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Knowledge & Insights News & Views Volume 16 | Issue17 | Issue 8X MonthAugust 20192020 In this issue Federal government 1 Federal government issues draft issues draft tax relief tax relief for pension plans 3 Quebec publishes draft regulation for pension plans to provide temporary COVID-19 On July 2, 2020, the federal government released relief measures for pension plans new draft regulations aimed at providing relief for 4 Ontario COVID-19 deemed leave registered pension plans, as part of the government of absence raises pension issues of Canada’s COVID-19 Economic Response Plan. 5 Ontario introduces forms for DC plans offering variable benefits The draft regulations would amend the Income 6 Supreme Court of Canada orders Tax Regulations made under the Income Tax Act repayment of pension benefits (the Regulations) to provide temporary relief from made in error various rules applicable to registered pension plans. 8 Tracking the funded status of pension plans as at July 31, 2020 10 Impact on pension expense under international accounting as at July 31, 2020 • The existing restrictions that prohibit pension – The contribution is conditional on the member plans from borrowing money for periods of more making a written commitment, on or before than 90 days (with certain exceptions) will be April 30, 2021, to the plan administrator or a temporarily eased, permitting pension plans participating employer, to make a retroactive to enter into loan agreements after April 2020 contribution as provided above. and before February 2021, provided the loans Such a retroactive contribution replaces all or part are repaid no later than April 30, 2021. of a contribution that would have been required in • Where a member’s period of reduced services 2020 if not for a plan amendment reducing required ends in a year, and defined benefit (DB) pension contributions. plan past service is credited for that period before These additional contributions will be deemed April 30 of the following year, restated PAs are to have been made in 2020 for pension adjustment reported for the past years rather than PSPAs. purposes. They will remain deductible in the year Similarly, defined contribution (DC) pension plan in which they are made. contributions made before April 30 of the year following the year of termination of a period of • For the purpose of using prescribed compensation reduced services, to the extent that they relate to to determine benefit or contribution levels for a calendar year spanned by the period of reduced 2020, the amended Regulations will remove the services, are included in the PA for the calendar condition that an employee have been employed year. These deadlines are extended to June 1, 2020, for 36-months in the definition of “eligible period or a later date acceptable to the Minister, for of reduced pay.” periods of reduced services that ended in 2019. The extensions will accommodate delays that • The amended Regulations will also allow any may have resulted from COVID-19. periods during which employee wages are reduced in 2020 to qualify as eligible periods of reduced • To the extent that required contributions under pay for the purposes of prescribed compensation. a DC pension plan had been reduced in 2020, the This would allow a pension plan to provide pension amended Regulations will allow pension plans to contributions or pension benefits to employees permit catch-up contributions to be made in 2021. subject to wage reductions based on their wages Under the amended Regulations, “retroactive before the wage reduction. contributions” can be made provided: If the contribution is made by an individual member, Comment While no effective date for the amendments – The individual makes the contribution after has been announced, longstanding CRA practice 2020 and on or before April 30, 2021, or permits taxpayers to act on the assumption – The individual makes a written commitment, that proposed tax measures will be enacted. on or before April 30, 2021, to the plan The rules will provide additional flexibility to administrator or a participating employer, both employers and employees who are affected to make the retroactive contribution. by temporary absences of employment or wage reductions, as well as contribution reduction If the contribution is made by a participating amendments in defined contribution pension employer, plans. The additional borrowing flexibility – The employer makes the contribution after may also be of assistance during periods of 2020 and on or before April 30, 2021, or investment volatility. News & Views | August 2020 | Volume 17 | Issue 8 Morneau Shepell 2 Quebec publishes draft active members of the plan and would have to be issued termination or retirement statements. regulation to provide temporary 2. An actuarial valuation as at December 31, 2020 COVID-19 relief measures will not be required for a defined benefit pension for pension plans plan in the private sector whose funding level, determined by an actuarial valuation as at The draft regulation titled “Regulation respecting December 31, 2019, is less than 