Newsletter no. 04-1, Transfers from a Defined Benefit Provision to a Money Purchase Provision, an RRSP, or a RRIF and Transfers between Defined Benefit Provisions

April 30, 2004


The purpose of this newsletter is to explain the application of subsection 147.3(4) of the Income Tax Act (Act), which governs the tax-deferred transfer of lump sum amounts from a defined benefit provision of a registered pension plan (RPP) to a money purchase provision of an RPP, a registered retirement savings plan (RRSP), or a registered retirement income fund (RRIF), and the application of subsection 147.3(3) of the Act, which governs the tax-deferred transfer of lump sum amounts between defined benefit provisions of RPPs. The newsletter will be of interest to RPP administrators and sponsors, pension actuaries, benefit consultants, and others in the pension industry.

In addition to a general description of the transfer rules in subsections 147.3(3) and (4), this newsletter provides information on:

  • The pension registration rules that apply to certain lump sum payments;
  • The maximum transfer limit (the prescribed amount);
  • A condition imposed under subsection 147.1(5) of the Act relating to the prescribed amount;
  • The consequences of deferring payment of an amount in excess of the prescribed amount;
  • Minimizing the creation of an excess amount;
  • Benefits provided with surplus on plan wind-up; and
  • Pitfalls to avoid when transferring funds between defined benefit RPPs.

See the current version of IT-528, Transfers of Funds Between Registered Plans, for additional information on the transfer rules in section 147.3 of the Act.

In this newsletter, a money purchase vehicle means an RRSP, a RRIF, or a money purchase provision of an RPP, "Act" means the Income Tax Act, and "Regulations" means the Income Tax Regulations.

Part 1: Subsection 147.3(4) Transfers

(Transfers from a defined benefit provision to a money purchase provision, an RRSP, or a RRIF)

1. General

Subsection 147.3(4) of the Act permits a tax-deferred transfer of an individual's lump sum entitlement from a defined benefit provision to a money purchase vehicle if the amount transferred satisfies the following conditions:

  • The amount is a single amount 1(not part of a series of periodic payments);
  • No portion of the amount relates to an actuarial surplus; 2
  • The amount is transferred directly from a defined benefit provision to a money purchase vehicle; 3
  • The amount represents the value of the member's full or partial entitlement, either absolute or contingent, to defined benefits given up as a result of the transfer (see subheading 2 below); and
  • The amount does not exceed the prescribed amount (see subheading 3 below).

If these conditions are not met, subsection 147.3(12) of the Act provides that the registration of the transferor plan is revocable.4 In addition, subsection 147.3(10) of the Act deems the portion of the amount transferred in excess of what is permitted under subsection 147.3(4) to have been paid to the individual, and the individual is considered to have contributed the amount to the money purchase vehicle,5 assuming there is no other provision to accommodate the transfer, e.g., subsection 147.3(6) of the Act. As a consequence, the excess amount is included in the individual's income, the rules for tax deductibility of contributions apply, and the Part X.1 tax on RRSP over-contributions may apply. As a pension adjustment will have to be reported, any excess transferred to a money purchase provision of an RPP will be subject to the limit in subsection 147.1(8) or (9) of the Act, as applicable.

By virtue of paragraph 8502(k) of the Regulations, a transfer of an individual's lump sum entitlement from a defined benefit provision to a money purchase provision of the same RPP must respect the limits in subsection 147.3(4), as if the amount had been transferred from one RPP to another. Also, in accordance with subsection 147.3(14.1) of the Act, when funds are transferred between benefit provisions of the same RPP, the requirements of subsections 147.3(9) to (11) of the Act apply as though the transfer was between benefit provisions of separate RPPs.

2. Limits on lump sum payments

Subparagraph 8502(c)(i), in conjunction with paragraphs 8503(2)(h) and (m), and subparagraph 8502(c)(iii) of the Regulations allow for the payment of a lump sum under a defined benefit provision with respect to a plan member.6 If an amount is payable in accordance with any of these rules (and the terms of the plan), the amount is eligible for transfer to a money purchase vehicle, subject to the conditions in subsection 147.3(4).

