Registered Plans Directorate technical manual

Appendix A - Eligible service

This appendix explains what constitutes eligible service, with respect to pre-1992 service credited after 1991 (pre-reform service), in a registered pension plan which meets the definition of a grandfathered plan^*

The provision of pension benefits after 1988, in respect of periods before 1991, is restricted by paragraph 8503(3)(e) of the Regulations. This paragraph requires that all benefits provided under a DB pension plan in respect of periods before 1991 be acceptable to the Minister of National Revenue. A modification to this restriction for grandfathered plans, is found in subsection 8509(3) of the Regulations. Pursuant to subsection 8509(3), benefits provided in respect of periods before 1992 must be acceptable to the Minister.

In the December 1989 and July 1991 releases from the Department of Finance entitled the Draft Amendments to the Regulations Relating to Saving for Retirement, it was stated that paragraph 8503(3)(e) and subsection 8509(3) of the Regulations "…permits Revenue Canada to continue to apply, with respect to pre-1991 benefits, a number of restrictions in Information Circular 72-13R8 that have not been included in these Regulations or that differ from the restrictions in these Regulations…". The promulgated amendments to the Regulations including paragraph 8503(3)(e) and subsection 8509(3) did not alter the effect of this statement.

This interpretation and policy was further reinforced by Pension Reform Updates (PRU) 92-8 and 92-8R. These publications clearly state that the eligible service conditions of Information Circular 72-13R8 must be met in order for the service to be acceptable to the Minister.

Accordingly, only service that falls under one of the following categories may be recognized as eligible service for pre-reform service, and only if the plan text permits the crediting of this type of service:

• Service with an employer that carries on all or part of its business in Canada or that otherwise operates in Canada. The employer has to be either a contributing employer under the plan or a proprietorship, partnership, or a corporation that was the employer's predecessor.
• Service covered under a reciprocal agreement with another Canadian employer. Reciprocal agreements will continue to be required for pre-reform service. They must be current, ongoing agreements for the crediting of pre-reform service and not merely agreements that existed at the time the service took place. Copies of such reciprocal agreements must be filed with Revenue Canada.
• Consideration will be given to other relatively short periods of service (three years or less) that occurred inside Canada with an employer that is associated or affiliated with a participating employer.

The following periods, without limit:

• Paid leave;
• Sabbatical leave;
• Educational leave;
• Maternity/paternity/adoption leave;
• Active service with the Canadian Armed Forces during WWII or the Korean War;
• Total disability leave.
• Periods of up to three years, with or without pay, of short-term appointments to federal or provincial governments, committees or commissions or loan to a union, charitable or educational organization, where benefits do not accrue under another pension plan.
• Other periods of unpaid leave of not more than two years.

Any period of leave without pay that has a specified time limit is not cumulative. A member can have more than one such period in their career, but each period cannot exceed the length of time specified in the Circular.

As a general rule, we will require that an individual return to work for 12 months before being eligible for another period of absence. However, we will consider shorter periods on a case-by-case basis.

Different types of periods of leave can be taken consecutively within their respective limits.

If any part-time service is to be credited for pre-1992 service after 1991, the service must be actualized and the earnings must be annualized. A member cannot credit the time worked as a period of leave of absence.

For greater certainty, we confirm that service with other public sector plans where there is no reciprocal agreement cannot be recognized as eligible service under registered pension plans after December 31, 1991. This does not mean however, that benefits cannot be provided in respect of those periods from an unregistered retirement arrangement.

Plans can continue to accept pensionable service from other registered pension plans as long as the funds associated with that service are transferred to the current plan under a portability arrangement.

Where a vested member received the commuted value of accrued benefits upon termination, and is subsequently reemployed by the same employer, they may buy back the service if the plan permits this purchase. The amount necessary to fund the pre-reform benefits must be transferred from another Registered Pension Plan (RPP), a Deferred Profit Sharing Plan (DPSP) or a Registered Retirement Savings Plan (RRSP).

Where a non-vested member received a refund of contributions upon termination, and is subsequently reemployed by the same employer, he/she may buy back the service if the plan permits this purchase. The amount necessary to fund the pre-reform benefits does not have to be transferred from another RPP, a DPSP or an RRSP. This differs from the information provided in PRU 92-12. This change in policy is appropriate since the original contributions made to the plan by the member for the prior years would have reduced the amount that could have been contributed to an RRSP in each of those years. Therefore, the re-purchase of this past service with new money would not constitute "double dipping".

We would remind you that for past service purchases that relate to years after 1989, the Past Service Pension Adjustment rules would apply.

Periods of foreign service may only be credited on a current service basis and may not exceed 3 years per period. For additional information, we refer you to PRU 93-2 and 00-1.