Past Service Pension Adjustment (PSPA)


1. What is the difference between a certified PSPA and a non-certified PSPA?
A non-certified PSPA normally occurs when the plan is amended retroactively to improve benefits for substantially all members (90%) in respect of years after 1989. Non-certified means that the member need not have RRSP room to match the amount of the PSPA and therefore the PSPA can result in negative RRSP room. A certified PSPA normally occurs when the improvement to benefits is in respect of only a select few members or where an individual elects to buy back past service. In order to have a PSPA certified the PSPA must not exceed the member's available RRSP room plus $8,000. In other words the most a certified PSPA can go negative is $8,000.

2. What happens if a member does not have sufficient RRSP room to have a PSPA certified?
When a member does not have sufficient RRSP room to have a PSPA certified the following options are available to the member:

  1. Make a qualifying transfer from their RRSP, which will have the effect of reducing the PSPA.
  2. Make a qualifying withdrawal (form T1006), which will increase the amount of PSPA that can be certified.
  3. Buy the amount of service that the present RRSP room + $8,000 will allow, and purchase the remainder of the eligible service at a later date when further RRSP room is accumulated.

3. We discovered that PAs have not been reported for several years. Can this now be reported as a PSPA?
No. In order for there to be a PSPA a past service event must occur. The discovery that no PAs were reported is not a past service event.

You must file amended T4 slips if the unreported or incorrect PAs are for any of the immediately preceding four years. For example, if the error was detected in 2006 for 2002 PAs, you must file amended T4 slips. For information on how to file amended T4 slips, go to RC4120 Employers' Guide – Filing the T4 Slip and Summary.

If the unreported or incorrect PAs are for any year before the immediately preceding four years, you must send us a list. For example, if the error was detected in 2006 for 2001 or earlier PAs, you must send us a list. The list must include the names and social insurance numbers (SINs) of the individuals and the original PAs reported and the new PAs for each year.

Depending on your province, send your list to one of the following addresses:

For Ontario, Prince Edward Island, Newfoundland and Labrador, Yukon, Nunavut and Northwest Territories and the following Quebec cities; Montreal, Quebec city, Laval, Sherbrooke, Gatineau and Longueuil send it to: 

Canada Revenue Agency
Sudbury Tax Centre
Pension Workflow Team
PO Box 20000, Station A
Sudbury ON  P3A 5C1

For Manitoba, Alberta, Saskatchewan, British Columbia, Nova Scotia, New Brunswick and the remaining areas in the province of Quebec not listed under the Sudbury Tax Centre, send it to:

Canada Revenue Agency
Winnipeg Tax Centre
Pension Workflow Team
PO Box 14000, Station Main
Winnipeg MB  R3C 3M2

You must also advise employees involved that if they deducted RRSP contributions for the year(s) in question, their tax returns may be reassessed, and that this may result in additional tax owing, and a requirement to pay tax on RRSP excess contributions and to withdraw those contributions from their RRSPs. For information on RRSP excess contributions and tax on those contributions, go to T4040 RRSP and Other Registered Plans for Retirement and select Tax on RRSP Excess Contributions under Chapter 2.

4. A high-wage earner in a defined benefit plan who receives a PA of $14,900 has his RRSP room reduced by $13,500. If instead the service is purchased retroactively and thus a PSPA is calculated, does the individual also lose $13,500 in RRSP room?
Where a PA of $14,900 is reported the member's RRSP room is reduced by $13,500. Where the amount is reported as a PSPA the member's RRSP room will be reduced by the full amount of the PSPA (i.e., $14,900)

5. Recent Budget announcements increased the defined benefit limits for registered pension plans. These increases to the DB limits may result in a PSPA for certain plan members. However, the Department of Finance introduced a draft Regulation to allow a PSPA exclusion for plan members accruing at the defined benefit maximum. How do these exclusions apply?
The draft amendment to the PSPA rules released on February 27, 2004 by the Department of Finance applies to past service benefit increases that arise as a consequence of an increase to the plan's maximum pension limit to reflect the increases to the defined benefit limit in 2004 and 2005, as announced in the 2003 Budget.

