1. Amendments to federal investment regulations
On March 25, 2015, the federal government registered amendments to the regulations of the Pension Benefits Standards Act, 1985 and the Pooled Registered Pension Plans Act. A few provisions came into force April 1, 2015, and on July 1, 2016 the remainder came into effect. Certain jurisdictions have adopted the federal investment rules by reference: Ontario, British Columbia, Alberta, Saskatchewan, Manitoba and Newfoundland & Labrador. Highlights of the changes introduced are listed below.
a) DC framework
Retired employees who have a DC pension plan may now be given the option of receiving variable benefits, in an amount between the minimum established by the Income Tax Act and a maximum based on the value of the retiree’s DC account.
b) Investment rules
The current investment rules prohibiting more than 10 per cent of a pension fund’s assets being invested in a single entity (or related group of entities), were amended to say it will now depend on the market value at the time of transaction, rather than purchase price (book value).
Another amendment removed the “public exchange” exception for otherwise prohibited investments in entities related to the administrator of the plan. The new amendments permit administrators to make related-party investments if they are made by purchasing an investment fund or segregated fund that is available to third parties, subject to certain quantitative restrictions.
There is a five-year period for administrators to come into compliance with the new related party rules from the date the rules come into effect.
c) Disclosure
Administrators of plans which permit members to make investment choices will now have enhanced disclosure obligations, including annual statements that must contain details such as the objective of the investment type, the degree of risk, the ten largest asset holdings, performance history, and target asset allocation. For a DC plan, these details must be included in the annual statement to be provided to DC plan members.
2. Multilateral Agreement for PRPPs
Nova Scotia, British Columbia, Saskatchewan and Quebec signed a Multilateral Agreement Respecting Pooled Registered Pension Plans and Voluntary Retirement Savings Plans with the Federal government which came into effect June 15, 2016.
Under the agreement, those holding a federal Pooled Registered Pension Plan licence are exempt from the requirement to obtain provincial PRPP licenses (or, in Quebec, Voluntary Retirement Savings Plan licences) in provinces who are signatories of the agreement. Once registered federally, a PRPP can be offered to individuals throughout the participating jurisdictions. Licensed administrators of Quebec VRSPs would also be exempt from obtaining federal administration licences. The agreement marks the start of a harmonized PRPP framework across Canada, regulated by the Federal Office of the Superintendent of Financial Institutions.
3. Consultation on 30 per cent rule
On June 3, 2016 the Federal Department of Finance announced it was consulting on the retention, relaxation or elimination of the 30 per cent rule at s. 11 of Schedule III of the Pension Benefits Standards Regulations, 1985, SOR/87-19. Currently, the rule restricts federally regulated pension funds from holding more than 30 per cent of the voting shares of a company. There are several exceptions for special-purpose corporations.
As stated in the consultation document, the rule was initially put in place to reduce pension plans’ risk exposure, and affects the role of pension plans as passive, rather than active, investors. The Department of Finance sought advice on specified prudential considerations, investment performance issues, and tax policy concerns.
The CBA Pensions and Benefits Section prepared a submission for the consultation, which closed September 16, 2016.
4. Canada Pension Plan reform
Federal Bill C-26, An Act to Amend the Canada Pension Plan, the Canada Pension Plan Investment Board Act, and the Income Tax Act was introduced on October 6, 2016. This Bill follows an agreement in principle that was reached in June 20, 2016 meetings between Federal and Provincial Finance Ministers in relation to CPP reform.
The goal of the reform is to enhance the CPP benefits provided to Canadian retirees in the long term. This is planned to be done in two ways, first by increasing the share of annual earnings received during retirement from one-quarter to one-third between 2019 and 2023, and second by increasing the maximum income range covered by the CPP from $54,900 currently to an estimated $82,700 by 2025, followed by annual increases of 14 per cent thereafter. Similar increases will also be provided for CPP disability and survivor benefits.
It is anticipated that the enhanced contributions will present challenges for some individuals and their employers. In order to ease the adjustment, increased annual CPP contributions are proposed to be gradually phased in over seven years, starting in 2019. In order to offset the increased contributions for low income individuals, Bill C-26 also proposes enhancements to the Federal Working Income Tax Benefit. Additionally, the Bill prohibits changes to the deemed contribution rates for or determination of the additional CPP benefits without the agreement of at least two-thirds of Canadian provinces, representing at least two-thirds of the Canadian population.
Dante Manna is an associate and Level Chan is a partner with Stewart McKelvey in Halifax