Country Profiles

Canada

Country Profiles

Canada

Complementary pensions (Voluntary)

Updated: 31 December 2017
Complementary pensions are regulated by the following federal and provincial legislation:

1993: Pension Benefits Standards Act (British Columbia, amended in 1999, 2001, 2003, 2004, 2012 and 2014*).

1991: Pension Benefits Act (New Brunswick, amended in 1995, 2000, 2002, 2008, 2010, 2011, 2012, 2013, 2014, 2015 and 2016).

1985: Pension Benefits Act (Newfoundland, amended in 1997, 2001, 2004, 2007 and 2008).

1977: Pension Benefits Act (Nova Scotia, amended in 1988, 1993, 2000 and 2011, 2015).

1976: Pension Benefits Act (Manitoba, amended in 1984, 1997, 2001 and 2010). 1972: Income Tax Act (federal legislation, amended in 1988).

1969: The Pension Benefits Act (Saskatchewan, amended in 1992, 1993, 1996, 1997, 2001, 2004 and 2012).

1967: Pension Benefits Standards Act (federal legislation, amended in 1987, 1998, 1999, 2000, 2001, 2002, 2003, 2007, 2010, 2012, 2013, 2014, 2015, and 2016).

1967: Employment Pension Plans Act (Alberta, amended in 1987, 1999, 2000, 2008 and 2012**).

1966: Supplemental Pension Plans Act (Quebec, amended in 1990, 1999, 2000, 2006, 2009, 2010 and 2011).

1965: Pension Benefits Act (Ontario, amended in 1988, 1998, 1999, 2002, 2004, 2005, 2006, 2007, 2009, 2010, 2011 and 2012).

The Pension Benefits Act of the province of Prince Edward Island has not yet been brought into force. The federal and provincial pension benefits legislation noted above typically set minimum standards for funding, investment, membership eligibility, vesting, locking-in, portability of benefits, death benefits and members' rights to information. Generally speaking, if a plan has members in more than one jurisdiction, the plan must follow the pension legislation of each respective jurisdiction in which plan members work with respect to membership eligibility, vesting, locking-in, portability of benefits, death benefits and members' rights to information. The plan would follow the pension legislation of the province in which the plan is registered with respect to funding and investments.

There are several agreements respecting multi-jurisdictional pension plans that set out the specific rules. In May 2016, Ontario, British Columbia, Nova Scotia, Quebec and Saskatchewan entered into the 2016 Agreement Respecting Multi-Jurisdictional Pension Plans (MJPPA). Most provinces have bilateral or multi-lateral agreements with the federal government and with those provinces that have not yet joined the MJPPA. These agreements generally provide that the jurisdiction with the plurality of members administer the applicable pension legislation on behalf of the other jurisdictions.

Information in the following sections is based on the federal Pensions Benefits Standards Act, 1985, and the regulatory guidance of the Office of the Superintendent of Financial Institutions, which is the federal regulator. While most provisions at the provincial level are substantially similar, some differences are noted.

* British Columbia's revised Pension Benefits Standards Act, as amended, came into force on September 30, 2015.

** Alberta's Bill 10 received Royal Assent on December 10, 2012. New Regulations are needed before the legislation comes into force.

Plan sponsors

An employer may on a voluntary basis establish a pension plan for its employees. This type of pension plan is known as an employer-sponsored pension plan. For example, a plan may be established pursuant to a collective agreement between employer and employee representatives. An employer may also participate in a pooled registered pension plan (PRPP). A PRPP is a new type of pension plan being introduced in Canada (see "Types of plans" below). PRPPs will not be sponsored by employers; instead they will be administered by licensed, third-party administrators (e.g., financial institutions), in order to pool participation by numerous employers and their employees, as well as self-employed individuals.

The mandatory contributory Canada and Quebec Pension Plans (basic social security scheme) provide a maximum retirement pension equal to 25 per cent of the contributor's career average monthly pensionable earnings (up to a specified maximum level of earnings), and are intended to provide a basic level of earnings replacement in retirement. Occupational pension plans are therefore an important supplementary element in helping workers to achieve adequate retirement income through additional earnings replacement.

Types of plans

Registered Pension Plans: In order to benefit from tax-deductible contributions and a deferral of tax on contributions and investment income, employer-sponsored pension plans must be registered with the Canada Revenue Agency (CRA) and meet the requirements of the Income Tax Act. Pension plans must also be registered under the federal Pension Benefits Standards Act (for employees in federally regulated industries such as banking, inter-provincial transportation, telecommunications and plans in the Territories or Nunavut), or the relevant provincial pension benefits legislation (see section Regulatory Framework). Once registered, these plans are known as registered pension plans (RPPs).

