Update No. 2: Considerations for Pensions and Benefits During COVID-19

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Further to our April 2020 Blakes Bulletin: Update: Considerations for Pensions and Benefits During COVID-19, the following are highlights of subsequent legislative and regulatory updates relevant to COVID-19.

This bulletin discusses COVID-19-related updates from the following jurisdictions:

  • Ontario

  • Federal

  • Quebec

  • British Columbia

  • Saskatchewan

  • Manitoba

  • Nova Scotia

  • New Brunswick

  • Newfoundland and Labrador

ONTARIO

FSRA’s New Approach to Limitations on Defined Benefit Commuted Value Transfers and Annuity Purchases

On May 22, 2020, the Financial Services Regulatory Authority of Ontario (FSRA) released Approach No. PE0202APP (Approach) which outlines FSRA’s approach reviewing applications to transfer commuted values (CVs) or to purchase annuities pursuant to sections 19(4) and (5) of Regulation 909 (Regulation) under the Pension Benefits Act (PBA).

Administrators of defined benefit pension plans should carefully consider the Approach given recent market volatility arising from the COVID-19 pandemic. The Approach was developed to address events when a defined benefit pension plan’s transfer ratio (TR) has declined by 10 per cent or more and the resulting TR is below 0.9.

For more information, please see our May 2020 Blakes Alert: FSRA Releases Approach to Limitations on Defined Benefit Commuted Value Transfers and Annuity Purchases.

FSRA Updates to the Pension Sector Emergency Management Response Guideline

On May 22, 2020, FSRA updated its Pension Sector Emergency Management Response Guidance, previously issued on April 24, 2020, as discussed in our April 2020 Blakes Alert: FSRA Releases Pension Sector Emergency Management Response. In addition to updates in respect of the Approach, FSRA updated guidance on preparation of actuarial valuation reports. FSRA also updated its guidance regarding Pension Benefit Guarantee Fund assessment payments and changes to penalties for late payments in light of Ontario Regulation 187/20, which was filed on April 30, 2020.

As previously announced by FSRA, until further notice, FSRA will not order the wind-up of a defined contribution pension plan solely because it has been amended to temporarily suspend contributions for a portion of the 2020 calendar year as a result of COVID-19, subject to FSRA’s ability to act upon the facts of any particular case.

Electronic Designation of Beneficiaries for Certain Plans

On May 12, 2020, Bill 190, COVID-19 Response and Reforms to Modernize Ontario Act, 2020 (Bill 190), received royal assent. Among other things, Bill 190 amends the Succession Law Reform Act (SLRA) to provide that a participant may designate a person to receive a benefit payable under a “plan” on the participant’s death by a signed instrument (under section 51(1)(a) of the SLRA) electronically in accordance with the Electronic Commerce Act, 2000.

A consequential amendment was also made to section 30.1.1 of the PBA.

FEDERAL

Department of Finance Announces Coming into Force of Regulations Providing Relief to Federally Regulated Pension Plan Sponsors

On May 29, 2020, the Department of Finance announced the coming into force, on May 27, 2020, of the Government of Canada’s (Government) Solvency Special Payment Relief Regulations, 2020 (Regulations), which establishes a moratorium on solvency special payments. This temporary relief was initially announced by the Government on April 15, 2020, as discussed in our April 2020 Blakes Bulletin: Update: Considerations for Pensions and Benefits During COVID-19.

The Backgrounder provides that the Regulations reduce solvency special payment requirements for any plan year between the coming into force of the Regulations on May 27, 2020, and the end of 2020, by the total amount of all instalments of those payments due from April 1, 2020, until December 30, 2020 (i.e., in respect of the months of March 2020 to November 2020). The Backgrounder also indicates the following:

  • From May 27, 2020, until December 30, 2020, the amounts of any solvency special payments that become due are reduced to zero, and plans are not required to make instalments of solvency special payments
  • The amounts of any solvency special payments made from April 1, 2020, until May 27, 2020, may be deducted from the plan’s normal cost contributions and/or going concern special payment requirements that become due in the period beginning May 27, 2020, and ending on December 30, 2020
  • This effectively provides a nine-month moratorium on solvency special payments for plan sponsors
  • While the Regulations provide a temporary moratorium on monthly solvency special payments, plan sponsors may continue making contributions in respect of their plans’ solvency deficiencies should they so choose. Under the Regulations, these contributions may only be considered additional payments and applied to subsequent plan years to the extent that the payments exceed the solvency special payments that would have been required in the absence of the Regulations

