Pensions & Benefits Law : Canada Pension & Benefits Lawyers & Attorneys : Osler Hoskin & Harcourt Law Firm: Post-Employment Benefits & Defined Benefit Plans : Toronto, New York

When restricted stock is transferred to a U.S. taxpayer in connection with the performance of services, Internal Revenue Code Section 83(b) allows the recipient to accelerate the taxable event to the time of transfer, rather than the time that restrictions lapse (vesting). If the taxpayer makes a Section 83(b) election, which is required to be filed with the Internal Revenue Service, then the compensatory element of the stock grant is closed so that ordinary income is recognized at the time of grant. All future growth or loss in the value of the stock is eligible for capital gains or loss tax treatment, even though the stock remains subject to forfeiture. Section 83(b) elections are frequently made by founders or executives of growth companies or start-ups when the value of the stock is very low at the time of grant.

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Back in 2009, the Quebec government adopted measures to alleviate the effects of the 2008 financial crisis on the funding of defined benefit (DB) plans. These measures allowed an employer to instruct a plan’s pension committee to implement one or more of the following measures for the first complete actuarial valuation dated after December 30, 2008:

• Use of a “smoothing” method (i.e., averaging method) to value plan assets on a solvency basis over a 5-year period rather than using the current market value;
• Consolidate certain solvency deficiencies; and
• Extend the amortization period to eliminate the new solvency deficiency from 5 to 10 years.

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Following up on the consultation paper it released last December, the federal government introduced Bill C-25: the Pooled Registered Pension Plans Act (Bill C-25) yesterday. Bill C-25 sets out a legal framework for the establishment and administration of pooled registered pension plans (PRPP).

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The Canadian Association of Pension Supervisory Authorities (CAPSA) has been working away at providing pension plan administrators with guidance regarding pension plan investing and funding. As we reported earlier, CAPSA released draft guidelines this past spring. Those guidelines were released on November 15, 2011 in final form: Guideline No.6 – Pension Plan Prudent Investment Practices Guideline (the Investment Guideline) and Guideline No.7 – Pension Plan Funding Policy Guideline (the Funding Policy Guideline).

These guidelines are intended to build on the principles of pension plan governance established by CAPSA Guideline No.4 – Pension Plan Governance Guideline.

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The Registered Plans Directorate at the Canada Revenue Agency has updated the rates for money purchase, registered retirement savings plan, deferred profit sharing plan and defined benefit limits, which may be used to calculate pension adjustments, past service pension adjustments and pension adjustment reversals.  The Directorate has also increased the Year's Maximum Pensionable Earnings (YMPE) to $50,100 for 2012.

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