Commutation

Paragraph 8503(2)(m) permits a single amount to be paid at any time with respect to a member in exchange for other benefits to which the member is entitled under the provision.7 The lump sum payment cannot exceed the present value of the foregone benefits. Where the defined benefits provided under the plan are not indexed or only partially indexed, the present value may be determined as if the benefits were fully indexed. 8 The assumed indexing prior to the date of pension commencement is based on increases in a general measure of wages and salaries, while the assumed indexing thereafter is based on increases in the Consumer Price Index. The indexed benefits are subject to the applicable maximum limits of the Regulations. Subject to the conditions in subsection 8503(2.1) of the Regulations, interest may be included for the period from the particular time that the commuted value is calculated to the time the single amount is paid, generally not exceeding two years. The present value has to be determined using assumptions that are reasonable and acceptable to the Canada Revenue Agency. For more information on acceptable assumptions, please refer to our Newsletters 94-3R, Using Assumptions to Compute the Present Value of Benefits, and 95-5, Conversion of a Defined Benefit Provision to a Money Purchase Provision.

Minimum termination benefit

Paragraph 8503(2)(h) permits a defined benefit provision of an RPP to provide, as a minimum benefit, a return of member contributions plus interest. To be permissible, the payment has to be in connection with the member's termination from the plan for reasons other than death, and may comprise one or more single amounts where:

  • The payments are the last payments made under the provision with respect to the member; and
  • Each single amount does not exceed the balance in the member's net contribution account.9

In general terms, and where provided for under the plan terms, subparagraph 8503(2)(h)(iii) of the Regulations allows for the payment of a larger termination benefit, typically twice the member's current service contributions plus interest10 (less any payments made previously in respect of the member), provided the member's current service contributions made after 1990 under the defined benefit provision did not exceed a special limit. In this case, the member's contributions cannot exceed the limit on contributions in paragraph 8503(4)(a) of the Regulations, if the limit were based on 50% of the member's pension credits instead of 70%.

Excess member contributions

Subparagraph 8502(c)(iii) permits a plan to provide additional benefits attributable to the application of the "50% cost rule". Most pension benefits legislation impose a 50% cost rule on contributory defined benefit provisions. In general terms, this rule requires that, when a member's contributions plus interest under a defined benefit provision exceed 50% of the value of the benefits provided to the member under the provision, the member's benefits have to be increased by the amount that can be provided with the excess or the excess amount must be refunded. For more information, please refer to our Newsletter 98-2, Treating Excess Member Contributions under a Registered Pension Plan.

3. Maximum transfer limit

As described above, subparagraph 8502(c)(i), in conjunction with paragraphs 8503(2)(h) and (m), and subparagraph 8502(c)(iii) limit the amount of certain lump sums that may be paid out of a defined benefit provision of an RPP. By contrast, paragraph 147.3(4)(c) of the Act limits the amount that a member can transfer on a tax-deferred basis to a money purchase vehicle. This maximum transfer limit is a prescribed amount set out in section 8517 of the Regulations. Expressed as a formula, the prescribed amount is equal to A X B. In general terms, A is the amount of lifetime retirement benefits (LRBs) commuted in connection with the transfer and B is a present value factor which varies with the member's attained age at the time of the transfer.

The rules for determining A depend on whether payment of retirement benefits to the member has commenced under the provision at the time of the transfer. Where payment has commenced, A is equal to the reduction in the member's annual LRBs as a result of the transfer. Otherwise, it is equal to the reduction in the member's "normalized pension" as a result of the transfer. The normalized pension is essentially the member's annual LRBs accrued up to the date of transfer adjusted to reflect certain assumptions, which are similar to the assumptions used for determining the normalized pension for pension adjustment purposes. See the Appendix at the end of this newsletter for a list of the assumptions.

The table in the Appendix sets out the present value factors for B in the prescribed amount formula based on the individual's attained age at the time of the transfer. In addition, for individuals between the ages of 49 and 64, the factor is determined by interpolating between the factors set out in the table for the individual's attained age (including fractions) and the next higher age. For example, if an individual is 54.5 years old at the time of the transfer, the factor is 10.3.