The Backgrounder outlines that that the Regulations provide that interest is not payable on solvency special payment instalments that became due between March 31, 2020, and the day the regulations came into force (i.e., May 27, 2020). For plan sponsors that use letters of credit to meet solvency special payment obligations, the Regulations provide the ability to reduce the face value of letters of credit already obtained in respect of solvency special payments covered by the moratorium period. Starting in January 2021, plan sponsors will again be required to make their monthly solvency special payments, starting with the payment in respect of December 2020. The Regulations do not set out a separate amortization schedule for the payments that were foregone during the moratorium period. At the end of the moratorium period, plans will be subject to the normal funding rules in the Pension Benefits Standards Regulations, 1985 (PBSR).

The Regulations restrict the ability to amend a pension plan where the amendment would reduce the plan's funded position in certain circumstances. The Regulations also include additional disclosure requirements in respect of solvency special payment reductions.

The Office of the Superintendent of Financial Institutions (OSFI or Superintendent) has updated its FAQs for Federally Regulated Private Pension Plans (FAQs) to provide further information in respect of the Regulations. The FAQs confirm that, among other things, employers may continue to make solvency special payments.

CRA Introduces Temporary COVID-19 Relief Measure for Defined Contribution Pension Plans

On May 5, 2020, the Canada Revenue Agency (CRA) announced that, in light of the COVID-19 pandemic, the Minister of National Revenue will waive the requirement that a money purchase (defined contribution) provision must have terms that require employers to contribute at least one per cent of the total pensionable earnings of all active members participating under the provision each year for the remainder of 2020 if the plan is amended to suspend accruals under the plan for the year; this means that there will be no employer or employee contributions made to the plan or provision following the plan amendment. This measure only applies for the remainder of 2020 for plans that submit an amendment to the CRA Registered Plans Directorate.

OSFI Revises Private Pension Plan Directives Related to Portability

On May 7, 2020, OSFI revised the Directives of the Superintendent pursuant to the Pension Benefits Standards Act, 1985 (Directives) to ease the restrictions on portability for members who are within 10 years of meeting their plan's requirements for an unreduced pension (i.e., pensionable age), and therefore eligible for early retirement. Though not required, some plans allow members who are within 10 years of pensionable age (i.e., eligible for early retirement) to transfer the value of their pension benefit out of the plan. The Directives were revised to provide the Superintendent’s automatic consent to portability transfers to locked-in vehicles for members who are within 10 years of pensionable age (i.e., for those eligible for early retirement) subject to certain criteria. The three transfer criteria are as follows:

  1. The amount of the initial transfer cannot exceed the transfer value (i.e., the commuted value of the pension benefit multiplied by the plan’s transfer ratio (TR)).
  2. Where the plan’s TR is less than one, the full commuted value (CV) can only be transferred if the plan administrator remits to the fund the amount by which the CV exceeds the transfer value (i.e., the transfer deficiency).
  3. Where the full amount of the CV is not transferred to an individual, the transfer deficiency shall be transferred on the earlier of (i) five years from the date the CV of the pension benefit was calculated and (ii) the date on which the solvency ratio of the plan is determined to be one, based on an actuarial report with a valuation date no earlier than March 31, 2020.

In light of the easing of restrictions on portability for members who are eligible for early retirement, OSFI updated its FAQs for Federally Regulated Private Pension Plans (FAQs) discussed in our April 2020 Blakes Alert: OSFI Updates FAQs for Federally Regulated Private Pension Plans and FAQs: Canadian Pension Plans and COVID-19. The updated FAQs, amongst other things, provide that:

