Newsletter no. 91-4R, Registration Rules for Money Purchase Provisions

March 29, 1996

Table of contents

Introduction

1. In this newsletter, numbers appearing in square brackets identify the provision of the Income Tax Act (the Act) or Income Tax Regulations (the Regulations) we are discussing. Also, terms explained in the Act and Regulations appear in bold the first time we use them in the newsletter. Table C, found at the end of this publication, summarizes those terms.

2. The purpose of this newsletter is to inform you of the legislated registration requirements relating to plans that provide benefits under one or more money purchase provisions (MP provisions), including those provided by additional voluntary contributions.

When we refer in this newsletter to a money purchase plan, we mean any pension plan that contains an MP provision, even if the plan also contains a defined benefit (DB) provision.

3. We have based the information in this newsletter on the sections of the Act and Regulations that apply to MP provisions as of this date. The coming-into-force date varies from one legislative section to another; it is generally January 1, 1989. Table A, found on page 3, lists those sections in the same order as in the Act and Regulations and indicates, in the right-hand column, the number of the paragraph of this document in which we have addressed the topic.

4. This newsletter, as of the date of publication, replaces and supersedes the Pension Reform Update 91-4, Registration Rules for Money Purchase Provisions, issued October 2, 1991.

5. As highlighted in Table A, paragraph 147.1(2)(a) of the Act imposes three requirements. The Minister will not register a pension plan unless all three are met:

(a) The plan administrator has to make the application to us in the prescribed manner. Please see the guide called Registering Your Pension Plan (T4099) for a detailed explanation and instructions on how to present a complete application in the prescribed manner [8512(1)]. To get the guide, go to canada.ca/cra-forms.

(b) The plan has to comply with prescribed conditions for registration. Those conditions are the main topic of this newsletter (paragraphs 10 to 30).

(c) You have to apply for registration under the Pension Benefits Standards Act (1985) (PBSA) or similar provincial law (if such registration is required). We will ask you to confirm this information on your application for registration form (T510).

Note: MP plans, previously registered in compliance with Information Circular 72-13R8, Employees' Pension Plans, published December 16, 1988, had to amend their plan terms to comply with the new legislative requirements. Every registered MP plan must now comply with all the prescribed conditions for registration.

Table A - Registration rules for MP provisions

Paragraph 147.1(2)(a) of the Act: The Minister will not register a pension plan unless:

Par.

(i) The application is made in the prescribed manner

5

Regulation 8512(1): Registration

5

(ii) The plan complies with prescribed conditions for registration (subject to Regulations 8509 and 8510)

---

Regulation 8501(1)(a): Conditions for registration (all plans)

---

Regulation 8502(a): Primary purpose
Regulation 8502(c)(ii): Permissible benefits (subject to Regulations 8509(10))

27.1
17

Regulation 8506(1)(a): Lifetime retirement benefits
Regulation 8506(1)(b): Bridging benefits
Regulation 8506(1)(c): Guarantee period
Regulation 8506(1)(d): Post-retirement surviving spouse benefits
Regulation 8506(1)(e): Pre-retirement surviving spouse benefits
Regulation 8506(1)(f): Payment from account
Regulation 8506(1)(g): Lump-sum payment on death before retirement
Regulation 8506(1)(h): Commutation of benefits
Regulation 8506(1)(i): Commutation of benefits

18
19
20
21
22
23
22.2
24
20

Regulation 8502(c)(iii): Permissible benefits, designated provision (subject to Regulation 8509(10))

25

Regulation 8502(c)(iv): Permissible benefits, marriage breakdown (subject to Regulation 8509(10))

26

Regulation 8502(e): Payment of pension

18

Regulation 8502(f): Assignment of rights

27.2

Regulation 8502(l): Appropriate pension adjustments

27.3

Regulation 8501(1)(c): Conditions for registration (MP provision only)

---

Regulation 8506(2)(a): Employer contributions acceptable to Minister

10

Regulation 8506(2)(d): Return of contributions (subject to Regulation 8509(10.1)

12

Regulation 8501(1)(d): There is no reason to expect plan may become revocable re:

28



Regulation 8501(2)(a): failure to comply with (all plans):

29

Regulation 8502(b): Permissible contributions
Regulation 8502(d): Permissible distributions
Regulation 8502(g): Funding media
Regulation 8502(h): Investments
Regulation 8502(i): Borrowing
Regulation 8502(j): Determination of amounts
Regulation 8502(k): Transfer of property between provisions
Proposed Regulation 8502(m): Participants in GSRAs

