Newsletter no. 14-2, IPP minimum amount
November 18, 2014
This newsletter replaces information previously contained on the Registered Plans Directorate’s (RPD) website.
The purpose of this newsletter is to give individual pension plan (IPP) administrators guidance on registering and amending an IPP to follow the IPP minimum amount and other legislative rules, and tell them what to do where there is a conflict with pension benefit standards legislation.
On June 6, 2011, the Department of Finance Canada released Budget 2011 that incorporated changes to certain rules of the Income Tax Regulations on registered pension plans (RPPs). Bill C-13 introduced, among other things, a definition of the term individual pension plan under subsection 8300(1) of the Regulations.
All IPPs submitted for registration under the Income Tax Act must comply with the rules applicable to IPPs. Beginning in 2012, the terms of an IPP must follow the IPP minimum withdrawal rules under subsection 8503(26) of the Regulations. Under this subsection an IPP must pay an annual amount, after the year in which the member turns 71, that is equal to the greater of the retirement benefits under the plan terms and the IPP minimum amount.
Calculating the IPP minimum amount
The IPP minimum amount under subsection 8500(1) of the Regulations uses minimum withdrawal rules similar to those that apply to registered retirement income funds. The IPP minimum amount for the year is determined by multiplying the fair market value (FMV) of the plan assets at the beginning of the year by a prescribed factor that is based upon the member’s age. If the plan has more than one member, the FMV of the plan’s assets is pro-rated in respect of each member when calculating his or her IPP minimum amount.
To calculate the IPP minimum amount under subsection 8500(1), and to satisfy the condition in subsection 8503(26), it is not necessary to provide an actuarial valuation report (AVR) annually. Rather, a calculation as at each January 1st that shows a roll forward of the plan liabilities using the actuarial basis and data from the most recent AVR with the actual plan assets would suffice. This approach is acceptable as long as there are no particular events that would warrant a complete AVR – such as a termination, retirement, or death of a plan member.
Amending an IPP that is not subject to pension benefits standards legislation
Beginning in 2012, all existing IPPs that are not subject to either federal or provincial pension benefits standard legislation had to be amended.
Conflict with pension benefits standards legislation
We are aware that, in certain circumstances, the requirement to pay an IPP minimum amount might not comply with pension benefits standards legislation and that a provincial or federal regulator may refuse to accept plan terms with this provision, due to a conflict with their legislation.
If the plan is subject to pension benefits standards legislation, and the regulator has publicly stated that it will refuse such plan terms, the RPD will not require plan terms with the IPP minimum amount requirements for the time being. Nonetheless, IPPs with members who turned 71 in prior years are still required to pay out the IPP minimum amount. Failure to follow the rules in subsection 8503(26) of the Regulations makes the IPP a revocable plan and the Minister may issue a notice of intent to revoke the registration of the plan as set out in paragraphs 147.1(11)(c) and (l) of the Act.
If an IPP cannot make a payment based on the IPP minimum amount, because of the pension regulator’s restrictions, then the administrator of the plan should let us know. We will deal with each IPP on a case-by-case basis to decide if we will pursue revocation of the plan. Where an actual conflict exists (for example, an IPP minimum amount would be more than the plan’s actuarial surplus), this information will be taken into consideration.
IPP minimum amount paid from surplus
The IPP minimum amount could produce the “greater of” payout when plan assets are more than the liabilities. In this situation, the plan administrator should be able to satisfy the requirements under the Act by paying the IPP minimum amount out of the plan's surplus. We are not aware of any pension benefits standards legislation that does not allow surplus to be paid to plan members.
Amending a specimen document and the IPPs that conform to it
Specimen documents are not RPPs and therefore do not have to be amended in the prescribed manner as stated in subsection 8512(2) of the Regulations. The rules for the amendment to the specimen document itself are found in Newsletter 95-6R,Specimen Pension Plans - Speeding up the process. As noted in section 4 of Newsletter 95-6R, when an amendment is required because of legislative changes, the Form T920 from each plan administrator is not needed. Instead, written certification must be provided by the submitter that all administrators whose pension plans conform to the specimen document have adopted the changes and have confirmed this in writing.
Where administrators cannot confirm in writing that they accept the change due to the conflict described in this newsletter, the submitter will have to send a list of all plans that have accepted the amendment and plans that have not. We will deal with the plans that could not accept the amendment on a case-by-case basis as described in this newsletter.
Please note that if a specimen document has both plans which meet and do not meet the IPP definition, the wording in the specimen document should state:
"Notwithstanding any other provision of the plan, where the plan meets the definition of an IPP under subsection 8300(1) of the Income Tax Regulations, the plan will pay out to a person, who is a member or the surviving spouse or common law partner of a deceased member, each year after the year in which the person attains 71 years of age, an amount equal to the greater of:
- the regular retirement benefits payable to the person in the year under the plan terms; and
- the IPP minimum amount as defined under subsection 8500(1) of the Income Tax Regulations."
How to contact us
If you have questions about administering a registered pension plan in line with the 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 these 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.
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.
We welcome feedback on this newsletter. Send comments by email to RPD.LPRA2@cra-arc.gc.ca
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