The newly elected federal Liberal government is committed to
exploring enhancements to the Canada Pension Plan (CPP). At the
same time, the Government of Ontario is progressing with the
implementation of the Ontario Retirement Pension Plan (ORPP). In
this political climate, debates surrounding pension coverage and
retirement income security will increasingly focus on mandatory
schemes. Government will place less emphasis on the voluntary
schemes favoured by the former Conservative government, such as the
Pooled Retirement Pension Plan and the proposed exploration of
voluntary expansion of the CPP. Then there is also the prospect of
increased payroll taxes. The debates will have significant
implications for retirement plan sponsors who may be exempt from
contributing to the ORPP if they have a comparable workplace plan.
These sponsors may also see significant changes to their defined
benefit pension programs to the extent that plan benefits are
integrated with the CPP.
TWO | ENVIRONMENTAL, SOCIAL AND GOVERNANCE (ESG) FACTORS
Effective January 1, 2016, Ontario registered pension plans will
be required to file their Statements of Investment Policies &
Procedures, including information regarding if and how the plan
considers environmental, social and governance factors when making
investment decisions. While not (yet) proposed as a mandatory
consideration for plan administrators when selecting investments,
increasing interest among regulators, investment professionals,
labour unions and the general public will likely lead plan
administrators to develop more considered positions regarding the
role of ESG factors, even in jurisdictions where such information
is not required. We will monitor other jurisdictions (such as
Alberta, British Columbia and the federal jurisdiction) to see
whether they adopt similar disclosure requirements.
THREE | SOLVENCY FUNDING REFORM
Recent legislative developments in Quebec aim to replace the
solvency-funding model with an enhanced going-concern funding model
(including a provision for adverse deviation). Quebec's model
is potentially the most significant change to the funding rules
since the solvency-funding model was pioneered in the 1980s.
Pension fund sponsors will watch to see whether these developments
inspire similar reforms in other jurisdictions, particularly as
contribution volatility and the low interest rate environment
continue to pressure defined benefit plan sponsors. While solvency
reserve accounts have been introduced in Alberta and British
Columbia and touted as a solution to concerns over trapped capital,
the Quebec model suggests an alternate post-solvency approach that
may avoid the need for repeated calls for temporary funding
FOUR | DECUMULATION
Many defined contribution plan administrators, in conjunction
with their service providers, will focus on developing and
extending to members tools to assist in preparing to convert
defined contribution account balances into retirement income,
particularly in light of the Canadian Association of Pension
Supervisory Authorities' best practices guidelines.
FIVE | STOCK OPTIONS
While for a variety of reasons stock options do not play as
prominent a role in equity incentive compensation programs as in
the past, mooted changes to the tax treatment of employee stock
options, nevertheless, may significantly impact public and private
companies that include stock options in their incentive
compensation programs. As part of its election platform, the new
Liberal government proposed that the 50 per cent deduction
available on exercise of qualifying stock options be applied only
on the first C$100,000 of stock-option benefits annually. Much
uncertainty remains despite recent comments from the Minister of
Finance that suggest that any tax reforms regarding employee stock
options will only apply on a prospective basis to options granted
on and after the implementation date. Options granted before that
date will remain subject to current rules.
Options holders are unlikely to be incented to exercise early in
order to avoid application of the new rules, given this expected
grandfathering. However, issuers may elect to accelerate the grant
of options under existing programs to increase the likelihood that
such grants will be grandfathered under the new rules. They also
are likely to reconsider their mix of equity incentive options
going forward to reduce their reliance on stock options. Should the
new rules be extended to the available deductions for options to
purchase shares in Canadian-controlled private corporations
(CCPCs), there may also be a significant impact on CCPCs that have
elected to take advantage of the favourable treatment afforded them
under the option rules to issue shares to employees for nil
consideration on a tax-deferred basis.
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