New federal laws alter remittances and vesting
Keeping track of all the proposed pension changes and legislative reform across the country is a daunting but necessary task for payroll professionals.
“You can be guaranteed that employees will walk into payroll and say, ‘I heard about pension changes, how does this affect my pay?’” said Rachel De Grâce, payroll consultant for the Canadian Payroll Association. “Being knowledgeable helps build payroll’s credibility and emphasize payroll’s total involvement in anything financial that touches the employee.”
Bill C-9, The Jobs and Economic Growth Act, became law July 2010 and affects all sponsors and administrators of federally registered pension plans. There are a variety of changes but a few key ones are of specific interest to payroll.
Starting in 2011, the remittance requirement for normal and special payments will change from quarterly to monthly.
“Assuming payroll remittance responsibilities are not limited to just regular source deductions and payroll taxes, payroll managers might need to take measures to implement shorter remittances before the beginning of next year when new rules come into force,” said De Grâce.
Immediate vesting is another change that will affect the payroll department and the effective date had not yet been proclaimed at press time. Currently, vesting is required after a minimum of two years of plan membership but with the new rules, plan members will be vested immediately for all service upon enrollment.
“You could be hired one day, get paid the next day, receive company contribution into a defined contribution plan, quit or be fired the next day and keep that money,” said De Grâce. “It will look more like a group RRSP (registered retirement savings plan) in terms of walking away with company money or not.”
Aside from resetting the system to enroll an employee immediately into the pension plan upon eligibility, payroll can expect less work overall with this change.
“Payroll that was previously responsible for calculating and reporting pension adjustment reversals for defined contribution and deferred profit sharing plans will see a reduction in their work since the reversals will no longer be required due to immediate vesting,” said De Grâce.
However, pension adjustment reversals might still be required for defined benefit (DB) plan members if termination benefits are less than the previously stated pension adjustments, she said.
To best prepare for the remittance change, payroll might need to revise the current remittance schedule to make sure both employee and employer contributions are made no longer than 30 days after the end of the period in which the installment is paid, said De Grâce.
For immediate vesting, payroll should “keep the doors of communication open” with the pension department or administrator to be informed of the effective date, she said.
“Once immediate vesting becomes effective, if payroll gets a request to process a pension adjustment reversal, a warning light should come on since there will no longer be a need to process it outside of a DB plan,” said De Grâce.
In terms of pension changes in general, there needs to be a process in place where the plan administrator passes along the changes to payroll, said Donna Walwyn, head of the pension and benefits department at Baker & Mckenzie in Toronto.
“Payroll needs to be aware of the changes and needs to be given enough time to implement them; they can’t necessarily be done overnight,” said Jeff Somers, partner at Toronto-based law firm Blake, Cassels & Graydon. “Early awareness and bringing payroll into the loop early on, even in the planning stages is important.”
Payroll should self-educate through checking regulator and third-party service provider websites or subscribing to newsletters such as those from the Canadian Payroll Association, said Walwyn.
Effective employee communication is critical when transitioning to new pension legislation, said De Grâce. Payroll should be called upon to look over all written documentation such as recruitment and orientation packages as well as individual plan member statements and reports to make sure the changes are accurate, she said.
“The last thing you want is to face legal liability where there is a disconnect between the change payroll actually implemented and the change that is in the communications,” said Walwyn. “Payroll must absolutely be consulted so there is consistency between what is being communicated and what is being done.”
When faced with pension legislation changes, payroll should make sure to properly apply the terms of the plan, said Somers. Pay special attention to eligibility and contribution amounts for each employee and obtain written consent that outlines the amount the employee would like to contribute to the pension plan to help avoid legal issues, he said.
Clearly outline the respective roles of each department to help integrate new pension changes, said De Grâce. Proper communication between the payroll, pension, human resources and finance departments will help ensure a smooth transition to the new pension requirements, she said.
“There are often elements of pension administration that can fall into an abyss,” said De Grâce. “The pension department assumes payroll will automatically adjust to legislative changes, such as remittances, and payroll assumes anything pension related will be looked after by the pension department. Proper planning and ongoing communication between departments is essential; it’s mission critical.”
Whether it is the initial advising on the change or confirmation that the change has been made in order to ensure compliance, payroll plays an important role in ensuring the changes are properly adopted, said Walwyn.
If not done properly, employees will notice the incorrect amount of money coming off their pay and this looks bad on the employer and on the payroll department, said Somers.
Organizations should make sure payroll has the resources necessary to implement changes in a time sensitive manner or risk having employee relations issues.”
Other pension changes
•The 10 per cent surplus threshold will be increased to 25 per cent.
•Employers are no longer permitted to declare a plan partially terminated.
•Letters of credit will be allowed to satisfy solvency funding obligations.
•Enhanced disclosure obligations.
•Calculating pre-retirement death benefits.
•Superintendent has power to designate actuary to prepare report.
•Amendments that reduce the solvency ratio of a plan to below a prescribed level are void.
•Defined contribution pension plans permitted to provide variable benefits.
•Distressed pension plan workout agreements.
•Filing deadline for actuarial reports extended.