Minimum prescribed amount

Subsection 8517(2) of the Regulations provides that where a transfer is made in full satisfaction of an individual's entitlement to benefits under a defined benefit provision of an RPP, the prescribed amount will not be less than the balance in the member's net contribution account. Note that the net contribution account does not include any notional contributions or interest credited in connection with subparagraph 8503(2)(h)(iii) where a plan provides a termination benefit of twice the member's contributions plus interest.

Condition imposed under subsection 147.1(5)

We impose the following condition under subsection 147.1(5) of the Act. This condition is an anti-avoidance rule which is intended to prevent an individual from beginning to receive a pension for a short period of time and subsequently commuting and transferring the pension to a money purchase vehicle as a means of circumventing the maximum transfer limit.

Where

(a) an amount is transferred on behalf of an individual from a defined benefit provision of an RPP to a money purchase vehicle in accordance with subsection 147.3(4) of the Act,

(b) retirement benefits had begun to be paid under the provision to the individual within one year before the transfer, and

(c) the amount determined under paragraph 8517(4)(a) of the Regulations in respect of the transfer is greater than the amount that would be determined under paragraph 8517(4)(b) of the Regulations in respect of the transfer if retirement benefits had not begun to be paid to the member,

the amount so transferred shall not exceed the amount that would be determined under subsection 8517(1) of the Regulations in respect of the transfer if paragraph 8517(4)(b) of the Regulations were applicable, unless none of the reasons for beginning to pay the retirement benefits can reasonably be considered to have been to maximize the amount that may be transferred in accordance with subsection 147.3(4) of the Act.

This condition applies to transfers that occur after the date of the newsletter. Failure to comply with the above condition is grounds for revocation of the plan's registration.

Examples relating to transfer limits

Example 1

Suppose a plan member, who will terminate employment at the end of the month, wants to transfer the value of the pension benefits to an RRSP. Given the following information at the time of the transfer, what is the maximum amount that the member can transfer on a tax-deferred basis under subsection 147.3(4) of the Act?

This table represents the plan terms for example 1
Plans terms Variables
Pension formula: 1.5% x average final 3 years of earnings x credited service
Inflation adjustments: Pension increased annually for increases in the Consumer Price Index (CPI)
Early retirement: 0.5% per month reduction for retirement before age 60
Normal benefit form: Single life pension guaranteed 10 years
Optional Benefit form: Actuarial equivalent to normal form, subject to income tax rules

Additional information:

Member's average final 3 years earnings: $60,000 at termination
Member's service: 20.25 years credited
Member's age: 55.5 years old
Commuted value of pension benefits: $220,000
Excess member contributions: $5,000 pre-1991, $10,000 post-1990
Total Lump sum entitlement: $235,000

The first step in calculating the prescribed amount is to determine the member's normalized pension. Applying the assumptions in subsection 8517(5) of the Regulations, the normalized pension is $18,225 (= 0.015 × $60,000 × 20.25). Note that the member's benefits relating to wage and CPI indexing, excess member contributions, and early retirement reductions do not impact on the normalized pension calculation.

The second step is to match the member's attained age at the time of transfer to the corresponding present value factor. In this case it is 10.5 (determined by interpolation).

The final step is to multiply the normalized pension by the present value factor. The result is a prescribed amount of $191,362.50 (= $18,225 × 10.5).

Thus, the maximum amount the member can transfer on a tax-deferred basis to an RRSP in accordance with subsection 147.3(4) is $191,362.50. The pre-1991 excess member contribution of $5,000 can be transferred to an RRSP in accordance with subsection 147.3(6).11 See subheading 4 below regarding the payment of the $38,637.50 (= $230,000 - $191,362.50), which is in excess of the prescribed amount.

If the prescribed amount was equal to or greater than $235,000 instead, the member could transfer the entire $235,000 lump sum to an RRSP in accordance with subsection 147.3(4).