29.1
29.2
29.3
29.4
29.5
29.6
29.7
29.8



Regulation 8501(2)(c): failure to comply with (MP provision only):

30

Regulation 8506(2)(b): Employer contributions with respect to particular members
Regulation 8506(2)(b.1): Allocation of employer contributions (subject to Regulation 8506(2.1))
Regulation 8506(2)(c): Employer contributions not permitted
Regulation 8506(2)(e): Allocation of earnings
Regulation 8506(2)(f): Payment or reallocation of forfeited amounts (subject to Regulation 8506(3))
Regulation 8506(2)(g): Retirement benefits
Regulation 8506(2)(h): Undue deferral of payment

30.1
30.1
30.2
30.3
30.4
30.5
30.6

Regulation 8501(1)(e): no reason to expect plan may become revocable re:

---

subsections 147.1(8) and (9) of the Act, failure to comply with the Pension Adjustment limits

12

(iii) The application is made for registration under the PBSA or similar provincial law, if such registration is required

5


Definitions

Various sections of the Act and Regulations define terms relating to the MP environment. We will discuss some of those here. See also Table C, on page 23.

6. Subsection 147.1(1) of the Act defines an MP provision. Generally, it means the terms of the plan that allow the plan to maintain a separate account for each member, into which are credited the member's and the employer's contributions for the member, plus any other amounts allocated to the member. The only benefits that are payable to or for the member are those that the amount in the member's account can provide.

7. The concept of pensionable service with a participating employer is not associated with MP provisions.

Contributions that can be made by and on behalf of an active member in a calendar year, depend directly on whether or not the definition of compensation includes the earnings received from the participating employer for the year. This definition generally includes:

(a) any amount, in respect of the individual's employment with the employer, that the individual is required to include in income under section 5 or 6 of the Act such as:

  • salary, wages, and other remuneration;
  • gratuities received in the year; and
  • the value of taxable benefits.

This applies unless the amount relates to a period throughout which the individual was not resident in Canada, and is either:

  • not attributable to performing duties or employment in Canada; or
  • exempt from income tax in Canada by reason of a tax convention.

(b) a prescribed amount (see 8 below); and

(c) an amount acceptable to the Minister in respect of remuneration the individual received for a period in the year throughout which the individual was not resident in Canada, to the extent that the amount is not otherwise included in the total. Please see the Pension Reform Update 93-2, Foreign Service Newsletter, for details.

8. Section 8507 of the Regulations describes the rules and limits that apply to prescribed compensation. A detailed discussion of this topic is beyond the scope of this newsletter.

Essentially, section 8507 prescribes an amount of compensation, within limits, for an eligible period of reduced pay or eligible period of temporary absence that is a qualifying period or for a period of disability. (Note: a qualifying period can also be a period of parenting.) This allows contributions to be made by or for the member, although the member is not rendering services or receiving remuneration, as would be the case in a regular period of employment.

Please see section 8507 of the Regulations for more information.

9. Certain individuals may be subject to special rules under specific sections of the Act and Regulations which will affect or limit the benefits they can receive.

9.1. Subsection 8500(3) of the Regulations defines person connected with an employer. It includes, for example, individuals who own 10% or more of the issued shares of any class of the employer's or related corporation's shares.

It also includes individuals who do not deal at arm's length with the employer [section 251 of the Act] or are specified shareholders of the employer under paragraph (d) of the definition of "specified shareholder" in subsection 248(1) of the Act.

Note that for the purpose of determining whether an individual owns 10% or more of the shares, does not deal at arm's length, or is a specified shareholder, an individual is considered to own shares of the capital stock of a corporation under paragraphs 8500(3)(d) to (g) of the Regulations.

The compensation of connected persons does not include any prescribed amount for periods of temporary absence or reduced pay because the individuals are specifically excluded from those periods [8500(1)].

9.2. The term spouse is not limited to the individual who is married to the member. Subsection 252(3) of the Act (in particular for the purpose of subsections 147.3(5) and (7)) and subsection 8500(5) of the Regulations (for the purpose of Regulations 8500 to 8520) extends the meaning of spouse to include individuals who are party to a void or voidable marriage.

