The COVID-19 pandemic has brought rapid regulatory and legislative responses to provide relief to Canadian businesses and workers in many areas. In this blog post, we highlight some of the key pension and benefit initiatives we have seen to date.
Relief announced for federally-regulated defined benefit plans…and more relief on the horizon
In a news release on April 15, 2020, the federal Department of Finance announced that it would provide “immediate, temporary relief” to defined benefit (“DB”) plans by enacting a moratorium on required solvency payments for the remainder of 2020. The news release also stated that the Department of Finance would consult with stakeholders about potential relief from 2021 funding obligations, as necessary, in recognition of the impact the COVID-19 pandemic has had on pension plans’ assets and liabilities. One other issue that we hope is top of mind for the federal government is changing the borrowing restriction in the Income Tax Act (Canada) to help plans address liquidity issues.
Other items that governments may consider in terms of potential reforms include:
- delaying the required actuarial valuation date by one year;
- maintaining interest rates for solvency valuation purposes at pre-COVID-19 levels; and
- extending amortization periods to eliminate a deficit.
We hope that provincial legislatures will follow the federal government’s example, or move forward with some or all of the options suggested above (and/or consider other options) to assist DB plan sponsors during these difficult times.
For their part, certain pension regulators have issued directions that aim to support the sustainability of DB plans in a volatile time. For example, the federal Office of the Superintendent of Financial Institutions (“OSFI”) has instituted a full freeze on portability transfers and buy-out annuity purchases relating to DB plans, effective March 27, 2020. According to OSFI’s explanatory letter, this measure is intended to “protect the benefits of plan members and beneficiaries, given that current financial market conditions have negatively affected the funded status of pension plans”. More details on these measures can be found in OSFI’s FAQ. Similarly, Alberta has restricted transfers of assets from pension plans if such transfers would impair the solvency of the plan, unless consent is obtained from Alberta’s Superintendent of Pensions. Ontario-registered plans will be required to seek regulatory approval for commuted value transfers (of a pension, deferred pension or ancillary benefit) if the plan’s transfer ratio has fallen by 10% or more since the most recently determined transfer ratio, or if the most recently determined transfer ratio was above 1 and has fallen to 0.9 or less.
Waiting on relief for defined contribution plan sponsors
In a recent op-ed for Benefits Canada, we called on legislators to consider various relief measures, including deferring or suspending employer contributions to defined contribution (“DC”) plans. CRA policy currently requires DC plans to provide for an employer contribution in each year of at least 1% of the remuneration of participating employees for that year. We understand that there has been discussion among authorities about permitting the suspension of employer contributions to DC plans as a cost-saving measure. However, as of April 15, 2020 we are not aware of any such change being formally implemented or announced.
Flexibility for certain compliance requirements
Pension regulators across Canada have announced their intentions to exercise enforcement and discretionary powers flexibly in respect of various compliance requirements. Measures announced include:
- Extended amortization periods: Alberta will permit [PDF], on a case by case basis, extensions to amortization periods for unfunded liabilities or solvency deficiencies. It will also permit extensions of deadlines to remit contributions. Plan administrators should contact the Superintendent’s Office directly if they wish to pursue this course of action.
- Extension of filing deadlines for actuarial valuation reports (AVRs): Plans registered in the federal jurisdiction, Alberta [PDF], British Columbia [PDF], New Brunswick (in respect of AVRs due to be filed prior to April 30, 2020), Nova Scotia (in respect of AVRs due to be filed March 31 or April 30, 2020) and Ontario may take advantage of filing extensions for AVRs and cost certificates due to be filed in 2020.
- Extension of filing deadlines for reporting requirements: Most pension regulators have granted extensions of deadlines to file certain regulatory reporting documents such as annual information returns (AIRs), annual information summaries (AIS), auditors’ reports and financial statements. These include regulators in the federal jurisdiction, Alberta [PDF], British Columbia [PDF], New Brunswick(in respect of AIRs due to be filed prior to April 30, 2020), Newfoundland [PDF] (in respect of AIRs due to be filed between March 31 and June 30, 2020), Nova Scotia (in respect of AIRs due to be filed March 31 or April 30, 2020), Ontario and Saskatchewan [PDF].
- Flexibility for required member disclosures: Pursuant to pension standards legislation, plan administrators are required to make certain periodic disclosures to members (e.g., annual or biennial statements in respect of active, former or retired members), as well as disclosures triggered by events such as termination of employment or retirement. Pension regulators have offered varying relief in respect of some disclosure requirements, including OSFI in the federal jurisdiction, Alberta’s [PDF] Superintendent of Pensions, the British Columbia [PDF] Financial Services Authority, and Saskatchewan’s [PDF] Financial and Consumer Affairs Authority. In Ontario, the Financial Services Regulatory Authority (“FSRA”) will forbear from levying administrative monetary penalties if plan administrators advise that they will not meet prescribed timelines for member disclosures and inform FSRA of their “proposed plan of action”. The regulators encourage (and in some cases expect) that plan administrators will notify affected individuals that there will be a delay in receiving the disclosure.
- As of April 15, 2020, Quebec is “assessing various scenarios” and “working on the possibility of implementing temporary easing measures that would lighten the administrative burden of supplemental pension plan management”. We understand that more detailed announcements are forthcoming.
We recommend that plan administrators carefully examine guidance provided by the pension regulator of the province of registration in order to determine the type of relief available to the pension plan, and whether the plan administrator needs to notify or apply to the regulator to obtain relief.
Federal income top-up programs
The federal government has announced a series of programs to assist employers and employees with supplementing lost or reduced income as a result of the COVID-19 pandemic. For example, beginning April 6, 2020, the federal government began accepting applications for the Canada Emergency Response Benefit (“CERB”). Top-up EI benefits are available to certain eligible employees who applied for EI prior to March 25, 2020. For further details about eligibility for these programs and how to access them, please visit Osler’s COVID-19 Quick Reference Considerations for Employers.
From an employee benefits perspective, employers reviewing options should be mindful of how the various relief programs interact with one another and with the employer’s existing employee benefit programs. For example, it is not clear whether employers will be able to top-up employee benefits through a supplemental unemployment benefit plan in respect of employees who are in receipt of a CERB benefit for a given period. As of April 15, the government has not issued a position on how these benefits could interact. Sponsors of employee benefit plans should contact their benefit plan provider if they have questions about the scope of benefits currently offered in their existing plans.
By Jana Steele and Olivia Suppa, Osler