Pension changes busting out all over

A coast-to-coast look at legislative changes

Every spring, just as the earth sends forth a burst of colourful flowers, the nation’s legislatures send forth a burst of new laws. This year, pensions and benefits are fresh topics. Here is a bouquet of recent initiatives.

Federal past-service pension adjustments

Sponsors of defined benefit (DB) programs that link plan benefits to a specific dollar amount, rather than the Income Tax Act limit, should consider amending the plan document before the end of 2004. That’s because the 2003 federal budget raised the maximum pension limit for DB plans from $1,722.22 per year of service to $1,833.33 in 2004, $2,000 in 2005 and indexed to the average industrial wage growth thereafter.

Pension plan sponsors that want to incorporate these improvements but wait until after 2004 to amend plans will trigger a past-service pension adjustment (PSPA) for plan members, which will reduce members’ registered retirement savings plan deduction room and create reporting obligations for plan sponsors. A draft regulation proposes a temporary exception to the PSPA requirement, on the following conditions:

•the exclusion is only for the first flat benefit rate increase in the year;

•there is only a single flat benefit rate under the pension plan (that is, DB/DC combination plans are not part of the exception); and

•the pension plan amendment is made in either 2004 or 2005.

Federal pension plan registration rules

The Canada Revenue Agency (CRA) announced it will no longer accept incomplete applications for registering pension plans. Applications submitted with missing documents will be returned. The CRA is implementing this new procedure so that it may process complete applications sooner.

The following documents must be filed with CRA for the application to be considered complete:

•form T510;

•certified copies of the plan text;

•certified copies of the funding agreement (file draft documents not acceptable);

•certified copies of the resolution adopting the plan; and

•certified copies of any agreements relating to the plan.

Applications that contain all the required documents will be deemed registered within 60 days. The application will then be reviewed to ensure that the plan text complies with the Income Tax Act.

B.C. gives pension options

Recent changes to British Columbia’s Pension Benefits Standards Regulations affect life income funds (LIFs). An LIF is a contract between a pensioner and a life insurance company where the company agrees to provide lifetime income in exchange for the remaining value of the LIF. Previously, retirees who were receiving payment from an LIF were required to purchase an annuity at age 80.

The amendments remove the requirement to purchase an annuity at age 80, and also increase the maximum annual withdrawal limit for LIFs. These changes anticipate expected federal changes under the Income Tax Act that will allow pension plans to provide LIF-type monthly payments to pensioners. Previously, these types of flexible pension plan payments were not permitted.

Two other changes that also took effect April 1: small amounts in RRSPs and LIFs can now be unlocked if their value is under 20 per cent of the YMPE (year’s maximum pensionable earnings), which is $8,100 in 2004. In addition, the early-retirement rights of public safety workers under the public service and municipal service pension plans have been brought into line with those of other workers.

Ontario health-care changes

Ontario’s May 18 budget included the addition of health-care premiums based on income levels, and changes to some provincially insured services. Although the new premium is not called a tax, it is treated like a tax in many ways, and is subject to income tax withholding and installment rules. The amount increases as taxable income rises. Individuals earning less than $20,000 of taxable income will not pay any premium, while higher income earners will pay up to $900 per year (see table below).

The new premium will take effect on July 1, 2004 and will apply to seniors and retirees, as well as those who are still working. Anyone with a taxable income of more than $20,000 per year will be required to pay the premium.

Deletions from provincial health-care coverage announced in the budget include:

•optometry services (that is, routine eye exams), which were previously covered once every 24 months, will no longer be covered for those aged 20 to 64;

•chiropractic services, previously reimbursed at $9.65 per visit to a maximum of $150 per person per year, will no longer be covered; and

•physiotherapy services will no longer be covered, except for seniors served through home care and long-term care.

All in all, more items for employees to ask for as corporate benefit plan additions.

N.B. grants help with pension plan funding

New Brunswick plan sponsors facing funding deficiencies have been granted relief through a recent regulation. Previously, pension plans with solvency deficiencies were required to fully fund the deficiency over a five-year period. As of Dec. 1, 2003, plan sponsors can now apply to the superintendent to reduce solvency payments by extending the amortization period up to 15 years. The latest possible date of extension is Dec. 31, 2018, and certain conditions apply.

N.B. Reg. 2003-87, which came into effect Dec. 1, 2003, also added some attractive options for employees:

•a change in the threshold for unlocking small pensions;

•an increase in the minimum pre-retirement death benefit from 60 per cent to 100 per cent of the pension’s commuted value; and

•eligibility for a deferred pension at the earlier of five years of employment and two years of continuous plan membership.

Retirees with defined contribution plans will no longer be required to purchase an annuity when they retire; and retirees who wish to return to work and suspend receiving benefits will be able to do so.

N.S. kills “grow-in” provisions

Nova Scotia’s Bill 62, the Financial Measures (2004) Act, implements a number of budget proposals, including one to eliminate “grow-in” benefits under the province’s Pension Benefits Act. Grow-in benefits currently apply upon full or partial pension plan windup. They bestow enhanced early retirement benefits upon any member whose age plus service equals at least 55 at the time of the windup.

Because grow-in liabilities have to be included in a plan’s solvency valuation, which is based on hypothetical windup value, they have generated serious solvency deficiencies for some plans. Their elimination would remove the requirement for special payments to make up for those deficiencies. Bill 62 received first reading on April 26.

Saskatchewan to allow ancillary contributions

Saskatchewan introduced The Pension Benefits Amendment Act, 2004 (Bill 47) on May 4. The bill adds a new provision allowing for optional ancillary contributions by members of defined benefit plans that have added a provision for optional ancillary benefits. The bill also clarifies the rules regarding pre-retirement survivor benefits; and allows the maximum limits for small benefits to be set by regulation rather than specified within the act. This will make it easier to update the limits in accordance with Income Tax Act limits, and improve pensioners’ ability to access their small benefits funds.

P.E.I., N.S. to compensate injured workers for chronic pain

A recent Supreme Court of Canada decision ruled that injured workers with chronic pain must have the same access to workers’ compensation as other injured workers. In response, both Prince Edward Island and Nova Scotia have introduced new laws.

P.E.I. Bill 33, An Act to Amend the Workers Compensation Act, received third reading on May 4. Bill 33 repeals the previous rules relating to chronic pain, including the definition of chronic pain and limits on its treatment as a compensable injury. The new law is currently awaiting proclamation.

Nova Scotia announced its new system to be implemented by regulation. The new chronic pain benefit will use a modified approach to the American Medical Association Guide’s 5th Edition as a framework for evaluating pain-related impairments. Workers with chronic pain will be assessed for a permanent medical impairment, which will then be used to calculate additional benefits.


Prince Edward Island has introduced new occupational health and safety legislation. Bill 39, the Occupational Health and Safety Act, received first reading on April 28. If passed into law, the bill would replace the former act from 1988.

N.B. remembers

New Brunswick now recognizes Remembrance Day as a statutory holiday.

A tax by any other name: Ontario's new health premium

Taxable income2004 taxation year2005 and subsequent taxation years
Up to $20,00000
$20,000 to $36,000$150$300
$36,000 to $48,000$225$450
$48,000 to $72,000$300$600
$72,000 to $200,000$375$750
More than $200,000$450$900

Sari Sanders is a lawyer and the head of Hewitt Canada’s research group. She may be contacted at (416) 225-5001 or [email protected]. HR Rulebook appears quarterly in Canadian HR Reporter.

Latest stories