Subsection 252(4) of the Act provides an extended definition of spouse applicable to the Act. Conditions imposed by this subsection include:

  • the person must be of the opposite sex;
  • the person must cohabit in a conjugal relationship for a specified minimum time period (the birth or adoption of a child may eliminate this period); and
  • the cohabitation must not be interrupted for more than a specific time period.

Contributions

10. The terms of an MP provision have to require the employer to contribute each year at least 1% of the total pensionable earnings [Footnote 1] of all active members participating under the provision. We impose this condition, referred to as the minimum contribution rule, under the authority of paragraph 8506(2)(a) of the Regulations. If employer contributions depend on something other than earnings, e.g., a contribution formula derived from the employer's profits, the minimum contribution rule is based on compensation as defined in subsection 147.1(1). Amounts allocated to plan members in the year that are attributable to surplus, forfeitures, or earnings on forfeitures can be applied to reduce the minimum required contribution.

The minimum contribution rule applies only to an MP provision of a registered pension plan (RPP) in which the members' current service benefits are provided exclusively on a money purchase basis. The minimum contribution rule does not apply to situations where compliance would result in the pension adjustmentlimits being exceeded.

11. Subsection 147.2(1) of the Act governs the deductibility of employer contributions to an MP provision. This subsection states that a contribution is, for a taxation year after 1990, deductible from an employer's income to the extent that the contribution was:

  • made by the employer after 1990;
  • made in the taxation year or no later than 120 days after the end of the taxation year;
  • made for the employer's employees or former employees;
  • made in accordance with the plan as registered;
  • made for periods before the end of the taxation year; and
  • not deducted in computing income for a previous taxation year.

12. The plan terms may not provide for contribution levels that would cause a member's pension adjustment (PA) to exceed the pension adjustment limits described in subsections 147.1(8) and (9) of the Act [8501(1)(e)].

12.1. If the plan bases the contribution formula solely on a percentage of each member's compensation from the employer for the year, the maximum acceptable percentage is 18%. However, the resulting dollar amount of contribution for a member cannot exceed the money purchase limit for that year.

12.2. If the contribution formula is based solely on a specific dollar amount, that amount cannot be more than 18% of the member's compensation from the employer for the year, or the money purchase limit for the year, whichever is less.

12.3. If any forfeited amounts or surplus funds are allocated to the member's account in the year, they must be added to the total contributions made to the plan for the member when determining the member's pension credit from the employer for the year, which in turn forms part of the member's PA [8301(4)(b)].

A plan could become revocable when the total of all amounts, each of which is the member's PA for the year for:

(a) a participating employer; and

(b) an employer who, at any time in the year, does not deal at arm's length with that participating employer, exceeds the money purchase limit for the year.

The money purchase limit for a year can be determined by referring to the definition of "money purchase limit" in subsection 147.1(1) of the Act.

The Regulations require each plan, except as noted below, to contain a stipulation permitting the return of both employer and employee contributions to the contributor to avoid the revocation of the plan's registration [8506(2)(d)]. The exceptions are:

(a) plans established by an enactment of Canada or a province; and

(b) plans registered or submitted for registration before 1992 (and plans replacing such plans) [8509(10.1)].

The stipulation may provide that the return of contributions has to be approved by the authority administering the PBSA or a similar law of a province.

Whether or not a plan has to contain the stipulation of paragraph 8506(2)(d) of the Regulations, it will become revocable if it fails to comply with the prescribed conditions for registration by exceeding the pension adjustment limits described in subsections 147.1(8) and (9) of the Act.

13. If contributions are not based on compensation as defined in the Act, but rather on another term such as salary or earnings, the plan's definition of that term should describe clearly what amounts are included (e.g., bonus, overtime, or commission).

14. If contributions are to be allowed during a period of foreign service or are to be made by an individual who is a non-resident, please refer to Pension Reform Update 93-2, Foreign Service Newsletter, (Part IV and V).

Transfers and conversions

15. An MP provision can provide for the transfer of funds to or from other registered plans or funds under various sections of the Act.

The following charts outline the different options and indicate the applicable sections of the Act.

