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Knowledge & Insights News & Views Volume 16 | Issue17 | Issue 5X MonthMay 2020 2019 In this issue COVID-19 pandemic brings unpaid 1 COVID-19 pandemic brings unpaid leaves into focus leaves into focus 3 Canada Revenue Agency suspends In light of the COVID-19 pandemic, a number minimum contribution rule for of Canadian jurisdictions have introduced new unpaid DC pension plans job-protected statutory leaves for employees who 4 Morneau Shepell’s May 2020 are required to take time off work due to quarantine, Pension Risk Bulletin care for family members, personal illness, or orders relating to public health. In addition, certain existing 4 FSRA releases additional COVID-19 update unpaid statutory leave periods may also apply to COVID-19 related absences by employees. Employers will want to 6 Federal government announces be aware of these rights and the impact they may have solvency payment moratorium on pension and retirement plans. 7 Tracking the funded status of pension plans as at April 30, 2020 9 Impact on pension expense under international accounting as at April 30, 2020 Federal In an effort to address job-protected illness or injury leave beyond the COVID-19 crisis, British Columbia The federal government has amended the also now allows employees to take up to three days Canada Labour Code (the “Code”) to create of unpaid job-protected leave each year due a leave related to COVID-19 of up to 16 weeks, or, to illness or injury after 90 days of consecutive if another number of weeks is fixed by regulation, employment with the same employer. If requested that number of weeks. The COVID-19 leave will by the employer, the employee must provide be in place until October 1, 2020, at which time reasonably sufficient proof that the employee it is scheduled to be removed from the Code. is entitled to take the illness or injury leave. The federal government has also created a new This change would bring British Columbia in line 16-week quarantine leave under the existing medical with other provinces in Canada. leave of absence provided under the Code, effective Manitoba October 1, 2020. Manitoba has announced an unpaid public health Ontario emergency leave for employees who require time Ontario has created a new form of job-protected away from work for reasons related to the COVID-19 leave for employees affected by a designated pandemic. The leave applies as long as the infectious disease, such as COVID-19. The leave circumstances set out in the legislation apply. is also available to employees who need to be Saskatchewan away from work to care for children due to school or daycare closures, or for the care, assistance Saskatchewan has enacted a new unpaid and support of “specified individuals” which are job-protected public health emergency leave. specific relatives prescribed in the new legislation. Newfoundland and Labrador Alberta Newfoundland has created a new communicable The government of Alberta initially provided 14 days disease emergency leave in response to COVID-19. of unpaid job-protected leave for employees to cover The leave applies as long as the circumstances set the self-isolation period that is being recommended out in the legislation apply. by Alberta’s chief medical officer of health. New Brunswick Alberta’s government subsequently extended New Brunswick has also created a new COVID-19 access to this unpaid job-protected leave for a flexible emergency leave. The leave applies as long as duration, which is based on the circumstances of the circumstances set out in the legislation apply. each case. The leave is also available to employees caring for children affected by school and daycare Pre-existing leaves may apply closures or illness, or for quarantined family In addition to the new forms of leaves set out above, members. pre-existing employment standards legislation relating to matters such as emergency leave, illness, British Columbia or the care of a family member, among others, may British Columbia has provided a job-protected leave apply to COVID-19 related absences by employees. for employees unable to work for reasons relating to Employers should be cognizant of these obligations COVID-19. The leave may be taken for as long as the when faced with an employee who is unable to work circumstance requires them to be away from work. due to a COVID-19 related reason. News & Views | May 2020 | Volume 17 | Issue 5 Morneau Shepell 2 Pension and benefit coverage Canada Revenue Agency Depending on the jurisdiction and whether the suspends minimum contribution employee is obligated to contribute to a pension plan, an employer may be required to continue to continue rule for DC pension plans pension and benefit coverage during the employee’s The Canada Revenue Agency has announced that leave period. it has suspended the minimum contribution rule Temporary lay-offs for defined contribution (DC) pension plans in 2020. The minimum contribution rule provides that a DC Employers are also considering