RPP Consultation Session - 2003 RA Centre, Ottawa - December 3, 2003

Important notice

As part of an effort to update and clean up our website, we are reviewing the consultation sessions questions and answers to make sure that we give you quality information. We have deleted and will continue to delete redundant, outdated and trivial content. The relevant questions and answers will keep their original numbering. Eventually these will also be deleted as we incorporate this information into our other publications, such as our Technical Manual and Newsletters. 

Questions and Answers

  1. Removed
  2. Conversion from DC Provision to DB Provision
  3. Recognition of Past Service
  4. Quebec's Indexing Benefit
  5. Quebec's Indexing Benefit Where Plan Benefit at Maximum
  6. Removed
  7. Removed
  8. Removed
  9. Removed
  10. Removed
  11. Removed
  12. Removed

Question 2 - Conversion from DC Provision to DB Provision

In a conversion from a defined contribution (DC) provision to a defined benefit (DB) provision, section 147.3(2) of the ITA mentions that the amount transferred must be to fund benefits provided under the defined benefit provision.

What about when the value in the member's DC account is higher than the DB value? For example DC= $50,000 and DB = $10,000?

Provincial legislation will not let a member lose $40,000 of benefits.

i) Can the extra $40,000 be considered as AVCs under the DB provision or can we construct a DB design that gives the higher of the DB and DC (in a way acceptable to CCRA, such as the DC value + the excess of the DB over the DC).

ii) When we say the amount transferred must be to fund benefits provided under the defined benefit provision, do we mean on a going concern basis, on a solvency basis or on the higher of the 2?

Answer 2

(i) On conversion, the amount in the member's account in a money purchase provision can be used to fund benefits in the defined benefit (DB) provision of an RPP pursuant to subsection 147.3(2) of the Act. If the amount in the money purchase provision exceeds the amount required to fund benefits in the DB provision, the additional funds can remain in the money purchase provision of the plan or be transferred to another MP provision under subsection 147.3(1) of the Act.

We no longer accept plans that provide benefits based on the greater of a DB promise and a MP component. We would, however, accept a DB provision offset by a MP provision as suggested.

We remind you that when retirement benefits become provided to an individual under a defined benefit provision with respect to post-89 service, a past service pension adjustment (PSPA) results. The amount transferred from the MP provision would be a qualifying transfer and will reduce the PSPA accordingly.

(ii) If the amounts are to be transferred from a MP provision to fund benefits under a DB provision of an RPP under subsection 147.3(2)(c) of the Act, we will accept the transfer on either a going-concern or a solvency basis, unless the plan is a designated plan. For designated plans, the transfer must be on the lesser of the going concern or the maximum funding basis.

Question 3 - Recognition of Past Service

Following a recent change in the law, self-employed persons may now incorporate and receive a salary, for example a dentist... We wish to put a plan in place for these people but when can we credit past service? I understand that there has not been an employer/employee relationship but that is because they could not have such a relationship if they could not incorporate. Is CCRA going to let them recognize the past years of service in the current situation?

Answer 3

Paragraph 8502(a) of the Income Tax Regulations (Regulations) requires that the primary purpose of a pension plan is to provide payments to individuals after retirement and until death in respect of their service as employees.

If a self-employed person is incorporated, the plan can recognize his service as of the date of the incorporation. Since no employee-employer relationship existed during the period prior to the date of the incorporation, the service will not be a period of eligible service under paragraph 8503(3)(a) of the Regulations. Therefore, the plan will not be permitted to recognize service for the years prior to the date of the incorporation.

Question 4 - Quebec's Indexing Benefit

At the November 21, 2002 Consultation Session, we were informed that RPD would accept an additional benefit required by the Supplemental Pension Plans Act of Quebec (the "SPPA") if it was provided in any form of benefits that did not generate a PSPA and the following list of forms acceptable to RPD was provided:

  • indexing of benefits reflective of the increase in the average wage or CPI,
  • reduced early retirement reduction factor,
  • reducing the age when an unreduced pension may become payable within the limits of paragraph 8503(3)(c) of the ITR,
  • reducing the number of years used to determine final average earnings.

It was also indicated that the plan terms could permit a plan member to choose which ancillary benefit to apply.

Our understanding is that the SPPA requires that the additional benefit must be determined at the date of termination and must be provided by means of a life annuity and cannot be provided in the form of an ancillary benefit. In light of the SPPA requirement, RPD's advice does not seem to be workable.

RPD seems to expect amendments that provide the additional benefit to be done on a case-by-case basis in this regard. This is not practical given the number of plans that have members employed in Québec.

Could RPD comment on the status of any ongoing discussions between RPD and the Québec government concerning this matter and any resolutions that may have been identified.

Answer 4

We are aware that the requirements under Quebec's Supplemental Pension Plans Act (SPPA) are more restrictive than our requirements under the Act. We had hoped that Retraite Québec would have permitted the upgrades that we had proposed at the last consultation session in November 2002. It has always been a requirement that when there is an increase in the benefit accrual rate, the plan text would specifically have to provide for it.

Initially, we had discussed our concerns with Retraite Québec and felt that the restrictions under the SPPA would cause administrative burdens on plan administrators. We feel that the concerns of plan administrators and consultants should be expressed directly with Retraite Québec, since the limitations are imposed by the SPPA.

Question 5 - Quebec's Indexing Benefit Where Plan Benefit at Maximum

This question again relates to the Quebec indexing benefit mentioned above. Where the Quebec member's lifetime retirement benefit according to the terms of the pension plan before adding the indexing benefit is at the maximum benefit limit in section 8504 of the ITR, the SPPA requires the additional benefit to be paid in a cash lump sum. RPD has advised that this lump sum payment is neither a permissible benefit under subparagraph 8502(c)(iii) of the ITR nor a permissible distribution under paragraph 8502(d) of the ITR. The result is unworkable.

Could RPD comment on the status of any ongoing discussions between RPD and the Québec government concerning this matter and any resolutions that may have been identified.

Answer 5

We had found that the lump sum payment caused a conflict with the Regulations. Since the lump sum amount did not represent the value of a specific benefit under the plan, it was not a permissible distribution under subsection 8502(d) of the Regulations. We asked the Department of Finance to look at the matter and they decided they would propose a change to the Regulations. We have received a letter of comfort in this regard, allowing the lump sum payments to be a permissible distribution under 8502(d), and have been accepting plans that provide for such lump sum payments. Any amounts in excess of section 8504 of the Regulations must be paid in a lump sum and cannot be transferred.

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