Transferred to an MP provision

From

Under

MP provision

147.3(1)

Defined Benefit (DB) provision

147.3(4)

DB provision - when surplus is transferred and allocated to individual MP account

147.3(4.1)

Spouse's RPP on marriage breakdown

147.3(5)

DB plan, as refund of pre-1991 member's contributions

147.3(6)

Spouse's RPP, as lump-sum benefit on death of the spouse of the member of the MP plan

147.3(7)

DB plan replaced by MP plan (surplus)

147.3(8)

Registered Retirement Saving Plan (RRSP)

146(16)(a)

Deferred Profit Sharing Plan (DPSP)

147(19)

Registered Retirement Income Fund (RRIF)

N/A

Transferred from an MP provision

To

Under

MP provision, RRSP, or RRIF

147.3(1)

DB provision

147.3(2)

Spouse's RPP, RRSP, or RRIF on marriage breakdown

147.3(5)

Spouse's RPP, RRSP, or RRIF as lump-sum benefit on death of MP plan member

147.3(7)

DPSP

N/A

Section 147.3 of the Act does not permit transfers from a pension plan deemed under subsection 147.1(3) to be an RPP.

Therefore, it is imperative that you wait until we make the final determination on the application for registration before proceeding with any such transfers. We also advise you to wait until we make the final determination on the application for registration before proceeding with any transfers of RRSP or DPSP funds to the MP plan.

Ultimately, if the plan is refused registration, most of the provisions of the Act will apply as if the plan had never been deemed to be registered.

Transfers to or from an MP plan which do not comply with section 146, 147, or 147.3 of the Act, could result in:

(a) increased or excessive PAs, as those contributions would not be excluded contributions;

(b) the inclusion of the amount in the taxpayer's income for the taxation year as a pension benefit under paragraph 56(1)(a); and

(c) the revocation of registration of the transferor RPP if subsection 147.3(12) of the Act applies, or of both or either RPP if the amount is paid or received contrary to the terms of the plan(s) as registered.

Subparagraph 8502(b)(v) permits an amount to be transferred to an RPP from a pension plan maintained primarily for the benefit of non-residents, for services rendered outside Canada, if we accept the transfer. This newsletter does not deal with the acceptability of such transfers. We will consider requests for approval on a case-by-case basis.

16. If a DB provision of a plan is replaced by an MP provision (conversion), you have to comply with the transfer rules of section 147.3 of the Act, and paragraph 8502(k) of the Regulations. Please see the newsletter 95-5, Conversion of a Defined Benefit Provision to a Money Purchase Provision, or contact the Registered Plans Division for more information. See page 22 for the address and phone number of the Registered Plans Division.

Benefits

17. The only benefits that an MP provision can provide are described in subparagraphs 8502(c)(ii) to (iv) of the Regulations. Paragraphs 18 through 24 of this newsletter explain the benefits permissible under subparagraph 8502(c)(ii) and described under subsection 8506(1) of the Regulations. Paragraph 25 and 26 discuss the benefits permissible under subparagraphs 8502(c)(iii) and (iv).

Note: Subsection 8509(10) of the Regulations allows the Minister to exempt benefits that are derived from contributions made before 1992 from the conditions of paragraph 8502(c) of the Regulations. You have to submit requests for such exemptions in writing to the Department.

18. The MP provision has to provide that lifetime retirement benefits, in the form of an annuity, must be payable:

(a) on or before the end of the calendar year in which the member attains 69 years of age [Footnote 2] [8502(e)(i)(A)];

(b) in equal periodic amounts [8506(1)(a)] except for:

  • acceptable adjustments to the member's benefits to reflect increases in the Consumer Price Index or annual increases of a specified rate up to 4%,
  • adjustments that would agree with any of the subparagraphs 146(3)(b)(iii) to (v) of the Act if the annuity were an annuity under a retirement saving plan,
  • an adjustment acceptable to the Minister and similar in nature to the adjustments indicated above, or
  • a reduction of the member's benefit after the death of the member's spouse;

(c) at least annually [8502(e)(ii)]; and

(d) at least for the member's life [8502(a)].

19. Part or all of the member's account can also be used to provide a bridging benefit. The bridging benefit increases the pension payments during the period between retirement and no later than the end of the month following the month in which the member turns 65 years of age [8506(1)(b)].

20. The member's pension can be allowed to be guaranteed for up to 15 years from the day it starts [8506(1)(c)(i)].

If the member dies before the guarantee period expires, the remaining guaranteed payments can continue to be paid to the member's beneficiary(ies), or the commuted value of all or part of that benefit can be paid as a single amount (lump-sum) [8506(1)(i)].

