Chapter 11 - 8503(4) to 8503(26) – Additional Conditions

 

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11.1 8503(4)(a) – Member Contributions

11.1.1 8503(4)(a)(i) – Current Service Contribution Limit

Member current service contributions to a DB provision of an RPP are limited to the lesser of a) 9% of the member’s compensation for the year from an employer who participates in the plan, and b) $1,000 plus 70% of the member’s pension credit for the year under the provision.

It should also be noted that, when member contributions are made to fund an unfunded liability, and the Minister has granted a waiver under subsection 8501(6.1) of the Regulations, those contributions are deemed to be current service contributions made by the member and thus are included in the limits of subparagraph 8503(4)(a)(i).

Plan text

The member contribution rate can’t be higher than 9%. This also includes a contribution rate formula that is based upon the YMPE, for example 7.5% of compensation up to the YMPE and 10% of compensation above the YMPE. If all, or a portion of, the contribution rate, is higher than 9%, it is possible to request a waiver of this requirement under subsection 8503(5) of the Regulations.

A plan that provides a lump sum benefit of up to 2 times contributions plus interest at termination or death in accordance with paragraphs 8503(2)(h) and (j) of the Regulations must restrict members’ current service contributions to the lesser of i) 9% compensation and ii) $1000 plus 50% of a member’s pension credits (rather than 70%). Plans that provide this type of termination or death benefit to members must restrict contributions to the lower limit. These stipulations are not required for plans which have received a waiver under subsection 8503(5).

We will require a clause in all contributory DB plans, even those that have a member contribution rate of less than 9%, that the member current service contributions will not exceed the limits set out in subparagraph 8503(4)(a)(i) of the Regulations. A general reference to the DB member contribution limit under the Regulations would be acceptable as well. If the plan administrator is not willing to add this stipulation because it will not apply to all plan members, they may request a waiver under subsection 8503(5).

SMEPs

SMEPs are exempted from this rule by paragraph 8510(6)(c) of the Regulations.

Cross references:

Definition of Compensation – 147.1(1)
Definition of Participating Employer – 147.1(1)
Pension Credit – Defined Benefit Provision – 8301(6)
Member Contributions for Unfunded Liability – 8501(6.1)
Lump Sum Payments on Termination – 8503(2)(h)
Lump Sum Payments on Death – 8503(2)(j)
Waiver – Member Contribution Condition – 8503(5)
Newsletter No. 96-3, Flexible Pension Plans

11.1.2 8503(4)(a)(ii) – Periods of Disability, Reduced Pay or Temporary Absence

Plans may provide that employees’ current service contributions will fund up to 100% of the cost of defined benefits accrued during periods of disability, eligible periods of temporary absence, and during eligible periods of reduced pay. The prescribed compensation rules under section 8507 of the Regulations will limit the length of time that will qualify.

SMEPs

SMEPs are exempted from the restrictions in this rule by paragraph 8510(6)(c) of the Regulations.

Cross references:

Definition of Eligible Period of Temporary Absence – 8500(1)
Definition of Eligible Period of Reduced Pay – 8500(1)
Definition of Disabled – 8500(1)
Definition of Period of Disability – 8500(1)
Eligible Service – 8503(3)(a)(iii) & (iv)
Prescribed Compensation – 8507

11.1.3 8503(4)(a)(iii) – Past Service Contribution Limit

Plans may give members the right to purchase past service defined benefits, as long as the purchase is in respect of eligible service in accordance with paragraph 8503(3)(a) of the Regulations. Contributions in respect of post-1989 years are limited to the amount reasonably necessary to fund these post 1989 benefits. These contributions may be further restricted by the PSPA certification rules under subsection 147.1(10) of the Act, and subsection 8307(2) of the Regulations. Where re-determined PAs are calculated instead of a PSPA under subsection 8308(4), for a past service event, the prescribed compensation rules of section 8507 will limit the periods of reduced service which may be included as pensionable service under the plan (therefore limiting the past service benefits and past service contributions).

Some plans provide that members must continue to contribute even after they have ceased accruing a benefit. Usually this is after the 35th year of service. The contributions are used to fund increased benefits due to higher earnings in later years or indexing of wages during the deferral period.

