Permitted corrective contribution (PCC)

The 2021 federal budget proposed to provide more flexibility to plan administrators of money purchase (MP) registered pension plans (RPPs) to correct for undercontribution errors by introducing the permitted corrective contribution (PCC).

A PCC is a contribution to an MP RPP in a calendar year to correct contribution errors in one or more of the 10 immediately preceding years. A contribution error must have arisen due to a failure to enroll an individual as a member of a plan or to make a required contribution to a provision.

A PCC can only be made to an MP provision if it is a designated money purchase provision. Under the legislation, such a provision in a calendar year is an MP provision that has at least 10 members throughout the year or under which the total contributions for the year, made in respect of connected members and members whose earnings exceed 2.5 times the Year’s Maximum Pensionable Earnings, do not exceed 50% of the total contributions to the provision.

PCCs will be limited to the lesser of two amounts:

• The first amount is determined by the formula A + B - C
• A is the total of the missed contributions over the 10 immediately preceding years.
• B is the amount of interest, if any, applicable to the missed contributions. The rate of interest used may be the rate required by the Pension Benefits Standards Act, 1985 or a similar law of a province. Where the Pension Benefits Standards Act, 1985, or a similar law of a province does not require an interest rate, the rate used must be reasonable, such as the rate of return of the plan fund over the period of missed contributions.
• C is the total amount previously contributed as a PCC for the individual to the provision.
• The second amount is determined by the formula E - F
• E is 150% of the money purchase limit for the calendar year
• F is the total amount of PCCs previously contributed in respect of the individual to the provision, or to any other money purchase provision, if a participating employer under the provision participated in respect of the individual under the other provision.

The effect of the above calculation is to limit the amount of a PCC for the year to the lesser of the missed contributions plus interest and 150% of the money purchase limit for the year (minus any amounts of PCC already paid to MP provisions of the participating employer with respect to the individual).

A PCC paid in 2023 will reduce a member's registered retirement savings plan (RRSP) deduction limit for the 2024 calendar year. If the PCC paid in 2023 results in a negative balance of unused RRSP contribution room in 2024, the individual should avoid making new RRSP contributions in 2024 (and may be subject to Part X.1 tax in 2024 on undeducted RRSP contributions made in 2024 and previous years) until they have withdrawn the excess contributions or have earned a positive RRSP deduction limit.