In 2019, the federal government announced its intention to amend the tax rules for Specified Multi Employer Plans (SMEPs) to prohibit contributions in respect of employees over age 71 and re-employed retirees. Two years later, the government is moving ahead with these changes.
While these rules are not yet in force, the legislation that will enact those rules (Bill C-30) has been tabled by the federal government and received its first reading on April 30, 2021.
In a previous post, I discussed the current contribution rules for SMEPs for older members and how the amendments now found in Bill C-30 will change those rules. This post summarizes the new rules, when they will apply and steps that plan administrators and the parties (employers/unions) that bargain contributions into collective agreements should consider in light of these new rules.
What are the new rules?
- If Bill C-30 receives royal assent (i.e. comes into force), then the Income Tax Regulations related to SMEPs will be amended to prohibit contributions being made:
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- to a SMEP, with respect to a member at any time after the end of the calendar year in which the member attains 71 years of age; and
- to a defined benefit provision of a SMEP, with respect to a member during a period in which the member is in receipt of retirement benefits from that defined benefit provision (other than under a qualifying phased retirement program).
- These contribution rules are part of the "prescribed conditions for the registration" of a SMEP. Thus, if they are not complied with, the registration of the plan could be revocable.
When will these new rules apply?
- Once in force, these changes will apply to any contributions to a SMEP made pursuant to a collective bargaining agreement entered into after December 31, 2019.
- They do not apply to contributions made pursuant to a collective agreement that was entered into prior to January 1, 2020.
Steps to Consider
- In anticipation of these rules coming into force once Bill C-30 passes into law, we recommend that:
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- Plan administrators consider whether their plans' contribution regimes will be impacted (i.e. does the plan currently collect contributions for members over age 71 and/or re-employed retirees?).
- Plan administrators advise the parties (employers/unions) that bargain contributions into the collective agreements applicable to their plans that all new collective agreements will need to reflect the fact that contributions cannot be made to a SMEP in respect of these older pension plan members.
- Plan administrators and bargaining parties work together to determine how collective agreements will exempt contributions from being made to the plan in respect of members over age 71 or re-employed retirees.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
