Posted: 2010-04-22

Manitoba Pension Changes

In March of 2010, the Province of Manitoba proclaimed long-awaited amendments to its Pension Benefits Act and Regulation. Most of the new provisions will come into effect on May 31, 2010. The passage of this new legislation completes a pension reform process that began with the release of a Manitoba Government discussion paper in 2003.

Manitoba’s new pension legislation will be significantly more flexible for our Manitoba employer and employee members. Highlights are as follows:

Phased Retirement

Manitoba members wishing to take a CSS pension will now be able to apply for phased retirement. Provided that they are 55 years of age and are reducing their hours of work and compensation with the agreement of their employer, members will be able to start a pension while continuing to work and contribute. Previously, phased retirement was only available to Manitoba members who elected to receive Variable Benefit payments.

Phased retirement is not recommended unless the employee has already reached his or her retirement savings goal. This is because the pension payments withdrawn during phased retirement will not be fully replaced by the additional contributions made, even after allowing for investment earnings. Phased retirement is also not recommended unless the employee makes a corresponding reduction in his or her compensation. Pension income received during phased retirement is added directly to employment income. Unless employment income is reduced by an amount roughly equivalent to the pension income received during phased retirement, the employee will pay more income tax than when he/she was working full time.

CSS recommends that employees and employers who are considering a phased retirement arrangement contact the Plan prior to finalizing any agreement. Written confirmation of the employer’s agreement to a phased retirement arrangement is required.

Immediate Vesting

Manitoba is the first province in Canada to require immediate vesting of employer’s contributions. Previously, employer’s contributions did not become vested (owned by the employee) until the employee had completed two years of working service. Immediate vesting will mean that employer contributions will no longer be forfeited back to CSS employers when employees terminate prior to reaching two years of service. This provision is retroactive, so it will apply to all Manitoba terminations beginning on May 31, 2010 even where the contributions were made before the new provision came into effect.

Manitoba’s new vesting provision is mandatory. It is also more favorable to CSS members than the Plan’s current vesting rule. CSS generally sets one standard for CSS members across Canada wherever possible. The Society’s Board of Directors will therefore be considering a rule change to provide immediate vesting for all CSS members. Although this will result in a slight cost to CSS employers, and particularly those that experience significant short-term staff turnover, it will also simplify Plan administration and reporting. In 2009, total employer contributions forfeited by CSS employee members across Canada was $208,000.

Eligibility of Part-Time Employees

In most provinces, CSS membership is voluntary for part-time employees. In Manitoba, CSS membership is mandatory for part-time employees.

In most provinces, CSS membership must be offered to part-time employees who:

1. complete in each of two consecutive calendar years at least 700 hours of service; or
2. earn in each of two consecutive calendar years at least 35% of the Canada Pension Plan’s Yearly Maximum Pensionable Earnings (YMPE). In 2010, the CPP YMPE is $47,200.

In Manitoba the service threshold has been 700 hours for many years, but the earnings threshold has only been 25% of YMPE. This will now be changed to 35%.

CSS membership continues to be mandatory for all full-time employees within their employer’s defined unit.

Unlocking

Retiring Manitoba members will still be able to apply to unlock up to 50% of their locked in benefits when starting a retirement income, but they will no longer have to transfer their accumulated benefits out of their pension account and into a Manitoba LIF to do so. The portion of the account that becomes unlocked, however, will still have to be transferred out of the Plan and into a Manitoba prescribed RRIF. If a member wishes to do so, the new Regulation will then permit the unlocked funds held in the prescribed RRIF to be transferred back to CSS. Unfortunately, unlocking applications will still have to be forwarded to, and approved by, the Manitoba Pension Commission. Spousal consent will still be required.

Manitoba members will also be permitted to unlock pension accumulations at any age in the event of shortened life expectancy or if they give up their Canadian residency for two years. Finally, Manitoba’s small benefit commutation limit will be increased to $9,440. Accumulated pension benefits under this limit are considered to be too small to provide meaningful retirement income. Therefore they can be withdrawn as a lump sum net income tax or transferred to a regular RRSP.

New LIRA and LIF Addenda

Existing Manitoba LIF and LIRA contracts will have to be amended to include a new standard addendum as set out in the Regulation. Financial service providers who are unable to reach existing account holders to obtain their consent to the terms of the new addendum will have to transfer existing LIRA and LIF balances into new LIRA’s and LIF’s by year-end. A copy of the new contract will have to be delivered to the account holder. Both the account holder and the plan administrator will be deemed bound by the new contract as though they had signed it. Any plans that are not converted by January 15, 2011 must be reported to the Manitoba Superintendent of Pensions.

Manitoba LRIF Phased Out

Under the new Regulation, the maximum annual withdrawal from a Manitoba LIF will become the greater of the previous LIF and LRIF maximums. Manitoba LRIF’s will therefore be phased out. Financial service providers will be required to contact each current LRIF holder before December 31, 2010, to obtain their agreement to transfer their LRIF balance into a new Manitoba LIF. Both the account holder and the plan administrator will be deemed bound by the terms of the new LIF contract as though they had signed it. Any LRIF’s that are not converted to LIF’s by January 15, 2011 must be reported to the Manitoba Superintendent of Pensions.

Pre-Retirement Death Benefit Waiver

When a pension plan member dies before retirement, Manitoba’s pension legislation requires that the member’s accumulated benefits be transferred to his or her spouse or common law partner provided that the spouse or common law partner was residing with the member at the time of his or her death. Non-member spouses will now be permitted to waive this statutory entitlement by signing a government form. The non-member spouse will be permitted to sign this form either before or after the member’s death. To ensure that the waiver is valid, the non-member spouse will have to receive a statement showing the value of the member’s account and receive independent legal advice. The waiver can be revoked in writing before the member’s death provided that the revocation is signed by both the non-member spouse and the member. Permitting the non-member spouse to waive this statutory entitlement will help to keep retirement accumulations separate for retirement planning purposes in a second marriage situation.

Manitoba Prescribed Pension

In each province in Canada pension legislation requires a member that has a spouse to take a prescribed form of joint pension on retirement. The prescribed pension, however, can be waived by the non-member spouse. For many years, all provinces except Manitoba have defined their prescribed pension as a joint pension with a 60% survivor benefit and no guarantee. With the passage of the 2010 amendments, Manitoba will finally join the rest of Canada in prescribing a joint pension with a 60% survivor benefit. Prior to this change, Manitoba’s prescribed pension was a joint pension with a 66.6% survivor benefit. This change will simplify the Plan’s pension administration systems and processes by creating one national standard.