20.1. The provision can allow for the guaranteed payments to be paid to more than one beneficiary as long as the total monthly payments to all beneficiaries are not more than 100% of what the member would have received in the month if the member had been living throughout that month [8506(1)(c)(ii)].

21. If the member dies after the pension starts, retirement benefits can be allowed to continue to be paid to the member's spouse or former spouse (at the time the retirement benefits began to be paid) for his or her lifetime, at a monthly level that is 100% or less of what the member would have received in the month if the member had been living throughout that month [8506(1)(d)].

This option, along with the equal periodic payment exception that allows the member's pension payments to decrease after the spouse's death, permits a joint-and-last-survivor option, with payments continuing at the same or at a reduced level after the death of the first life (as in example 6 of Table B, on page 14). This option is not available to a beneficiary other than the spouse.

The commuted value of all or part of that benefit can be paid as a single amount (lump-sum) [8506(1)(i)].

21.1. The spouse or former spouse can transfer a single amount to his or her own RPP, RRSP, or RRIF [147.3(7)].

21.2. As in example 4 of Table B, the monthly payments to a surviving spouse or former spouse (see paragraph 21) plus the monthly payments for the completion of guarantee period to beneficiary(ies) (see paragraph 20 above), must not add up to more than 100% of what the member would have received in the month if the member had been living throughout that month.

22. If the member dies before retirement, the plan can provide the spouse or former spouse with a life annuity from the balance in the member's account [8506(1)(e)].

The commuted value of all or part of that benefit can be paid as a single amount (lump-sum) [8506(1)(i)].

The plan can also allow the spouse or former spouse to select varying payments, bridging benefits, and a guarantee period as if he or she were a plan member.

The guarantee period can be for up to 15 years from when the pension payments begin to be paid. Those payments to the spouse or former spouse must start by the later of the following dates:

(a) on or before December 31 of the year in which he or she reaches 69 years of age [Footnote 3] ; or

(b) within one year of the member's death [8506(1)(e)(iii)].

22.1 The spouse's beneficiary(ies) can be allowed to continue to receive the remaining guaranteed payments if the spouse dies before the guarantee period ends, or take the commuted value in a lump-sum.

22.2. Also, the plan can provide for payment to the spouse or former spouse of all or part of the balance in the member's account in a single amount [8506(1)(g)], and allow the transfer of the single amount to his or her own RPP, RRSP, or RRIF [147.3(7)]. If the member's beneficiary is not the spouse or former spouse, the only option is to receive the balance in the member's account in a non-transferable, lump-sum payment [8506(1)(g)].

Table B - Examples of permissible benefits under an MP provision

No

Scenarios

An annuity is purchased with the following choices being made. The graphic on the right shows the consequences of the events detailed below.

Years after the retirement benefits begin to be paid



..........................

0 5 10 15 20 25

+------------------------+

1

Single life (member)

No surviving spouse benefit

No guaranteed period

Death of member occurs after 5 years



||||||







2

Single life (member)

No surviving spouse benefit

15 years guaranteed period (member)

Death of member occurs after 5 years



||||||






3

Joint life (member then spouse)

100% surviving spouse benefit

No guaranteed period

Death of member occurs after 5 years

Death of spouse occurs 7 years later



||||||

|||||||

4

Joint life (member then spouse)

60% surviving spouse benefit

15 years guaranteed period (member)

Death of member occurs after 5 years

Death of spouse occurs 7 years later



||||||

|||||||




5

Member dies before retirement

Single life only (spouse)

15 years guaranteed period (spouse)

Death of spouse occurs after 5 years





||||||




6

Joint life (member then spouse), reducing on death of spouse

66% surviving spouse benefit

No guaranteed period

Death of spouse occurs after 5 years

Death of member occurs 7 years later



||||||_______



| = Retirement benefits to member

_ = Retirement benefits to member (reduced after death of member's spouse)

| = Survivor retirement benefits to spouse or former spouse

| = Survivor retirement benefits to spouse or former spouse (reduced after death of member)

_ = Continued retirement benefits to beneficiary(ies)

23. Although the primary purpose requirement of the plan has to be satisfied (see 27.1), the plan can provide single amount withdrawals from the member's account at any time before retirement (subject to the requirements of the applicable pension benefits legislation). This would allow, for example, cash settlements on termination of employment, termination of the plan, and the splitting of pension credits on the breakdown of the member's marriage or other conjugal relationship under a decree, order, or judgment of a competent tribunal or a written agreement [8506(1)(f)].

