Planned tax-focused measures aimed at helping plan sponsors and administrators as well as plan members
The Canada Revenue Agency (CRA) has unveiled its intentions to offer relief to pension plans amid the coronavirus pandemic.
In a blog post, Susan Seller, Jordan Fremont and Jaspreet Kaur of Bennett Jones said that the CRA’s Registered Plans Directorate (RPD) provided guidance on May 5 to reduce the burden for plan sponsors and administrators.
Under one planned measure, the Minister of National Revenue will waive a rule requiring employers to contribute at least 1% of the total pensionable earnings of all active members of a defined-contribution (DC) plan each year.
For tax purposes, the authors said, employers will be allowed to amend their pension plans to provide that they will not make contributions to the DC plan for the remainder of 2020. Plan sponsors and administrators must submit an amendment to the RPD to be counted under the measure, they said, advising that counsel should be sought with respect to potential labour and employment law issues and risks, as well as pension standards and requirements that may apply.
Another measure provides that pursuant to Income Tax Regulations of Canada, members of a defined-benefit (DB) pension plan may elect to have an eligible period of reduced pay credited as pensionable service under the plan, provided that “the election occurs by April 30 of the year following the year in which an eligible period of reduced pay ends.” Similar provisions apply for eligible periods of reduced pay under money purchase or DC provisions, they added.
In cases where any of the aforementioned provisions apply, they said plan members can have the period recognized on a current-service basis, allowing employers to report the period on a pension-adjustment basis rather than a past-service pension adjustment.
Due to the COVID-19 pandemic, the Department of Finance is proposing to extend the April 30, 2020 deadline to June 1, 2020 or a later date acceptable to the Minister of National Revenue, for eligible periods that ended in 2019 wherein a member experienced reduced pay.
