Sidebar header

Moving Beyond the Pandemic: Pension and Benefit Highlights from the 2022 Federal Budget

April 13, 2022

Subscribe to e-mail updates

On April 7, 2022, Justin Trudeau’s Government released its sixth budget, called A Plan to Grow Our Economy and Make Life More Affordable (Budget 2022).

Budget 2022 is the first “post-pandemic” budget released by the Federal Government and announces (and in some cases reintroduces) certain pension and benefits reforms and updates that reflect a longer-term government agenda. This Sidebar summarizes the elements of Budget 2022 that will be of interest to employers from a pension and benefits perspective.

Proposals Affecting Registered Pension Plans (RPPs) Generally

There were two Budget 2022 announcements that will impact all Canadian RPPs, namely:

  • Defined Contribution (DC) RPP Contribution Errors: Budget 2022 confirms the Government’s intention to proceed with the previously-announced Income Tax Act (Canada) (ITA) and Income Tax Regulations changes that will make it easier for plan administrators to fix DC RPP contribution errors. A draft version of these ITA changes was issued for comment on February 4, 2022, and summarized in our March 2022 Sidebar. The draft version had a January 1, 2021 effective date, so we anticipate the release of these final amendments in the near term. 
  • Defined Benefit (DB) RPP Borrowing: Budget 2022 proposes to allow more flexibility for administrators of DB RPPs (except for individual pension plans) to borrow money. The ITA has historically included restrictions on RPP borrowing. However, in response to the COVID-19 pandemic and a greater need for liquidity, the Government temporarily relaxed certain of these borrowing rules in 2020. Budget 2022 now proposes to change the DB RPP borrowing rules permanently.

    The changes will replace the current 90-day term borrowing limit with a limit on the total amount of borrowed money (for purposes other than acquiring real property), equal to the lesser of:
    • 20 per cent of the value of the plan’s assets (net of unpaid borrowed amounts); and
    • the amount, if any, by which 125 per cent of the plan’s actuarial liabilities exceeds the value of the plan’s assets (also net of unpaid borrowed amounts)

These limits will be determined on an annual basis on the first day of the plan’s fiscal year, based on the value of assets and unpaid borrowed amounts on that day and the actuarial liabilities set out in the plan’s most recent actuarial valuation report. The annual redetermined limit would not apply to borrowings entered into before that time. The proposed changes are deemed to come into force on Budget Day (being April 7, 2022). Also note that the current borrowing rule in respect of real estate investments is not affected.

Proposals Affecting Federally-Regulated RPPs Specifically

Budget 2022 also includes announcements that will specifically impact federally-regulated RPPs, namely:

  • Governance,Solvency Reserve Accounts and Variable Payment Life Annuities (VPLA): Budget 2022 provides that the Federal Pension Benefits Standards Act, 1985 (PBSA) will be amended to improve the sustainability and long-term security of federally-regulated RPPs through improved governance and administration and new frameworks for solvency reserve accounts and VPLAs (see immediately below for further comments on VPLAs). No specific details regarding these items are provided. These measures were previously raised in the Federal Department of Finance consultation “Strengthening Canadians' Retirement Security – Proposals to Support the Sustainability of and Strengthen the Framework for Federally Regulated Private Pension Plans” (2020 Federal Consultation) undertaken at the end of 2020. Based on the 2020 Federal Consultation, it is anticipated that governance measures could include a statutory requirement for federally-regulated RPPs to maintain both a governance and funding policy with prescribed content.
  • VPLAs: Budget 2022 provides that the PBSA will also be amended to introduce a framework for VPLAs, which is a form of annuities to be provided to members directly from a DC RPP or a pooled registered pension plan (PRPP). A VPLA offered under a DC RPP or PRPP will be an annuity payable for a member’s lifetime (with survivor benefits, where applicable). VPLAs will be adjusted for variations in the collective investment return and mortality experience of all VPLA annuitants. The VPLA is intended to provide a measure of longevity risk protection to individuals, with overall positive and negative experiences being borne by the group.

