Chapter 7 - 8501 – Prescribed Conditions for Registration

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• 7.1 8501(1) – Conditions for Registration
• 7.1.1 8501(1)(a), (b) and (c)
• 7.1.2 8501(1)(d)
• 7.1.3 8501(1)(e)
• 7.2 8501(2) – Conditions Applicable to Registered Pension Plans
• 7.3 8501(3) – Permissive Rules
• 7.4 8501(4) – Supplemental Plans
• 7.5 8501(5) – Benefits Payable after Breakdown of Marriage or Common-law Partnership
• 7.6 8501(6) – Indirect Contributions
• 7.7 8501(6.1) & 8501(6.2) – Member Contributions for Unfunded Liability
• 7.8 8501 (7) – Benefits Provided with Surplus on Plan Wind-Up

7.1 8501(1) – Conditions for Registration

7.1.1 8501(1)(a), (b) and (c)

The CRA should not register a plan if it can’t be determined from reading the plan text that the conditions of paragraphs 8502(a), (c), (e), (f) and (l) of the Regulations will likely be complied with. In the case of DB provisions, the conditions of paragraphs 8503(4)(a) and (c) must be met, and for MP provisions, paragraphs 8506(2)(a) and (d) must be met. These are part of the "prescribed conditions for registration" referred to under section 147.1 of the Act.

Grandfathered plans

Under paragraph 8509(1)(a) of the Regulations (subject to paragraph 8509(1)(d)), only paragraph 8502(a) must be met before 1992. In addition, in the case of an MP provision, paragraph 8502(c) as well as paragraph 8506(2)(a) must also be met before 1992. Otherwise, the conditions of paragraph 8502(c), (e), (f), and (l) do not apply to grandfathered plans until 1992.

7.1.2 8501(1)(d)

When determining whether or not a plan qualifies for registration, the CRA must also decide whether, from reading the plan text, it appears that the conditions listed in subsection 8501(2) of the Regulations will be complied with in the administration of the plan.

In addition, the plan text should not lead us to believe that benefits in respect of a past service event will be paid before any required PSPA certification is received, or that contributions will be made in respect of a past service event before application for any required PSPA certification is made.

7.1.3 8501(1)(e)

Registration of a plan can be refused where it is apparent that there may be, immediately or at a future date, non-compliance with the PA limits in subsections 147.1(8) and (9) of the Act. The PA limits restrict the amount of DB accruals and MP contributions for a year, by placing limits on the pension credits and PAs that result from those benefits and contributions. The registration of the plan is revocable if the PA limits are exceeded.

We must be satisfied that, as per subsection 8503(15) of the Regulations, the employer will not be paying pre-1990 past service contributions in lieu of a member’s remuneration or benefits.

If the plan is an IPP, registration will be refused if it is not apparent that the DB IPP minimum withdrawal requirements under subsection 8503(26) of the Regulations will be met. Subsection 8500(1) provides a definition of IPP minimum amount. However, if the particular IPP is also registered with either a federal or provincial pension regulator under pension benefit standards legislation, and the regulator will not permit an IPP to pay an IPP minimum amount, then the CRA will not require such a plan provision in order to register the particular plan. However, there is still an obligation to make such a payment, which can typically be paid from the plan’s surplus to the member. The plan would have to allow for the payment of surplus to the member. If the administrator can’t make a payment based on the IPP minimum amount, due to the restrictions of the pension regulator, then the administrator of the plan should advise the CRA.

For MP plans, where variable benefits are to be paid from a member’s account, the minimum amount requirements under subsection 8506(4) of the Regulations must be met.

Plan text

The PA limits of subsections 147.1(8) and (9) of the Act do not have to be expressly stated in the plan, but should have a general reference to ensure that the PA limits will not be exceeded.

If the terms of the plan indicate that benefits accrue under a DB provision, or contributions will be made under an MP provision, only during periods of actual employment and when the employee earns a regular rate of pay, paragraph 8501(1)(e) of the Regulations is applied.