An RPP may be established on a defined benefit or defined contribution basis, and may contain both a defined benefit and defined contribution provision. They may also be target benefit plans and contain target benefit provisions.

Affiliation of the employee to the plan is normally voluntary under federal and provincial legislation except in Manitoba. However, provision for a plan to make membership compulsory is specifically permitted under the federal Pension Benefits Standards Act and legislation in British Columbia and Quebec.

Employees may make additional voluntary contributions to a RPP subject to the overall limits on contributions and benefits specified under the tax rules for RPPs.

Pooled Registered Pension Plans (PRPPs): The PRPP is re a new accessible retirement savings option for employees and self-employed persons that pools the funds in members' accounts to achieve lower costs in relation to investment management and plan administration. Like RPPs, PRPPs must be registered with the CRA to benefit from tax-deductible contributions and tax-deferred treatment and must also be registered with the relevant federal or provincial pension supervisory authority.

The federal government has entered into a multilateral agreement with the provincial governments of British Columbia, Nova Scotia, Ontario, Québec and Saskatchewan with respect to PRPPs. The agreement is intended to make the licensing, registration and regulation functions for PRPPs more efficient.

Unregistered plans: Unregistered pension plans (usually known as Retirement Compensation Arrangements (RCAs) and Supplemental Employee Retirement Plans (SERPs)) may be established for high-income employees to provide for contributions or benefits in excess of the limits specified under the RPP tax rules. Unregistered plans may be unfunded (in which case they are paid from company resources on a pay-as-you-go basis) or funded (whereby the company allocates resources to fund the pensions).

Unregistered plans do not receive tax advantages and are not covered further in the following sections.

Other plans: Other tax-assisted plans that may be used for retirement saving include: Registered retirement savings plans (RRSPs -- individual tax-deferred retirement savings plans); Deferred profit-sharing plans (DPSPs -- tax-deferred plans that may be provided by an employer); and Tax-Free Savings Accounts (TFSAs - individual tax-prepaid plans that may be used for any savings purpose, including retirement saving). These plans are not subject to the various pension standards legislation (but do receive tax advantages under the Income Tax Act) and are not covered further in the following sections.

All registered pension plans: RPPs are implemented mainly through trusts or may be managed entirely by an insurance company through an individual or group policy. However, some of the largest plans are classified as consolidated revenue arrangements (see section Methods of financing).

Requirements vary across provinces with regard to the establishment of a pension committee or a board of trustees to administer the plan and the establishment of a pension council.

The administrator is the entity which governs the pension plan and fund, ensuring that it operates in compliance with the legislative and regulatory frameworks. Typically, the administrator for a single employer plan is the employer itself. However, in Quebec the administrator is generally a pension committee.

If a single or multi-employer plan is established under the terms of a collective agreement, the administrator is generally a board of trustees, whose composition is determined in the agreement.

Some jurisdictions provide for the establishment of an advisory committee or council comprised of plan members and retirees. The role and purpose of the pension committee/council varies by jurisdiction, but generally speaking, they provide an opportunity for a level of engagement and help promote awareness and understanding of the plan among its membership.

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All registered pension plans: Public and private sector employees.

Employers may define categories of employees covered by a plan and may institute different plans for different categories of employees (for example, some sponsors offer separate plans for unionized and management employees). Discrimination on the basis of age, sex or marital status is not permitted.

For part time employees membership is only mandatory for those who have worked for the sponsor for two continuous years and have annual earnings of at least 35 per cent of the yearly minimum pensionable earnings limit (CAD 55,300 in 2017), which is the maximum earnings on which the Canadian Pension Plan benefits accrue.

The self-employed are not covered by registered pension plans but may contribute to registered retirement savings plans and PRPPs (see section Type of plans).

Sources of funds

All registered plans: RPPs can either be contributory or non-contributory for employees. PRPPs can be non-contributory for employers.

Employee contributions

Defined contribution registered pension plans: The tax rules limit total annual contributions made by and on behalf of a member (employer plus employee contributions) to 18 per cent of salary up to a dollar maximum of CAD 26,230 (for 2017). The dollar limit is indexed annually to average wage growth.

Defined benefit registered pension plans: The tax rules generally limit employee contributions to a maximum of 9 per cent of salary. Pension standard rules require that employees' contributions plus interest do not exceed 50 per cent of the value of the member's pension benefit credit, determined at termination of employment, retirement or death.