  • The revised Directives only provide the Superintendent’s automatic consent for transfers to prescribed retirement savings plans for members eligible for early retirement. Prescribed retirement savings plans are locked-in registered retirement savings plans, life income funds and restricted life income funds, as set out in the PBSR. Portability transfers to other pension plans or used to purchase an annuity continue to require the Superintendent’s consent.
  • A plan administrator cannot decide not to transfer on behalf of its members who are eligible for early retirement. If a plan allows members who are eligible for early retirement to transfer the value of their pension benefit out of the plan, then the transfer must be processed in accordance with the Directives. If a plan administrator has concerns about complying with the Directives, they should contact their OSFI Relationship Manager.
  • As a result of the recent changes to the Directives, any transfers to locked-in vehicles that were in process on March 27, 2020, for members who were within 10 years of pensionable age at the time of cessation of membership, may now be processed by the plan administrator, subject to the transfer criteria.
  • If the Superintendent has previously granted consent for one or more transfers or annuity purchases, the consent and any applicable conditions continue to apply after the revisions to the Directives on May 7, 2020.

CRA Announces Deadline Extension for Eligible Periods of Reduced Pay

On May 1, 2020, CRA announced that, in light of 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 of reduced pay that ended in 2019. Plan members can make an election under their plans, subject to any plan restrictions, on or before June 1, 2020.


Canada Emergency Wage Subsidy

On May 15, 2020, the Government of Canada announced that it will extend the Canada Emergency Wage Subsidy (CEWS) by an additional 12 weeks to August 29, 2020. The Government of Canada also announced the approval of regulations to expand eligibility for the CEWS to certain groups.


Canada Emergency Student Benefit

On May 1, 2020, Bill C-15, Canada Emergency Student Benefit Act received royal assent. The Canada Emergency Student Benefit (CESB) provides students who are (i) unable to work due to COVID-19, (ii) looking for, but cannot find work due to COVID-19, or (iii) currently working during the COVID-19 pandemic but their income from employment and self-employment has been C$1,000 or less before taxes during the four-week eligibility period, with C$1,250 for each four-week period May to August 2020. Students with disabilities and students with dependants may be eligible to receive an additional C$750 for each four-week period. Students are not eligible to apply for the CESB if they have already applied or are receiving support from the Canada Emergency Response Benefit or Employment Insurance.

QUEBEC

Retraite Quebec’s COVID-19 Frequently Asked Questions

On May 19, 2020, Retraite Québec (RQ) announced additional information on the temporary relief measures for supplemental pension plans. For more information on the temporary relief measures, please see our April 2020 Blakes Bulletin: Quebec Announces Temporary Relief Measures for Supplemental Pension Plans During COVID-19.

In the Frequently Asked Questions (RQ FAQ), RQ confirmed that the three-month deadline extension applies to most deadlines for providing documents to RQ or members, except for the deadlines for sending a statement of cessation of participation of membership to a member or for filing transfer applications. RQ explained that those deadlines were not extended because it wanted to allow members who lost their employment to access their retirement savings if needed.

RQ also provided additional information regarding the degree of solvency to be taken into account for transfer and refund payments to be made under defined benefit pension plans between April 17, 2020, and December 31, 2020. For instance, RQ indicated that this temporary relief measure was mandatory and that it also applied to members who requested the transfer of their benefits before April 17, 2020, and whose benefits had not been paid as at that date. In addition, RQ also provided information regarding the payment of residual benefits—including interests—to which members or beneficiaries were entitled, but which could not be paid at the time of the initial transfer because of the plan’s degree of solvency at that time. In this respect, RQ indicated that the residual benefits must first be paid into the pension fund before being refunded to the member or beneficiary. RQ also provided additional details concerning the appropriate method to assess the plan’s degree of solvency in the RQ FAQ.

BRITISH COLUMBIA

BCFSA’s COVID-19: Frequently Asked Questions

On April 29, 2020, the B.C. Financial Services Authority (BCFSA) released PENS 20-004, COVID-19: Frequently Asked Questions (BCFSA FAQ) to address some common questions plan stakeholders may have regarding issues stemming from the COVID-19 pandemic.

