CPP Enhancements
On Dec. 15, 2016, Federal Bill C-26, An Act to amend the Canada Pension Plan, the Canada Pension Plan Investment Board Act and the Income Tax Act, received royal assent. The Bill implements the CPP enhancements agreed to under the June 20, 2016 CPP reform agreement reached between the federal government and the nine provincial governments that participate in CPP.
Enhanced accrual rate and contributions (2019-23)
The maximum amount of the retirement pension, as well as the survivor’s and disability pensions and the post-retirement benefit, will increase from 25 per cent to 33 per cent of the YMPE, the year’s maximum pensionable earnings, over a five-year phase-in period from 2019-23. This will be mirrored by a phased increase in employer and employee contribution rates (from 4.95 per cent to 5.95 per cent) over the same five-year period. The increased benefit rate is subject to the amount of additional contributions made and the number of years over which those contributions are made. Accordingly, the full 33 per cent would only be realizable after 40 years of maximum contributions.
Increased earnings level and contributions (2024-25)
Following that period, a new upper earnings limit, the YAMPE or the year’s additional maximum pensionable earnings, comprising an additional 14 per cent over YMPE, will be phased in over two years (2024-25). This will result in a further increase in contributions over the same period, as an employer and employee contribution rate of four per cent will be applied to earnings between YMPE and YAMPE. By 2025, YAMPE is expected to equal $82,700.
The additional contributions (i.e. those applied to earnings between YMPE and YAMPE) will be made to a new Additional Canada Pension Plan Account. Other CPP provisions such as the financial review provisions were amended to address regulation of the enhanced contributions and benefits – for example, preparation of financial statements for the amounts managed by the Investment Board in relation to the additional contributions and accruing benefits.
Additional WITC deduction
To offset the effects of enhanced CPP contributions on the net incomes of qualifying individual employees, the cill also amended the Income Tax Act to increase the Working Income Tax Credit, providing a deduction for additional employee contributions.
Read the full text of Bill C-26.
Changes to EI benefits
Effective Jan. 1, 2017, amendments to the Employment Insurance Act contained in the Budget Implementation Act, 2016, No. 1 reduced the Employment Insurance waiting period from two weeks to one week. Consequential amendments to the Employment Insurance Regulations were also passed in order to align regulatory provisions with the new one-week waiting period. For example, the requirement relating to a qualifying employer’s Premium Reduction Program was amended to reduce the maximum elimination period from 14 consecutive days to seven, with a four-year phase-in period for affected employers.
Read the full text of the 2016 budget.
Read the Regulations.
Proposed legislation on Target Benefit Plans
Bill C-27, An Act to Amend the Pension Benefits Act, 1985, was introduced on Oct. 19, 2016. It represents a move forward from the federal government on two pension reform issues. Firstly it provides the first part of a framework for establishing, administering and supervising target benefit plans for federally regulated employees, including conversion of existing plans to target benefit plans. Second, it amends the Pension Benefits Standards Act, 1985 to allow an administrator to discharge its obligations to defined-benefit pensioners by purchasing an immediate or deferred life annuity.
Read the first reading of Bill C-27.
Dante Manna is an associate and Level Chan is a partner with Stewart McKelvey