Pooled registered pension plans: The tax rules limit total annual contributions made by and on behalf of a member (employer plus employee contributions) to the amount of the member's RRSP contribution limit for the year. A member's RRSP contribution limit is equal to 18 per cent of their previous year's earnings up to a specified dollar limit (CAD 26,010 for 2017), less a measure of any benefits or contributions made to an RPP in the previous year, plus any unused RRSP room carried forward from previous years.

Employees may make additional voluntary contributions to an RPP subject to the overall limits specified in the tax rules.

Employer contributions

Defined contribution registered pension plans: Minimum of 1 per cent of employees' yearly salary. The tax rules limit total annual contributions made by and on behalf of a member (employer plus employee contributions) to 18 per cent of compensation up to a dollar maximum of CAD 26,230 (for 2017). The dollar limit is indexed annually to average wage growth.

Defined benefit registered pension plans: Typically, employer contributions must be based on the Actuarial Valuation Report that is prepared on the basis of the minimum funding requirements established by the applicable pension legislation. The tax rules limit the benefits that may be provided by a defined benefit RPP (see section on Retirement benefits), which correspondingly limits contributions and thereby controls the cost of the tax deferrals provided by these plans. The tax rules prohibit employer contributions once the surplus of plan reaches 25 per cent of going-concern liabilities. Employee contributions may continue regardless of a plan's surplus level. In addition, surplus may be used to fund current service costs.

Pooled registered pension plans:
Employers are not required to contribute to a PRPP. The tax rules limit employer contributions to a maximum of the annual RRSP dollar contribution limit for the year (CAD 26,010 for 2017), unless an employee specifically directs that a higher contribution be made (for example, on the basis of available RRSP room carried forward from previous years).

Other sources of funds

All registered pension plans: None.

Methods of financing

All registered pension plans: Funded.

Asset management

All registered pension plans: Plan assets may be managed in-house or their management may be contracted out to external managers.

The pension plan administrator must establish a written Statement of Investment Policies and Procedures based on the prudent person portfolio approach that a reasonable and prudent person would apply to the investment portfolio of a pension fund.

There are quantitative investment limits established at federal level which are adopted by most of the provincial authorities to provide a harmonized standard for all jurisdictions.

Of total assets invested, a maximum of:

- 30 per cent may by invested in holding voting shares of a single company;
- 10 per cent may be invested in securities issued by a single company or by a group of affiliated companies.

Acquisition and maintenance of rights

Waiting period

All registered pension plans: The maximum waiting period is two years of continuous service in the case of full-time employees. In British Columbia and Alberta this condition is subject to having earned 35 per cent of the year's maximum pensionable earnings (CAD 55,300 a year in 2017) in each of two consecutive calendar years and in each of the two immediately preceding consecutive calendar years respectively. There is no requirement of length of service in Quebec but membership is subject to having earned 35 per cent of the year's maximum pensionable earnings (CAD 55,300 a year in 2017) or having worked at least 700 hours in the calendar year prior to the application for membership.

Vesting rules

All registered pension plans: Full vesting generally occurs after a maximum of two years of plan membership. Within federal jurisdiction and several provinces, vesting is immediate.

Preservation, portability, transferability

All registered pension plans: Upon termination of employment before retirement, members may choose between:

- leaving their accrued benefits in the plan;
- the value of their accrued benefits to the new employer's pension plan (although the new employer is not obliged to accept the transfer);
- transferring the value of their accrued benefits to a "locked-in" individual retirement account.* Under the tax rules, transfers from defined benefit plans may be subject to maximum transfer amounts.
- purchasing an immediate or deferred annuity.

* Typically, benefits held in a "locked-in" account may only be used for retirement purposes except under exceptional circumstances, such as disability, low-income, and small balance.

Retirement benefits

Benefit qualifying conditions

All registered pension plans: Legislation requires that the normal plan retirement date must be no later than one year after attaining age 65 in Ontario, New Brunswick and Nova Scotia and no later than the first day of the month following the attainment of age 65 in Quebec. In Newfoundland and Labrador it is no later than the member's 65th birthday. The latest date to receive benefits is not specified in other provinces or for federally regulated plans. If the plan member continues to work and the pension is not in payment, accrual of benefits may continue up to the plan's maximum possible service or amount of pension payable, subject to the pension tax rules which generally require that pension payments commence (and accruals cease) by the end of the year in which the member attains age 71.

Early retirement is usually possible within ten years prior to normal retirement age.

Since 2008, the pension tax rules have allowed a defined benefit plan to pay a partial pension to a member while the member continues to accrue further pension benefits based on full or part-time work. The purpose is to permit employers greater flexibility to offer phased retirement arrangements and increase the reward from work, in order to help them better retain older, productive workers. Federal jurisdiction and most provinces permit phased retirement benefits.