The BCFSA FAQ provides, amongst other things, that:

  • A defined contribution pension plan may suspend contributions as a result of the COVID-19 pandemic. Where the employer wishes to suspend employer contributions, employee contributions, if required, including additional voluntary contributions, must also be suspended for the full period. In addition, if benefits cease to accrue under the plan, an administrator must apply to the B.C. Superintendent of Pensions (B.C. Superintendent) to continue the pension plan in accordance with section 95 of the Act. In the absence of such an application, the plan is terminated and must be wound up.
  • If the plan terms include provisions that allow for deemed earnings for continued accruals (contributions) during a temporary leave of absence or eligible period of reduced pay, then employers may continue to make contributions for such periods using the prescribed compensation rules under the Income Tax Regulations. Otherwise, contributions must be made based on earnings which reflect employees’ current work schedule and in accordance with the plan text document.
  • Administrators wishing to extend the amortization period and/or contribution rate remittance deadline must make an application, in writing, to the B.C. Superintendent. The application must include a description of the circumstances and any other information, including financial statements, required by the B.C. Superintendent to make a determination. Where an amortization period and/or contribution rate remittance deadline extension is granted, an amended Schedule of Expected Contributions must be filed with the plan’s fundholder.
  • As provided under section 72(3) of the B.C. Pension Benefits Standards Act, an administrator of a pension plan must not, without the consent of, or without being directed to do so by the B.C. Superintendent, transfer assets out of the pension fund, if such transfer would impair the solvency of the plan. It is the administrator’s responsibility to determine whether a transfer would impair the solvency of the plan and restrict lump-sum transfers, where appropriate. If the administrator intends to suspend a commuted value payment or transfer a lump-sum out of a defined benefit plan based on a lower solvency ratio of the plan, the BCFSA expects that the plan will notify the B.C. Superintendent of that decision in writing, and include an actuarial cost certification from the plan’s actuary attesting to the deterioration in the solvency position of the defined benefit plan, and a description of the administrator’s proposal for suspension of payment of commuted values during the interim period.

SASKATCHEWAN

Suspension of Contributions in a Defined Contribution Pension Plan

On May 6, 2020, the Saskatchewan Financial and Consumer Affairs Authority (FCAA) announced that the Saskatchewan Superintendent (Sask. Superintendent) would allow a plan amendment to suspend employer contributions under the following circumstances:

  • An amendment must be filed which provides that both employer and member contributions are suspended. The FCAA will not register an amendment that only suspends employer contributions.
  • The amendment must be on a go-forward basis only.
  • The amendment must set out a time period for the suspension. The FCAA expects that this is a temporary measure.

Given the current COVID-19 disruption, the Sask. Superintendent will not terminate a plan solely because the plan has been amended to temporarily suspend employer and member contributions for a period that lasts no longer than December 31, 2020, subject always to the Sask. Superintendent’s ability to act upon the facts of any particular case.

Freeze on Transfers or Payments out of Defined Benefit Plans

On May 14, 2020, the FCAA updated its Questions and Answers (Q&A) on the freeze on transfers or payments out of defined benefit plans. Specifically, the FCAA updated its guidance on the circumstances under which the Sask. Superintendent would grant consent for a transfer, payment or an annuity purchase and how a plan member or beneficiary can make a request for consent for a transfer, payment or annuity purchase.

MANITOBA

Communique #1 – Covid-19 Administrative Matters

On May 11, 2020, the Manitoba Office of the Superintendent – Pension Commission (M.B. Pension Commission) released Communique #1 – COVID-19 Administrative Matters (Communique), which provides guidance in light of the evolving circumstances around COVID-19 and its impact on pension plans.

The Communique provides that the deadline for filing annual information returns (AIRs) has been extended as follows: (i) by June 30, 2020, in the case of a plan whose last fiscal year ended in October 2019, (ii) by July 31, 2020, in the case of a plan whose last fiscal year ended in November 2019, or (iii) by August 31, 2020, in the case of a plan whose last fiscal year ended in December 2019.

The M.B. Pension Commission also provided a reminder that in the event a plan administrator becomes aware that the pension plan’s solvency position has declined since the last filed actuarial valuation report (AVR), in doing its due diligence the administrator should take the necessary steps to assess whether further transfers based on the solvency ratio as of the last filed valuation or cost certificate would impair, or further impair, the solvency of the plan. Administrators seeking guidance on adjusting or resetting transfer deficiency prior to the filing of a new actuarial valuation are directed to the M.B. Pension Commission’s Bulletin 7. Further, in respect of review dates for AVRs, the M.B. Pension Commission has noted that plan administrators may elect to have a plan reviewed prior to the statutorily required review date.

