Written By Susan Seller, Jordan Fremont and Jaspreet Kaur

On May 5, 2020, the Registered Plans Directorate (RPD) of the Canada Revenue Agency announced COVID-19 pandemic-related relief and guidance for plan sponsors and administrators.

The tax focused measures for registered pension plans are as follows:

• 1% Minimum Contribution Rule for Money Purchase Plans: Ordinarily, a money purchase or defined contribution (DC) provision must require employers to contribute at least 1 percent of the total pensionable earnings of all active members participating under the provision each year. The minimum contribution rule applies only to a DC provision of a registered pension plan in which members' benefits are provided exclusively on a DC basis.
  
  In light of the COVID-19 pandemic, the Minister of National Revenue will waive the 1% rule for the remainder of 2020 if the plan is amended to suspend accruals under the plan for the year. In other words, for tax purposes it will be permissible to amend a pension plan to provide that employee and employer contributions will not be made to the DC plan or provision following the plan amendment in 2020 without violating the usual rule.
  
  This measure only applies for the remainder of 2020 for plans that submit an amendment to the RPD.
  
  Before adopting any unilateral plan amendments to reduce or eliminate future employer contributions to a DC pension plan or provision for any part of 2020, plan sponsors and administrators ought to consult with legal counsel respecting potential labour and employment law issues and risks, as well as applicable pension standards requirements.  For unionized employees, important issues to consider are whether the bargaining history with a union and/or collective agreement provisions impose limitations on the ability of an employer to reduce employer pension contributions. For non-unionized employees, a key issue will be whether the changes could support employee claims against the employer (i.e., for breach of contract, constructive dismissal and/or negligent misrepresentation). Also important to consider are any advance notice of amendment and filing requirements under pension standards legislation which will need to be satisfied to give effect to a plan amendment that prospectively reduces employer contributions.
• Period of Reduced Services: Pursuant to the Income Tax Regulations (Canada), a member of a defined benefit (DB) provision of a pension plan may be permitted the option to elect to have the eligible period of reduced pay credited as pensionable service under the plan, provided the election occurs by April 30 of the year following the year in which an eligible period of reduced pay ends.
  
  Similar rules apply under the Income Tax Regulations (Canada) for eligible periods of reduced pay under money purchase or 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 (PA) rather than a past-service pension adjustment (PSPA).
  
  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.
  
  In accordance with the longstanding practice of the Canada Revenue Agency, the RPD will allow plan sponsors and administrators to act on the proposed tax measures on the assumption that the legislation for these measures will be enacted. Plan members are permitted to make elections for 2019, subject to applicable plan terms, on or before June 1, 2020.

For a cross-Canada summary of the Pension Regulatory Guidance and Measures Related to COVID-19 Pandemic announced to date, please refer to Pension Regulatory Guidance and Measures Related to COVID-19 Pandemic.

We will continue to monitor and update you on related developments of interest to pension plan sponsors and administrators. If your business or organization has questions respecting the respect COVID-19 implications to your pension plan, including issues related to plan design or administration, please contact a member of the Bennett Jones Employment Services group. In addition, please visit our COVID-19 Resource Centre for other COVID-19-related materials.

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