No pension credits are generated because no current service is accruing. A nil PSPA will be generated for the past service event as an increase in the member’s earnings would not generate a change in the normalized pension under paragraphs 8303(5)(d) and 8302(3)(e). If the LRB is increased as a result of CPI or AIW indexing during the deferral period, a nil PSPA will be generated due to the exclusion under paragraph 8303(5)(j).

The contribution rate during the period benefits are not accruing cannot exceed the amount reasonably necessary to fund the benefit increases.

Example 1: In 2007 Jim decides to buy back 5 years of eligible post 1989 service. This would require the plan administrator to file a certified PSPA on Jim's behalf. However, Jim has no RRSP room in 2007 as he has always contributed the maximum to his RRSP. Jim does not want to access funds in his RRSP, and therefore does not want to make either a qualifying withdrawal or a qualifying transfer. In this case the PSPA certification rules would prevent Jim from purchasing the service, and so no contributions would be allowed. Therefore, if Jim were to make a contribution to the plan it would not be deductible and the plan would become revocable.

Example 2: Don decides to buy back 3 years of eligible post-1989 service. The cost to fund the benefits is $45,000. The PSPA calculated by the plan administrator is $21,000 and Don presently has $24,000 of unused RRSP room. In this case the PSPA would be able to be certified as Don has sufficient RRSP room. An agreement is made between Don and his employer to each fund 50% of the cost. The contribution by Don would also be deductible as it does not exceed the amount reasonably necessary to fund these post 1989 benefits.

SMEPs

SMEPs are exempted from the restrictions of this rule by paragraph 8510(6)(c) of the Regulations.

Cross references:

Past Service Benefits – 147.1(10)
Amount of Employee’s Pension Contributions Deductible – 147.2(4)
Definition of Period of Reduced Services – 8300(1)
Certification in Respect of Past Service – 8307
Period of Reduced Services – Retroactive Benefits 8308(4)
Prescribed Compensation – 8507

11.2 8503(4)(b) – Pre-payment of Member Contributions

DB member contributions are not permitted before the year in which they relate. It will not be necessary for plans to stipulate this.

Grandfathered plans

Plans that allowed members to pre-fund their benefits must be amended to disallow this with effect from January 1, 1992.

11.3 8503(4)(c) – Reduction in Benefits and Return of Contributions

DB plans have to contain a stipulation that allows:

The stipulation can be qualified to make the amendment or the refund subject to the approval of the authority administering the PBSA or similar provincial law, as applicable.

Grandfathered plans

Grandfathered plans are exempt from having to contain this stipulation.

Cross references:

Stipulation Not Required for Pre-1992 Plans – 8509(10.1)
Designated Laws – 8513

11.4 8503(4)(d) – Undue Deferral of Payment

One year from the date of the member's death is considered as soon as practicable, for the purpose of satisfying paragraph 8503(4)(d) of the Regulations. If the payments are not made within the year, it should be questioned, and the reason for the delay should be determined to see if it was impracticable to pay it sooner. The purpose of paragraph 8503(4)(d) is to prevent an individual from leaving a lump-sum in an RPP to benefit from the deferral of taxes on investment earnings.

Plan text

We will allow plans to be silent on this issue or to state the one-year limit or to use the wording of the Regulations.

Grandfathered plans

Grandfathered plans that contravene the requirement to pay lump sum death benefits as soon as practicable must be amended with effect from January 1, 1992.

Cross references:

Lump Sum Payments on Death Before Retirement – 8503(2)(i)
Refund of Member Contributions after Death – 8503(2)(j)

11.5 8503(4)(e) & (f) – Evidence of Disability

Evidence of total and permanent disability is required by the plan administrator before increased or additional LRBs (that is, a disability pension) can be paid out. This is not a requirement that has to be detailed in the plan text. However, if mention of evidence of total and permanent disability is part of the terms of the plan, ensure that the requirements of paragraph 8503(4)(e) of the Regulations are met.

Evidence of disability is required by the plan administrator if a period of disability is to be recognized as pensionable service. This is not a requirement that has to be detailed in the plan text. However, if the evidence of disability is part of the terms of the plan, ensure that the requirement of paragraph 8503(4)(f) of the Regulations is met.

Cross references:

Definition of Disabled – 8500(1)
Definition of Totally and Permanently Disabled – 8500(1)
Early Retirement – 8503(3)(c)
Increased Benefits for Disabled Member – 8503(3)(d)
Period of Disability as Eligible Service – 8503(3)(a)(iv)
Newsletter No. 94-2, Technical Questions and Answers

11.6 8503(5) – Waiver of Member Contribution Condition

Where it is clear from the plan text that paragraph 8503(4)(a) of the Regulations is not met (for example, member required contributions are 10% of compensation), or where we are advised that paragraph 8503(4)(a) will not be met for every member, the plan administrator may request a waiver under this subsection. A demonstration that, on a long-term basis, member current service contributions will not fund more than half of the related defined benefits must be submitted. See Actuarial Bulletin No. 3 for more information. 

Cross reference:

Member Contributions – 8503(4)(a)

11.7 8503(6) – Pre-retirement Death Benefits

Subsection 8503(6) of the Regulations allows members who were eligible to receive retirement benefits under a DB provision, but died before they started receiving benefits, to be treated as though they had already started receiving their pension. As a result, provided the terms of the plan so permit, the spouse or common-law partner or beneficiaries can receive post retirement death benefits such as the guarantee period under paragraph 8503(2)(c) or survivor benefits under paragraph 8503(2)(d).

Plan text

This provision applies when a member is eligible to have retirement benefits paid under the plan terms, but has not actually started to receive them. Plans may state that, in that event, they will be treated as having commenced their benefit for death benefit purposes.

11.8 8503(7) – Commutation of Lifetime Retirement Benefits

A plan can be designed to minimize or eliminate the amount that may have been required to be paid in cash to a member in the case of a lump-sum payment being made from a DB provision. In other words, a DB plan can allow partial commutation of benefits where the commuted value of all benefits would exceed the amount that can be transferred tax-free under subsection 147.3(4) of the Act, that is, the prescribed amount of section 8517 of the Regulations. This is because the prescribed amount is based on the amount of post-age 64 LRBs that are commuted. In accordance with subsection 8503(7), it is permissible for a plan to allow the commutation of all or a portion of a member's LRBs payable after a particular age, while allowing the remaining non-commuted benefits to be paid out of the plan in the normal manner or to be provided through the purchase of an annuity.

Example 1

A plan may provide for full commutation of a member's LRBs (pre-65 and post-64 LRBs), while allowing the bridging benefit to remain payable out of the plan. In this case, paragraph 8503(7)(a) of the Regulations waives the condition under subparagraph 8503(2)(b)(i) that would otherwise require payment of the bridging benefit not to start unless LRBs have also started to be paid.

The only limits on non-commuted benefits are those already imposed by the plan's terms and required by the legislation. For example, at the time of partial commutation, assume total benefits had a value of $100,000 and the commuted benefits had a value of $80,000. There is no requirement for the value of the non-commuted benefits, when they are eventually paid out, to be capped by $20,000, that is, the difference between $100,000 and $80,000.

Example 2

The commuted value of a member's LRBs is $350,000 and the commuted value of the bridging benefit is $50,000, for a possible aggregate lump sum payment of $400,000. This is $24,000 in excess of the prescribed/transferable amount of $376,000, based on full commutation of the post-age 64 benefits. If the plan provides for it, the member can commute the LRBs in full and transfer the commuted value to an RRSP, leaving the bridging benefit to be paid out of the plan in the normal manner.

The plan could also provide for a partial commutation of LRBs, for example the post-age-64 portion, while allowing for payment of the pre-age-65 benefits out of the plan in the normal manner (or through the purchase of an annuity), that is, periodic payments to age 65. Were it not for paragraph 8503(7)(b) of the Regulations, the pre-age 65 LRBs would by definition be a bridging benefit and, therefore, subject to the limits imposed on bridging benefits. However, because of paragraph 8503(7)(b), the pre-age-65 LRBs retain their character as LRBs.

Example 3

The commuted value of LRBs and ancillary benefits is $400,000. This is $24,000 in excess of the prescribed/transferable amount of $376,000, based on full commutation of the post-age 64 benefits. The actuary determines the commuted value of the post-age-64 LRBs to be $310,000, the pre-age-65 LRBs to be $60,000, and the bridging benefit to be $30,000. If the plan provides for it, in addition to transferring to an RRSP the commuted value of the post-age-64 benefits, the member can commute other benefits having a value of up to $66,000 ($376,000 - $310,000) for the purposes of a transfer to an RRSP. These other benefits having a value of up to $66,000 can consist of either all or a portion of the pre-age-65 LRBs, all or a portion of the bridging benefit, or a combination of these benefits. The benefits that the member elects not to commute can be paid out of the plan in the normal manner.

Even if no pre-age 65 benefits are commuted, the commuted value of the post-age 64 benefits might still exceed the prescribed amount. If this is the case, the excess must be paid out of the plan in cash. It can’t be "reconfigured" to provide a bridging benefit or any other benefit.

Example 4

The commuted value of all benefits under a plan is $500,000. The prescribed amount, based on a full commutation of post-age 64 LRBs, is $360,000. The actuary determines the commuted value of the post-age 64 LRBs to be $400,000 and the pre-age 65 retirement benefits (including bridging benefits) to be $100,000. If the plan provides for it, the member can elect not to commute the pre-age 65 retirement benefits, but rather have these benefits paid out of the plan in the normal manner. If the post-age 64 lifetime retirement benefits are commuted, the member can’t transfer more than $360,000 to an RRSP. The excess amount of $40,000 ($400,000 - $360,000) must be paid out of the plan in cash.

Note

Any decision not to commute the post-age 64 LRBs associated with the $40,000 excess will reduce the prescribed amount since the prescribed amount is based on post-age 64 benefits that are commuted.

Cross reference:

Newsletter No. 94-2, Technical Questions and Answers

11.9 8503(7.1) – Bridging Benefits and Elections

Subsection 8503(7.1) of the Regulations applies when a member (or when a member dies, his or her spouse or common-law partner or former spouse or former common-law partner) elects to receive bridging benefits in lieu of benefits that would be payable to the member. The terms of the plan must permit this election.

Paragraph 8503(7.1)(a) of the Regulations allows a member to fully convert his or her LRBs into a bridging benefit, subject to the limits of paragraph 8503(2)(l). It is also permitted for the members' spouse or common-law partner or former spouse or former common-law partner to convert their survivor benefits into a bridging benefit, subject to the limits of 8503(2)(l.1).

Paragraph 8503(7.1)(b) of the Regulations allows the bridging benefit election to be disregarded when determining whether the post-retirement survivor benefits are acceptable under paragraphs 8503(2)(c), (d) and (k).

11.10 8503(8) – Suspension or Cessation of Pension

This subsection permits a DB RPP to provide, under certain circumstances, for the suspension or termination of retirement benefits payable under the plan.

Where subparagraph 8503(8)(a)(i) of the Regulations applies, the retirement benefits payable after the suspension can’t be altered as a result of the suspension. In other words, once the retirement benefits recommence, it must be in the amount received before the suspension.

An exception under subparagraph 8503(8)(a)(ii) of the Regulations allows for a re-determined amount of retirement benefits, following suspension, when the re-determination complies with subsection 8503(9). Under paragraph 8503(8)(b), in the case of a disability, it is also permissible for plans to provide that a member's pension in pay will cease (normally where the member has recovered from a disability that led to the commencement of a pension from the RPP). Similarly, paragraph 8503(8)(b) permits an RPP to allow the termination of benefits provided under a downsizing program as defined in subsection 8505(1).

Cross references:

Benefit Accruals After Pension Commencement – 8503(3)(b)
Re-Employed Member – 8503(9)

11.11 8503(9) – Re-Employed Member

If a member is re-employed after commencing to receive retirement benefits, the plan may provide for the suspension of the member's pension. When the member retires for the second time, the pension can be re-determined to include:

In addition to allowing the re-determination of benefits in the manner described above, subsection 8503(9) of the Regulations, modifies certain conditions in subsections 8503(2) and (3) and section 8504 to accommodate the benefit re-determination. As an example, paragraph 8503(3)(b) generally prohibits a member from accruing further service under the provision once retirement benefits commence. Subsection 8503(9), however, “turns off” paragraph 8503(3)(b) so that defined benefits can accrue during the period of re-employment.

Plan text

Plans that provide for any of these increases on re-employment must state that the pension will be suspended during any periods of employment with a participating employer.

Cross references:

Benefit Accruals After Pension Commencement – 8503(3)(b)
Suspension or Cessation of Pension – 8503(8)
Re-Employed Member, Special Rules Not Applicable – 8503(10)

11.12 8503(10) – Re-Employed Member – Special Rules Not Applicable

If a plan allows for:

it must stipulate that the increases as a result of the re-employment will not be provided if the member has received pension payments while an employee of a participating employer.

It would be acceptable for a plan to state simply that pension payments will be suspended if the member is employed by a participating employer.

11.13 8503(11) – Re-Employed Member – Anti-Avoidance

Subsection 8503(11) of the Regulations is an anti-avoidance rule for the purpose of preventing a member of being re-employed for a short-period of time in order to be able to re-determine the member's pension. We will not require any specific wording in plan texts on this issue.

11.14 8503(12) – Limits Dependent on Consumer Price Index

The CRA will accept CPI-based indexation that is not calculated exactly as stated in either 8503(2)(b)(ii), 8503(2)(e)(vi), or 8503(3)(d)(ii) of the Regulations, where applicable, as long as the results are substantially the same over the long term.

11.15 8503(13) – Statutory Plans – Special Rules

Paragraph 8503(13)(a) of the Regulations provides that benefits can accrue under the pension plan established under the Public Service Superannuation Act (PSSA) after retirement benefits have commenced to be paid under pension plans established by the Canadian Forces Superannuation Act (CFSA) or the Royal Canadian Mounted Police Superannuation Act (RCMPSA). Since this paragraph overrides the requirements under paragraph 8503(3)(b), an individual could accrue service under the PSSA for periods subsequent to receiving retirement benefits under either the CFSA or RCMPSA.

In addition, paragraph 8503(13)(b) of the Regulations states that the early retirement reduction factor set out in paragraph 8503(3)(c) does not apply to LRBs provided under the CFSA.

Cross references:

Benefit Accruals After Pension Commencement – 8503(3)(b)
Early Retirement Reduction – 8503(3)(c)

11.16 8503(14) – Artificially Reduced Pension Adjustment

The artificial reduction of a member's PA is the deliberate manipulation of pensionable earnings such that a member's PA does not adequately reflect the LRBs that are eventually payable. When this occurs, the member whose PAs were artificially reduced is deemed to be a connected person for the purposes of the maximum pension rule of subsection 8504(1) of the Regulations, which causes the member’s LRBs to be subject to a career average maximum set out in subparagraph 8504(1)(a)(i).

Example 1

If bonus pay is excluded from pensionable earnings, arranging for bonuses to be a large share of total remuneration for a number of years and then replacing bonuses by regular pensionable earnings for a sufficient period to achieve a high pension level under a final or best average DB provision would result in PAs during the years that do not properly reflect the true level of benefits earned under the DB provision. As a result of the low PAs, the plan member would be able to make RRSP contributions that are excessive in light of the benefits ultimately provided under the plan.

Example 2

LRBs are determined by the formula: 1.5% x final average earnings x years of service. For a number of years, earnings are defined as T4 earnings. With the knowledge that basic salary will not increase (or may even decrease), the definition of earnings is amended to exclude bonuses, which have been and are expected to continue to be substantial. Also, the LRB formula is amended to read: 1.5% x best average earnings x years of service. This too may be a case of artificially reduced PAs.

Cross references:

Connected Person – 8500(3)
Appropriate PAs – 8502(l)
Increase in Accrued Benefits – 8503(3)(h)
Increase in Accrued Benefits – Part-Time Members – 8503(3)(i)
Conditions Applicable to Amendments – 8511(1)(a)

11.17 8503(15) – Past Service Employer Contribution

Subsection 8503(15) of the Regulations contains a rule intended to prevent an employee from agreeing to forgo a payment or benefit in return for employer-funded pre-1990 past service benefits. Employer contributions made to the provision in such circumstances are, in substance, employee contributions. Such an arrangement could avoid the limits on employee pre-1990 service contribution deductions under paragraphs 147.2(4)(b) and (c) of the Act.

Where such a contribution is made, an RPP becomes revocable and a deemed registered plan will fail to meet the condition for registration stated in paragraph 8501(1)(e) of the Regulations. There is an exemption to this rule in subsection 8505(8), for downsizing programs.

11.18 8503(16) – Definitions for the Purpose of Phased Retirement Benefits

These definitions apply to benefits that are provided or payable after 2007.

Specified eligibility day

This definition applies for the purposes of bridging benefits payable on a stand-alone basis provided under subsection 8503(17) of the Regulations.

A member's specified eligibility day under a DB provision of a pension plan is generally the day the member turns 60 years of age. However, if a member is entitled to an unreduced pension before age 60, a member's specified eligibility day is the later of the day the member turns 55 years old and the earliest day on which the member may commence to receive his or her LRBs under the provision without the plan imposing a reduction on account of early retirement.

Qualifying period

This definition applies for the purposes of additional benefits provided under subsection 8503(19) of the Regulations.

In general terms, a qualifying period of a member under a DB provision of a pension plan is a period of post-pension commencement employment following the member's specified eligibility day.

11.19 8503(17) – Bridging Benefits Payable on a Stand-Alone Basis

Subject to meeting certain conditions, stand-alone bridging benefits may be paid under a DB provision of a plan. This is an exception to subparagraph 8503(2)(b)(i) of the Regulations, which requires that bridging benefits do not commence before LRBs have commenced.

The conditions that apply are as follows:

This subsection applies to benefits that are provided or payable after 2007.

11.20 8503(18) – Rules of Application

For the purpose of certain provisions that depend on whether or not retirement benefits have commenced under the provision, the payment of stand-alone bridging benefits is to be disregarded.

Paragraph 8503(18)(a) of the Regulations is relevant where the member has commenced to receive stand-alone bridging benefits and dies before the commencement of LRBs under the provision. For example, this permits the guarantee period for survivor benefits to be determined without regard to the time that stand-alone bridging benefits were paid.

Similarly, paragraph 8503(18)(b) of the Regulations disregards stand-alone bridging benefits when determining benefits under Part LXXXIII: section 8300 (PA, PSPA, PAR), paragraph 8503(2)(m) (commutation of benefits), and subsection 8517(4) (maximum transfer limit). This will ensure, for example, that the PSPA relief provided under paragraphs 8303(5)(f) to (f.2) for benefit increases arising from the increase in a plan's maximum pension limit will be available for members who are receiving stand-alone bridging benefits.

This subsection applies to benefits that are provided or payable after 2007.

11.21 8503(19) – Benefit Accruals After Pension Commencement

Subject to meeting certain conditions, additional benefits may be accrued under a DB provision of a plan while the member continues to receive a partial pension. This is an exception to paragraph 8503(3)(b) of the Regulations, which prohibits the continued accrual of benefits under the DB provision of a plan once a member's pension commences to be paid.

The conditions that apply are as follows:

The 60% limit does not apply to any month after which benefits cease to accrue to the member because of plan terms that restrict benefit accruals based on pensionable service (such as a 35-year cap), attainment of a certain age (such as age 71), or a combination of age and service.

This subsection applies to benefits that are provided or payable after 2007.

11.22 8503(20) – Re-Determination of Benefits

Subject to the anti-avoidance rule in subsection 8503(22) of the Regulations, where the member's benefits are re-determined to include the additional accrual during the qualifying period, the bridging benefit limits in paragraph 8503(2)(b) and the maximum pension limits in section 8504 apply as if the member's benefits had commenced to be paid at the time of the re-determination. This would allow, for example, a re-calculation of any bridging benefit reduction to take into account the member's age and service at the date of re-determination or a re-calculation of the maximum pension limit to take into account the current DB limit.

This subsection applies to benefits that are provided or payable after 2007.

11.23 8503(21) – Rules of Application

For the purpose of certain provisions that depend on whether or not retirement benefits have commenced under the provision, the payment of the partial pension during a qualifying period is to be disregarded.

Paragraph 8503(21)(a) of the Regulations is relevant where the member dies during the qualifying period. It allows the plan to provide for benefits payable on the death of the member to be determined as if the partial pension had not been paid. For example, this permits the guarantee period for survivor benefits to be determined without regard to the time that the partial pension was paid.

Similarly, paragraph 8503(21)(b) of the Regulations disregards the payment of a partial pension when determining benefits under Part LXXXIII: section 8300 (PA, PSPA, PAR), paragraph 8503(2)(m) (commutation of benefits), and subsection 8517(4) (maximum transfer limit). This will ensure, for example, that the PSPA relief provided under paragraphs 8303(5)(f) to (f.2) for benefit increases arising from the increase in a plan's maximum pension limit will be available for members who are receiving a partial pension. Paragraph 8503(21)(b) applies only during the qualifying period.

This subsection applies to benefits that are provided or payable after 2007.

11.24 8503(22) – Anti-Avoidance

This is an anti-avoidance rule that denies the application of subsections 8503(20) and (21) of the Regulations where it can be shown that one of the main reasons for providing additional benefits was to enable the member to benefit from the special rules in those two subsections. This is intended, for example, to prevent the provision of nominal benefits to a member after pension commencement so that the amount of the member's accrued pension can be re-determined to reflect the current DB limit or so that the guarantee period on the member's benefits can be extended.

This subsection applies to benefits that are provided or payable after 2007.

11.25 8503(23) – Cross-plan rules

Subsection 8503(23) of the Regulations contains three rules that apply where an individual is entitled to benefits under two or more associated DB provisions. The rules are relevant in determining whether certain conditions in subsection 8503(17) (stand-alone bridging benefits) and subsection 8503(19) (benefit accruals after pension commencement) are met in respect of benefits provided under a particular associated provision. In general terms, the rules treat the associated provisions as being a single provision. Subsection 8503(24) defines associated provisions for this purpose.

Paragraph 8503(23)(a) of the Regulations is relevant in determining whether the benefits payable to a member under a particular DB provision comply with the 60 % limit in paragraph 8503(19)(b). It provides that all benefits payable to the member under associated DB provisions are to be assumed to be payable under the particular provision.

Paragraph 8503(23)(b) of the Regulations provides that if a member under a particular DB provision had previously commenced to receive his or her retirement benefits under an associated provision on or after the member's specified eligibility day under the associated provision, the member's specified eligibility day under the particular provision is assumed to be that earlier day.

The following example illustrates the application of paragraphs 8503(23)(a) and (b) of the Regulations.

Example

At age 57, David retires after a long career at ABC and begins receiving his full unreduced pension. Six months later, David decides to return to the workforce and is hired by XYZ, which is related to ABC. While XYZ sponsors a DB RPP, David is unable to participate because of the cross-plan prohibition on post-pension commencement accruals in paragraph 8503(3)(b) of the Regulations. However, by virtue of paragraph 8503(23)(b), David is entitled to use his specified eligibility day under ABC's plan for purposes of satisfying the conditions in subsection 8503(19) in connection with XYZ's plan. After arranging with ABC to have his pension reduced to 60%, David is entitled to begin accruing pension benefits under XYZ's plan.

Paragraph 8503(23)(c) of the Regulations provides that if one or more of the associated provisions is contained in a designated plan, it is assumed that all of the associated provisions are in designated plans.

This subsection applies to benefits that are provided or payable after 2007.

11.26 8503(24) & (25) – Associated Defined Benefit Provisions

Subsection 8503(24) of the Regulations specifies when one DB provision is considered to be associated with another DB provision for the purpose of subsection 8503(23).

DB provisions that are in the same pension plan are always associated. DB provisions in separate plans are associated if an employer who participates in one plan also participates, or does not deal at arm's length with an employer who participates, in the other plan.

Where a DB provision (Provision A) is associated with another DB provision (Provision B) under the normal rules in subsection 8503(24) of the Regulations but it is unreasonable to expect the benefits under Provision B to be coordinated with the benefits under Provision A, subsection 8503(25) provides that the Minister may agree that Provisions A and B are not associated.

These subsections apply to benefits that are provided or payable after 2007.

11.27 8503(26) IPP – Minimum Withdrawal

IPPs are required to pay the greater of 1) the retirement benefits payable under the plan terms and 2) the IPP minimum amount in certain circumstances. Failure to pay the greater of the two amounts causes the IPP to become a revocable plan. The greater of the two amounts must be paid to members and to the spouses or common-law partners of deceased members who are 72 years old and older and in receipt of benefits.

An exception would be only in the case where either the PBSA or similar law of a province will not permit the payment of an IPP minimum amount. In such a case, the plan administrator should write to the CRA to confirm. A pension plan should, however, be able to pay actuarial surplus to a retired member to ensure payment of the IPP minimum amount, without contravening the rules under the PBSA or similar law of a province. See Newsletter No. 14-2, IPP minimum amount for more information.

Cross references:

Definition of Individual Pension Plan – 8300(1)
Definition of IPP Minimum Amount – 8500(1)
Designated Laws – 8513
Newsletter No. 14-2, IPP minimum amount

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