In respect of electronic information and electronic filings, the M.B. Pension Commission has outlined that, except as otherwise provided in the Regulation or the terms of a plan, any information to be provided by an administrator to a member or other beneficiary of a plan, or to a current or former spouse or common-law partner of a member, may be sent via e-mail to the person, in addition to ordinary mail or in another manner that has been approved by the Manitoba Superintendent of Pensions. Additionally, the M.B. Pension Commission encourages plan administrators to file AIRs via the online submission form, and pension plan texts, AVRs, financial statements, member booklets and other supporting documents as PDFs by email to pensions@gov.mb.ca.

NOVA SCOTIA

Update on Extension of Deadlines for Annual Information Returns and Audited Financial Statements

The Nova Scotia Finance and Treasury Board provided an update on its initial extension of filing deadlines for AIRs and AVRs, as discussed in our April 2020 Blakes Bulletin: Update: Considerations for Pensions and Benefits During COVID-19. AIRs and audited financial statements due between March 31, 2020, and June 30, 2020, have been given a filing extension until August 31, 2020. The extension is automatic—plan administrators do not need to apply for it.

NEW BRUNSWICK

FCNB’s COVID-19 Update

The Financial and Consumer Services Commission of New Brunswick (FCNB) has updated its COVID-19 guidance to provide, amongst other things, that:

  • If an employer would like to suspend contributions to a defined contribution plan for the remainder of 2020, it can be done on a go-forward basis by making an amendment to the pension plan and filing it for approval with FCNB. Provided they have filed the appropriate amendment, the New Brunswick Superintendent of Pensions (N.B. Superintendent) will not order a plan to be wound up pursuant to subsection 61(1) of the New Brunswick Pension Benefits Act, solely because an employer temporarily ceased contributions for a portion of the 2020 calendar year as a result of the COVID-19 economic disruption.
  • The N.B. Superintendent has extended the time limit for filing any AIRs and providing annual statements to members due on or before June 30, 2020, by 90 days. The N.B. Superintendent has also extended the time limit for filing any AVRs and cost certificates due to be filed on or before September 30, 2020, by 90 days. This replaces the earlier extension of any AIRs and AVRs that were due by April 30, 2020, as discussed in our April 2020 Blakes Bulletin: Update: Considerations for Pensions and Benefits During COVID-19. FCNB reminds pension plan administrators that under subsections 9(1) and 9(3.11) of the General Regulation - Pension Benefits Act, the review date of an AVR must be no more than three years—or no more than 12 months, if the transfer ratio of the plan is less than 90 per cent—after the review date of the immediately preceding AVR.
  • FCNB reminds all pension plan administrators that if there is reason to believe that the transfer ratio or termination value funded ratio of the plan has been reduced by more than 10 per cent overall—for example, from 90 per cent to 80 per cent—since the review date of the most recently filed AVR, the administrator shall not transfer the commuted value unless, after recalculation, the transfer can be carried out under subsection 19(10) or 19(11) of the General Regulation – Pension Benefits Act or is approved by the N.B. Superintendent under section 37 of the Pension Benefits Act. Given the current volatility of the markets, the N.B. Superintendent is of the opinion that all plan administrators have reason to believe that the transfer ratio or termination value funded ratio has been reduced by more than 10 per cent, and therefore must closely monitor the transfer ratio of the plan. Further information regarding FCNB’s expectations for monitoring and recalculating transfer ratios is also provided.

NEWFOUNDLAND AND LABRADOR

Update on Extension of Filing Deadline for Annual Information Returns

On June 1, 2020, the Newfoundland and Labrador Superintendent of Pensions (N.L. Superintendent) announced further deadline extensions for filing AIRs following the end of the plan’s fiscal year, which will vary from one to six months based on the original deadline of the AIR. The N.L. Superintendent’s prior guidance on deadline extensions was discussed in our April 2020 Blakes Bulletin: Update: Considerations for Pensions and Benefits During COVID-19. A written request for a deadline extension is no longer required. The N.L. Superintendent has further indicated that these extensions do not apply to an AIR required on plan termination, which must be filed within three months of the wind-up date.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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