Newsletter no. 16-1, Qualifying Transfers to Individual Pension Plans

March 15, 2016

This newsletter is for registered pension plan administrators, and was developed as a result of a joint Canada Revenue Agency/industry working group that studied the issue of qualifying transfers.

It applies to IPPs registered on or after March 15, 2016. It also applies to AVRs we have approved on or after March 15, 2016, which contain new or upgraded past-service benefits.

We now require proof that a qualifying transfer was made to an individual pension plan (IPP) when it was included in the calculation of a past service pension adjustment (PSPA).

Qualifying transfer

When there is a transaction, event, or circumstance that causes a member’s post-1989 benefits to increase in a defined benefit registered pension plan, the amount of the PSPA that relates to this past-service event can be reduced by a qualifying transfer. This normally happens when an individual is credited with new pensionable service for prior years, or when a plan is being amended to increase the benefit formula for prior years.

A qualifying transfer is the total of all amounts each of which is a transfer from:

  • a registered retirement savings plan (RRSP) in which the member is the annuitant;
  • a deferred profit sharing plan in which the member is a beneficiary;
  • a member’s money purchase provision;
  • a registered pension plan of the member’s spouse or common-law partner, from which the member received an amount due to marriage breakdown or death;
  • a defined benefit provision of a specified multi-employer plan; or
  • a benefit provision of the registered pension plan if it would be a transfer under subsections 147.3(2), (5), or (7) of the Income Tax Act if it was made from another plan.

A transfer from a registered retirement income fund is not a qualifying transfer and therefore not permitted.

A qualifying transfer reduces the amount of the PSPA as the member is exchanging current retirement savings in order to provide additional retirement benefits within a defined benefit provision of a registered pension plan.

Proof of qualifying transfer

In the case of IPPs, we have found many cases of non-compliance related to qualifying transfers. In some cases, the transfers were never completed (or only partially completed) and lump sum contributions were made instead for which business deductions were taken.

When the PSPA is calculated on the basis that a qualifying transfer was made, yet the qualifying transfer never occurred, the PSPA calculation is understated and PSPA certification may be affected. Any contributions made to the plan to compensate for those missing funds would cause the plan to become revocable under the Act.

When applying for PSPA certification, IPP administrators must make sure that the qualifying transfer is made to the IPP within 90 days after the day in which the administrator receives the certification, as required under subsection 8303(7) of the Income Tax Regulations. In the case of a deemed registered pension plan, within 90 days after the later of i) the day in which the administrator receives the certification, and ii) the day in which the administrator receives notice that the plan is registered under the Act.

To confirm that a transfer has occurred, the IPP administrator must send us statements from the exporting and importing financial institutions (or custodian of funds) which show the amount and date of the qualifying transfer. This must be sent to us within 180 days after the date of the plan registration letter. 

For an existing registered pension plan, the proof must be sent to us within 180 days after the date of our letter approving the actuarial valuation report that includes new or upgraded past-service benefits.

What happens if we do not receive proof of the qualifying transfer

If we do not receive proof of the qualifying transfer as outlined in this newsletter, the amount of the past service recognized under the plan may have to be reduced to the amount that can be covered by a certified PSPA that does not include a qualifying transfer.

You would then have to send us a revised actuarial valuation report showing the precise period of past service that can be recognized and the correct level of employer contributions necessary to fund the registered pension plan’s liability for this past service. Any employer contributions made to the plan to fund the liabilities based on the previous PSPA may be denied and the excess contributions may have to be withdrawn from the plan.

If you want to recognize additional periods of past service for the affected plan member at a later date, the new PSPA must be calculated using the defined benefit limit of the year in which the past service is being recognized.

In-kind transfers

The Act does not require an individual to sell or redeem assets in order to transfer RRSP property to a registered pension plan. The Act allows an individual to transfer RRSP property as an ‘in-kind’ contribution to a registered pension plan provided that the particular property is a qualified investment. The amount of the contribution is equal to the fair market value (FMV) of the RRSP property at the time of the transfer to the registered pension plan. The individual cannot claim a capital loss if the FMV at the time of transfer is less than the cost to buy the property.

In-kind transfers of property from an RRSP to an IPP are not considered swap or RRSP strip transactions. The property must be valued using an appropriate valuation technique when calculating the amount of the qualifying transfer.

How to contact us

If you have questions about this newsletter, 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. There is a voice mailbox system to take messages outside of these hours. We will return calls on the next business day.

In the Ottawa area

For service in English: 613-954-0419.
For service in French: 613-954-0930.

Elsewhere in Canada

For service in English: 1-800-267-3100.
For service in French: 1-800-267-5565.

Write to us

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. Our fax number is 613-952-0199.

We welcome feedback on this newsletter. Email your comments to rpd/dre@cra-arc.gc.ca.

 

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