If, however, the terms of the plan indicate that benefits accrue under a DB provision, or contributions will be made under an MP provision, during periods other than periods of actual employment and when the employee earns a regular rate of pay, paragraph 8501(1)(e) of the Regulations is applied if these periods satisfy the definitions in subsection 8500(1) and the conditions in subsection 8507(3). In such cases, the plan needs to specify how the rate of remuneration to be used for such periods will be determined. If the remuneration rate used is too high, the PA could exceed the PA limits based on prescribed compensation.

Compensation may be prescribed, up to the limits in paragraph 8507(2) of the Regulations, based on the difference between what the member would have earned had they worked during the year at their regular rate of pay less what they actually received.

Wording of MP provisions

If an MP provision provides for contributions during qualifying periods, it may be necessary for the plan wording to show that the PA limits will not be exceeded for such periods. It will not be necessary if the plan wording shows that the following conditions are met:

• The period is treated differently from regular periods of employment under the plan terms;
• Contributions are related to the member's earnings and the earnings on which contributions will be based for the period do not exceed the earnings which the member would have received had it been a regular period of employment; and
• The amount of remuneration to be added to actual earnings for contribution purposes during qualifying periods does not exceed five years of full-time remuneration in respect of all employers who participate in the plan and all RPPs of employers who do not deal at arm's length with the member's employer. No more than three additional years of full-time remuneration are provided for periods of parenting.

If an MP provision provides for contributions during periods of disability, the plan wording will not need to show that the PA limits are respected for such periods as long as the first two bullets apply.

For MP plans, it must be apparent from reading the text that where variable benefits are to be paid from the member’s account, the minimum amount requirements under subsection 8506(4) of the Regulations will be met.

Wording of DB provisions

A DB provision which provides for accruals during periods that are not regular periods of employment must restrict the periods to those that are eligible service as set out in paragraph 8503(3)(a) of the Regulations. This means that the member must be:

• Employed in Canada by and receiving remuneration from an employer who participates in the plan;
• On an eligible period of temporary absence as defined in subsection 8500(1); or
• On a period of disability as defined in subsection 8500(1).

The plan must also state what earnings base will be used for DB accruals during periods of eligible service that are not regular periods of employment service.

It will not be necessary for the plan text to show that the PA limits will be respected for periods that are not regular periods of employment if the plan wording:

• Bases earnings for such periods on a rate of pay that does not exceed the remuneration which it is reasonable to expect the member would have earned during a regular period of employment;
• Restricts the periods that are not regular periods of employment to periods of disability and qualifying periods (that is, periods of reduced pay or temporary absence which meet all of the conditions necessary to be qualifying periods);
• Restricts the amount of full-time remuneration to be added to the earnings base for accruals during qualifying periods to five years in respect of all participating employers and RPPs of non-arm's length employers, if any; and
• Restricts the amount of additional full-time remuneration to be added to the earnings base for accruals during periods of parenting to three years in respect of all participating employers and RPPs of non-arm's length employers, if any.

If the plan provides for DB accruals during periods of reduced pay or temporary absence and the above conditions are not met, it must be clear from the plan wording that the PA limits will not be exceeded as a result.

Registration may be refused by the CRA if it is not apparent from reading the plan text that the DB IPP minimum withdrawal requirements under subsection 8503(26) of the Regulations will be met unless such a provision is refused by either a provincial or federal regulator under their pension benefits standards legislation.

Cross references:

PA Limits – 147.3(8), 147.3(9)
IPP defined – 8300(1)
IPP minimum amount – 8500(1)
Eligible Service – 8503(3)(a)
Past Service Employer Contributions – 8503(15)
IPP – Minimum Withdrawal – 8503(26)
Non-payment of Minimum Amount – Plan Revocable – 8506(4)
Minimum Amount – 8506(5)
Periods of Reduced Pay – 8507
Pension benefits standards legislation – 8513
Newsletter No. 93-3, Service in Canada
Newsletter No. 92-8R, Eligible Service

7.2 8501(2) – Conditions Applicable to Registered Pension Plans

Subsection 8501(2) of the Regulations lists all the conditions, as modified by sections 8509 and 8510, that apply to an RPP. If an RPP fails to comply with one of the conditions, it becomes a revocable plan, as per paragraph 147.1(11)(c) of the Act. The conditions are:

For all RPPs, the following conditions apply:

8502(b) – Permissible Contributions
8502(d) – Permissible Distributions
8502(g) – Funding Media
8502(h) – Investments
8502(i) – Borrowing
8502(j) – Determination of Amounts
8502(k) – Transfer of Property between Provisions
8502(m) – Participants in GSRAs

For all RPPs that contain a DB provision, these conditions also apply:

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 Breakdown of Marriage or Common-law Partnership
8503(4)(b) – Pre-payment of Member Contributions
8503(4)(d) – Undue Deferral of Payments
8503(4)(e) – Evidence of Disability
8503(4)(f) – Evidence of Disability

For all RPPs that contain a MP provision, these conditions also apply:

8506(2)(b) – Employer Contributions with Respect to Particular Members
8506(2)(b.1) – Allocation of Employer Contributions
8506(2)(c) – Employer Contributions not Permitted
8506(2)(c.1) – Contributions not Permitted
8506(2)(e) – Allocation of Earnings
8506(2)(f) – Payment or reallocation of Forfeited Amounts
8506(2)(g) – Retirement Benefits
8506(2)(h) – Undue Deferral of Payment – Death of the Member
8506(2)(i) – Undue Deferral of Payment – Death of Specified Beneficiary

7.3 8501(3) – Permissive Rules

The Regulations include terms or benefits that a pension plan may provide. The provisions listed in subsection 8501(3) are intended to be exceptions to the conditions in the Regulations.

7.4 8501(4) – Supplemental Plans

For the purposes of paragraph 8501(4) of the Regulations, a supplemental plan is providing benefits supplementary to a base plan. Benefits under a supplemental plan generally provide bridge benefits or indexation. Should it not be feasible to provide these benefits under the base plan, the Minister may consider accepting the supplemental plan for registration, if the primary purpose of paragraph 8502(a) and the permissible benefits under paragraph 8502(c) are met when provisions of the base plan and supplemental plan are, for testing purposes, considered as one provision.

In order for a supplemental plan to be acceptable for registration, it must meet the following criteria:

• The provisions in both the supplemental plan and the base plan must be determined on a DB basis;
• The employer must be funding the supplemental plan. It is not intended to allow for employee-funded ancillary benefits to be provided under a separate plan;
• The application of paragraph 8501(4) of the Regulations has to be approved by the Minister.

The Minister will give such approval only if it is not feasible to provide the supplementary benefits under the base plan, or if currently registered plans would fail to qualify for registration if considered on their own. These will be determined on a case-by-case basis.

7.5 8501(5) – Benefits Payable after Breakdown of Marriage or Common-law Partnership

Under paragraphs 8501(5)(a), (b) and (c) of the Regulations, a portion of the member's pension is paid to the spouse, common-law partner or former spouse or former common-law partner rather than to the member. In this case, the member’s and the spouse’s pension benefits are treated as one pension benefit, subject to all of the Regulations applicable to a single pension benefit.

Under paragraph 8501(5)(d) of the Regulations, where a provision of the law of Canada or a province requires that a spouse be entitled to certain benefits and those benefits either become payable to the spouse or common-law partner at a time other than when the member receives the pension benefits, or gives the spouse or common-law partner additional rights with respect to the benefits, the spouse’s or common-law partner’s pension benefit is treated as a separate pension benefit. The pension benefit, in its own right, is subject to the applicable Regulations. The member’s pension benefit is also subject to the Regulations separately.

However, under a related rule in paragraph 8503(3)(l) of the Regulations, any benefits that have been given to the spouse or common-law partner may not be replaced for the member, and the aggregate benefits of the member and the other individual must not exceed the benefits that would otherwise have been provided to the member.

Plan text

If the spouse, common-law partner, former spouse or former common-law partner will be entitled to something other than a straight assignment of the member’s pension benefits in pay, it must only be done when a provision of the law of Canada or a province requires it and the plan must not provide for the member’s benefit to be upgraded or replaced to compensate for the loss. If it is not done by virtue of a provision of the law of Canada or a province, it must be treated as part of the member’s pension benefit.

Although the benefits on marriage breakdown can be paid to the spouse or common-law partner as if the spouse or common-law partner was a member of the plan, the spouse or common-law partner should not be deemed to be a member of the plan unless the plan is subject to a provision of a federal or provincial pension benefits legislation where their laws deem the spouse to be a member of the plan on marriage breakdown. Where this occurs, the requirements of paragraph 8503(3)(l) of the Regulations must be in the plan text.

Cross references:

Assignment of Right – 8502(f)
Division of Benefits on Breakdown of Marriage or Common-law Partnership – 8503(3)(l)

7.6 8501(6) – Indirect Contributions

Subsection 8501(6) of the Regulations applies in cases where contributions are made to a pension plan by a trade union or an association of employers, and the contributions were received by the union from participating employers, and possibly plan members. In such instances, subsection 8501(6) considers the contributions to have been made by either the employer or member and not the trade union or association – to enable the contributions to comply with paragraph 8502(b).

7.7 8501(6.1) & 8501(6.2) – Member Contributions for Unfunded Liability

Subsections 8501(6.1) and (6.2) of the Regulations were added to accommodate situations where members under a DB provision are required to share in the funding of an unfunded liability. In applying this provision, the member contributions, despite being made towards an unfunded liability, are deemed to be current service contributions made by the member in respect of his or her defined benefits under the particular RPP.

Subsection 8501(6.1) of the Regulations applies where:

• Member contributions under a DB provision are determined by reference to the actuarial liabilities under the plan;
• The contributions cannot reasonably be considered to be in respect of the member’s benefits;
• The contributions are made pursuant to an arrangement approved by the Minister; and
• The main purpose of the arrangement is to ensure that the plan is adequately funded.

Special rules apply to member-funded pension plans – refer to subparagraph 8510(9)(b)(i) of the Regulations.

Subsection 8501(6.2) of the Regulations provides that the contributions made under subsection 8501(6.1) are prescribed eligible contributions for the purposes of the deductibility provisions under paragraph 147.2(4)(a) of the Act.

Cross references:

Special Rules – Member-funded pension plans – 8510(9)(b)(i)
Service after 1989 – 147.2(4)(a)

7.8 8501 (7) – Benefits Provided with Surplus on Plan Wind-Up

We have received amendments to increase the benefits of a DB provision in order to use up the surplus on plan wind-up. Subsection 8501(7) of the Regulations allows for the surplus under a DB provision to provide stand-alone ancillary benefits on plan wind-up based on LRBs that were previously commuted.

Subsection 8501(7) of the Regulations applies, where:

• Benefits have already been commuted;
• Benefits are subsequently provided to use up surplus on full or partial plan wind-up;
• Subsequent benefits include ancillary benefits;
• If a member terminated after 1996, ancillary benefits are for pre-90 service only; and
• The Minister approves it.

Subsection 8501(7) of the Regulations does not allow for post-1989 stand-alone ancillary benefits to be provided to a member who terminated after 1996 and before his or her retirement. This is to ensure that those that received a PAR are not credited with benefits that would have affected the previous PAR calculation.

Cross references:

Transfer from a DB to an RRSP, RRIF or MP – 147.3(4)
Termination Conditions – RPP – 8304.1(14)
Benefits Provided With Surplus on Plan Wind-up – Minister’s Approval – 8517(3.1)