act respecting the Québec Pension Plan and other legislative provisions, was assented to on June 20, 2008. As a result of some last-minute amendments, the final version of the Bill contains new provisions to the SPPA in response to the recent Quebec Court of Appeal decision in Multi-marques and changes to the province’s letter of credit rules.
The rules used by plan administrators and actuaries when calculating commuted values (CVs) for defined benefit pension portability benefits are about to change. In general, the change will lead to lower CVs to better reflect the theoretical value of a pension. This change will also result in immediately decreasing the solvency liabilities of practically every pension plan in Canada.
The Ontario Court of Appeal released its decision – which employers will find welcome – in Burke v. Hudson’s Bay Company on May 20, 2008. Overturning a 2006 trial decision, the Court allowed the employer’s appeal and found that it could transfer pension plan members and assets to a purchasing business without transferring a proportionate share of surplus. The Court further held that all expenses were appropriately paid out of the pension fund, and that the employer acted well within parameters of the pension plan and trust.
In her budget tabled on April 22, 2008, Alberta’s Minister of Finance and Enterprise, Iris Evans, detailed a number of spending increases and tax rebates to assist provincial residents. Of particular interest to employers with operations in Alberta is the elimination of Alberta Health Care Insurance Plan (AHCIP) premiums effective January 1, 2009. Employers who pay all or part of their employees’ AHCIP premiums will experience a significant cost savings. Employers should review their contractual commitment and possibly clarify their position should this premium be reinstated into the future.
Phased retirement is not a new phenomenon in Quebec. The province was the first jurisdiction in Canada to allow phased retirement back in 1997. However, the province has tabled legislation to amend the phased retirement provisions of its Supplemental Pension Plans Act (SPPA) to reflect recent changes to the federal Income Tax Act. Introduced on April 2, 2008, Bill 68 also breaks new ground by including measures allowing hybrid and defined contribution pension plans to offer phased retirement. It also makes other important changes to the SPPA’s provisions.
One of the most interesting announcements contained in the 2008 Federal Budget was the introduction of the Tax-Free Savings Account (TFSA). Beginning in 2009, the TFSA will have a profound impact on savings patterns, as Canadians 18 and over will be able to start contributing up to $5,000 of after-tax dollars annually to these accounts. Group TFSAs may also come to form a valuable part of the total compensation package offered to employees.
The recent Federal Budget modified the Income Tax Act provisions governing the medical expense tax credit (METC). This change may end up having significant implications for sponsors of private health services plans. In light of the announced amendments, the question that currently has not been answered is whether these plans can continue to cover over-the-counter drugs while maintaining their tax-preferred status. The Canada Revenue Agency has yet to rule on this and plan sponsors should wait for clarity on the issue before making changes to their plans.
On February 26, 2008, Finance Minister Jim Flaherty tabled the 2008 Federal Budget. While overall the Budget was cautious, it did contain a surprise in the form of the new Tax-Free Savings Account (TFSA). Other provisions of interest include new unlocking rules for LIFs, an expanded contribution period for RESPs, an increase in the earnings exemption for GIS recipients and enhanced funding for mental health issues.
There are a wide range of situations in which employees may require time away from work. Quebec has traditionally offered a broader range of leaves of absence than other provinces. Further enhancements to Quebec’s available leaves of absence were made by Bill 58, which came into force on December 18, 2007. Employers with operations in Quebec need to be aware of the resulting changes to determine whether they need to adjust their pension and benefit plans or HR practices.
The Supreme Court of Canada will hear an appeal in Elaine Nolan, et al. v. Kerry (Canada) Inc. et al. The outcome of the Kerry decision will be significant for plan sponsors that have used or have considered using the pension fund to pay for administrative expenses, as well as for plan sponsors who wish to apply excess DB assets to satisfy required employer DC contributions.
Starting on February 18, 2008, Ontario will observe Family Day on the third Monday in February. While most workers welcome the addition of the ninth provincial statutory holiday, there is no guarantee that all of them will actually get a day off, particularly if they have a collective agreement, employment contract or holiday/vacation policy that currently provides benefits in excess of statutory minimums.
Alberta-registered pension plans will now be able to use Letters of Credit to fund solvency deficiencies following amendments to the Alberta Employment Pension Plans Regulation. Plan sponsors will need to consider the advantages and disadvantages of implementing LOC financing, including cost, plan member and union perceptions and use of credit weighed against the ability to free trapped capital and the reduction of cash payments to the pension plan.
Copyright 2010 Towers Watson. All rights reserved.
Terms of Use
Privacy Policy
See all locations
Contact us
Request services
