In the 2016 Federal Budget (the “Budget”) released on March 22, 2016, the federal government made several announcements regarding the supervision of federally-regulated pension plans, possible enhancements to the Canada Pension Plan (“CPP”), and reforms to Old Age Security (“OAS”) and Guaranteed Income Supplement (“GIS”) benefits.
Supervision of Federally-Regulated Pension Plans
The Budget included proposed changes to the Pension Benefits Standards Act, 1985 (Canada), the pension standards legislation applicable to entities under federal jurisdiction (such as banks and railways), to broaden the scope of the government’s ability to enter into bilateral pension agreements with the provinces. The proposed changes are aimed at allowing for better cooperation between the federal and provincial governments to oversee the regulation of pension plans. This change may be aimed at fostering the co-operative supervision of pension plans that include members under both federal and provincial jurisdiction, although no further details were included in the Budget.
Given the complexity of the regulatory landscape for pension plans in Canada, changes that are meant to streamline the interactions between the federal and provincial pension regulators will be welcome news for pension plan sponsors.
30% Investment Rule
The federal government also announced that it will launch a public consultation on the usefulness of the 30% investment rule, which restricts pension plans from holding more than 30% of the voting shares of a company, a proposal that was originally introduced by the federal government last year. The pension investment community has long argued in favour of eliminating the 30% rule on the basis that it is outdated and unnecessary in a modern pension investment environment. While the Budget did not include a timeline for the consultations, the government indicated that the consultative process will commence “shortly”. This announcement follows the recent release of a consultation on the 30% rule by the Ontario government. (Most provinces, including Ontario, incorporate the federal investment rules into their pension legislation by reference.)
The Budget also included an announcement by the federal government of significant infrastructure spending and the government’s expressed intent to engage public pension plans and other innovative sources of funding to enhance the affordability and sustainability of infrastructure development in Canada. The elimination of the 30% rule may facilitate such involvement by major pension funds in Canada. It is not clear at this stage whether the Ontario and federal governments will cooperate regarding their respective consultations and the development of new regulations.
The Budget contained an announcement that the federal government intends to launch a public consultation to give Canadians an opportunity to share their views on enhancing the CPP. The federal government began discussions on CPP enhancement with the provinces and territories in December 2015, with the goal of making a decision on possible enhancements to the CPP by the end of 2016.
This announcement echoes the Ontario government’s commitment in the recent Ontario Budget 2016 to cooperate with the federal government and continue discussions on CPP enhancement at the upcoming regional meeting of finance ministers scheduled for June 2016. Although the Ontario government is continuing to work on its own plan to increase retirement security in the province through the launch of the Ontario Retirement Pension Plan by 2018, Ontario has also signaled that it is still willing to discuss CPP enhancement with the federal and other provincial governments.
OAS and GIS
The federal government announced its intention to restore the eligibility age for OAS benefits that the prior Conservative government had planned to gradually raise. The Budget proposes to cancel the provisions in the Old Age Security Act (Canada) that would have increased the age of eligibility for OAS and GIS benefits from 65 to 67 over the period from 2023 to 2029.
The Budget also contained a proposal to increase the GIS top-up benefit by up to $947 annually for the most vulnerable single seniors starting in July 2016, a measure aimed at supporting those seniors who rely almost exclusively on OAS and GIS benefits and therefore are most vulnerable.
In many ways, the Budget is as notable for the pension reforms it did not include as for the ones it did.
While the announcements regarding consultations on enhancing the CPP and eliminating the 30% limit are welcome, there was no mention of continued work on other pension innovations, such as the introduction of changes that would facilitate the introduction of target benefit plans by federally-regulated employers. It remains to be seen whether such reforms will form part of the government’s priorities in the future.
We will continue to monitor the federal government’s progress regarding the announced consultations and keep you updated.