Benefit structure / formula

All registered pension plans: Defined benefit or defined contribution.

Some plans offer flexible arrangements whereby members can purchases additional benefits such as indexation or early retirement. Hybrid plans exist with the characteristics of both defined benefit and defined contribution plans.

The use of annuity tables based on sex is allowed in some jurisdictions, including federally.

Many plans are integrated with the mandatory Canada Pension Plan or the Quebec Pension Plan. Where integrated, they have a two-tier contribution and benefit structure with a lower rate applied to earnings below the year's maximum pensionable earnings (upper earnings limit for contributions under the Canada Pension Plan - CAD 55,300 a year in 2017) and a higher rate applied to earnings above that amount.

Defined contribution registered pension plans: A choice may be made between purchase of an immediate or deferred life annuity or a lump sum transfer to a locked-in account. Locked-in accounts are subject to maximum and minimum amounts that may be withdrawn annually during retirement. Federal pension standards legislation was amended in 2010 to permit the payment of variable benefits from a member's account; however, new regulations are needed before the provisions come into force.

Defined benefit registered pension plans: Benefits are paid as pensions with the possibility in some provinces of receiving a certain percentage of the pension entitlement as a lump sum.

The tax rules limit the maximum pension for a member to 2 per cent of compensation (based on the average of the three highest years of remuneration) up to a specified dollar maximum (CAD 2914.44 for 2017) per year of service. The dollar limit is indexed annually to average wage growth.

Benefit adjustment

All registered pension plans: Beyond minimum pension standards, pension plans are a contractual arrangement between the employer and employees. As such, the benefits are determined by the employer or employer and employees. Federal pension standards, and most provinces, generally do not permit a reduction in accrued benefits for single-employer defined benefit pension plans. The plan sponsor is typically required to make up any funding deficit. An exemption to this in the federal regime and among most provinces is multi-employer negotiated contribution defined benefit plans. For these plans, contributions are negotiated and set out in a collective agreement, while benefits are set by the board of trustees and described in the plan text. The actuary is then responsible for measuring the ability of the plan to support the benefits given the level of contributions made to the plan. If contributions are insufficient to meet the prescribed funding tests, the benefits may be adjusted until the contributions are sufficient to support the benefit level. British Columbia, Alberta, Saskatchewan, Ontario, New Brunswick, and Nova Scotia have various legislative provisions that permit risk sharing arrangements (e.g. target benefit plans) for single-employer pension plans although such legislation has not yet been proclaimed in all of the jurisdictions. New Brunswick is the first jurisdiction in Canada to have a complete legislative and regulatory framework in force for this particular type of pension arrangement (called the "Shared Risk Plan" in New Brunswick).

The tax rules specify that, once benefits commence to be paid, they must be paid in equal periodic amounts, with certain exceptions (for example, cost-of-living increases are permitted).

Survivors

All registered pension plans: Spouses are entitled to a continuous pension when the retirement benefit of the deceased member was being paid as an annuity. The minimum spouse pension for federal and provincial plans is 60 per cent of the deceased member's pension. The definition of spouse varies according to relevant federal or provincial legislation. In the case of a member's death before pension commencement, the survivor is entitled to a minimum of 60 to 100 per cent of the commuted value, depending on the jurisdiction.

For defined benefit RPPs, the tax rules generally limit survivor benefits to a maximum of two-thirds of a member's accrued pension.

Disability

All registered pension plans: Plans are not required to provide disability benefits, but are permitted to do so under the tax rules. Disability benefits are frequently provided under separate arrangements either directly by the employer or through insurance.

Protection of Assets

All registered pension plans: Plan assets must be held in trust and separate from the assets of the sponsoring employer.

Financial and Technical Requirements / Reporting

All registered pension plans: Good governance principles dictate that there are internal controls, expense controls and accountability in place. Federally regulated plans must file an annual information return statement (AIRs) and annual certified financial statements (CFS) with the Office of the Superintendent of Financial Institutions (OSFI). AIRs must also be filed with the Canada Revenue Agency (CRA). The reporting requirements for provincially regulated plans are substantially similar in content to the requirements described for federally regulated plans. Most jurisdictions have an agreement with CRA allowing administrators to file these reports with the federal or provincial regulator, as appropriate, and relevant data is transferred from the applicable regulator to the CRA. Some jurisdictions have introduced electronic filing of annual returns resulting in reduced costs for administrators, fewer data integrity problems and increased efficiency in data transfer.

The AIRS must contain information on plan membership, current payments, special payments and employer details. CFS are statements on the funds elaborated in accordance with generally accepted accounting principles and include details of the overall composition of the fund as well as variations in plan assets. CFS do not contain information about plan obligations.