Example 2

Consider a defined benefit provision of an RPP that generates a minimum termination benefit of twice the member's contributions plus interest. A 32-year old member terminates employment. The commuted value of the member's accrued pension of $4,000 per year is $12,000, but the guaranteed minimum is $25,000. If the member wishes to transfer the $25,000 lump sum to an RRSP, what is the prescribed amount?

Despite the fact that the member's pension entitlement is derived from contributions, the normalized pension rules require you to assume that the member will be paid the accrued LRBs starting at age 65. Assuming the normalized pension is equal to the member's accrued LRBs, the prescribed amount is $36,000 (= $4,000 × 9). So, the member can transfer the entire $25,000 lump sum to an RRSP.

4. Payment of an excess amount

Subject to the comments in subheading 5 below, any portion of the value of benefits commuted that a member cannot transfer because it exceeds the prescribed amount has to be paid to the member. The excess amount is included in the member's income by virtue of subparagraph 56(1)(a)(i) of the Act as a superannuation or pension benefit. If the governing pension benefits legislation prohibits the payment to the member, subsection 147.3(12) of the Act permits the excess amount to be transferred on behalf of the member to a money purchase vehicle without jeopardizing the plan's registration. However, the rules for income inclusion, deductibility, and over-contributions apply (see subheading 1 above). As a pension adjustment will have to be reported, any excess transferred to a money purchase provision of an RPP will be subject to the pension adjustment limit in subsection 147.1(8) or (9) of the Act, as applicable.

The excess amount cannot be reconfigured to provide additional benefits, paid periodically in one form or another, left in the plan for payment at a future date, or remain in the plan as surplus. To be acceptable as a permissible benefit under paragraph 8503(2)(m) of the Regulations, defined benefits that are commuted have to be paid out in a single amount. Failure to immediately pay an excess amount out of the plan results in the registration of the plan becoming revocable.

If you have any question on reporting excess amounts or withholdings on these amounts, call the enquiries for businesses and self-employed individuals at 1-800-959-5525.

5. Minimizing the creation of an excess amount

It may be possible to avoid creating an excess amount, or to minimize the excess amount that is created for the member, subject to governing pension benefits legislation.12 To explain, the factors that determine the normalized pension component of the prescribed amount formula depend on the value of a pension that commences at age 65. This means that, if the member commutes only the post-age 64 benefits or the post-age 64 benefits and some of the pre-age 65 benefits, the value of the commuted benefits may be within the prescribed amount and, therefore, be transferable. Commuting only a portion of the post-age 64 benefits will not result in the member being able to transfer a greater amount. Since the prescribed amount is based only on benefits that are commuted, it is greater when the member has commuted all, rather than a portion, of the post-age 64 benefits. Also, commuting a greater portion of the pre-age 65 benefits will not affect the prescribed amount.

An RPP may provide for the payment of the non-commuted benefits according to the RPP's terms that usually apply for pre-age 65 retirements. 13 Subsection 8503(7) of the Regulations waives certain conditions that would otherwise restrict their payment. Note that the plan would have to contain wording that allows for partial commutation of a member's retirement benefits and payment of the non-commuted benefits in the normal manner. Except for a bridging benefit, ancillary benefits such as indexing and survivor benefits can remain payable from the plan only to the extent that associated LRBs remain payable from the plan.

For example, if a member commutes all benefits other than the portion of the LRBs payable from age 60 to 63, the plan has to provide for payment of the non-commuted LRBs to begin at age 60 and end at age 63. It is also possible for the member to forego the LRBs payable from age 60 to 63 in exchange for bridging benefits, either basic or additional, that are in accordance with paragraphs 8503(2)(b) and (l) of the Regulations and the terms of the plan. 14

If the value of the commuted benefits exceeds the prescribed amount, even when the member commutes only post-age 64 benefits, the RPP must pay the excess to the member. In this scenario, commuting post-age 67 benefits for example, while continuing to receive pre-age 68 benefits from the plan, would not serve to reduce or eliminate the excess amount; instead, it would adversely affect the transfer limit since the prescribed amount would be nil. This is because there would be no reduction in the member's normalized pension at age 65.15

