Pension Adjustment Reversal (PAR)

The registered retirement savings plan (RRSP)/pension adjustment (PA) system has a single maximum for tax assisted retirement savings of 18% of earned income (up to a yearly dollar limit) that applies to total contributions and benefits earned under all registered retirement plans. A PA ensures that all employees at comparable income levels will have access to comparable tax assistance, regardless of what type of registered pension plan, deferred profit sharing plan (DPSP) or RRSP they belong to.

A past service pension adjustment (PSPA) ensures that benefit upgrades and past service purchases to defined benefit (DB) pension plans are charged against the 18% limit.

A PAR is used to restore an individual's RRSP deduction limit when a member terminates their membership in a DB provision of a registered pension plan or DPSP.

The key element in determining if an individual is eligible for a PAR is the membership. As noted above, a PAR is calculated when the membership is terminated and not when the employment is terminated. An individual is considered a member as long as they have money in the plan.

For example, two members terminate their employment on November 1, 2000. Employee A transfers their benefits to an RRSP on December 17, 2000 and employee B decides to leave their entitlement in the plan until they retire as the fund is generating a good return on investments. Employee A has terminated membership and is therefore entitled to a PAR for the year 2000. Employee B still has an entitlement to benefits under the plan and therefore is still a member and not eligible for a PAR.

In a DPSP or defined contributions (money purchase) pension plan, the PAR is the amount of the employer contributions that are unvested at termination of membership. In a DB provision the PAR is generally the difference between:

1. the PAs and PSPAs earned to termination of membership, and
2. the commuted value of benefits.

For more information on PARs see, Guide RC4137, Pension Adjustment Reversal Guide.