Federal Liberals Address Pension Issues And Pharmacare
Authored By: Simon Laxon | Publish Date: March 21, 2019
Authored By: Simon Laxon | Publish Date: March 21, 2019
On March 19, 2019, Liberal Finance Minister Bill Morneau tabled the Liberal government’s fourth budget and the last one before the next federal election. Below are some of the items of interest to employers, sponsors and administrators of pension and benefit plans.
As expected, the budget does not set out any final decisions with respect to creating a national pharmacare program as it is waiting for the final report of the Advisory Council on the Implementation of National Pharmacare. It does, however, set out the following initial steps that the federal government will take based on the advisory council’s interim report released earlier this month:
Canadian Drug Agency
The federal government will work with the provinces, territories, and other stakeholders to create the Canadian Drug Agency (CDA) and has set aside $35 million over the next four years to transition to the new agency. When in place, the CDA will assess drug effectiveness, negotiate drug prices on behalf of Canadian drug plans, and recommend which drugs could form the basis of a future national formulary.
Accessibility To High-cost Drugs For Rare Diseases
The federal government proposes working with the provinces, territories, and other stakeholders to create a strategy to deal with the high cost of drugs required by Canadians with rare diseases. Beginning in 2022, it will invest $1 billion over the first two years and $500 million each year after that, to help Canadians access these drugs.
Tax Changes For Medical Benefits
The Income Tax Act will be amended to ensure cannabis products purchased for medical purposes remain eligible for the medical expense tax credit and the federal government will look at how to expand the medical expense tax credit to cover a wider range of fertility and reproduction related expenses.
Protecting Defined Benefit Pensions
The federal government intends to introduce some, but not all, of the proposals originally set out in a 2018 consultation paper on enhancing retirement security ‒ specifically with respect to protecting defined benefit pensions in the event of corporate insolvency. These changes, some of which will only be relevant to federally-regulated plans and businesses, include:
New Annuity Options
Tax rules will be amended beginning in 2020 to allow for two new types of annuities under registered plans.
The Advanced Life Deferred Annuity would be permitted as an annuity purchase or an investment in RRSPs, RRIFs, DPSPs, PRPPs, and DC RPPs. It would allow annuity payments to be deferred up to the end of the year when the annuitant turns 85. The annuity would be payable for the life of the annuitant or the joint lives of the annuitant and his or her spouse or common-law partner. There would be restrictions as to how much can be accumulated and there could be a tax on amounts that exceed the limits.
The Variable Payment Life Annuity (VLPA) would allow PRPPs and DC RPPs to pay members an annuity directly from the plan, provided at least 10 members participate. Payments would vary based on investment performance and mortality experience and would have to begin by the later of the end of the year in which the member turned 71 and the end of the year in which the VPLA is acquired. The annuity would be payable for the life of the annuitant or for the joint lives of the annuitant and his or her spouse or common-law partner. The government is looking at amending the federal PBSA and the Pooled Registered Pension Plans Act to permit this. Provinces would have to amend their own pension legislation to permit VPLAs.
Automatic Enrollment In Canada Pension Plan (CPP)
In order to ensure retirees receive the benefits they are owed, the CPP would be amended to so payments would automatically begin for anyone age 70 or older who has not applied to start receiving benefits. Because some individuals may want to defer their CPP pension (because it could decrease other government benefits), the six-month period during which someone can choose not to receive a CPP retirement pension would be extended to one year.
Guaranteed Income Supplement (GIS) Income Exemption
Beginning July 2020, income up to $5,000 (increased from the current $3,500) would not be deducted from GIS benefits and only 50 per cent of income up to an additional $10,000 would be deducted.
Legislation, including the PBSA, will be amended to expand the scope of the unclaimed assets framework operated by the Bank of Canada so that unclaimed pension balances from wound up federally regulated pension plans will be included.
Specified Multi-Employer Plans (SMEPs)
Contributions to a SMEP will be prohibited for a member after the end of the year in which the member turns 71. This new rule would apply to SMEP contributions made pursuant to a collective agreement entered into after 2019.
Individual Pension Plans (IPPs)
To prevent tax and pension planning that use an IPP to circumvent the pension transfer limits, IPPs will be unable to provide retirement benefits for past years of employment with an employer other than the IPP’s participating employer, or a predecessor employer. This change would apply to pensionable service credited on or after March 19.
Tax On Stock Options
The current employee stock option tax regime will be amended to limit the employee stock option deduction for certain high-income individuals. There will be a $200,000 annual cap on employee stock option grants (based on the fair market value of the underlying shares) that may receive tax-preferred treatment for employees of large, long-established, mature firms. For start-ups and rapidly growing Canadian businesses, employee stock option benefits would remain uncapped. Further details of this measure will be released before the summer of 2019.
Employment Equity Legislation
The Employment Equity Act and its regulations will be amended to introduce pay transparency measures for federally regulated employees.
Simon Laxon is a director at Willis Towers Watson.