24. The MP provision can provide (subject to the requirements of the applicable pension benefits legislation) for the commutation, on or after the start of a pension, of all or part of the member's entitlement to benefits. This covers, for example, the commutation of a small pension and the splitting of the pension on the breakdown of the member's marriage or other conjugal relationship. Although the primary purpose requirement of the plan must be satisfied (see 27.1), the MP provision can allow for all or part of the member's pension to be commuted at or after retirement as an option, as long as the single amount does not exceed the present value of the benefits that cease to be provided [8506(1)(h)].

25. The permissible benefits described under subparagraph 8502(c)(iii) are those provided as a result of applying a designated provision of a Canadian or provincial law, and are in addition to benefits which can be provided under 8502(c)(ii) [8513].

26. The permissible benefits described under subparagraph 8502(c)(iv) are those that the plan has to provide to a spouse or former spouse of a plan member according to a provision of a Canadian or provincial law that applies to the division of property between the member and the spouse or former spouse, on or after the breakdown of their marriage or other conjugal relationship, to settle rights arising out of their marriage or other conjugal relationship.

Other prescribed conditions for registration

27. Paragraph 8501(1)(a) of the Regulations (as shown in Table A) lists three other conditions for registration.

27.1. The plan's primary purpose must be to provide retiring employees with a pension for their life in recognition of their service as employees [8502(a)].

27.2. The plan must specifically state that no right of a person under the plan is capable of being assigned, charged, anticipated, given as security, or surrendered [8502(f)]. All five terms must appear in the plan text.

The 8502(f) prohibition on assignments does not apply to certain assignments occurring on marriage breakdown or on distribution of an individual's estate.

27.3. The plan terms must not result in the determination of an inappropriate pension adjustment, having regard to the provisions of Part LXXXIII of the Regulations read as a whole and the purposes for which the amount is determined. [8502(l)].

28. The remaining category of prescribed conditions for registration, listed under Regulation 8501(1)(d) in Table A, is made up of two groups of Regulations (see 29 and 30 below). There must be no reason to expect, on the basis of the plan documents, including the funding arrangements, that the plan may become a revocable plan for failing to comply with any of those conditions.

At registration and thereafter, analysis of the documents that make up the plan will confirm whether it is reasonable to expect that the plan would not become revocable because of a violation of those conditions.

29. Paragraph 8501(2)(a) of the Regulations lists the first group of Regulations which apply to all pension plans. We will examine only those applicable to an MP provision.

29.1. Subparagraphs 8502(b)(i), (ii), (iv), and (v) of the Regulations list the only permissible contributions to an MP provision:

  • a member's contributions to the plan, made in accordance with the plan as registered and credited to the member's account [8502(b)(i)];
  • an employer's contributions, made in accordance with the plan as registered and made for the employer's employees or former employees [8502(b)(ii)];
  • funds transferred to the plan in accordance with any of subsections 146(16), 147(19), and 147.3(1) to (8) of the Act [8502(b)(iv)]; and
  • acceptable transfers from a pension plan maintained for non-residents for services rendered outside Canada, subject to case-by-case written request and approval [8502(b)(v)].

29.2. Subparagraphs 8502(d)(i), (iii), (vii), and (viii) of the Regulations list the only permissible distributions from an MP provision:

  • payment of the benefits in accordance with the plan as registered [8502(d)(i)];
  • return to the contributor of a contribution under paragraph 8506(2)(d) of the Regulations to avoid revocation [8502(d)(iii)];
  • payment to an employer of property held under the MP provision (this allows, for example, payment of forfeited amounts to an employer under paragraph 8506(2)(f) of the Regulations) [8502(d)(vii)]; and
  • payment of an amount acceptable to the Minister. This will apply when the Minister waives the application of paragraph 8506(2)(b.1) of the Regulations under subsection 8506(2.1). This will permit certain allocated amounts to be paid out of the plan (see 30.1) [8502(d)(viii)].

29.3. The funding media have to be acceptable to the Minister [8502(g)]. Information Circular 72-13R8, Employees' Pension Plans, lists those that are currently acceptable. Typically, the funding consists of:

(a) a contract for insurance with a company authorized to carry on a life insurance business in Canada;

Note: If benefits are to be provided under individual contracts, the contracts have to be held on the terms of an express trust. The trust must have at least two individual trustees or a corporate trustee. The contracts have to be issued to or assigned to the trustees who must have power to deal fully with all such contracts, including assignment or transfer of each contract to the applicable member on retirement or termination of employment.

