In its 2015 budget (Budget), the federal government announced a number of pensions and other retirement savings plans-related matters, which are discussed below.
30% RULE ON PENSION FUND INVESTMENTS
In its discussion of proposals to enhance investment in infrastructure, the federal government stated that it will undertake a public consultation on the usefulness of the rule in Schedule III to the federal Pension Benefits Standards Regulations, 1985 (Federal Investment Rules) that, subject to limited exceptions, currently prohibits a pension fund from holding more than 30 per cent of the rights required to elect the board of directors of a corporation. Changes to this rule would affect both federally regulated pension plans and pension plans governed by provincial legislation that incorporates the Federal Investment Rules.
POOLED REGISTERED PENSION PLANS
The federal government is continuing to promote pooled registered pension plans (PRPPs) as a retirement savings plan, noting in the Budget that PRPPs are available for employers and employees in federally regulated industries and the territories, and in Quebec under Quebec’s version of the PRPP, the voluntary retirement savings plan. PRPPs are at various stages in other provinces. The Budget notes that the federal government is leading an initiative with the provinces to harmonize the supervision of PRPPs through a multilateral agreement.
TARGET BENEFIT PLANS
The Budget provides that the federal government is continuing to assess target benefit plans (TBPs), for which it had previously engaged in public consultations, as discussed in our April 2014 Blakes Bulletin: Federal Government Proposes Framework for Target Benefit Pension Plans. The Budget indicates that the federal government continues to be of the view that member and retiree consent to the treatment of accrued benefits under a TBP at the time of plan conversion will be important. The federal government will also consider modifications to the tax rules relating to registered pension plans to better accommodate TBPs, including provincially regulated TBPs.
TFSA CONTRIBUTION LIMITS INCREASE
The Budget proposes to increase the tax-free savings account (TFSA) limit from C$5,500 to C$10,000, effective for the 2015 and subsequent taxation years. This new TFSA limit will no longer be indexed to inflation. A TFSA allows individuals to earn tax-free investment income. Employers may wish to review how this change to the TFSA limit may impact the pension and other retirement savings plans they offer to their employees.
REDUCING MINIMUM WITHDRAWAL FACTORS FOR RRIFS
A registered retirement income fund (RRIF) is a retirement income vehicle established through the transfer of amounts from registered pension plans and other retirement savings plans, such as registered retirement savings plans. Amounts must be withdrawn annually from RRIFs, beginning the year after the RRIF is established, according to a formula in the Income Tax Act (Canada). The Budget proposes to adjust the minimum withdrawal factors in this formula for ages 71 to 94 such that individuals will be permitted to withdraw lower amounts from their RRIFs, for the 2015 and subsequent taxation years.
RRIF holders who withdraw more than the reduced minimum amount in 2015 will be permitted to re-contribute the excess amounts to their RRIFs until February 29, 2016, up to the amount of the reduction in the minimum withdrawal amount provided by this change.