GroupNews – December 2020
Eckler’s GroupNews monthly newsletter provides commentary on the issues affecting Canadian group benefit plans.
In this edition:
- Maximum Canada Pension Plan and Quebec Pension Plan contributions for 2021
- Saskatchewan lowers ambulance fees for seniors
- Department of Finance releases draft revised legislative proposals for Employee Life and Health Trusts
- Federal economic update offers further details on national pharmacare policy and investments in mental health
Benefit plan management
Maximum Canada Pension Plan and Quebec Pension Plan contributions for 2021
The Canada Pension Plan and Quebec Pension Plan contribution rates for 2021 were recently announced. Rates are shown below:
| Canada Pension Plan | 2020 | 2021 |
| Basic exemption | $3,500 | $3,500 |
| Year’s maximum pensionable earnings | $58,700 | $61,600 |
| Employer contribution rate | 5.25% | 5.45% |
|
Maximum employer contribution |
$2,898.00 | $3,166.45 |
| Employee contribution rate | 5.25% | 5.45% |
|
Maximum employee contribution |
$2,898.00 | $3,166.45 |
| Quebec Pension Plan | 2020 | 2021 |
| Basic exemption | $3,500 | $3,500 |
| Year’s maximum pensionable earnings | $58,700 | $61,600 |
| Employer contribution rate | 5.7% | 5.9% |
|
Maximum employer contribution |
$3,146.40 | 3,427.90 |
| Employee contribution rate | 5.7% | 5.9% |
|
Maximum employee contribution |
$3,146.40 | $3,427.90 |
Impact: Employers will need to ensure their payroll and HR systems are updated to reflect the 2021 limits.
Benefit plan management
Saskatchewan lowers ambulance fees for seniors
The Saskatchewan Government is reducing ambulance fees for seniors to $135 per trip effective
December 14, 2020. Seniors in Saskatchewan have been paying up to $275 for ambulance fees since April 2012.
Seniors will also not be charged for ambulance transfers between healthcare facilities.
Impact: While some provinces exempt seniors from any fees, the new fees are more in line with those in other provinces. Plan sponsors with beneficiaries over age 65 may experience cost savings.
Legal and legislative news
Department of Finance releases draft revised legislative proposals for Employee Life and Health Trusts
On November 27, 2020, the Federal Department of Finance (Finance) released long-awaited revisions to the draft legislative proposals permitting the conversion of Health and Welfare Trusts (HWTs) into Employee Life and Health Trusts (ELHTs). The most significant change is a one-year extension to the current administrative rules governing HWTs, which were no longer expected to apply by the end of 2020 but have now been extended to the end of 2021. Further details of this and other changes are summarized below.
Background
HWTs and ELHTs are trusts established by benefits plan sponsors for the purpose of providing specific health and welfare benefits to their employees or members. The tax treatment for HWTs is not explicitly set out in the federal Income Tax Act. However, in 2010 the Income Tax Act was amended to explicitly set out the tax treatment of certain elements of ELHTs, including the treatment of surpluses and the pre-funding of benefits. The Canada Revenue Agency has published several administrative positions, including the Income Tax Folio S2-F1-C1 regarding the requirements for qualifying as an HWT that often mirror the specific tax treatments for ELHTs. These requirements have never been codified in the Income Tax Act, which has caused confusion for plan sponsors and other stakeholders.
To provide greater certainty and consistency in the tax treatment of HWTs and ELHTs, the 2018 Federal Budget proposed the introduction of legislative provisions to ensure that a single set of rules applied to both HWTs and ELHTs, including facilitating the conversion of existing HWTs to ELHTs. On May 27, 2019, the government released draft legislative proposals supporting conversion and invited comments from interested stakeholders. The latest draft legislative proposals reflect the results of those consultations.
Proposed amendments
The revised legislative proposals are intended to:
- Extend the application of administrative rules governing HWTs one additional year from the proposed end date of December 31, 2020 to December 31, 2021;
- Facilitate the conversion of existing HWTs into ELHTs by the end of 2021;
- Relax current restrictions related to the participation of “key employees” and the benefits that may be offered under the trust; and
- Amend the existing ELHT tax rules to allow existing HWT arrangements to continue to operate in a manner similar to that in which they currently operate.
