Pension Adjustment Reversal (PAR)
The RRSP/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. Pension adjustment (PA) ensures that all employees at comparable income levels will have access to comparable tax assistance, regardless of what type of registered pension plan, DPSP or RRSP they belong to.
Past Service Pension Adjustments (PSPAs) ensure that benefit upgrades and past service purchases to defined benefit pension plans are charged against the 18% limit.
PAR is used to restore an individual's RRSP room when a member terminates their membership in a benefit provision of a registered pension plan or deferred profit sharing plan (DPSP).
The key element in determining if an individual is eligible for a PAR is membership. As noted above a PAR is calculated when membership is terminated and not when employment is terminated. An individual is considered a member as long as they have $$$ in the plan.
For example, two members terminate their employment on November 1, 2000. Employee A transfers his/her benefits to an RRSP on December 17, 2000 and employee B decides to leave his/her entitlement in the plan until he/she retires 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 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
- the PAs and PSPAs earned to termination of membership, and
- the commuted value of benefits.
For further information on PARs see, PAR Guide RC 4137.
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