Please note that because of the benefit accrual cap imposed by paragraph 8302(2)(b) of the Income Tax Regulations there will be no PSPA implications for years 1990 to 1994.

The draft amendment to the PSPA rules does not provide for an exclusion to past service benefit purchases (see example 2 below).

Example 1

In January 2002, Owen joins a defined benefit RPP providing benefits of 2% of best average earnings per year of service. The maximum pension limit incorporated in the plan terms refers only to the current $1,722 defined benefit limit, without including any future increases. Owen's annual salary in 2002 to 2004 was $100,000, which resulted in a pension credit of $14,900 for each year (= ($1,722 X 9) - $600).

In January 2005, the plan sponsor amends the plan to replace the $1,722 limit with, $2,000 or such other amount as may be permitted under the Income Tax Act. Since this amendment has the effect of increasing Owen's past service benefits, it is necessary to determine a PSPA.

The PSPA is the total of the additional pension credits that would have been determined for each of 2002, 2003 and 2004 if Owen's benefits had accrued on the basis of a $2,000 plan limit for each pension credit year and if benefits described in new paragraph 8303(5)(f.1) of the Income Tax Regulations were excluded.

In recalculating the pension credits for 2002 and 2003, paragraph 8303(5)(f.1) permits the full amount of the $278 benefit increase to be excluded, since the plan's flat benefit rate in those years reflected the defined benefit limit for those years. However, in recalculating the 2004 pension credit, only $167 of the benefit increase is excluded, since the remaining $111 was required to bring the existing flat benefit rate of $1,722 up to the defined benefit limit of $1,833 for that year.

Therefore, Owen's PSPA associated with the plan amendment is $1,000 (= $111.11 X 9).

Example 2

Louise is a member of a defined benefit pension plan, providing benefits of 2% of best average earnings per year of service. She decides to buy back 2 years of past service (2004 and 2005) on January 1, 2006. The maximum pension limit incorporated in the plan terms refers to the current $2,000 defined benefit limit. Louise's earnings in each of 2004 and 2005 were $100,000.

The PSPA in respect of this purchase would be: ($2,000 X 9 -$600) X 2 = $34,800.

There is no exclusion in this case as the exclusion only applies when the value of the fixed rate under the provision is increased.

CRA understands that additional changes to the draft regulation will be made to take into account the proposed additional increases in the defined benefit limit, as announced in the 2005 Budget, as well as to provide PSPA relief for certain combination money purchase/defined benefit plans and in certain circumstances where a plan sponsor delays increasing the plan's maximum pension limit to reflect increases in the defined benefit limit. It is expected that revised regulations will be released shortly.

Further information will be posted on the CRA website about the DB limit for years after 2005 (as announced in the February 23, 2005 Federal Budget) as it becomes available.

6. Will the past service pension adjustment (PSPA) benefit exclusion be available in situations where the value of the fixed rate is increased in the same year as the year in which the plan is established?
No. It was never intended for plans to report a lower PSPA by establishing a lower fixed rate and then increasing that rate in the same year that the plan is established to take advantage of the benefit exclusion under paragraph 8303(5)(f).

Until the Regulations are amended to eliminate this unintended benefit exclusion, we are using our authority under subsection 8310(2) of the Regulations to require a modified calculation, resulting in no benefit exclusion being available under the circumstances described above, and therefore requiring the reporting of a PSPA for the increase in the fixed rate.

The modified calculation applies to Clause (A) in the description of C in subparagraph 8303(5)(f)(ii). This will require the use of the average wage for the calendar year of the increase in cases where the value of the fixed rate is increased in the same year that the plan is established.

This requirement applies to amendments submitted on or after June 28, 2007.

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