Extension of administrative rules
The legislative proposals extend the application of current Canada Revenue Agency administrative policies governing HWTs for an additional year, from December 31, 2020 to December 31, 2021. The extension is partly in response to the lengthy consultation process undertaken by the government and will provide existing HWTs additional time to ensure compliance by the conversion deadline.
Conversion of existing HWTs
In order to facilitate the conversion of existing HWTs, the government has extended the current ELHT rules to trusts created prior to 2010. Previously, the rules applied only to trusts created after 2009. In addition, existing HWTs will be permitted to convert to ELHTs without having to create a new trust or face any adverse tax implications. New transition provisions will permit existing HWTs to elect to be “deemed” ELHTs until December 31, 2022, if certain conditions are met. This will allow current HWTs additional time to amend their current trust terms.
Key employees and improved benefits
The proposed amendments would relax the current restrictions related to the participation of “key employees” (such as specified shareholders or certain highly compensated employees). Restrictions prohibiting key employees from making up more than 25% of employee beneficiaries of an ELHT would be waived if:
- Benefits provided to key employees are negotiated under a collective bargaining agreement; or
- The total cost of private health services plan benefits paid to key employees does not exceed $2,500 per year per key employee.
The proposed amendments also expand the scope of ELHTs in several ways including:
- Expanding the list of designated employee benefits to include certain counseling services for mental health, re-employment or retirement, and death benefits of up to $10,000;
- Permitting employers to offer benefits for leaves such as bereavement or jury duty under certain circumstances;
- Extending the carry-forward period for non-capital losses from three to seven years; and
- Allowing non-resident trusts that meet other relevant conditions to qualify as ELHTs.
Impact: The proposed amendments offer significant improvements in the benefits that an ELHT can provide to members and expand the scope of ELHTs to allow for more employees to benefit. Many existing HWTs offer benefits that do not qualify as designated employee benefits. The amendments make it easier for those HWTs to convert to ELHTs while existing HTWs have been given the additional time to they need to ensure they comply with requirements. Employers and plan sponsors should review all aspects of their trusts with their legal advisors to ensure they are in compliance or can implement the necessary changes to convert HWTs to ELHTs by the deadline.
Legal and legislative news
Federal economic update offers further details on national pharmacare policy and investments in mental health
On November 30, 2020, the federal government released its Fall Economic Statement, Supporting Canadians and Fighting COVID-19 (Statement). The Statement provides additional details regarding the government’s proposed national pharmacare strategy, previously discussed in the 2019 Federal Budget.
As noted in the Statement, the government has made a commitment to continue working with provinces, territories and other stakeholders to move forward in establishing the foundational elements of national, universal pharmacare, including:
- A new Canadian Drug Agency that would negotiate drug prices on behalf of all Canadians, thereby lowering costs;
- A national formulary to be developed by the Canadian Drug Agency; and
- A national strategy for high-cost drugs for rare diseases, with funding of $500 million per year, ongoing, starting in 2022–23.
The government also noted that in the coming weeks, Health Canada will be setting out options for the pharmacare strategy and will engage with provinces, territories, patients, industry and other interested groups to confirm the path forward.
The government also announced investments in mental health. The $93 million investment in 2020─21 includes $50 million to bolster distress centres and $43 million to provide further support for the Wellness Together Canada portal and the resources it offers.
Impact: The continued commitment by the federal government to a national pharmacare strategy will help enhance coverage options for Canadians and could have significant cost implications for employers offering prescription drug benefits. The extent of the impact will depend on the size and scope of the formulary, the coverage levels and maximums, and whether the public program will be the first or the second payer of drug costs for eligible employees. The Statement did not offer any indication of the expected timeline for these measures.
This publication has been prepared by the GroupNews editorial board for general information and does not constitute professional advice. The information contained herein is based on currently available sources and analysis. The data used may be from third-party sources that Eckler has not independently verified, validated, or audited. They make no representations or warranties with respect to the accuracy of the information, nor whether it is suitable for the purposes to which it is put by users. The information is not intended to be taken as advice with respect to any individual situation and cannot be relied upon as such.
Current editorial board members are: Andrew Tsoi-A-Sue, Ellen Whelan, Charlene Milton, Philippe Laplante, and Nick Gubbay.