The 2018 RPP Practitioner’s Forum, Summary Report

Overview

On November 14, 2018, the Registered Plans Directorate (RPD) hosted its 2018 Registered Pension Plan (RPP) Practitioners’ Forum in Ottawa. The forum provides an opportunity for RPD to meet with representatives from the pension industry and discuss areas of mutual interest.

Opening remarks

Mike Godwin, Director General of the RPD welcomed the attendees and provided an overview of the day’s agenda. He also informed them that the RPD would be introducing a consultative process with respect to two upcoming publications. The RPD will make these publications available on its website and invite interested stakeholders to provide commentary prior to finalization. The RPD will announce when the documents are available and ask for written submissions by certain dates.

Actuarial bulletin no. 4

Katie McElwain, Actuarial Manager, provided details about Actuarial Bulletin no. 4. The purpose of this bulletin is to provide guidance on what the RPD considers as reasonable methods to apportion assets and actuarial liabilities for employer contributions to a defined benefit RPP when there is more than one participating employer. The legislative reference is subparagraph 147.2(2)(a)(vi) of the Income Tax Act.

The bulletin will provide details on the acceptable methods to apportion the assets or liabilities, removing a participating employer, and outline disclosure requirements for valuation reports with multiple participating employers.

Ms. McElwain noted discussions within RPD are ongoing in relation to removing participating employers from a defined benefit RPP. This matter will need to be finalized before completing the draft bulletin and sharing it through the new consultative process.

E-service delivery

Mr. Godwin noted the successful implementation of the RPD’s Registered Plans Application Suite (RPAS), which has resulted in the integration of the 10 deferred income programs that falls under its purview.  With this integration complete, the RPD is working towards obtaining further funding so that it can implement a comprehensive electronic service delivery.

Janice Laird, Director, Policy, Actuarial and Communications Division, gave a presentation on the e-services available at RPD. This presentation was an update to the presentation given at the 2016 forum.

The RPD can now accept all RPD forms electronically using an XML schema or web form. The RPD is working on getting portal access that would allow administrators to send supporting documents electronically, as well as enable electronic responses from RPD. The RPD will be working with the Department of Finance in regards to any legislative changes in which RPP administrators can file their documents with the CRA to satisfy the prescribed manner to comply with the tax rules.

Ms. Laird also spoke about privacy concerns when sending enquiries by email, and advised that RPD must abide by the CRA policy in this regard and thus cannot reply by email where taxpayer information is involved.

Annuity purchases

Jeff Boxer, Technical Services Manager, provided details about an upcoming newsletter on annuity purchases under section 147.4 of the Income Tax Act. This presentation was a follow-up to the presentation that he gave at the 2016 forum.

The newsletter will provide guidance on what RPD considers not materially different from a particular RPP when an annuity is purchased from a licensed annuity provider. The newsletter will also clarify what fixed-rate alternatives can be used in lieu of the consumer price index (CPI) for RPPs that provide cost of living increases to pensions in pay. It will also provide information about purchasing annuities using commuted values as well as plan assets.

Mr. Boxer noted that the Newsletter is complete and it is expected that the draft will be available by mid-December 2018 for public consultation.

Department of Finance

Andrew Donelle, from the Department of Finance, introduced his team and explained their role in developing tax policy for deferred income plans. He also noted the close working relationship with RPD in implementing changes to the RPP tax rules.

Mr. Donelle also mentioned that draft legislation is proceeding in regards to target benefit plans, and that this legislation will be available for consultation in the near future.

Changing a participating employer

Allan Robusky, Registration Division Manager, did a presentation about amendments that the RPD occasionally receives involving changing the plan sponsor. Mr. Robusky noted that the RPD sees amendments to existing RPPs, primarily individual pension plans, where the incoming sponsor does not employ the plan member(s). As a result, the incoming sponsor cannot be a participating employer as defined in subsection 147.1(1) of the Income Tax Act, and there is no longer an employer who can fund the plan in order to ensure that retirement benefits are payable for life. 

Mr. Robusky reconfirmed the RPD’s position that it would not accept amendments of this nature. The plan would no longer satisfy the primary purpose condition under paragraph 8502(a) of the Income Tax Regulations. He noted that information related to this is contained in the RPD’s technical manual which is available on its website. Compliance with paragraph 8502(a) is a prescribed condition for registration under the Income Tax Act, and when a particular RPP no longer complies with a prescribed condition for registration, the RPD may issue a notice of intent to revoke a plan’s registration.

