The Canadian Source Of Employee Pension Fund Investment And Benefits Plan Management


Budget Focuses More On Public Sector

Parliament buildingThe federal budget, presented on February 11, 2014, contained only a few items of interest to the benefits and pensions industry. There were, however, some proposed amendments to public service compensation arrangements.

Continuing to control the size and cost of government by constraining public service employee compensation was an important part of the budget. The government stated that it will make implementing a disability and sick leave management system and a short-term disability plan part of the next round of collective bargaining. It also wants to decrease its share of retiree health benefit costs from 75 per cent to 50 per cent and increase the eligibility requirement for retiree health benefits from two to six years. The budget also reiterated the government’s commitment to work with Crown corporations to achieve 50-50 cost-sharing and increases to the retirement age for these pension plans by 2017.

For private pension plans, the one substantive proposal is an expansion of tax relief under the Income Tax Act (ITA) maximum transfer rules. This type of relief began when the Department of Finance provided relief to former Nortel plan members. It based the maximum transfer value of a member’s benefit on the lifetime pension benefit that would have been payable had the plan been fully funded, even though the plan was underfunded. This ensured that the amount the members could transfer on a tax sheltered basis was not reduced. Legislation in 2011 accommodated other situations where a plan sponsor was insolvent.

Last fall, the department issued a ‘comfort letter,’ followed by CRA Compliance Bulletin 8 and FAQs, stating that similar treatment would be provided in situations where there is a permanent reduction to members’ benefits and approval is obtained from the relevant pension regulator. The budget confirmed the government’s intention to proceed with this relief through amendments to the ITA and its regulations and clarifying that similar relief will be provided for individual pension plans where the payment represents the final payment made from the plan (that is, where the plan is being wound up). Ministerial approval will be required.

There were also some announcements of interest with respect to investment issues. First, the government made a 10-year financial commitment to infrastructure projects with $6 billion allocated to provincial and municipal infrastructure programs in 2014-2015. Of interest to pension funds is the government’s statement that all levels of government should explore public private partnerships as an alternative to financing these projects. The budget also noted that debt issuances will be similar to 2013 with a focus on long-term funding. In addition to 10- and 30-year bonds, the government may issue a 50-year bond.

The budget noted the intergovernmental agreement recently signed with the United States that granted significant exemptions from the disclosure and withholding requirements of the United States’ Foreign Account Tax Compliance Act (FATCA).

It also reiterated the federal government’s position that now is not the time for CPP expansion.

There were several changes with respect to health and group benefits. Employment insurance (EI) claimants receiving compassionate care or parents of critically ill children benefits, who themselves become sick or injured, will be able to temporarily suspend their claims and begin receiving EI sickness benefits. The government will also launch the Canadian Employers for Caregivers Plan to engage with employers on cost-effective workplace solutions to help maximize caregivers’ labour market participation. The plan will include the creation of an employer panel to identify promising workplace practices that support caregivers. Details will follow.

Eligible expenses under the Medical Expense Tax Credit (and, therefore, under a private health services plan pursuant to CRA policy) will now include the costs associated with service animals trained to assist diabetics and the costs for the design of an individualized therapy plan. GST/HST exemptions will be extended to acupuncturists’ and naturopathic doctors’ professional services and the design of individualized therapy plans. The list of GST/HST-free (zero-rated) medical and assistive devices will be expanded to include electronic eyewear ordered by a physician or optometrist that enhances the sight of the visually impaired.

Simon Laxon (LL.B) is a senior consultant at Towers Watson.

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