On Tuesday, the federal government tabled its 2015 pre-election budget, which included a few announcements that will be of interest to employers. Of particular note are the following announcements:

  • public consultations regarding the federal investment rules;
  • continued assessment of target benefit plans (TBP), including possible amendments of the Income Tax Act (ITA);
  • an initiative to promote harmonization of the requirements for pooled registered pension plans (PRPP) across Canada; and
  • changes to rules regarding tax free saving accounts (TFSA) and registered retirement income funds (RRIF).

Federal Investment Rules Consultation

In order to “reduce red tape and improve the investment climate in Canada”,  the government has indicated that it will undertake a public consultation on the usefulness of the 30% rule which  restricts pension funds from holding more than 30% of the voting shares of a company.  Any changes to this rule would apply to federally regulated plans plus all Canadian jurisdictions that have adopted the federal investment rules, as they are amended from time to time —namely, Ontario, British Columbia, Alberta, Saskatchewan, Manitoba and Newfoundland & Labrador.

Target Benefit Plans

Given the number of provinces moving ahead with TBP frameworks, the federal government has announced that it is ready to consider amendments to the ITA “to appropriately accommodate Target Benefit Plans within the system of rules and limits for Registered Pension Plans.”  Currently, TBPs are permitted in New Brunswick, Alberta and Quebec (for plans in the pulp and paper sector only), and British Columbia, Nova Scotia and Ontario have passed legislation (not yet in force) permitting TBPs in certain situations (e.g., collectively bargained or multi-employer plans).

We had raised the need for amendments to the ITA in our C.D. Howe Paper: “The Taxation of Single-Employer Target Benefit Plans – Where We Are and Where We Ought To Be”.  In particular, we noted that TBPs do not fit within the existing tax regime in respect of rules governing pension adjustments, maximum contributions, equal and periodic pensions, commuted value transfer limits, and “excess” assets.  In response, we discussed the following options:

  • Alternative 1: A default defined benefit (DB) approach, which applies the tax rules applicable to DB pension plans, with some modifications; or
  • Alternative 2: A defined contribution approach, which applies the tax rules applicable to DC pension plans, with some modifications. (This alternative DC approach is contemplated only where contributions under the TBP are limited to no more than 18% of compensation.)

The government also reiterated its interest in a federal framework for TBPs – indicating that it will continue to assess this option for Crown corporations and federally regulated private sector pension plans. The budget papers also note that any new regime will protect pension benefits by requiring members and retirees to consent to the treatment of accrued benefits at the time of plan conversion.

Pooled Registered Pension Plans

The budget notes that a number of provinces have followed the federal government’s lead and passed legislation (not yet in force) enabling PRPPs. (Except for Quebec’s version of PRPPs, the Voluntary Retirement Savings Plan, which is fully in force and available to Quebec residents.)  The federal government indicates that it will be leading an initiative with the provinces “to harmonize the supervision of PRPPs across Canada to achieve lower costs through a multilateral agreement.”

Other Savings Vehicles

In an effort to promote greater savings, beginning in 2015, the limit for contributions to a TFSA will increase to $10,000 (from the current $5,500), but this limit will no longer be indexed to inflation.

The budget also announces a reduction in the minimum annual withdrawal from a RRIF to permit seniors, aged 71 to 94, to preserve more of their retirement savings and continue sheltering their savings for longer periods.

Next Steps

It is not clear how much of this agenda the government will be able to implement before the upcoming federal election.  We will continue to watch out for and report on any new developments.