The revocation of a plan because of such an amendment would be the RPD’s least preferred option. In these cases, the RPD prefers to work with the plan sponsor so that the RPP can be voluntarily wound-up, and members can transfer their entitlements up to the Income Tax limits to other registered plans (such as an RRSP, RRIF, or other RPP), or purchase an outside annuity under section 147.4 of the Income Tax Act.

Repayment of amounts paid in error

Jeff Boxer, Technical Services Manager, provided details of an upcoming newsletter about repayments to an RPP where a deduction under paragraph 60(n.1) of the Income Tax Act applies.

This newsletter will address situations of amounts paid from an RPP in error that are repaid to the particular plan. The newsletter will provide guidance for plan administrators, will outline the conditions needed to qualify for a deduction under paragraph 60(n.1), as well as how one can claim the deduction.

This newsletter will not be subject to public consultation. The RPD intends to have it published on its website no later than March 31, 2019.

Question and answer session

The session was led by Sean Malloy, Director, Audit Division.

Question 1 - Target benefit and shared risk plans

What would be the effect on reported pension adjustments for plan participants in the event that the accrued pensions are to be reduced (for active members and/or pensioners) in a target benefit type plan?

Answer 1:

The Tax Policy Branch of Finance Canada received stakeholder submissions over the past few months regarding options for a tax framework for target benefit plans. The Branch is currently preparing draft amendments to the Income Tax Act and Regulations to accommodate target benefit plans, which it will release for public comments in due course.

Question 2 - Target benefit and shared risk plans

Knowing that the employee and employer contributions are often predetermined, what is CRA’s position regarding the admissibility of employer current service cost contributions in the event that a target benefit plan reaches excess surplus on a going concern basis?  

Answer 2:

The Tax Policy Branch of Finance Canada received stakeholder submissions over the past few months regarding options for a tax framework for target benefit plans. The Branch is currently preparing draft amendments to the Income Tax Act and Regulations to accommodate target benefit plans, which it will release for public comments in due course.

Question 3 - Designated plans

There is an inconsistency between certain legislation (such as Québec or Ontario) and the Income Tax Act for designated plans subject to maximum funding. When a transfer deficiency arises but the plan is required to pay 100% of a participant’s termination benefits, it may not be an eligible contribution under the  Income Tax Act. Have you, or are you planning to work with the different legislators in order to resolve this issue?

Answer 3:

When a member of a designated plan terminates employment and chooses a commuted value, funding is permitted only to the limits specified in section 8515 of the Income Tax Regulations. As mentioned, certain regulators may require that the cost of the termination benefits be fully funded prior to payment. The CRA has discussed this conflict with the Department of Finance in the past. The Department of Finance sets tax policy and is responsible for setting the limits on contributions to deferred income plans. Questions regarding tax policy should be directed to the Department of Finance.

Question 4 - Maximum transfer value

Since 2016, the Québec Supplemental Pension Plans Act provides that pension benefits may be paid in proportion to the plan’s solvency ratio as a total and final settlement for the member’s entitlement under the plan. When benefits are paid in accordance with this new provision, what is the proper application of the limit defined at paragraph 8517 of the Income Tax Regulations?

Answer 4:

The modified prescribed amount under subsection 8517(3.01) of the Income Tax Regulations can be used. As per subsection 8517(3.001) of the Regulations, the application of subsection (3.01) must be approved by the Minister. It must be clear under the plan terms (either current wording or via plan amendment) that the following conditions are satisfied for a plan administrator to receive favourable consideration from the CRA:

  • the single amount paid to the member must be the final payment
  • the member is no longer a member of the plan following the payment
  • no future entitlement can arise thereafter

Question 5 - Optional voluntary and flexible contributions

Have you considered the possibility of changing the member RPP contribution deadline similar to the one that exists for RRSPs?  Allowing members to make RPP contributions in the first two months of a year and apply them towards the immediately preceding year would give them greater flexibility, especially if they have variable pay. 

Answer 5:

Paragraph 147.2(4)(a) of the Income Tax Act restricts deductibility for employee contributions to an RPP to be those that are “made by the individual in the year”. The Registered Plans Directorate is not aware of any proposals to extend the current deadline of December 31 for making optional and/or flexible contributions to registered pension plans. Such a change would require an amendment to the Income Tax Act, which falls under the purview of the Department of Finance Canada. We shared your question with Finance Canada. On tax policy grounds, Finance believes it is appropriate that voluntary and flex contributions should continue to be deductible under RPP tax rules (i.e. on a calendar year basis) and not be treated in a manner comparable to RRSP contributions. Finance added that, if employers would be required to take into account the employee contributions made in January and February, it would disrupt and complicate the employer’s obligation under the  Income Tax Act to issue T4 slips to employees by the end of February.