issues relating pension plan must have terms that require employers to the use of temporary lay-offs in light of the to contribute at least 1% of the total pensionable impact of COVID-19 on their businesses. In general, earnings of all active members participating under the treatment of pension plan members during the provision each year. temporary lay-offs will depend on the circumstances of the lay-off, relevant employment standards In light of the COVID-19 pandemic, the Canada Revenue legislation and/or collective agreements, and any Agency will waive the 1% rule for the remainder applicable provisions in the pension plan documents. of 2020 if the plan is amended to suspend accruals Employers should also note the potential risk of under the plan for the year, meaning that there will constructive dismissal claims under the common law. be no employer or employee contributions made to the plan or provision following the plan amendment. This measure only applies for the remainder of 2020 Comment for plans that submit an amendment to the Canada Revenue Agency. Issues relating to the rights of employees during the COVID-19 pandemic can be complex and raise considerable difficulty. As governments Comment move to re-open the economy, employers will want to be aware of the rights of employees Employers in many DC pension plans have under employment standards legislation and already contributed amounts that would satisfy the impact those rights may have on their the minimum contribution rule for 2020, but the pension and other retirement plans. Canada Revenue Agency announcement provides additional comfort that the minimum contribution It is important to note that the circumstances rule will not be applied in 2020. Any suspension qualifying employees for COVID-19 related of contributions to a DC pension plan will require leaves vary and each particular case must advance notice to members and an amendment be considered in light of the legislation. Also, to be filed with the Canada Revenue Agency the usual requirements for advance notice and the applicable pension regulator. to employers, written evidence of medical conditions and a minimum period of Several pension regulators have confirmed that employment before taking a leave have such amendments are permitted under pension been waived in most jurisdictions that have legislation, but have pointed out that employers established special COVID-19 related leaves. must be cognizant of collective agreements and labour and employment law matters when considering such amendments. The minimum contribution rule only applies to DC pension plans and does not apply to pension plans with defined benefit provisions, group registered retirement savings plans, and deferred profit sharing plans. News & Views | May 2020 | Volume 17 | Issue 5 Morneau Shepell 3 Morneau Shepell’s May 2020 supply from insurers is steady for the most part. Most insurers are still open for business and Pension Risk Bulletin actively providing quotes when requested. They have adapted their quoting methodologies to deal Morneau Shepell’s Pension Risk Transfer Team with the large intra-day movements in spreads and publishes a periodic Pension Risk Bulletin to provide liquidity issues seen at the end of the first quarter. pension risk transfer and risk management updates and views to defined benefit pension plan sponsors • In the short term, plan sponsors and administrators in Canada. The May 2020 edition of the Pension should be asking themselves some important Risk Bulletin addresses the impact of the COVID-19 questions: pandemic for plan sponsors and for their risk management and risk transfer strategies. – Has my pension risk budget changed? Key highlights – Am I spending my risk budget efficiently? • As a result of the pandemic, several risks faced – Can I still transfer some or all of my pension risk? by defined benefit (DB) plans have materialized – Do I have the right governance structure to in the first quarter of 2020. The current crisis supervise, manage and administer my pension greatly exceeds any prior perfect storm from the investments? standpoint of DB plans. Some of the economic risks for DB plans in the current context include equity risk, interest rate risk, credit risk, liquidity risk and funding risk. FSRA releases additional • The effectiveness of risk management strategies COVID-19 update is being tested. Interest rate risk hedges, such as Liability Driven Investment (LDI) strategies, may On April 24, 2020, the Financial Services Regulatory become less effective given the current level of Authority of Ontario (FSRA) published additional interest rates. information setting out its response to the COVID-19 pandemic. The additional information updates the • Pension regulators across Canada have announced information discussed in the April 2020 News & Views a variety of temporary measures, such as relief article. measures on solvency special payments and suspension of buy-out transactions.

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