(b) a trust in Canada governed by a written trust agreement under which the trustees are:

  • a trust company; or
  • individuals, at least three of whom reside in Canada;

Accounting: The trust fund of a trusteed RPP must have a fiscal year ending on December 31.

Note: For plans established in the province of Quebec, we will accept, in lieu of a written trust agreement, evidence of a contractual arrangement between the employer or union and persons upon whom the arrangement imposes the duties, responsibilities, and rights usually associated with a trustee.

(c) a pension corporation;

(d) an arrangement administered by the Government of Canada or by the government of a province of Canada, or by an agent thereof; or

(e) a combination of the above funding media.

When you replace a funding vehicle of a plan and transfer funds to the new vehicle, the funding contracts or agreements have to provide for the transfer. The transfer also must be permitted under the plan rules. You have to promptly submit to us for approval all documents in support of the change.

Please see Information Circular 72-13R8 for more detailed information on acceptable funding media.

29.4. The plan must not hold any investment that is:

(a) prohibited under section 8514 of the Regulations;

(b) not permitted by the PBSA, if the plan is subject to the PBSA or if the plan is not subject to any similar law of a province; or

(c) not permitted by a province's law, similar to PBSA, to which the plan is subject [8502(h)].

29.5. If the plan documents provide for borrowing, they can either list the applicable restrictions detailed in paragraph 8502(i) of the Regulations or refer to those that apply. If the plan terms do not explicitly provide for borrowing, it is still subject to the requirements of this paragraph if borrowing occurs.

29.6. Except as otherwise provided in the Regulations, you have to use reasonable assumptions that the Minister accepts, as well as generally accepted actuarial principles, when you determine amounts in connection with the plan [8502(j)].

29.7. Property held under one provision cannot be made available to pay benefits under another provision of the same plan. An exception to this rule is provided if the property could be transferred under specific subsections of section 147.3 of the Act if the transfer occurred between separate plans [8502(k)].

29.8. An individual, connected with a participating employer of the plan, cannot be a member of the plan at any time after 1993, if entitled to benefits under a government-sponsored retirement arrangement (GSRA) [Proposed Regulations 8502(m) and 8308.4(1)].

30. Paragraph 8501(2)(c) of the Regulations lists the second group of Regulations, as mentioned in 28 above, which apply only to MP provisions.

30.1. Each contribution an employer makes under an MP provision consists only of amounts paid for specific plan members [8506(2)(b)].

Each contribution an employer makes to an MP provision is allocated to the member for whom it is made [8506(2)(b.1)].

Under subsection 8506(2.1) of the Regulations the Minister can, on the written request from the administrator of the plan, approve an alternative method of allocating employer contributions.

30.2. Employer contributions must not be made while there is any surplus, or while there are any unallocated pre-1990 forfeited amounts (including associated earnings), being held under the MP provision after 1991 [8506(2)(c)].

The transfer of an actuarial surplus from a DB provision will not be allowed, after April 5, 1994, when the MP provision holds a surplus or pre-1990 forfeitures as described above.

The condition relating to pre-1990 forfeitures will apply only if the said amount, or related earnings, are retained in the MP provision. For example, the forfeitures may be used to pay administrative fees.

30.3. Plan documents have to indicate how and when earnings (except those related to forfeited amounts and surplus funds) will be allocated, or state that they will be allocated on a reasonable basis, to plan members at least once a year. This statement will allow us to determine if paragraph 8506(2)(e) of the Regulations has been satisfied.

30.4. Forfeited amounts and associated earnings, other than pre-1990 amounts, must either be:

(a) paid to participating employers;

(b) reallocated to members of the plan; or

(c) paid as or on account of administrative, investment, or similar expenses incurred in connection with the plan.

This has to be done by December 31 of the year following the calendar year in which the forfeited amount arose [8506(2)(f)].

Under subsection 8506(3) of the Regulations, the Minister can approve an extension of this deadline, on written request from the plan administrator. The total of the forfeited amounts that arose in the year must have been greater than normal because of unusual circumstances, and the amounts are to be:

(a) reallocated, on a reasonable basis, to a majority of plan members; or

(b) paid as or on account of administrative, investment, or similar expenses incurred in connection with the plan.

