5 hot issues you need to know about for 2013
BY Natasha D. Monkman, Hicks Morley | December 12, 2012
Recent years have seen a tidal wave of change to the laws governing pension and benefit programs. Much of the change has been focused on defined benefit plans, which are typically only retained by large corporations.
However, many changes or recent trends will have significant impacts on small businesses as well. These are five recent retirement and benefits trends that small business advisors should be aware of in 2013.
- Higher Registered Plans Savings Limits: Employers who provide registered retirement savings plans ("RRSP") for their employees should be aware of the increased annual limits. Since 2003, after several years of stagnation, the RRSP limit has increased each year. The limit for 2013 is $23,820 and will increase further to $24,270 in 2014. Similarly, the pension adjustment limit for defined contribution pension plans increasing for 2013 to $24,270. The federal government also recently announced that the annual contribution limit for tax-free savings accounts ("TFSA"), which were introduced as an alternative savings vehicle a few years ago, will increase in 2013 from $5,000 to $5,500 per year.
- Canada Pension Plan ("CPP") Post-Retirement Benefit: Effective January 1, 2012, employees were no longer required to either stop working or reduce their earnings in order to receive CPP benefits before age 65. However, CPP recipients between ages 60 and 65 who continue to work must continue contributing to CPP and recipients between age 65 and 70 may elect to continue contributing to CPP. For each employee who makes these CPP contributions, employer contributions must be made.
- Premiums for Group Sickness or Accident Insurance Plans: The federal government has amended the Income Tax Act regarding employer premiums to group sickness or accident insurance plans where benefits are payable on a non-periodic basis or where there is no loss of employment income. Contributions to these insurance plans are now taxable. This means that if an employer provides critical illness or accidental death and dismemberment insurance to its employees, these contributions will be taxable benefits to the employee. This change is applies to contributions made on or after March 29, 2012, although employer contributions made in 2012 and relating to future coverage will not be taxable to employees until 2013.
- Possible new savings vehicle: The pooled registered pension plan ("PRPP"), if introduced, may have significant impact on small business owners. PRPPs will be defined contribution type pooled pension plans, administered by financial institutions and insurance companies. PRPPs may provide smaller employers with additional options for offering retirement savings for employees. The Ontario government, in the 2012 Budget, indicated that it will not likely adopt legislation supporting PRPPs in Ontario. To date, Quebec is the only province to entertain creating a vehicle similar to the PRPP and may yet re-introduce legislation creating "voluntary retirement savings plans" or "VRSP". Employers with at least five eligible employees will be required to offer access to a VRSP.
- Age-Based Discrimination Claims: There has not been any new legislative change regarding age-based distinctions. However, employers are seeing an influx of age-based discrimination challenges in terms of the provision of pension and benefit plans. As the working population ages, employees are apt to challenge the discontinuance of benefits at age 65 (which is still permissible in Ontario) or distinctions in pension or retirement plans based on age. Employers should seek legal advice whenever contemplating changes to their benefit plans based on age.
A couple of these changes—additional CPP contributions, increased retirement savings plans limits—allow for greater retirement savings by employees. This addresses a concern that has been getting significant attention in the media over the past couple of years.
Perhaps one of the most significant changes in that regard is the PRPP. If adopted by governments across the country, the PRPP may further support increased savings by employees. However, PRPPs may have important financial impacts on employers, particularly if governments follow Quebec's lead and make the PRPP mandatory. Small businesses will likely be directly impacted by any future government action in this regard.