On July 2, 2020, the Department of Finance announced the release of proposed amendments to the Income Tax Regulations (Canada) that would assist registered pension plan (RPP) administrators and sponsors to manage and maintain their benefit obligations through the COVID-19 pandemic.

The temporary relief measures that apply to RPPs are as follows:

• Extend the deadline to retroactively credit pensionable service: Pursuant to subsection 8308(4) of the Regulations, a member of a defined benefit provision of a pension plan may be permitted the option to elect to have an eligible period of reduced service credited as pensionable service under the plan, provided the election occurs by April 30 of the year following the year in which the eligible period of reduced service ends. Similar rules apply under subsection 8308(5), for eligible periods of reduced service under money purchase (MP)/defined contribution (DC) provisions. When any of these Regulations apply, plan members can have the period recognized on a current service basis, so that employers can report the period by way of a pension adjustment rather than a past-service pension adjustment.

  Section 8308 of the Regulations is proposed to be amended 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 of reduced service that ended in 2019. 

• Permit retroactive contributions in respect of 2020: Section 8308 of the Regulations is proposed to be amended by adding new subsections (5.1), (5.2) and (5.3) to permit a retroactive contribution to be made to an employee’s MP/DC account, in respect of the year 2020, whether or not the employee had reduced employment service or reduced pay, subject to three conditions:
  • a retroactive contribution is made by the employee (or the employee makes a written commitment to make the contribution) after 2020 and before May 2021;
  • in the case of a contribution payable by a participating employer, the contribution is made after 2020 and before May 2021 (or, for a matching contribution made at any later date, the contribution is conditional on the contribution that the employee committed to make); and
  • the contribution must replace, in whole or in part, a contribution that would have been required for the 2020 year but for an amendment made to the plan that reduced required contributions.
  If these conditions are met, the retroactive contribution would be added to the employee’s pension adjustment for 2020. This proposed change would effectively permit retroactive contributions to a MP account to replace contributions that were not made in 2020 and ensure that retroactive contributions plus regular contributions in 2021 do not exceed the maximum contribution limit (the pension adjustment limit) for 2021.

• Recognize pension coverage during periods of reduced pay: A new subsection (1.3) to section 8500 would amend the Regulations to modify the “eligible period of reduced pay” definition in two ways for 2020.
  • First, the proposed new subsection would set aside the 36-month employment requirement, such that, for 2020, an employer would be able to provide unreduced pension coverage to all employees, including newer employees (employees with less than 36 months of employment with the employer).
  • Second, the proposed new subsection would also remove the requirement that the reduction in pay be generally commensurate with the reduction in work hours. For example, if an employee had worked full-time for a period in 2020 during which wages had been reduced by 20 percent, the proposed relief would permit the employer to provide pension coverage based on 100 percent of the wages that existed before the reduction.
• Relax RPP borrowing restrictions: Ordinarily, a RPP is prohibited from borrowing, except in limited circumstances. Section 8502 of the Regulations is proposed to be amended to temporarily suspend the 90-day limit on borrowing and the prohibition on a borrowing being part of a series of loans or repayments. Under the proposed amendment, a RPP would be permitted to enter into a loan or a series of loans after April 2020 as long as the loan or series is repaid no later than April 30, 2021.

  Note, the rule that plan property may not generally be pledged as security for a borrowing would continue to apply. The proposed amendments do not include changes to the conditions related to borrowing to acquire real property.