However, we expect that the Minister will grant an extension only where forfeitures will, for the most part, be reallocated to other plan members.

30.5. The retirement benefits have to be provided:

(a) through the purchase of annuities from a person licensed or otherwise authorized under Canadian or provincial laws to carry on an annuities business in Canada; or

(b) under an arrangement acceptable to the Minister [8506(2)(g)].

Note: At this time, we are not accepting new arrangements providing for the payments of benefits directly from the plan funds (self-funded MP provision). However, this issue is currently under review.

30.6. Lump-sum death benefits payable to beneficiaries have to be paid out as soon as practicable after the death of the member [8506(2)(h)].

Where to get help

31. We have other publications available to address topics related to the money purchase provisions and their relation to other plans or funds. To get copies of the following documents, go to canada.ca/cra-forms or call 1-800-959-5525:

  • Employer's Pension Adjustment Calculation Guide (T4084)
  • Registering your Pension Plan (T4099)
  • RRSPs and Other Registered Plans for Retirement (T4040)
  • Employees' Pension Plans (Information Circular 72-13R8)

You can find the number for your tax services office listed under "Revenue Canada" in the Government of Canada section of the telephone book.

Some of those publications are also available on the Internet at the following addresses:

http://www.revcan.ca/
ftp://ftp.revcan.ca/pub
gopher://gopher.revcan.ca/

32. If you need more information or have questions, please call: 613-954-0419 (service in English)

Table C - Terms explained in the Act and Regulations

  • Active member - Subsection 8500(1) of the Regulations
  • Additional voluntary contribution - Subsection 248(1) of the Act
  • Administrator - Subsection 147.1(1) of the Act
  • Average wage - Subsection 147.1(1) of the Act
  • Beneficiary - Subsection 8500(1) of the Regulations
  • Bridging benefits - Subsection 8500(1) of the Regulations
  • Compensation - Subsection 147.1(1) of the Act
  • Consumer price index - Subsection 8500(1) of the Regulations
  • Disabled - Subsection 8500(1) of the Regulations
  • Eligible period of reduced pay - Subsection 8500(1) of the Regulations
  • Eligible period of temporary absence - Subsection 8500(1) of the Regulations
  • Employment - Subsection 248(1) of the Act
  • Excluded contributions - Subsection 8300(1) of the Regulations
  • Existing plan - Subsection 8500(1) of the Regulations
  • Forfeited amount - Subsection 8500(1) of the Regulations
  • Individual - Subsection 248(1) of the Act
  • Lifetime retirement benefits - Subsection 8500(1) of the Regulations
  • Member - Subsection 147.1(1) of the Act
  • Money purchase limit - Subsection 147.1(1) of the Act
  • Money purchase provision - Subsection 147.1(1) of the Act
  • Multi-employer plan (MEP) - Subsection 147.1(1) of the Act
  • Participating employer - Subsection 147.1(1) of the Act
  • Pension adjustment - Section 8301 of the Regulations
  • Pension adjustment limits - Subsections 147.1(8) and (9) of the Act
  • Pension credit - Section 8301 of the Regulations
  • Period of disability - Subsection 8500(1) of the Regulations
  • Person - - Subsection 248(1) of the Act
  • Person connected with an employer - Subsection 8500(3) of the Regulations
  • Plan as registered - Subsection 147.1(15) of the Act
  • Prescribed (amount of) compensation - Subsection 8507(1) of the Regulations
  • Registered pension plan - Subsection 248(1) of the Act
  • Retirement benefits - Subsection 8500(1) of the Regulations
  • Single amount - Subsection 147.1(1) of the Act
  • Specified multi-employer plan (SMEP) Subsection 147.1(1) of the Act
  • Spouse (extended meaning) - Subsection 8500(5) of the Regulations
  • Spouse (extended meaning) - Subsections 252(3) and (4) of the Act
  • Surplus - ubsection 8500(1) of the Regulations

Footnotes

[Footnote 1]
In the context of an MP provision, pensionable earnings means the members' earnings on which contributions are based.
[Footnote 2]
The March 1996 budget proposes to reduce to 69 the current age 71 limit for maturing RPPs. - We expect to release a newsletter concerning this proposal later in the year.
[Footnote 3]
See footnote 2.
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