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Canada Revenue Agency suspends minimum contribution rule for DC pension plans

The Canada Revenue Agency has announced that it has suspended the minimum contribution rule for defined contribution (DC) pension plans in 2020. The minimum contribution rule provides that a DC pension plan must have terms that require employers to contribute at least 1% of the total pensionable earnings of all active members participating under the provision each year.

In light of the COVID-19 pandemic, the Canada Revenue Agency will waive the 1% rule for the remainder of 2020 if the plan is amended to suspend accruals under the plan for the year, meaning that there will be no employer or employee contributions made to the plan or provision following the plan amendment. This measure only applies for the remainder of 2020 for plans that submit an amendment to the Canada Revenue Agency.


Comment

Employers in many DC pension plans have already contributed amounts that would satisfy the minimum contribution rule for 2020, but the Canada Revenue Agency announcement provides additional comfort that the minimum contribution rule will not be applied in 2020. Any suspension of contributions to a DC pension plan will require advance notice to members and an amendment to be filed with the Canada Revenue Agency and the applicable pension regulator.

Several pension regulators have confirmed that such amendments are permitted under pension legislation, but have pointed out that employers must be cognizant of collective agreements and labour and employment law matters when considering such amendments. The minimum contribution rule only applies to DC pension plans and does not apply to pension plans with defined benefit provisions, group registered retirement savings plans, and deferred profit sharing plans.


News & Views - May 2020 (PDF)