Example 3

Suppose the value of a member's LRBs and survivor benefits is $280,000 and the value of the bridging benefit is $30,000, for a possible total lump sum payment of $310,000. This is $20,000 in excess of the prescribed amount of $290,000, based on full commutation of the post-age 64 benefits. If the plan provides for it, the member can commute the survivor benefits and LRBs in full and transfer the value to an RRSP, leaving the bridging benefit to be paid out of the plan in the normal manner. In this case paragraph 8503(7)(a) of the Regulations waives the condition under subparagraph 8503(2)(b)(i) of the Regulations that would otherwise require the bridging benefit not to commence unless LRBs have also commenced to be paid.

Example 4

The plan's actuary determines the value of a member's LRBs and survivor benefits to be $350,000 and the value of the bridging benefit to be $50,000, for a possible total lump sum payment of $400,000. This is $75,000 in excess of the prescribed amount of $325,000 based on full commutation of the post-age 64 benefits. To maximize the amount that can be transferred to the member's RRSP, the actuary determines that the $325,000 prescribed amount matches the value of the survivor benefits and the post-age 63.5 LRBs. If the plan provides for it, the member can commute these benefits and transfer the value to an RRSP, leaving the bridging benefit and the pre-age 63.5 LRBs to be paid out of the plan in the normal manner. Were it not for paragraph 8503(7)(b) of the Regulations, the pre-age 63.5 LRBs would by definition be a bridging benefit and, therefore, subject to the limits imposed on bridging benefits. However, because of this paragraph, the pre-age 63.5 LRBs retain their character as LRBs.

6. Benefits provided with surplus on plan wind-up

Subject to approval by the Minister, where benefits were previously commuted, subsection 8501(7) of the Regulations permits any surplus to be used, on full or partial wind-up of an RPP, to provide other benefits which include stand-alone ancillary benefits 16 , as long as, for members who terminated from the defined benefit provision of an RPP after 1996 and before retirement, the stand-alone ancillary benefits are only in respect of periods before 1990. 17 The plan terms should be amended to reflect the additional benefits being provided.

If the new or improved benefits are LRBs, then they may be transferred subject to the limits in subsection 8517(1) of the Regulations. A pension adjustment or past service pension adjustment, as applicable, will have to be reported. If the new or improved benefits are stand-alone ancillary benefits (which is most often the case), the transfer is acceptable only if it is in accordance with subsection 8517(3.1) of the Regulations and we provide Ministerial approval.

In general terms, paragraph 8517(3.1)(b) of the Regulations permits the tax-deferred transfer of stand-alone ancillary benefits while limiting such transfers to the amount, if any, by which the prescribed amount in respect of the previous transfer exceeds the amount of the previous transfer.

Part 2: Subsection 147.3(3) Transfers

(Transfers between defined benefit provisions)

General

Any amounts held in connection with a defined benefit provision, including surplus, may be transferred from one defined benefit plan to another, as a result of benefits being provided under a defined benefit provision of the other plan to one or more individuals who were members of the transferor plan.

Pitfalls to avoid

We have noticed a trend in which individuals near normal retirement age leave large employers and establish their own corporation. The corporation hires the individual and sponsors a defined benefit individual pension plan (IPP) that recognizes the individual's service under the prior pension plan. Once the defined benefit IPP is established, the full commuted value of the individual's prior pension is transferred to the defined benefit IPP, as the transfer rules of the Act do not limit transfers from one defined benefit plan to another. We are concerned that while some of these defined benefit IPPs may be acceptable, many will not meet the requirements for registration under the Act.

The primary purpose of every registered pension plan must be to provide retirement benefits to individuals in respect of their service as employees. This requirement is reflected as a condition for registration in paragraph 8502(a) of the Regulations. If it is determined that a plan is established for a reason other than this primary purpose, it will not qualify for registration under the Act.