    VPLAs were initially introduced in the 2019 Federal Budget and the ITA was amended in 2021 to allow for VPLAs. We anticipate that, in the coming months, similar amendments will be introduced to pension legislation across the provinces for provincially-regulated DC RPPs to offer VPLAs. 
  • Environmental, Social, and Governance (ESG) Disclosure: Budget 2022 provides that the Government will move forward with requirements for disclosure of ESG considerations, including climate-related risks, for federally-regulated RPPs. This measure is consistent with the Government’s commitment to mandatory reporting of climate-related financial risks across a broad spectrum of the Canadian economy. More specifically, Budget 2022 provides that the Office of the Superintendent of Financial Institutions (OSFI) – which regulates federally-regulated financial institutions as well as federally-regulated RPPs – will consult with such institutions on climate-related disclosure guidelines in 2022, with required disclosure starting in 2024. 

    It is not yet clear what form ESG disclosure for federally-regulated RPPs will take, or when it would take effect. However, OSFI previously sought input on a potential disclosure requirement for climate-related risks as part of a RPP’s Statement of Investment Policies and Procedures (SIP&P) in the 2020 Federal Consultation. Also notable, theOntario Pension Benefits Act currently requires Ontario-registered RPPs to disclose in their SIP&Ps whether ESG factors are taken into consideration. The Ontario requirement, however, does not call out climate-related risk specifically.

    We will monitor this legislative development, together with related guidance expected to be released by the Canadian Association of Supervisory Authorities, in the coming months. 
  • New Leaves of Absence: Budget 2022 provides that the Canada Labour Code will be amended to provide new leaves of absence for federally-regulated employees who experience a miscarriage or stillbirth and medical leaves. If new leave provisions are introduced, administrators of federally-regulated RPPs will need to review their plan terms to ensure that the leaves are properly taken into account for contribution and accrual purposes.

Proposals Affecting Other Types of DC Savings Plans

Budget 2022 included announcements that may have an impact on other types of employer-sponsored DC savings plans. More specifically:

  • Tax-Free First Home Savings Account (FHSA): Budget 2022 introduces a new type of savings account called the FHSA, which is intended to help individuals save for their first home and be in place by 2023. The lifetime limit on FHSA contributions will be $40,000, subject to an annual contribution limit of $8,000. Contributions to the FHSA will be tax deductible, income earned in an FHSA will not be subject to tax, and withdrawals to purchase a first home will be non-taxable. Unused annual FHSA contribution room cannot be carried forward.

    Given the tax advantages of the FHSA, once introduced, employers (and in particular employers with a younger workforce) may consider establishing a group FHSA plan so that employees can more easily contribute to an FHSA via payroll deductions while also benefitting from lower fees, similar to the emergence of employer-sponsored group tax-free savings accounts (TFSAs) following the introduction of TFSAs in 2009.
  • New Registered Retirement Savings Plan (RRSP) and Registered Retirement Income Fund (RRIF) Reporting: Budget 2022 proposes to require financial institutions to report the total fair market value of property held in each RRSP and RRIF they administer to the Canada Revenue Agency (CRA). This reporting will be required on an annual basis, starting with the 2023 tax year, and is intended to assist the CRA in its risk-assessment for qualified investments held by RRSPs/RRIFs. While this will be a new obligation placed on financial institutions – not on employers who sponsor group RRSPs/RRIFs for their employees – it is possible that going forward, financial institutions may request updates to new or renewed group annuity contracts to recognize this new annual reporting obligation.

