Here is our first issue of the Pension Alert in 2008. This issue contains a list of anticipated changes or developments to watch out for in 2008.
- Locked-In Rules. Legislative changes to the rules of locked-in accounts were introduced by different provinces in 2007. Most of these changes allow for more flexibility for withdrawals from locked-in accounts. 2008 will be a year of transition for some legislative changes, e.g., old LIF and LRIF will cease to be available on December 31, 2008 in Ontario and LRIF has ceased to be available in Alberta.
- Phased-In Retirement. The 2007 federal budget proposed changes to the income tax rules to permit phased-in retirement for defined benefit pension plans. Bill C-28 amended the Income Tax Act (Canada) and the Income Tax Regulations to implement the change. The amendments are now effective. In order to fully accommodate this tax change, amendments to pension legislation are required. The federal pension legislation is the first one to be amended to accommodate this change. Amendments were introduced by Bill C-28 and are expected to become effective sometime in 2008. Watch out for provincial governments as they may decide to follow suit and adopt changes to implement the phased-in retirement.
- Funding Relief or Arrangement. Funding requirements for defined benefit pension plans have been relaxed in several ways in recent years. For example, solvency funding relief regulations were enacted for federal pension plans, funding rules for multiemployer pension plans were amended and separate funding rules for jointlysponsored pension plans were introduced in Ontario, a 3-year funding exception was introduced for specified multi-employer pension plans in Nova Scotia and the use of letters of credit for solvency funding is now permitted in Alberta and Quebec and also under the federal pension legislation.
- Pension Legislation Review. Reports on several reviews of pension legislation are expected to be available in 2008. The Ontario Expert Commission on Pensions was set up in 2006 to review different aspects of defined benefit pension plans under the Ontario pension legislation. The invitation for submissions ended in November 2007 and policy papers, as part of its research program, were released on January 28, 2008.
The Alberta/British Columbia Joint Expert Panel on Pension Standards was set up in 2007 to review how best to ensure pension plans continue to benefit workers, employers and investors in the two provinces. The deadline for submissions is February 29, 2008 and the findings and recommendations are expected to be presented to both provinces' finance ministers by September 30, 2008. Nova Scotia has also announced a review of its pension legislation although details are not yet clear.
- Capital Accumulation Plans. The Joint Forum of Financial Market Regulators is conducting a survey aimed at sponsors and service providers of capital accumulation plans to assess the success of the Guidelines for Capital Accumulation Plans and to determine whether any changes are required.
- Non-Resident Trust ("NRT") Rules. Bill C-10 proposes new tax rules for investments in "non-resident trusts" effective 2007. The Bill has been passed by the House of Commons and is currently before the Senate. If Bill C-10 is enacted in its current form, investments by tax-exempt Canadian pension plans (or by master trusts in which such pension plans pool their investments) in a non-exempt non-resident trust could, in some circumstances, result in significant tax liabilities to the pension plan (or master trust). The NRT rules, therefore, represent a serious issue for Canadian pension plans which invest outside of Canada. The Canadian pension community has lobbied against the application of the NRT rules to tax-exempt Canadian pension plans. On December 11, 2007, the Pension Investment Association of Canada made a submission to the Minister of Finance and the relevant committees of both the House of Commons and the Senate outlining the draconian consequences of the NRT rules in the context of pension plan investment. The Senate has referred the NRT rules back to the Standing Committee on Banking, Trade and Commerce for further study. This Committee resumed its meetings on January 30, 2008. We will be monitoring the progress of this matter.
- Court Decisions. The members’ application for leave to appeal to the Supreme Court of Canada in Nolan v. Ontario (Superintendent of Financial Services) (i.e., Kerry case) was granted on January 31, 2008. Watch out for the Supreme Court of Canada decision.