On May 11, 2015, the B.C. Government approved and released the new Pension Benefits Standards Regulation. The New Regulation supports the new Pension Benefits Standards Act, SBC 2012, c. 30 (the New Act) which was passed in the spring of 2012 and subsequently amended by Bill 10-2014, the Pension Benefits Standards Amendment Act.

Exemption for IPP under the New Act and Regulation

The effective date of the New Act and Regulation is September 30, 2015. Individual Pension Plans (“IPPs”) for connected members (10% or more shareholders or not dealing at arm’s length with such person) are still exempt from registration with the B.C. Financial Institutions Commission (“FICOM”) and do not need to meet any minimum funding requirements under the New Act and Regulation. However,the exemption for new IPPs for highly-paid non-connected (i.e., less than 10% shareholding) executives available under the previous legislation will no longer be available unless implemented by September 30, 2015. Highly-paid means annual remuneration of over 2.5 times the Year’s Maximum Pensionable Earnings or YMPE as defined under the Canada Pension Plan – the 2015 YMPE is $53,600 so any individual making over $53,600 x 2.5 = $134,000 of annual remuneration in 2015 is considered highly paid.

Last Chance for an Exempt New IPP for Non-Connected Executive in BC

The good news is that there is still a last window of opportunity for employers to establish exempt IPPs for their non-connected highly-paid executives. In the New Regulation, IPPs for non-connected highly paid executives which were registered or submitted to the Canada Revenue Agency (“CRA”) for registration prior to September 30, 2015 would be exempt from registration with FICOM.

Significance of Exempt IPP to an Employer

If an IPP is not exempt, it will be subject to the funding requirements as applicable to defined benefit provisions as outlined in Section 57 of the New Regulation. The employer must contribute on a monthly basis an amount not less than the sum of the following each year:

• Current service contribution;
• Payments required to amortize any unfunded liability over a period not exceeding 15 years;and
• Payment required to amortize any solvency deficiency (deficit of the pension plan determined on a hypothetical wind-up basis) over a period not exceeding 5 years.

The following are the major disadvantages if an executive IPP is not exempt:

• Rigid and inflexible funding obligation – the employer has the statutory obligation to contribute as least the minimum required amount each year.
• Additional administration burden – contributions must be made at least on a monthly basis which makes the administration of an IPP onerous for many employers. There are also requirements for documentation to be filed with FICOM plus annual filing fees.

The advantages to have exempt IPPs for the following reasons:

• There is no legislated minimum funding requirements applicable. The statutory minimum funding is $0.
• At any point in time, the employer can contribute any amount from $0 up to the maximum allowable contribution amount as outlined in the most recent actuarial valuation report for
  the IPP.
• It is possible to design an IPP with funding based on company as well as executive performance measures. Unused funding room from previous years can be carried forward and accumulated to future years when funds are available.

Importance of IPP Funding Flexibility

Most employers would like to structure the IPP funding for executives based on the company’s profitability and the performance of the executives. For cyclical industries such as mining or forestry, IPP funding flexibility is critical as there may not be any funding available during challenging times and there may be significant funds available during boom times. If you wish to take advantage of this window of opportunity to establish an exempt IPP for a non-connected highly-paid executive prior to September 30, 2015, please contact us further information and consultation.

This content is for general information only. As it is impossible to include all situations, circumstances and exceptions in a blog such as this, a further review or study should be undertaken with respect to implementing an IPP for a highly-paid executive in B.C. However, because of the nature of the subject, no person or firm involved in the preparation or distribution of this commentary accepts any liability for its contents or use.