The first issue we have with these arrangements is the legitimacy of the employee/employer relationship. Our concern is that the reason the corporation and the pension plan are being established is to avoid the transfer rules of the Act. If there is not a bona-fide relationship that has the employee rendering legitimate services to the employer, the plan will not qualify for registration. The Canada Revenue Agency (CRA) will apply the relevant common law tests to determine if an employment relationship exists.

Even if this relationship is established and nominal earnings are received, there may still be an issue with the primary purpose test. The Regulations only permit a pension plan to base retirement benefits on the earnings received from an employer who participates in the plan. In some cases, the earnings with the new corporation are much lower than what was received with the prior employer, and, therefore, the benefits under the defined benefit IPP are significantly lower than the benefits that the individual would have received from the prior plan. This creates a large surplus in the defined benefit IPP.

When an individual foregoes a substantial retirement benefit by transferring the associated funds to a recently established defined benefit IPP that provides a much smaller retirement benefit, it can be argued that the primary purpose test is not met. In these cases, we may conclude that the primary purpose of establishing the defined benefit IPP was to facilitate a transfer of funds from a prior plan that would have been limited by the Act had it been transferred to a money purchase provision of an RPP, an RRSP, or a RRIF. The conclusion that the primary purpose condition is not met is further supported by the fact that following the transfer, the defined benefit IPP holds significant surplus assets rather than providing retirement benefits of a level comparable to those that would have been paid from the prior plan. As mentioned earlier, if the primary purpose of a plan is for any reason other than providing retirement benefits with respect to the individual's service as an employee, the plan will fail to qualify for registered status.

If it is apparent at the time of registration that the defined benefit IPP does not meet the primary purpose test, the CRA will refuse to register the pension plan. However, in many cases, it will not be apparent until a year or two later that the primary purpose test was not met. This situation can be more problematic for individuals as they may have already transferred funds into the defined benefit IPP.

If it is determined that a registered plan does not, and never did, meet the primary purpose test, the plan's registered status can be revoked as of the original effective date. The consequences to the member could be severe if the CRA were to revoke the registration of the plan upon discovering that the purpose for incorporating a company was simply to establish a pension plan to hold the transferred pension for a specific member. The impact of this action is that all the assets of the plan would become taxable.

It is for this reason that we want to ensure that individuals are made aware of these concerns. We will be asking the affected plan member for evidence of the following:

  • The company was established for a reason other than to establish a pension plan for the purpose of transferring benefits from a prior plan;
  • There is a bona-fide employer/employee relationship between the plan member and this company; and
  • The plan member expects to receive earnings at a level comparable to the earnings they received from the prior employer.

If these facts cannot be confirmed, we will not register the plan.

Where to get help

If you need more information or have questions, please call:
613-954-0419


La version française de cette publication est intitulée Transferts d'une disposition à prestations déterminées à une disposition à cotisations déterminées ou à un REER ou un FERR et transferts entre dispositions à prestations déterminées. Vous pouvez nous appeler au (613) 954-0930.


Appendix

To calculate the prescribed amount in section 8517, we use the following normalized pension assumptions:

  • The LRBs start to be paid at the particular time.
  • If the member has not yet attained age 65, the member is assumed to have attained the age of 65.
  • The member's benefit entitlement is fully vested.
  • No early retirement reduction is applied to the LRBs.
  • Where the member's LRBs depend on benefits payable under another benefit provision of an RPP, a reasonable estimate of those benefits is made.
  • Benefits relating to the 50% employer funding rule are ignored.
  • Where the amount of the member's LRBs depends on either the form of benefits provided or on other circumstances that affect the form of benefits, the form of benefits and the circumstances are those that result in the highest amount of LRBs payable (except where the member has an option to elect the actuarially equivalent additional LRBs, either in lieu of all or part of a guarantee period of 10 years or less, or in lieu of survivor benefits where the member's spouse or common-law partner or former spouse or common-law partner has a shortened life expectancy).

The present value factors are set out in the following table.