90%. The measures related to supplemental pension plans notice on the financial position of the plan as to reduce the consequences of the public health at December 31, 2020 must be sent to Retraite emergency declared on 13 March 2020 due Québec no later than nine months after that date. to the COVID-19 pandemic” was published on In addition, the next actuarial valuation will be July 15, 2020 in the Gazette officielle du Québec. required no later than on December 31, 2021. The draft regulation provides for temporary measures that are mainly intended to reduce the Previously announced measures effects of the economic slowdown and pandemic 1. With regard to the payment of benefits to on pension plans. members and beneficiaries of a defined benefit The main measures of the draft regulation are plan in the period from April 17, 2020 to described below. Some were previously announced December 31, 2020, the proposal is to use a by Retraite Québec and were discussed in the degree of solvency established monthly based April 2020 News & Views. on the plan’s estimated financial position. It is also proposed to use the last estimated degree New measures of solvency of 2020 for payments made in 2021, 1. Active members who are, for a temporary period, until a more recent degree of solvency, established no longer accruing benefits in a pension plan by an actuarial valuation or a notice on the may remain as active members of the plan. This financial position of the plan, has been sent measure applies to defined benefit and defined to Retraite Québec. contribution pension plans, including simplified 2. A number of the deadlines in the Supplemental pension plans. However, such temporary cessation Pension Plans Act for sending certain documents of accrued benefits must meet the following to Retraite Québec or plan members have been conditions: extended by three months. The extension applies • The temporary cessation of benefit accrual only for all deadlines that had not expired as at applies to service as of July 15, 2020. Note also March 12, 2020 and which otherwise would have that a plan amendment is required to this effect expired in 2020. For example, for a pension plan and that the cessation of benefit accrual will with a financial year ending on December 31, 2019, only take effect as of the date on which such the September 30, 2020 deadline for sending amendment becomes effective; and annual statements to plan members has been extended to December 31, 2020. The same • The temporary cessation of benefit accrual holds for actuarial valuations. must begin in 2020 and is limited to a maximum period of one year. Updates to Retraite Québec’s Frequency Asked Questions Note that it is already possible to amend a pension plan in order to suspend benefit accrual. However, In addition, the Frequently Asked Questions page without the proposed measure, plan members on the Retraite Québec website has been updated whose benefits cease to accrue would stop being with new information. News & Views | August 2020 | Volume 17 | Issue 8 Morneau Shepell 3 Retraite Québec advises that the 2020 annual Ontario COVID-19 deemed meeting must still be held and pension committee members whose term of office expires must still leave of absence raises be elected, although the annual meeting may be pension issues held by videoconference or other electronic means. An annual meeting can cover both 2019 and 2020, On May 29, 2020, the Government of Ontario provided it is held at the beginning of 2021. For enacted O. Reg 228/20: Infectious Disease pension plans with a financial year ending on Emergency Leave (the Regulation) which expanded December 31, 2019, the pension committee has until the scope of the Infectious Disease Emergency Leave December 31, 2020 (instead of September 30, 2020) under the Employment Standards Act, 2000 (the ESA). to call the annual meeting for 2019. The annual This introduces a new form of deemed leave for meeting is intended to provide members and temporarily laid-off non-unionized employees. beneficiaries with information about the pension Although primarily aimed at ensuring that temporary plan’s financial situation and about all amendments lay-offs due to COVID-19 do not result in mandatory made to the plan in 2019; it must therefore be terminations under the ESA, the new deemed leave held within a reasonable time following the call can also have an impact on pension and benefit plan to meeting. coverage. This development provides an update to the COVID-19 related leaves, discussed in the Retraite Québec has also provided guidance May 2020 News & Views. with respect to the new measure regarding active participation during a temporary suspension of Deemed infection disease benefit accrual, the degree of solvency for defined emergency leave benefit pension plans on member annual and The temporary provisions of the Regulation are termination statements and the impact of the retroactive to March 1, 2020, and continue until 2020 Agreement Respecting Multi-Jurisdictional six weeks after the provincial declared emergency Pension Plans on certain measures.

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