Newsletter no. 09-1, Administrative Relief Procedures for Retroactive Lump-Sum Catch-Up Payments
September 17, 2009
Effective June 2, 2009, the Registered Plans Directorate (RPD) changed the way that defined benefit registered pension plan administrators can treat missed pension payments to plan members. In the past, the RPD required administrators to submit requests for approval to make a lump-sum catch-up payment for each member on a case-by-case basis. Administrators may now, under certain circumstances, pay the lump sums immediately, and obtain confirmation that their plan is not in a revocable position by providing details of the payment on an annual report. This newsletter will identify the types of situations that are appropriate for this process, and the method in which administrators should provide the information to the Directorate. Each section of the newsletter has been numbered for clarity.
1. Benefits considered
The types of payments that can be submitted under this new process are benefits paid from defined benefit plans. The acceptable lump sums represent missed payments that otherwise should have been paid as of the eligible date of retirement stated in the plan as registered at that time. Eligible dates of retirement include early, normal, and deferred dates, as permitted by the particular plan text. Lump-sum payments from an annuity contract (purchased from a licensed annuities provider) or other arrangements should not be submitted to the RPD under this process.
Also considered acceptable are:
- catch-up payments following the approval by a provincial authority to restore benefits previously reduced;
- benefit underpayments caused by involuntary administrative error(s) or systemic problem(s) in the calculation of the original benefit; and
- lump-sum payments to the member's surviving spouse or beneficiary that meet these criteria.
These payments do not cover amounts for retroactive increases to benefits for retired members-such as a retroactive amendment to the benefit formula of the plan. These increased payments are permissible on a going-forward basis only.
2. Details required
You must provide us with a list of these payments at least once per calendar year. For each lump sum payment made from the plan, you must provide the:
- member's name;
- member's date of birth;
- member's social insurance number;
- member's retirement date;
- deferred member's date of termination of employment (if applicable);
- period of missed payments;
- periodic pension amount;
- interest payable and rate used (if applied);
- date of lump-sum payment;
- total lump-sum retroactive amount paid; and
- reason for the delay in pension commencement.
The member's name, date of birth, and social insurance number help us in correctly identifying the taxpayer.
The retirement date and the deferred member's date of termination of employment is important because they allow us to see when the member left employment, compared to when the benefits should have commenced.
The period of missed payments, the monthly pension amount (or the periodic payment if greater or less than monthly in frequency), the interest payable and rate used, and the payment total assist us in ensuring that the calculations have been made correctly.
Applying interest is optional. If interest is applied, the rate that is used must be reasonable: either the rate of return on the pension fund, or a rate determined in accordance with CANSIM series B14045/V122515. For more information on CANSIM, please contact Statistics Canada.
The reason for the delay in pension commencement will confirm to the RPD that the scenario in question meets the conditions described in Section 1 of this newsletter. If the case does not fall under those conditions, the administrator should follow the instructions in Section 3.
Currently, the plan administrator determines the annual report's filing date.
3. Seeking assurance from the RPD before payment
If the administrator is concerned that a particular case does not meet the scenarios described in Section 1 of this newsletter, or if they want to receive confirmation upfront that the payments are acceptable, they should send a letter to RPD with the required information from Section 2. The administrator must provide a clear and detailed description of the reason for the delay.
4. Exemption from reporting
Any retroactive lump-sum catch-up payment that meets the criteria described in Section 1, and has a total equal to or less than $500 per member, can be paid immediately. It would not be subject to the annual reporting requirement.
Any retroactive lump-sum catch-up payment that meets the criteria described in Section 1, and for which the pension election was initiated in the final four months of the prior calendar year for members, and the final five months of the calendar year for surviving spouses and beneficiaries, can be paid immediately. It would not be subject to the annual reporting requirement.
How to contact us
If you have questions about administering a registered pension plan in accordance with the Income Tax Act and Regulations, contact us at the Registered Plans Directorate.
- Our telephone enquiries service is available Monday to Friday from 8:00 a.m. to 5:00 p.m. Eastern Time (with a voice mailbox system to take messages outside those hours):
- In the Ottawa area:
For service in English, call 613-954-0419.
For service in French, call 613-954-0930.
- Toll free elsewhere in Canada:
For service in English, call 1-800-267-3100.
For service in French, call 1-800-267-5565.
- In the Ottawa area:
- Plan administrators who need guidance on issues related to a specific plan can write to us at the Registered Plans Directorate, Canada Revenue Agency, Ottawa ON K1A 0L5, or fax us at 613-952-0199.
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