Attained age

Factor

Attained age

Factor

Attained age

Factor

Under 50

9.0

65

12.4

81

7.0

50

9.4

66

12.0

82

6.7

51

9.6

67

11.7

83

6.4

52

9.8

68

11.3

84

6.1

53

10.0

69

11.0

85

5.8

54

10.2

70

10.6

86

5.5

55

10.4

71

10.3

87

5.2

56

10.6

72

10.1

88

4.9

57

10.8

73

9.8

89

4.7

58

11.0

74

9.4

90

4.4

59

11.3

75

9.1

91

4.2

60

11.5

76

8.7

92

3.9

61

11.7

77

8.4

93

3.7

62

12.0

78

8.0

94

3.5

63

12.2

79

7.7

95

3.2

64

12.4

80

7.3

96 or over

3.0

1 Where payments are made in two or more installments as a consequence of the transfer deficiency requirements under provincial pension legislation, each payment is a single amount and is subject to the prescribed amount limit at the time of each transfer.

2 Note that the prohibition on the transfer of surplus does not extend to situations where actuarial surplus is used to fund benefit upgrades for plan members, such as on the wind-up of a plan, since such amounts are no longer considered to be surplus. The plan terms should be amended to reflect the benefit upgrades being provided.

3 If the money purchase vehicle is a money purchase provision of an RPP, the amount has to be allocated to the member's account. For transfers to an RRSP or a RRIF, the member must be the annuitant under the respective RRSP or RRIF.

4 See paragraph 147.3(12)(b) of the Act for the two exceptions to this outcome, one of which is discussed under subheading 4 below.

5 Where the money purchase vehicle is a RRIF, the individual is deemed to have contributed the amount to an RRSP. See paragraph 147.3(10)(c) of the Act.

6 Lump sum payments are also permitted in other situations that are not relevant to the newsletter.

7 Commutation of pre-reform benefits provided to partners or proprietors (or their spouses) in respect of service while they were employees, or pre-reform benefits provided under pre-October 1968 or 1980 shareholder plans, may only occur on or after retirement, death, termination of employment, or termination of the plan. Moreover, for 1980 shareholder plans, commutation may only be in the form of a transfer to a locked-in RRSP. For additional information see Newsletter 92-12.

8 In Newsletter 92-12, we indicated that, if the indexing assumptions were to be used, these benefits had to be specifically provided in the plan. Now, we do not require these other benefits to be explicitly stated in the plan text. This means that we will not revoke the registration of the plan if the use of the indexing assumptions is not provided for under the terms of the plan. Strictly speaking, if a plan provides benefits that were not set out in the plan terms, the plan would be revocable for failing to be administered in accordance with the terms of the plan as registered. The use of the indexing assumptions for connected persons' pre-reform benefits is acceptable only if the plan continues to satisfy the 50/50 rule. The use of such assumptions for pre-reform benefits provided to partners or proprietors (or their spouses) in respect of service while they were employees, or for pre-reform benefits provided under pre-October 1968 or 1980 shareholder plans is not acceptable if doing so will increase the benefits or costs under the plan. For additional information, see Newsletters 91-1 and 92-12.

9 Net contribution account is defined in subsection 8503(1) of the Regulations. Generally, the balance in a member's net contributions account is equal to the contributions made by the member plus interest, less any payments made with respect to the member.

10 2 x (current service contributions + interest)

11 See Newsletter 98-2 for additional information on transfers of excess member contributions.

12 Question #6 of Newsletter 94-2 also discusses this topic.

13 The non-commuted benefits could also be provided by the purchase of an annuity. However, the duration and amount of the annuity payments must be identical to the duration and amount of the pre-age 65 non-commuted benefits that the RPP would have paid.

14 See Newsletter 94-2, questions #3 and 4, for more information on bridging benefits.

15 See question #11 of the December 3, 2003, RPP Consultation Session for more information.

16Benefits associated with LRBs that were previously commuted.

17 Post-1989 stand-alone ancillary benefits may not be provided for these members. This is to ensure that the member is not provided with benefits that, had they been provided before termination, would have affected the determination of the member's pension adjustment reversal (PAR).

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: