Chapter 16 - 8509 – Transition Rules

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16.1 8509(1) – Prescribed Conditions Applicable Before 1992 to Grandfathered Plans

16.1.1 8509(1)(a) – Primary Purpose

Paragraph 8509(1)(a) of the Regulations, applicable to grandfathered plans, modifies the prescribed conditions for registration of a pension plan under paragraph 8501(1)(a). The list of prescribed conditions under paragraph 8501(1)(a) to which a plan must comply, includes paragraphs 8502(a), (c),(e),(f), and (l). In the case of a grandfathered plan, paragraph 8509(1)(a) requires that a plan comply with paragraph 8502(a) for periods prior to 1992.

Cross references:

Definition of Existing Plan – 8500(1)
Definition of Grandfathered Plan – 8500(1)
Conditions for Registration – 8501(1)(a)
Permissible Benefits – 8502(c)

16.1.2 8509(1)(b) – Permissible Benefits

Another prescribed condition for registration for grandfathered plans is set out in paragraph 8509(1)(b) of the Regulations. When a grandfathered plan includes an MP provision, only those benefits permissible under subsection 8506(1) may be paid from the provision, as well as benefits that the plan is required to provide a spouse or common-law partner of a plan member due to marriage breakdown. The only exception to this requirement is set out in subsection 8509(10), at the discretion of the Minister.

Cross references:

Permissible Benefits – 8502(c)
Permissible Benefits – Money Purchase – 8506(1)
MP Benefits Exempt From Conditions – 8509(10)

16.1.3 8509(1)(c) – Employer Contributions Under a Money Purchase Provision

A further prescribed condition for registration for grandfathered plans containing an MP provision is set out in paragraph 8509(1)(c) of the Regulations. Employer contributions to an MP provision in a grandfathered plan must, for all years, be determined in a manner acceptable to the Minister. Examples of an acceptable manner include those that are expressed as a percentage of salary or remuneration, or a specific dollar amount. A formula derived from the employer's profits from the year would not be an acceptable manner, unless it is clear that the employer will make annual contributions of at least 1% of members’ salary to the provision.

There is no minimum amount of employer contributions required where the MP provision is in a plan that also contains a DB provision. This permits a DB plan to  establish an AVC (MP) provision where the contributions to the provision are made entirely by the plan member.

16.1.4 8509(1)(d) – Acceptable to the Minister

Paragraph 8509(1)(d) of the Regulations stipulates that, before 1992, benefits provided under a DB provision of an RPP had to be acceptable to the Minister. This is not the same as the requirements under subsection 8509(3), which says that benefits in respect of years before 1992 must be acceptable to the Minister, regardless of when they become provided.

It also stipulates that from 1989 on, whenever a connected person becomes entitled to benefits in respect of periods before 1991, the Minister must be advised. If the Minister is not advised, those benefits are deemed to be unacceptable to the Minister.

Plan text

The requirement to notify the RPD when pre-1991 benefits become provided to connected persons will be satisfied by information provided on Form T920, Application to Amend a Registered Pension Plan.

Cross references:

Connected Person – 8500(3)
Pre-1991 Benefits – 8503(3)(e)
Additional Prescribed Condition for Grandfathered Plan After 1991 – 8509(3)

16.1.5 8509(1)(e) – Additional Requirements

This paragraph allows the Minister to impose the requirement that certain terms be included in plan texts before 1992.

16.2 8509(2) – Post-91 Conditions for Grandfathered Plan

16.2.1 8509(2)(a) – Bridging Benefits

Under this rule, a bridging benefit may not exceed the amount of public pension benefits that would be payable to the member for the month in which the bridging benefits commence to be paid to the member if:

This part of the rule is not grandfathered and applies to the bridging benefit accrued in respect of all years of service. The only possibility for an exception is as provided under paragraph 8509(4)(b) of the Regulations, which is given as a Ministerial waiver on a case-by-case basis.

This means that plans which provide for excess bridging benefits in accordance with subparagraph 9(g)(ii) of IC72-13R8, Employees’ Pension Plans will have to be amended retroactively unless a waiver is given for pre-1992 accruals under paragraph 8509(4)(b) of the Regulations. Retroactive amendments may also have to be made to plans that provide that the member will receive a bridging benefit based on the maximum CPP/QPP payable to any individual, regardless of whether the particular member would actually be entitled to the maximum CPP/QPP.

If it can be determined that all members have earned at least the YMPE for three years, this amendment would not be required. It may not be required where the bridging benefit is based only on CPP/QPP and not on OAS.

The additional restrictions that apply when members are less than age 60 or have fewer than 10 years of service must be added for that portion of the bridging benefit which is in respect of years after 1991.

Plan text

If these restrictions are not stated in the plan text, then it must refer to the restriction either by regulation or by reference to the Act and Regulations.

Cross references:

Definition of Bridging Benefits – 8500(1)
Bridging Benefits – 8503(2)(b)
Additional Bridging Benefits – 8503(2)(l)
Bridging Benefits – Cross-Plan Restrictions – 8503(3)(k)
Commutation of Lifetime Retirement Benefits – 8503(7)
Bridging Benefits and Election – 8503(7.1)
Limits Dependent on CPI – 8503(12)
Retirement Benefits Before Age 65 – 8504(5)
DB Benefits Under Grandfathered Plan Exempt From Conditions – 8509(4)(b)
Conditions Applicable to Amendments – 8511(1)(b)

16.2.2 8509(2)(b) – Benefits

Paragraph 8509(2)(b) of the Regulations provides that certain conditions relating to lifetime retirement benefits apply to grandfathered plans for periods after 1991. They are as follows:

8503(3)(c) – Early Retirement

If the plan does not provide for at least 0.25% reduction per month (3% per year) prior to the earliest of age 60, 30 years of service, or the total of age and service equals 80, it must be amended to do so, but only for years after 1991. Where members were previously entitled to an unreduced pension in a situation other than now permitted (for example, age 58 with 5 years of service), the portion of their pension that accrued before 1992 could be paid on the unreduced basis at that age.

Similarly, where the reduction was lower than what is permitted under paragraph 8503(3)(c) of the Regulations, (for example, 0.15% per month before age 60), that reduction may continue to apply with respect to benefits accrued before 1992.

8503(3)(h) – Increase in Accrued Benefits

Few grandfathered plans would have been in contravention of paragraph 8503(3)(h) of the Regulations as it exists primarily as a PA anti-avoidance rule. Any that were in contravention must be amended as of January 1, 1992.

8503(3)(i) – Increase in Accrued Benefits – Part-Timers

This rule, which requires that earnings be annualized and service actualized for part-time employees, applies only to benefits accrued after 1991.

8504(1)(a) and (b) – Maximum LRBs

The main impact of the grandfathering of this rule is that grandfathered plans that were not restricted in the past by the maximum pension rule do not have to amend to comply with subsection 8504(1) of the Regulations until January 1, 1992.

16.2.3 8509(2)(c) – Maximum Lifetime Retirement Benefits

Plans that were not restricted in the past by the maximum pension rule set out in subsection 8504(1) of the Regulations do not have to amend their plan terms until January 1, 1992. The "career average maximum" applicable to connected persons applies only to service after 1991. Plans which are crediting pre-92 service after 1991, where the plan does not contain the 9(g) rule in IC72-13R8, and where the limit to the amount of lifetime retirement benefits prior to 1990 set out in subsection 8504(6) does not apply, are required to add the 9(g) rule for that service.

16.3 8509(3) – Additional Prescribed Conditions for Grandfathered Plan After 1991

Benefits in respect of periods before 1992 must be acceptable to the Minister, regardless of when they become provided (for example, in 1998 a grandfathered plan could be amended to add years of service before 1992). Generally, “acceptable to the Minister” refers to the rules that existed under IC72-13R8.

16.4 8509(4) & (4.1) –Defined Benefits Under Grandfathered Plan Exempt From Conditions

16.4.1 8509(4)(a) – Exemptions – Death Benefits

Subsection 8509(4) of the Regulations allows the Minister to exempt, after 1991, certain benefits provided under a DB provision of a grandfathered plan from compliance with the rules for registration set out in the Regulations. An exemption is available for death benefits that relate to LRBs provided in respect of pre-1992 service, where the death benefits would have been acceptable under IC72-13R8. A written request by the plan administrator for exemption must be made.

An exemption is usually requested in one of the following three situations:

1. Favourable consideration will be given when survivor benefits provided under paragraphs 8503(2)(d), (e) or (f) of the Regulations are payable to beneficiaries other than a spouse, former spouse, or dependant.

2. Joint and survivor pensions in excess of 66 2/3% as a normal form may have been accepted in plans on the basis that they were actuarially equivalent to a maximum pension based on joint and 60%. (See paragraph 9(g) of IC72-13R8) Where that is the case, an exemption will be provided.

3. Pre-retirement death benefits are discussed in paragraph 9(f) of IC72-13R8. If the plan wording can be interpreted as complying with 9(f), the death benefits that relate to pre-1992 LRBs will be exempted.

16.4.2 8509(4)(b) – Exemptions – Bridging Benefits

With Ministerial approval, an RPP may provide bridging benefits that exceed the limits set out in paragraph 8503(2)(b) of the Regulations, provided that the excess bridging benefits were vested to the member before 1992. This exemption will be considered on a case-by-case basis. Exemptions must be applied for in writing, and will be approved or denied in writing.

16.5 8509(4.1) – Benefits Under Grandfathered Plan – Pre-1992 Disability

Individuals who had a physical or mental impairment before 1992 and who are members of a grandfathered plan that promised benefits that are not in compliance with the rules of paragraphs 8503(3)(b) or 8503(3)(d) of the Regulations are exempt from these rules. Therefore, for example, these members can continue to receive a disability pension that is based on deemed years of service up to normal retirement age where the normal retirement age is later than 65 or a disability pension that is not capped by the YMPE. It is also possible for these members to receive a pre-retirement disability pension that is paid up to normal retirement age and then replaced with a recalculated pension for life whether or not the recalculated pension is based on years the member was in receipt of the disability pension.

However, if the plan is amended to improve or add an offside benefit for members who became disabled before 1992, we may refuse the amendment or impose conditions or limits before we approve the amendment.

16.6 8509(5) – Conditions Not Applicable to Grandfathered Plan

16.6.1 8509(5)(a) Not Applicable Before 1992

The following paragraphs of the Regulations do not apply in respect of periods prior to 1992:

8503(3)(a) – Eligible Service

8503(3)(b) – Benefit Accruals After Pension Commencement

8503(3)(d) – Increased Benefits for Disabled Member

8503(3)(j) – Offset Benefits

8503(3)(k) – Bridging Benefits – Cross-Plan Restriction

8503(3)(l) – Division of Benefits on Marriage Breakdown

8503(4)(b) – Pre-Payment of Member Contributions

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

8503(4)(e) – Evidence of Disability

8503(4)(f) – Evidence of Disability

Here is a brief summary of the implications for the above paragraphs:

8503(3)(a)

We will continue to apply the eligible service requirements of Paragraph 8(e) of IC72-13R8 for service that is, or becomes, provided for periods prior to 1992.

8503(3)(b)

We will not revoke a grandfathered plan for the sole reason that it allowed members to accrue pre-1992 benefits while receiving a pension. For service after 1991, plans that permitted this must be amended so that any member who is accruing a benefit while in receipt of a pension will either cease receipt of the pension or cease to accrue further benefits.

8503(3)(d)

Pensions in pay due to a disability before 1992 under grandfathered plans may continue to be paid, regardless of whether or not they meet the Regulations. With the exception set out in subsection 8509(4.1) of the Regulations, pensions that become payable after 1991 must comply with paragraph 8503(3)(d) in its entirety.

8503(3)(j)

Members who receive their pension before 1992 from a grandfathered plan which provides for offset benefits are not necessarily restricted by the rule that a reasonable estimate must be made of the offsetting benefits if they are commuted.

8503(3)(k)

If a member is in receipt of more than one bridging benefit in respect of a participating employer or related employer before 1992, they may continue to receive them. After 1991, plans may not provide for this unless exempted.

8503(3)(l)

Grandfathered plans that allowed a member’s benefit to be increased to compensate for benefits assigned to a spouse or common-law partner on the breakdown of marriage or common-law partnership may no longer do so after 1991.

8503(4)(b)

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

8503(4)(d)

Grandfathered plans that do not provide for the payment of lump-sum death benefits, as soon as practicable, must do so after 1991.

8503(4)(e)

We will not revoke a grandfathered plan that paid out additional retirement benefits, as a result of a disability, before 1992 without the required medical certification.

8503(4)(f)

We will not revoke grandfathered plans that, before 1992, allowed service to accrue during a period of disability without the required medical certification.

16.6.2 8509(5)(b) – Permissible Distributions

We will not revoke grandfathered plans for the sole reason that they made distributions before 1992 that were not in accordance with paragraph 8502(d) of the Regulations.

16.6.3 8509(5)(c) – Eligible Service & Benefit Accrual

8503(3)(a)

Benefits in respect of pre-1992 service are not subject to the eligible service rules of paragraph 8503(3)(a) of the Regulations even if they are credited after 1991. Pre-reform service must, however, comply with the requirements of paragraph 8(e) of IC72-13R8.

8503(3)(b)

Members who were accruing DB service while in receipt of DB retirement benefits from a participating employer or related employer must either cease to accrue further benefits or stop receiving the pension as of January 1, 1992.

16.7 8509(6) – PA Limits for Grandfathered Plan for 1991

Grandfathered plans do not have to comply with the PA limits in subsections 147.1(8) and (9) of the Act until 1992 unless they contain an MP provision in respect of which contributions were made in 1991. If the plan contains an MP provision (including AVCs), the PA limit restriction in the plan must be effective from 1991, unless we receive certification from the plan administrator that no contributions were made to the MP provision in 1991.

16.8 8509(7) – Limit on Pre-Age 65 Benefits

Subsection 8509(7) of the Regulations provides that the limit under subsection 8504(5) only applies to benefits provided in respect of periods after 1991. Benefits that relate to years of service before 1992 can be paid even if they exceed the pre-65 restriction. Subsection 8504(5) limits the combined amount of LRBs and bridging benefits that may be paid to a member who is under 65 years of age.

Whether all or a portion of a member's bridging benefit is in respect of post-1991 service is dependent on the terms of the plan and the date the member became entitled to the bridging benefit. As an example, consider a plan whose terms provide that an individual becomes entitled to the full bridging benefit, subject to satisfying the bridging benefit restrictions of paragraph 8503(2)(b) of the Regulations, on the day the individual joins the plan. No portion of the bridging benefit provided to an individual who joined the plan before 1992 would be considered to be in respect of post-1991 service. Consequently, subsection 8504(5) would not require any additional restriction on the benefits provided to such an individual.

Subsection 8509(7) of the Regulations applies only to grandfathered plans, and plans which were registered on or before June 7, 1990, or for which an application for registration was made by June 8, 1990.

Cross reference:

Retirement Benefits Before Age 65 – 8504(5)

16.9 8509(8) – Benefit Accrual Rate Greater Than 2%

16.9.1 8509(8)(a) – Benefit Accrual Rate

Subsection 8509(8) of the Regulations permits an existing plan to have a benefit rate greater than 2% for years before 1995. However, paragraph 8509(8)(b) prohibits final average earnings plans from being integrated with public pension benefits unless the benefit rates are capped at 2%. In addition, the maximum LRBs rule under section 8504 of the Regulations applies from 1992 on. This means that the grandfathering of the 2% cap is quite narrowly applied and relieves only a few career average plans that are generally capped at 2% on a final average basis. This transition rule does not, however, prohibit an existing plan from providing a benefit accrual that would absorb the $1,000 RRSP room until 1995. For example, an effective benefit rate of 2.111% could be in place until the beginning of 1995.

For plans that were already registered on July 31, 1991 or that had been submitted for registration by August 1, 1991, the 2% benefit accrual cap applies only to the portion of a member's benefits that relate to service after 1994. Such plans must be amended to provide for this by January 1, 1995.

16.9.2 8509(8)(b) – Increases in Accrued Benefits

This paragraph says that if a plan is an integrated final average earnings arrangement, the transition rule is overridden and the benefit accrual rate must be 2% or lower in order to qualify under subparagraph 8503(3)(h)(iv) of the Regulations. In other words, with such a plan, there is no exemption from the 2% benefit accrual rate restriction of paragraph 8503(3)(g) after 1991.

16.10 8509(9) – Benefits Under a Plan Other Than a Grandfathered Plan

Subsection 8509(9) of the Regulations grandfathers benefits that started to be paid before 1992 out of plans that were registered after March 27, 1988. The grandfathering applies to paragraph 8502(c), which prohibits the payment of DB benefits other than as set out under the following:

8503(2) – Permissible Benefits

8503(3)(c) – Early Retirement

8503(3)(e) to (i)

8504 – Maximum Benefits

However, the benefits in pay must be acceptable to the Minister. Generally, benefits that were permitted under IC72-13R8 will be accepted for this purpose.

16.11 8509(10) –Money Purchase Benefits Exempt From Conditions

No guidelines have been developed as to what will be exempted under this subsection. Requests will be considered on a case-by-case basis. We are not currently aware of any situations that would warrant such an exemption.

16.12 8509(10.1) – Stipulation Not Required for Pre-1992 Plans

The stipulation under paragraphs 8503(4)(c) and 8506(2)(d) of the Regulations regarding a reduction of benefits and a refund of contributions to avoid revocation does not apply to plans registered or submitted for registration before 1992, and plans replacing such plans. The exemption recognizes that many of these plans either can’t be amended to add the stipulation or can be amended only with the consent of plan members as well as court approval.

Despite the exemption, it does not prevent a plan from becoming revocable if it fails to comply with the registration rules. For example, if the plan violates the maximum pension rule, a member’s PA exceeds the PA limit, or an employer contributes more than a permissible amount, the plan administrator must address the non-compliance if registration is to be maintained.

Cross references:

Reduction in Benefits and Return of Contributions – 8503(4)(c)
Employer Contributions with Respect to Particular Members – 8506(2)(d)

16.13 8509(11) – Benefits Acceptable to Minister

Subsection 8509(11) of the Regulations clarifies that the rules under section 8509 are not intended to limit the Minister’s power to restrict the benefits permitted under paragraph 8503(3)(e) or subsection 8509(3).

16.14 8509(12) – PA Limits – 1996 to 2002

Subsection 8509(12) of the Regulations allows for an exemption on the PA limits under subsections 147.1(8) and (9) of the Act for high income earners under DB provisions for the years 1996 to 2002 so that the plans would not be in a revocable position. The exemption applies to years 1996 to 2002 when the DB limit resulted in DB pension credits in excess of the MP limit of $13,500.

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