Defined benefit registered pension plans: Pension plans must submit actuarial valuations to the OSFI every three years (annually if the plan was in deficit the previous year). The actuarial valuation must be prepared in accordance with standards established by the Canadian Institute of Actuaries and must include a going concern valuation, which uses assumptions consistent with the plan continuing in operation, and a solvency valuation, which uses assumptions consistent with the termination of the plan.

Whistleblowing

All registered pension plans: When fund assets of federally regulated pension plans are held by custodians, they must inform the regulator if expected contributions are not received within 30 days of the required date.

Standards for service providers

All registered pension plans: No legal rules.

The Office of the Superintendent of Financial Institutions (OSFI) has published guidelines with regard to the selection of service providers.

Fees

All registered pension plans: No legal rules.

Fee structures and amounts are regulated in plan rules.

Winding up / Merger and acquisition

All registered pension plans: The insolvency of a sponsor will not automatically lead to plan termination and wind-up as there may be a restructuring. As long as the contributions continue, the plan would not have to terminate.

The Office of the Superintendent of Financial Institutions (OSFI) has the power to terminate a plan if it deems this to be in the best interest of the plan members. This action may be warranted in a situation where an insolvent sponsoring employer has stopped funding the plan and has failed to file a termination report, thereby threatening the security of the members' benefits.

If the plan is terminated, OSFI oversees the process to ensure that it is handled in accordance with the legal rules. In this respect, a termination report will be filed with the regulator and no disbursement of funds will be permitted until the OSFI approves this report.
Most provincial regulators also have the authority to terminate a plan if it is in the best interest of plan members. The provincial standards legislation provides a process similar to that described for OSFI with respect to the filing and approval of a termination report, and the distribution of assets under prescribed circumstances.

If the sponsor is acquired by another company, the successor employer may choose to continue the existing plan, to transfer the assets from the old plan into its own plan or not to continue the plan, unless the plan is established by a collective labour agreement.

If the successor employer continues to operate the plan as it existed prior to the acquisition, employees continue to accrue benefits as before. If members of the existing plan become members of the new employer's plan, the new employer may choose to assume the liabilities and transfer the assets to its own plan. If the employer chooses to transfer assets into the new plan, it needs the approval of the OSFI. If the new employer does not assume responsibility for the accumulated benefits, the old employer remains responsible for those pension benefits accumulated up to the date the business was sold. The new employer is responsible for the pension benefits accumulated thereafter.

Legislation requires the safeguarding of entitlements during merger and acquisition.

Bankruptcy: Insolvency Insurance / Compensation Fund

Defined benefit registered pension plans: If the sponsoring company goes bankrupt, the pension fund is considered separate from the company's estate. If the bankruptcy occurs when the plan is in balance or in a surplus position, then there would be sufficient assets to cover all the plan's liabilities. If it occurs when there are amounts owed to the pension fund, but not yet remitted, legal rules provide an enhanced level of priority for these amounts. If it occurs when the plan is in a deficit position, all assets in the fund belong to the plan members and former members according to legal rules.

Ontario is the only Canadian jurisdiction to have a Pension Benefits Guarantee Fund that offers protection for pension benefits. It applies only to single employer plans and individual coverage is limited to a monthly maximum of CAD 1,000 plus a proportion of benefits included in the calculation of the wind-up liability.

Disclosure of information / Individual action

All registered pension plans: Plans are required to provide members with annual statements detailing contributions, benefits, and in the case of defined benefit plans, the solvency ratio of the plan. Members, former members, beneficiaries, spouses and common-law partners have the right to examine most plan information filed with the Office of the Superintendent of Financial Institutions (OSFI). Most provinces have similar disclosure requirements.

Good governance principles dictate that there is transparency and full disclosure to all members.

There are no legal provisions for resolving complaints or disputes between plan members or beneficiaries and the trustees or fund administrators. However, good governance principles aim at resolving disputes before legal action is taken.

Other measures

All registered pension plans: None.

Taxation of employee contributions

All registered pension plans: Tax-deductible.

Taxation of employer contributions

All registered pension plans: Tax-deductible.

Taxation of investment income

All registered pension plans: Tax-exempt.

Taxation of benefits

All registered pension plans: Lump-sum payments and pension benefits are taxed as income at ordinary rates in the year in which they are paid.
Contact information for provincial and federal supervisory authorities as well as the Canada Revenue Agency for tax purposes can be found on the website of the Canadian Association of Pension Supervisory Authorities (CAPSA): http://www.capsa-acor.org/en/about/members.asp

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