Proposals Affecting Health Care and Employee Benefits

Budget 2022 provides a number of proposals relating to health care and other benefits, which may in turn affect employer-sponsored benefit plans that include these types of benefits:

  • Canada Pharmacare Bill: Budget 2022 includes a proposal to strengthen Canada’s health care systems by continuing to work towards a universal national pharmacare program to cover the cost of prescription drugs. This will include tabling a Canada Pharmacare bill and working to have it passed by the end of 2023, and then tasking the Canadian Drug Agency to develop a national formulary of essential medicines that should be covered and a bulk purchasing plan. Elements of the program may be based on the recommendations in the 2019 Final Report of the federal Advisory Council on the Implementation of National Pharmacare. Once details of the program have been formulated, changes to existing employer-sponsored plans will invariably be required. 
  • Dental Care for Canadians: Budget 2022 proposes new funding to Health Canada of $5.3 billion over five years starting in 2022-23, and $1.7 billion ongoing, for a national dental care program. This will be implemented in three stages, starting with under 12-year-olds in 2022, and then expanded to under 18-year-olds, seniors, and persons living with a disability in 2023, with full implementation by 2025. The program will be restricted to families with an annual income of less than $90,000, with no co-pays for those with under $70,000 in annual income. 

    No details have been provided on how the dental care coverage will be funded or whether employer plans will be first or second payor. Employers that provide dental benefits to their employees are encouraged to review their existing plan once further details are announced. 
  • Surrogacy Benefits: Budget 2022 proposes changes to the income tax treatment of legally permissible medical expenses relating to surrogacy or the acquisition of sperm or ova, starting for the year 2022. This announcement follows the 2019 Federal Budget announcement, where the Government committed to review the ITA’s medical expense tax credit (METC) rules to ensure that they reflect medical developments, were fair to all intended parents, and were consistent with the Federal Assisted Human Reproduction Act. This announcement also expands on changes initially made in the 2017 Federal Budget, which clarified that the costs associated with certain reproductive technologies qualified for the METC, regardless of whether the patient had a medical condition preventing conception; those 2017 changes, however, did not apply to intended parents who reimbursed a surrogate for medical expenses because the METC limited the tax credit to costs incurred for patients related to or dependent upon the taxpayer claiming the METC.

    Employers that offer benefit plans that include a health care spending account (HCSA) may in particular see the impact of these changes, as employees may begin using their HCSA to reimburse these newly-permitted medical expenses.

Extension of Employment Insurance (EI) Sickness Benefits

Budget 2022 proposes to increase the length of EI sickness benefits from 15 to 26 weeks, as of summer 2022. This measure is anticipated to require changes to the EI Premium Reduction Program. We anticipate that further regulations will be introduced in the near term to integrate the longer EI sickness benefit period with the existing rules on supplemental unemployment benefit plans and short-term disability programs that qualify for the EI Premium Reduction Program. We will continue to monitor developments in this regard.

Other Notable Measures

Budget 2022 announced a number of other pension and benefit-related proposals, including:

  • Canada Pension Plan (CPP): There will be some technical changes to CPP legislation to ensure the correct calculation of eligibility and benefits for certain recipients. 
  • Employee Ownership Trusts: A new type of trust will be introduced under the ITA called Employee Ownership Trusts, which are intended to better facilitate the transition of privately-owned businesses to employees. No further details regarding these trusts are provided.
  • Old Age Security (OAS): Beginning in July 2022, the OAS pension for seniors aged 75 and older will be increased by ten percent. This enhancement builds on prior increases to the maximum Guaranteed Income Supplement (GIS) for single seniors and the reversal of the eligibility age for OAS and GIS back to age 65 from 67.
  • Other EI Updates: Budget 2022 includes a number of other EI proposals, including: extending temporary support for seasonal workers until October 2023 (as the Government considers a long-term solution); expanding access to EI training; changing the appeals process for EI claims; and general EI consultation to better meet the needs of Canadians.

* * * * *

If you have any questions regarding this update, please do not hesitate to call a sidebar with any of us – we’re here to help.

This Sidebar client update provides general information and should not be relied upon as legal advice. This publication is copyrighted by Brown Mills Klinck Prezioso LLP and may not be reproduced in whole or in part in any form without the express written consent of Brown Mills Klinck Prezioso LLP. ©

Print this Page icon