April 2022

The 2022 federal budget and your total rewards program

The 2022 federal budget contains several measures that could directly or indirectly affect total rewards programs. In light of the available information, our specialists have identified the most relevant elements to monitor.

CANADIAN DENTAL CARE PLAN

This new plan will be limited to families whose yearly income is lower than $90,000, and any person with a yearly income lower than $70,000.

It will be implemented in three stages:

  • In 2022, for people under age 12
  • In 2023, coverage extended to people under age 18, seniors and people with disabilities
  • Full implementation of the plan’s provisions expected in 2025

Coordination with private, provincial and territorial plans still has to be clarified. What will the repercussions on your plans be?

MEDICAL EXPENSES FOR BECOMING A PARENT

Medical expenses related to being a surrogate mother, sperm, egg or embryo donor, as well as expenses paid to fertility clinics and donor banks will be eligible for tax credits for medical expenses starting in 2022.

This measure will allow these fees to be covered by private health insurance plans and the health spending accounts provided by certain plans.

EMPLOYMENT INSURANCE SICKNESS BENEFITS

The 2021 budget proposed extending employment insurance sickness benefits from 15 to 26 weeks. The 2022 budget confirms the implementation of this measure this summer.

The impact of this measure on the Premium Reduction Program remains unknown. Some disability insurance plans may have to be reviewed based on the consultation results.

NATIONAL PHARMACARE

The 2022 budget provides measures to enhance Canada’s healthcare system. The work aimed at implementing a national pharmacare plan will continue and a bill will be introduced and adopted by the end of 2023. This bill will help to better evaluate the repercussions on private plans.

TAXATION ON BANKS AND LIFE INSURERS

Banks and life insurers will be taxed more by the introduction of an additional permanent tax and a temporary dividend for Canada’s recovery. We will continue to monitor fee increases among insurers who may want to compensate for their decreased profitability.

PENSION PLANS

Without revealing the exact nature of the upcoming changes, the federal government will follow up on the consultation conducted at the end of 2020 by amending the Pension Benefits Standards Act, 1985 (PBSA). This law applies to organizations in industries with federally regulated pension plans, including banks, telecommunications, transportation and indigenous communities. These are the three primary changes:

  1. Consideration of ESG factors: the government will go forward with new disclosure requirements for environmental, social and governance (ESG) considerations, including climate change-related risks.
  2. Implementation of solvency reserve accounts: this measure will allow employers who make contributions for solvency deficits to recover them once the plan’s financial situation is more favourable.
  3. Measures to strengthen administration and governance: it can be presumed that the government will move forward with measures to improve the plan’s governance, such as the establishment of a governance policy, as suggested in its consultation.

The government also confirmed that it will move forward with the creation of a legislative framework for variable payment life annuities. However, the budget made no mention of the possibility of allowing for electronic communications without obtaining member consent, a measure awaited by federally regulated plan sponsors, which would make administration easier. The budget made no mention of any intention of reviewing these plan’s funding framework. These plans are among the last in the country to remain subject to solvency funding up to a level of 100%.

Finally, the government modified borrowing rules for all defined benefit pension plans by replacing the 90-day limit by a cap corresponding to 20% of the plan’s assets, net of the amounts borrowed. This cap decreases gradually based on the plan’s financial situation, becoming nil when the plan is funded at more than 125%.

TAX-FREE FIRST HOME SAVINGS ACCOUNT (TFHSA)

The 2022 budget has proposed a tax-free first home savings account (TFHSA), which will allow first-time homebuyers to save up to $40,000.

  • The annual contribution cap will be $8,000 and the unused annual contribution room cannot be carried over.
  • TFHSA contributions will be tax deductible and the interest earned in a TFHSA is tax-free.
  • Eligible withdrawals from a TFHSA with a view to purchasing a first home will not be taxed, just like with a TFSA, and will have to be made in the 15 years following the opening of the account.
  • Transfers from an RRSP to a TFHSA are allowed.
  • In order to provide additional leeway, an individual can transfer funds from the TFHSA to the RRSP without reducing future RRSP contribution room and without limiting existing contribution room.

The TFHSA combines the most important benefits of the TFSA and the RRSP, which makes it potentially more attractive than the Home Buyers’ Plan (HBP). It provides an excellent opportunity to inject greater flexibility into a group savings plan by better meeting the diverse needs of different generations of workers. A measure that aligns perfectly with our Savings Highway™ vision.

OFFSETTING THE LABOUR SHORTAGE

Various measures are also aimed at offsetting the labour shortage, including—among other things—an immigration plan, which the government qualifies as ambitious, expanded recognition of foreign credentials in the health sector, employment strategies to increase participation among people with disabilities and improvements to the temporary foreign worker program. Finally, as announced last March, the federal minimum wage increased to $15.55 on April 1.

The clarifications that will be communicated on the measures proposed in this budget could reveal other effects on total rewards program components. Our specialists are carefully following developments to identify the repercussions, threats and opportunities in order to support you better.

Any questions or concerns? Contact us!