Question 6 – Income reporting

In some circumstances, retroactive pension payments owing to the retired member must be credited with interest. This is applicable in Ontario, in accordance with sections 24 and 24.1-24.5 of Regulation 909. The lump sum amount owing to the retired member is, therefore, the sum of each of the pension payments plus interest on each specific pension payment.

Would you give us more information regarding how interest on retroactive pension payments should be reported for income tax purposes: i.e., as interest income (T5) or as pension benefit (T4A)?

Answer 6:

If interest is included with the principal amount of a retroactive pension payment it must be reported in Box 018 (Lump-sum payments) on the T4A, Statement of Pension, Retirement, Annuity, and Other Income, in the year it is received.

Certain qualifying retroactive lump-sum payments totalling $3,000 or more (not including interest) are eligible for a special tax calculation when an individual files their income tax and benefits return. To get information on this topic, see Guide RC4157, Deducting Income Tax on Pension and Other Income, and Filing the T4A Slip and Summary, or call 1-800-959-5525.

Question 7 – Amending retirement compensation arrangement legislation

Can the Department of Finance consider recommending an amendment to the Income Tax Act that would facilitate the transfer of lump sum amounts from a retirement compensation arrangement (RCA) to a payout annuity on a tax-deferred basis? When an employee who is an RCA beneficiary retires, many employers want to remove the RCA liability from their books by buying a payout annuity for the employee. Current rules tax the purchase as a lump sum payment to the employee. An amendment allowing the transfer on a tax-deferred basis would ease the employers’ administrative burden and provide greater retirement income security for retired employees.

Answer 7:

Written submissions recommending amendments to tax rules related to RCAs can be sent to Tax Legislation Division, Tax Policy Branch, Department of Finance Canada, 90 Elgin Street, Ottawa, Ontario, K1A 0G5

Question 8 – Web based search option for registered pension plans

Is there a way to search registered pension plans and deferred profit sharing plans on CRA’s website (similar to what is available on the Financial Services Commission of Ontario and the Office of the Superintendent of Financial Institution’s website)? 

Answer 8:

Section 241 of the Income Tax Act prevents the CRA from disclosing the details of a particular registered pension plan without written authorization from the plan administrator. This proposal would not qualify under the current limited exceptions in which the CRA can provide a disclosure as set out in subsection 241(4).

Question 9 - Review and acceptance of amendments

If a plan text amendment is submitted to the CRA to change the plan year for example, the CRA may not accept the amendment on time if they carry out a random audit. The acceptance of the amendment may only occur after the audit. The result is, an amendment can get accepted a year or so later and the sponsor can face fines. Please explain how the process of random audits affects the approval of amendments and the impact on the plan sponsor.

Answer 9:

Registered plans are selected for audit and put into the annual audit plan based on a variety of criteria. The annual audit plan is a list of the registered plans selected for audit and is shared with the Registration Division well in advance of the audits starting. The goal of this is to ensure that any outstanding amendments are processed prior to the start of the audit activity. With the introduction of cyclical review, we have had to modify this process and are still fine-tuning it so that it works for both the Registration and Audit Divisions. If there are outstanding amendments for a plan when it comes under audit, the auditor will treat the amendment as part of the plan as registered as outlined in subsection 147.1(15). It is important to highlight that this is for amendments that are considered reasonable and likely to be accepted. If a submitter is concerned that a particular amendment might not be accepted for the purposes of forming part of the plan as registered, then they should use form T2014 to request a priority review of the amendment.

Question 10 – Paying benefits of un-locatable members to a legislatively specified government office

This topic is likely to become more and more important. Some provinces already have functioning arrangements in this regard (Québec). Others have something in theory but not in practice (B.C.) and many (Ontario) are considering putting in place such an arrangement. Such payments (from an RPP to a government office) do not seem to be specifically contemplated under the Income Tax Act but presumably, the CRA is not opposed to them as they already routinely occur in Québec. Will the Income Tax Act be amended to accommodate such payments?

Answer 10:

In June 2018, Finance Canada released a Consultation Paper on Proposals for an Unclaimed Pension Balances Framework. The Paper included options for appropriate tax rules to apply in cases where an unclaimed pension balance is paid by an RPP administrator to a designated entity (under conditions set out in pension standards legislation). 

Report a problem or mistake on this page
Please select all that apply:

Thank you for your help!

You will not receive a reply. For enquiries, contact us.

Date modified: