Language selection

Government of Canada / Gouvernement du Canada

Search

Sign in

Sign in

Chapter 10 - 8503(3) – Conditions Applicable to Benefits

On this page...

10 8503(3) – Conditions applicable to benefits

For the purposes of subsection 8501(2) and subparagraph 8502(c)(i) of the Regulations, these conditions apply to the benefits provided under each DB provision of an RPP.

10.1 8503(3)(a) – Eligible service

Other than additional LRBs provided to a member because the member is totally and permanently disabled at the time the member’s retirement benefits start to be paid, the only LRBs provided under a DB provision to a member, other than the portion of a period that is after the calendar year in which the member turns 71, are for one or more of the following periods:

Plan text

Often the nature of an industry will drive the way in which full-time service is accrued under the terms of a pension plan. For example, if an industry sector, such as a trade, has a four-day work week, this could be considered a full-time accrual of pensionable service. Conversely, if an industry sector has a 5-day work week, and an individual works 4 days a week, 80% of a full year would be accrued over a calendar year.

Where pensionable service is based on hours worked with an employer, and a set number of hours are used to determine whether a year of pensionable service has been accrued, this full-time number of hours must be reasonable given the circumstances. We would not accept one day a week or one day a month as being a full-time accrual of pensionable service. The plan provisions should not allow the accrual of more than one year of service in a calendar year.

For all DB plans, the terms must specify that service is service in Canada or we will assume that foreign service may be included. If foreign service is being recognized, the plan terms must specify that the service is acceptable to the Minister. This applies only to plans submitted for registration after October 29, 1993.

SMEPs

There are exceptions for SMEPS:

One case is where "hour banks" are maintained for crediting service in a year where a member worked fewer hours than the regular work year.

A second case is where members are permitted to purchase additional hours up to a specified number during a year in which they do not work on a full-time basis. Since such periods purchased would not be periods of employment, they typically would be ineligible service under paragraph 8503(3)(a) of the Regulations.

However, subsection 8510(8) of the Regulations provides an exemption from the eligible service rule, thereby allowing the member to contribute to the SMEP in order to purchase the service.

We will not impose a limit on the length of time which may be credited as long as:

Cross references:

Benefit Entitlement – 8302(1)
Benefit Accrual for Year – 8302(2)
Predecessor Employer – 8500(1)
Early Retirement – 8503(3)(c)
Lifetime Retirement Benefits – 8504(1)
Purchase of Additional Benefits (SMEPS) – 8510(8)
Newsletter No. 93-3, Service in Canada

10.1.1 8503(3)(a)(i) – Participating employer

Members may accrue service under a DB provision of an RPP with a participating employer. Service with employers associated, or affiliated, with a participating employer is not acceptable, unless these employers are in fact participating employers within the DB provision and the member is employed by the particular employer(s).

When an employer terminates an employee's employment, there may be employment legislation in place requiring that the employee be given advance notice of the termination (notice period). The notice period is considered eligible service. Moreover, if instead of advance notice of termination the employee receives termination pay equal to the wages that the employee would have received during the notice period, the foregone notice period can similarly be considered eligible service. The plan text does not need to specifically include such a period as eligible service, but it could specifically disqualify the notice period as eligible.

Cross references:

Participating Employer – 147.1(1)
Apportion of Assets and Liabilities Amongst Participating Employers – 147.2(2)(a)(vi)

10.1.2 8503(3)(a)(ii) – Predecessor employer

Periods of employment in Canada with a predecessor employer to an employer who participates in the plan, may be recognized as eligible service.

Cross reference:

Predecessor Employer – 8500(1)

10.1.3 8503(3)(a)(iii) – Periods of temporary absence

An eligible period of temporary absence of the member with respect to the participating employer or a predecessor employer to such an employer can also be recognized as pensionable service.

In order to recognize an eligible period of temporary absence, the terms of the plan would have to specifically recognize the leave as pensionable service, and at the same time, apply the prescribed compensation limits set out in section 8507 of the Regulations.

Connected persons

The definition of eligible period of temporary absence excludes connected persons from accruing pensionable service for such periods. Consequently, when connected persons are participating in the plan, the plan terms must be clear that such persons cannot accrue service for such periods.

MEPs

The restrictions on connected persons do not apply if the plan is a MEP, including SMEPs.

Cross references:

Eligible Period of Temporary Absence – 8500(1)
Multi-Employer Plan – 8500(1)
Connected Person – 8500(3)
Prescribed Compensation – 8507
Special Rules for Connected Persons in MEPs – 8510(5)(a)
IC98-2, Prescribed Compensation for Registered Pension Plans

10.1.4 8503(3)(a)(iv) – Disability

Where a plan allows accruals during periods of disability, the disability must be defined according to the definition of disabled in subsection 8500(1) of the Regulations. We accept references to coverage under long-term disability plans to satisfy this definition. Subparagraph 8503(3)(a)(iv) does not permit connected persons, as defined in subsection 8500(3), to accrue pensionable service for a period of disability.

It is acceptable for plans to state that members who have terminated employment with the employer continue to accrue pensionable service as long as they are disabled. It is also permissible for a recuperating member who returns after a period of disability to work part-time to accrue benefits on the same basis that applied while the member was away on disability, as long as the member is unable to perform the work for which the member was hired before the beginning of the impairment, or the member can only perform such duties to a lesser degree, and as long as the administrator has received medical certification of this fact.

Cross references:

Disabled – 8500(1)
Connected Person – 8500(3)
Undue Deferral of Payment – 8503(4)(f)

10.1.5 8503(3)(a)(v), (v.1) & (vi) – Former employer

Subparagraph 8503(3)(a)(v) of the Regulations allows for a period of service with a former employer to be recognized in an RPP where benefits accrued under a DB provision or contributions were made to an MP provision for that period of service in a former employer’s RPP, as long as the member has ceased to be a member of the former employer’s RPP.

In certain cases, when an individual terminates from a former employer’s plan, the member may receive a partial amount due to the funded status of the plan. Consequently, an amount may be held-back within the former plan, to comply with either federal or provincial pension benefits standards legislation, for future payment to the individual. For this reason, at the time of the initial payment, the individual is still a member of the former plan, and would thus be prevented from transferring the defined benefits received from the former employer’s RPP to the current employer’s DB RPP.

When a partial amount is received by a departing plan member and an amount is held back within that former plan, due to a requirement under either federal or provincial solvency transfer rules, subparagraph 8503(3)(a)(v.1) allows the importing plan to receive the partial transfer from the member’s former plan, and recognize prorated past service. This will allow the current employer to receive the partial transfer from the former employer’s RPP. Please note the following:

Subparagraph 8503(3)(a)(vi) of the Regulations allows, as eligible service, a period of service with a former employer where the period was an eligibility period for the member to participate in another RPP.

Individual pension plan (IPP)

Effective March 19, 2019, the eligible service provisions in subparagraphs 8503(3)(a)(v), (v.1) and (vi) were amended to restrict certain service from being recognized under a DB provision of an IPP.

The restrictions are as follows:

Cross references:

Member – 147.1(1)
Transfers between DB provisions – 147.3(3)
Individual Pension Plan – 8300(1)
Past Service Pension Adjustment – 8303
Pension Adjustment Reversal – 8304.1
Pensionable Service – 8500(1)
Designated Laws – 8513

10.1.6 8503(3)(a)(vii) – Acceptable to the Minister

The periods acceptable to the Minister are outlined in Newsletters No. 93-2, Foreign Service Newsletter and No. 00-1, Foreign Service Newsletter Update. Generally, the following periods of service outside Canada will be acceptable in a plan submitted for registration after the date of the Newsletter; that is after October 29, 1993:

In addition to the foreign service provisions set out in Newsletter No. 93-2, the CRA will give favourable consideration for the transfer of funds from a foreign pension plan to an RPP under subparagraph 8502(b)(v) of the Regulations, in order to allow the foreign service to be recognized under subparagraph 8503(3)(a)(v), when the following conditions are satisfied:

  1. The foreign pension plan is situated in a country that imposes an income tax and the plan qualifies for an exemption from tax, a reduced rate of tax or other favourable tax treatment that is provided under the laws of that country for pension plans.
  2. The period of foreign service was pensionable service for the member under the foreign pension plan.
  3. The funds must go directly from the foreign plan to the particular RPP for the transfer to be acceptable.
  4. The amount of the transfer must not exceed the lesser of :
    1. the amount reasonably necessary to fund the benefits provided in respect of the period of foreign service; and
    2. the amount of the transfer that is deductible by the member under subparagraph 60(j)(i) of the Act.
  5. The member was previously not a member of the RPP (or any other RPP in which the employer participated for the benefit of the member) before becoming resident of Canada.
  6. There is no reason to expect that the benefits provided under the RPP in respect of the period of foreign service will be increased following the transfer, other than increases that give rise to a nil PSPA (such as increases resulting from updating the pensionable earnings base) and broad-based benefit improvements that give rise to a non-zero PSPA that is exempt from certification.
  7. The RPP is not a designated plan or an IPP and the member is not connected with an employer who participates in the plan or was connected at any time before the benefits become provided.
  8. If the period of foreign service that is being recognized under the RPP is for periods after 1989, a PSPA would arise. However, an exemption from the requirement to report a PSPA is available under subsection 8303(10) of the Regulations, provided that we receive confirmation that, for the period in question, the member’s remuneration was not included in earned income for RRSP purposes as defined in subsection 146(1) of the Act.

For existing DB provisions

We will accept unlimited periods of foreign service under an existing DB provision. The following conditions apply:

Administrative positions would be positions that have been formally and widely circulated, by the way of Information Circulars, Newsletters, 1980 shareholder plan rules, etc. If they do not meet the last condition, but meet the others, we will consider the requests to include the service on a case-by-case basis. You do not need to contact the RPD if the service meets any of the other criteria set out in the Newsletters. Plan terms that are vague, for example, "we will include any foreign service that is acceptable to the Minister", would not be acceptable.

This policy applies to all new and grandfathered plans that were submitted for registration before October 29, 1993. It also applies to spin-off plans, submitted before October 29, 1993, if the service provisions of the spin-off plan are the same as the original plan. If there has been some change in the spin-off plan and that change could have been made in the original plan without affecting its status under Section 3 of Part III of Newsletter No. 93-2, then we would consider the spin-off as an existing DB provision.

If the service provisions of an existing DB provision are subsequently amended, it will still maintain its status under Section 3 if the scope of the terms relating to foreign service is not being broadened.

Reciprocal agreements

We will accept unlimited periods of foreign service under a reciprocal agreement between an RPP and an unregistered plan. The following conditions apply:

Therefore, any agreements entered into before October 29, 1993 will continue to be accepted. For any new agreements, the service must meet the requirements as though no agreement exists.

Cross references:

IC72-13R8, Employees’ Pension Plans
IC98-2, Prescribed Compensation for Registered Pension Plans
Newsletter No. 93-2, Foreign Service Newsletter
Newsletter No. 00-1, Foreign Service Newsletter Update

10.2 8503(3)(b) – Benefit accruals after pension commencement

Paragraph 8503(3)(b) of the Regulations generally (exceptions to follow) prevents a member from accruing further service under a DB provision for periods after he or she has commenced receipt of retirement benefits from i) the plan or ii) any other DB RPP in which the employer or related employer participated in for the benefit of the member.

Note that this restriction only applies to DB provisions, and so an individual could be receiving retirement benefits from an employer’s DB provision, and contribute to an MP provision for subsequent periods (assuming the member continues to be employed by the employer and the MP contributions are within the PA limits set out in either subsection 147.1(8) or (9) of the Act).

Unless one of the exceptions noted above applies, plan terms may not provide that accruals will continue while a member is in receipt of DB pension benefits. Where plans provide that a member may continue in employment after pension benefits commence, they must stipulate either that:

MEPs

Where the plan is a MEP (including SMEPs), it is not necessary to take into consideration benefits payable under other plans. This means that an employee could continue to accrue benefits under a MEP even if in receipt of a DB pension from another plan of a participating employer or related employer.

Grandfathered plans

We will not revoke a grandfathered plan for the sole reason that it allowed members to accrue benefits while receiving a pension before 1992. After 1991, however, any members who are in that situation must either cease accruing benefits or cease receiving the pension.

Phased retirement

The phased retirement rules are intended to allow a DB RPP flexibility by providing qualified employees the ability to receive up to 60% of their accrued pension while at the same time accruing further defined benefits. The plan terms would have to provide for this. Further commentary on the phased retirement provisions are found in subsections 8503(16) to (23) of the RPP Technical Manual.

Statutory plans

Paragraph 8503(3)(b) of the Regulations does not apply to the Public Service Superannuation Act, where a member of that plan is receiving retirement benefits under either the Canadian Forces Superannuation Act or the Royal Canadian Mounted Police Superannuation Act.

Cross references:

Multi-Employer Plan – 8500(1)
Suspension or Cessation of Pension – 8503(8)
Re-Employed Member – 8503(9)
Statutory Plans – Special Rules – 8503(13)
Phased Retirement – 8503(16) – (23)

10.3 8503(3)(c) – Early retirement

Early retirement eligibility service

This paragraph provides that LRBs under a DB provision can be paid without a reduction on account of early retirement if the LRBs commence on or after specified periods set out in this paragraph.

For most occupations, no reductions are required if the LRB commences at the earliest of i) the date the member turns 60, ii) the day the member has 30 years of early retirement eligibility service, or iii) the sum of the member’s age plus years of early retirement eligibility service equals 80.

In the case of members in a public safety occupation, no reductions are required if the LRB commences at the earliest of i) the date the member turns 55, ii) the day the member has 25 years of early retirement eligibility service, or iii) the sum of the member’s age plus years of early retirement eligibility service equals 75.

In either case, where a DB pension commences prior to the earliest of the dates set above, the member’s LRB must be reduced by at least 0.25% for each month (3% per year) that the commencement date precedes the earliest date in which an unreduced pension could have been paid had the member continued employment with the employer. The preceding reduction does not apply if the member (excluding connected persons) becomes totally and permanently disabled. Therefore, an RPP can provide a member with an unreduced pension regardless of the member’s age or service at the time of pension commencement, on account of total and permanent disability.

The early retirement eligibility service, and the years of early retirement eligibility service, includes pensionable service, and may include periods of employment with the employer or predecessor employer even if a particular period of employment is not included as pensionable service within the terms of an RPP.

Generally, periods of lay-off are not considered periods of employment and therefore would not be included in the determination of early retirement eligibility service. However, if the plan includes periods of lay-off in pensionable service, then the plan would have to prescribe compensation, subject to the limits of section 8507 of the Regulations, so that the service can be included for benefit determination as well as for the purpose of early retirement eligibility service. Also, a year of part-time employment counts as a full year.

Growing-in rule

Using combined years of age and service to determine the date where LRBs do not have to be reduced (75 in a public safety occupation, and 80 otherwise), each month between the day payment of LRBs start and the day an unreduced pension could have been paid if the member had continued in employment counts as 2 months. The effect, referred to as the growing-in rule, is that component Y of the reduction formula is reduced by half when compared to a determination based only on age or service.

Example 1

John starts to receive LRBs at age 56, having been employed by his employer for 21 years. His combined age and service equals 77; 3 years or 36 months short of being entitled to an unreduced pension, if not for the application of the growing-in rule.

As each month between the date payment of LRBs starts and the date an unreduced pension could have been paid counts as 2 months, component Y equals 18 months (36/2). In other words, if John had continued in employment for 18 months, he would be 57½ years old and would have been employed for 22½ years, for a combined total of 80.

The growing in period applies to the period between a member's date of retirement or termination of employment and the member’s pension commencement date. In other words, the Y factor continues to accrue during the deferral period as if the member continued in employment with an employer who participates in the plan.

Example 2

Ellen retires or terminates employment at age 46 with 12 years of service. She elects to defer receipt of her pension until age 57. Combined age and Y factor equals 80 (57+12+11). There is no reduction required.

No provision of the plan should contravene the requirements of paragraph 8503(3)(c) of the Regulations. As a general rule, the early retirement reduction formula applies to the lesser of:

However, the way the early retirement formula and the maximum LRB limit are applied depends entirely on the terms of the plan. It is possible to structure the limits in ways other than described above and still comply with the requirements of the legislation.

Example 3

A plan provides benefits based on the formula 1.5% x final average earnings (FAE) x years of service, reduced by 6% per year for each year that retirement occurs prior to age 62. In the same or a separate section, the terms state that in no event will LRBs payable exceed the maximum permitted under section 8504 of the Regulations, and in cases of early retirement, LRBs will be reduced according to paragraph 8503(3)(c). In this case, the amount of LRBs that may be paid from the plan is the lesser of:

A plan does not have to state a normal retirement age, but it does have to state the earliest date at which an unreduced pension is payable. The plan may specify the reduction formula, in which case it can’t be less than that required by paragraph 8503(3)(c) of the Regulations. Or, the plan may specify the minimum reduction that applies by referring to the specific Regulations. It could also provide for early retirement benefits that are actuarially equivalent to benefits paid on normal retirement, provided that it also states that the reduction will be no less than that required by paragraph 8503(3)(c).

It is acceptable for a plan to be more restrictive. For example, a plan may apply an annual 3% reduction for members who start to receive LRBs between the ages of 58 and 62 and a 1.5% reduction for members who start to receive LRBs between the ages of 62 and 65. In this case, the legislative requirement of a 0.25% reduction for each month between the date LRBs start to be paid and the member attains age 60 is satisfied.

A reduction factor lower than 0.25% per month is not acceptable when a plan permits payment of LRBs to start prior to the earliest day required by paragraph 8503(3)(c) of the Regulations. However, a lower factor (or no factor at all) is acceptable when a plan permits payment of LRBs to start on or later than the earliest day required by paragraph 8503(3)(c). For example, the plan may provide an unreduced pension when retirement occurs at age 65 and a reduced pension benefit if a member retires between the ages of 60 and 65. In this case the reduction factor can be lower than 0.25% per month.

If unreduced LRBs are provided on retirement due to total and permanent disability, the plan's description of totally and permanently disabled must satisfy the definition under subsection 8500(1) of the Regulations. Reference to a member qualifying for CPP or QPP disability benefits satisfies the definition.

Example 4

A connected member retires on December 31, 2001 at age 55 with "X" years of post-reform service and because of the member's high earnings, before applying the indexed compensation limit, as per paragraph 8504(1)(a) of the Regulations, the plan’s LRB formula results in a benefit that would exceed $1,722.22 (the DB limit in 2001). We assume that the early retirement reduction provision in the plan mirrors paragraph 8503(3)(c).

We will look at only one year's worth of service. It's assumed that, before limiting the benefit to $1,722.22, the member's pension formula multiplied by his or her earnings provides a "potential" benefit of $2,300 for the 2001 year of service. An actuary then takes the $2,300 amount and applies the applicable 15% early retirement reduction (that is 5 years x 0.25% per month), before comparing the amount to the DB limit. Therefore, after the reduction, the actuary compares $1,955 ($2,300 x (1-0.15)) to $1,722.22 and thinks that the limits of the Regulations have been applied and the member's pension is limited to $1,722.22 for this year of service.

When the benefit calculation is done in this way, the effect of the early retirement reduction is canceled because this particular member would end up receiving the same pension as another plan member who is not subject to the minimum reduction factors of paragraph 8503(3)(c) of the Regulations.

Because of the wording of paragraph 8503(3)(c) of the Regulations, the pension calculation must be restricted to the limits of section 8504 before calculating the applicable early retirement reduction. The reduction must be applied to the benefit that the member would otherwise have been entitled to. In this example, it would be $1722.22 and not $2,300. Consequently, the member's reduced pension should end up being $1,463.89 instead of the full $1722.22 (that is, $1,722.22 x (1 - 0.15)).

Connected persons

LRBs for a connected person have to be reduced when retirement occurs due to a total and permanent disability, unless the plan is a MEP or a SMEP.

Grandfathered plans

If a grandfathered plan provided more generous early retirement benefits than permitted by paragraph 8503(3)(c) of the Regulations, the plan has to comply with the legislation, but only for benefits for post-1991 service. For retirements occurring on or after January 1, 1992, early retirement benefits for pre-1992 service can continue to be provided on the more generous basis, but the plan can’t then also apply the growing-in rule. As a means of ensuring entitlement to the more generous pre-1992 benefits, the plan can have paragraph 8503(3)(c) apply for all years of service, but also have a notwithstanding clause guaranteeing that the early retirement reduction will not result in benefits for pre-1992 service being less than what the member was entitled to under the previous plan provisions.

If a grandfathered plan provided less generous early retirement benefits than permitted by paragraph 8503(3)(c) of the Regulations, for retirements occurring on or after January 1, 1992, the plan can provide benefits based on paragraph 8503(3)(c) for pre-1992 and/or post-1991 service. Generally, if the plan continues to apply the more restrictive benefits, it can apply the growing-in rule even where benefits for pre-1992 service are provided on the basis of an actuarial equivalent value of an unreduced pension. This is because usually such reduced benefits are as restrictive as the legislative requirements. However, the growing rule can’t be applied when the plan also continues to apply the test in paragraph 21 of IC72-13R8 to the benefits for pre-1992 service. This is because the test can result in a benefit higher than a member would receive if it didn't apply.

Cross references:

Eligible Period of Temporary Absence – 8500(1)
Reduced Pay – 8500(1)
Pensionable Service – 8500(1)
Public Safety Occupation – 8500(1)
Totally and Permanently Disabled – 8500(1)
Connected Persons – 8500(3)
Additional Conditions – 8503(4)(e)
Statutory Plans– Special Rules – 8503(13)
Maximum Benefits –8504
Excluded Benefits – 8504(10)
Excluded Benefits – Total and Permanent Disability – 8504(11)
Prescribed Compensation – 8507
Conditions Applicable After 1991 to Benefits Under Grandfathered Plans – 8509(2)(b)
Benefits Under Plan Other Than Grandfathered Plan – 8509(9)
Appendix A – Eligible Service

10.4 8503(3)(d) Increased benefits for disabled member

Paragraph 8503(3)(d) of the Regulations also permits additional LRBs in the event of a total and permanent disability pension by calculating the LRB as if the individual continued in employment (i.e deeming years of service) to age 65, using the member's compensation at the time of disability. The amount of the LRB determined, by deeming the additional years of service, is limited to the greater of i) the YMPE for the year in which the LRB commences, and ii) the LRBs accrued to the member at benefit commencement as if the member was not disabled and with no early retirement reductions.

Subsequent years’ LRBs can be increased to reflect increases in the CPI.

Plan text

If the plan provides for a disability pension, it must be clear from its terms that, for a member who becomes totally and permanently disabled after 1991, the LRB provided will not exceed the above limit. Otherwise, the plan has to be amended. It must also be clear from the plan terms that a member entitled to receive this additional LRB meets the definition of totally and permanently disabled in subsection 8500(1) of the Regulations, or by being eligible for disability benefits under the CPP or QPP.

Connected persons

Connected persons are not entitled to the deeming of years of service under paragraph 8503(3)(d) of the Regulations, nor are they entitled to an unreduced pension for early retirement resulting from a total and permanent disability. They are entitled only to a pension which is reduced in accordance with paragraph 8503(3)(c) if it commences at an earlier date than what is permitted within that paragraph.

MEPs

The restrictions on connected persons do not apply to MEPs, including SMEPs.

Grandfathered plans

For members who become physically or mentally impaired after 1991, the condition within paragraph 8503(3)(d) of the Regulations must apply. However, due to subsection 8509(4.1), additional LRBs that are not in accordance with paragraph 8503(3)(d) can continue to be provided, as long as they are payable to a member who was totally and permanently disabled prior to 1992.

Example

Paragraph 8503(3)(d) of the Regulations does not apply to:

The CRA would not accept a future amendment that would increase or improve such “offside” benefits provided to members who were totally and permanently disabled prior to 1992.

Cross references:

Totally and Permanently Disabled – 8500(1)
Multi-Employer Plan – 8500(1)
Early Retirement – 8503(3)(c)
Undue Deferral of Payment – 8503(4)(d)
Evidence of Disability – 8503(4)(e) & (f)
Limits Dependent on CPI – 8503(12)
Excluded Benefits – 8504(10)
Excluded Benefits – 8504(11)
Benefits Under Grandfathered Plan – Pre-1992 Disability – 8509(4.1)
Condition Not Applicable to Grandfathered Plans – 8509(5)(a)
Special Rules – MEP – 8510(5)

10.5 8503(3)(e) – Pre-1991 benefits

Paragraph 8503(3)(e) of the Regulations allows the CRA to continue to apply a number of restrictions in IC72-13R8, to pre-1991 benefits, that have not been included in the Regulations or that differ from the restrictions in the Regulations. The CRA has published a number of Newsletters to provide clarification with respect to the pre-reform rules. The following Newsletters have been published:

The grandfathering rules contained in section 8509 of the Regulations may allow benefits for certain periods to continue to be paid if they were permitted under the terms of an existing plan before 1991.

The RPD is to be notified when benefits for periods before 1991 become provided to members who are now or have been connected with a participating employer. When such notice is received, it must show that:

One of the exceptions, in the Newsletter No. 99-1, Proportionality Condition for Pre-1990 Pension Benefits, states that the ability to acquire the past service benefits must be available to the general membership of the plan. For this condition, our application of general membership includes all members of the plan (a minimum of 90% is acceptable). This includes all active members and those who are entitled to a deferred pension.

It should be noted that according to paragraph 19(b) of IC72-13R8, the nominal condition does not include AVCs.

A plan that provides benefits solely to an individual who has terminated can be registered if the following tests are met:

However, pre-91 benefits have to be acceptable to the Minister.

MEPs

The connected person’s restrictions do not apply where the plan is a MEP (including SMEPs).

Grandfathered plans

In general, we will continue to administer the requirements of IC72-13R8, Employees’ Pension Plans, for eligible service before 1992.

Regardless of when the benefits for pre-1992 service become available, they do not necessarily have to comply with the eligible service rules in paragraph 8503(3)(a) of the Regulations.

We will continue to apply the more restrictive provisions of IC72-13R8 for eligible pre-reform service in both new and grandfathered plans since there is no control mechanism (that is PA/PSPA) in the Regulations to make sure that the eligibility of pre-reform service is appropriate. Reciprocal agreements will continue to be required for pre-reform service. The agreements must be submitted to the CRA. They must be:

Note

A reciprocal agreement is used for the transfer of pensionable service credits between plans. The reciprocal agreement can’t provide for unacceptable benefits to be moved between plans. Reciprocal agreements are not acceptable for pre-1968 plans, 1980 shareholder plans or IPPs.

The transfer of funds will continue to be required under portability arrangements for pre-reform benefits.

Plan texts should specify what pre-reform service they provide. Pre-reform service credited after 1991 under a grandfathered plan must comply with IC72-13R8, or if more restrictive, the terms of the plan. Pre-reform service under a new plan must comply with IC72-13R8.

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 can’t exceed the length of time specified in IC72-13R8.

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 can’t credit the time worked as a period of leave of absence.

Here are examples of scenarios for purchasing pre-reform service credited after 1991:

Example 1

A member terminates his employment with Company A to work for Company B. He transfers his entitlement through a portability arrangement from the Company A pension plan directly to Company B to purchase pre-reform service under the Company B plan. This service may be recognized under Company B’s plan since the funds associated with that service are transferred to the current plan under a portability arrangement.

A portability arrangement exists when the funds associated with the accrued entitlement under the prior plan (Company A) are transferred directly to the current plan (Company B) and such periods of eligible service under the prior plan are also pensionable service under the current plan.

Example 2

If the same member as in Example 1 transferred his benefit entitlement to an RRSP on termination from Company A before becoming employed with Company B, he would be unable to purchase pre-reform service. This service would not fall under a portability arrangement as the funds associated with the service did not transfer directly from the prior plan to the current plan.

Example 3

A member terminates employment with Company B and receives a return of employee and employer contributions plus related interest and transfers his entitlement to an RRSP. He subsequently becomes re-employed with Company B and would like to re-purchase his pre-reform service. He may do so if the funds associated with that service are transferred from a registered vehicle (RPP, DPSP, or RRSP) to the Company B plan to buy back the pre-reform service. This is considered eligible service with an employer who participated in the plan under paragraph 8(e)(i) of IC72-13R8.

Example 4

A member terminates employment with Company B and receives a refund of employee and employer contributions and related interest and transfers his entitlement to an RRSP. He subsequently becomes re-employed with Company B and would like to re-purchase his pre-reform service; however, he has cashed out all of his RRSPs and does not have any funds in any other registered vehicle to transfer to the Company B plan to fund the pre-reform service. This service is considered service with an employer who participates in the plan; however, he can’t presently buy back the service as he does not have funds in any other registered vehicle to transfer to the Company B plan to fund the service. He could contribute to his RRSP on a current service basis and transfer his RRSP funds to the Company B plan once there is adequate money to fund the pre-reform service.

Example 5

A member terminates employment with Company B and receives a return of employee contributions and related earnings. He has the choice of transferring the money to an RRSP or receiving a lump sum. Upon becoming re-employed with Company B, he may buy back the pre-reform service. The amount necessary to fund the pre-reform benefit does not have to be transferred from another registered vehicle to fund the pre-reform service. This is because the original contribution made to the plan by the member for the prior years would have decreased the amount that would have been contributed to an RRSP in each of these years. Therefore, the re-purchase of this past service with new money would not be considered double-dipping.

Note

Appendix A distinguishes between vested and non-vested members to determine whether the funds must be transferred from a registered vehicle when a re-employed member is purchasing past service; however, this requirement depends on the termination benefit the member received as described above in examples 3, 4 and 5 rather than his vested or non-vested status. For purposes of Appendix A, we will consider an individual to be vested if his benefits on termination included any employer money.

Cross references:

Appendix A – Eligible Service
IC72-13R8, Employees’ Pension Plans

10.6 8503(3)(f) – Determination of retirement benefits

Paragraph 8503(3)(f) of the Regulations requires that the amount of retirement benefits under a DB provision of an RPP be defined in such a way that the member’s pension credits for each year under the provision relating to each employer is determinable at the end of the year.

Plan provisions that leave the accrual of a pension benefit in the year open to some discretionary factor, for example whether or not the employee was in "good standing", are not acceptable. On the other hand, factors such as a specific number of hours worked by employees before they would qualify for a year of service would be acceptable.

A plan that promises benefits based on the greater of a DB and an MP provision is not acceptable. This is because “the greater of” benefits will only be known when they become payable. Pension credits, determined annually, are therefore indeterminable.

A benefit formula that is upgraded within the maximum pension limits can be capped at a specified value as long as the PA and PSPA are determinable. This is common when plans are amended to provide an early retirement program, whether or not it is a program needing approval as a downsizing program under section 8505 of the Regulations. Those who choose to retire within a specified time period under the program are offered increased benefits. The regular benefit formula under the plan is generally increased for those choosing to retire, for example, from 1.5% to 2%, but with a condition that the increase will not be more than a specified value, such as the equivalent of a year's salary or the increase that would have been provided by an additional 5 years of service under the regular formula. To minimize the amount, or possibility of, a PSPA, these upgrades are usually worded so that the upgrade applies first to pre-90 years and then to post-89 years as needed to reach the value cap.

SMEPs

This condition does not apply to SMEPs.

Grandfathered plans

Grandfathered plans are not subject to this restriction until 1992.

Where we have registered a pension plan after March 27, 1988 that provides benefits that do not comply with this condition, any retirement benefits which have commenced to be paid before 1992 are not affected. However, the benefits must be acceptable to the Minister.

10.7 8503(3)(g) – Benefit accrual rate

In no event will we accept a benefit accrual rate, payable under the normal form that is greater than 2% per year. Certain plans may be grandfathered until the end of 1994.

An exception to the preceding 2% accrual rate, however, is available for individuals working in a public safety occupation. These individuals can have a 2.33% accrual rate when their LRB is integrated with the CPP or QPP.

Other than for individuals in a public safety occupation, we will not accept a formula of 1% up to YMPE and 2.2% above YMPE. The fact that a plan is limited by the maximum pension clause will not make a benefit accrual rate in excess of 2% acceptable.

We will also not accept amendments to plans that provide for a flat percentage increase to the benefit accrual rate, unless the submitter can clearly show that the accrual rate is not more than 2%. For example, an amendment that provides for a 10% increase in all accrued benefits in a 1.5% CAE plan would be unacceptable as a form of pre-retirement indexing. Amendments that provide for the accrual rate to increase from 1.5% CAE to 1.65% of CAE would be acceptable, as it is clear that the accrual rate is less than 2%. However, if a 1.5% plan had repeatedly provided for a 10% ad hoc increase in the accrual rate, the benefit accrual rate would eventually be more than 2%.

Most plans allow members to receive their benefits in a form that is different (optional) from the normal form. The present value of benefits payable under an optional form must be equal to or less than the present value of benefits payable under the normal form. Theoretically, a member who elects the payment of his or her benefits under an optional form could receive benefits equivalent to a yearly accrual rate that is more than 2%. However, the payment of benefits under optional forms which could result in a yearly benefit accrual rate that is more than 2% is not offensive.

Where a plan allows a member to receive his or her benefits under an optional form, the LRBs payable under the DB provision, regardless of the form, must be subject to the maximum imposed under section 8504 of the Regulations.

Grandfathered plans

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

Benefits under subsection 8509(9) of the Regulations paid before 1992 under plans that were registered after March 27, 1988 but before July 31, 1991, are grandfathered. As such benefits must be acceptable to the Minister; it is unlikely that any plans will be affected by the grandfathering provision.

Cross reference:

Public Safety Occupation – 8500(1)

10.8 8503(3)(h) – Increase in accrued benefits

Final and best average earnings plans are restricted by paragraph 8503(3)(h) of the Regulations by virtue of the words "the member's remuneration in subsequent years". This paragraph requires that the percentage increase of LRBs must not be more than the percentage increase of remuneration. This should also be read with paragraph 8502(l), appropriate PA. This would prevent a plan from providing integrated formulas where the integration is not based on the YMPE. A plan could not provide 1% up to $50,000 and 2% above $50,000, without contravening this paragraph.

SMEPs

This condition does not apply to SMEPs.

Grandfathered plans

Few grandfathered plans will contravene paragraph 8503(3)(h) of the Regulations, as it exists primarily as a PA anti-avoidance rule. Those that contravene it must be amended as of January 1, 1992, but the amendment is not required to be retroactive.

Cross references:

Appropriate Pension Adjustments – 8502(l)
Increase in Accrued Benefits – Part-Timers – 8503(3)(i)
Artificially Reduced Pension Adjustment – 8503(14)
Benefit Accrual Rate Greater Than 2 Per Cent – 8509(8)
Conditions Applicable to Amendments – 8511(1)(a)

10.9 8503(3)(i) – Increase in accrued benefits

Paragraph 8503(3)(i) of the Regulations generally applies only where benefits are provided to part-time workers. If part-time employees participate in the plan, it must be clear in the plan terms that their earnings will be annualized and their service actualized when calculating their pension, unless it is a true career average plan.

Paragraph 8503(3)(i) of the Regulations requires that the increase of LRBs to a part-time worker be attributable to the increase in the rate of remuneration and not due to an increase in remuneration because of an increase in the number of hours worked.

SMEPs

This rule does not apply to SMEPs.

Grandfathered plans

This rule applies only to benefits accrued after 1991 if the plan is a grandfathered plan.

Where we have registered a pension plan after March 27, 1988, that provides benefits that do not comply with the condition, any retirement benefits which have started to be paid before 1992 are not affected by this rule. However, the benefits must be acceptable to the Minister.

Cross references:

Increase in Accrued Benefits – 8503(3)(h)
Artificially Reduced Pension Adjustment – 8503(14)
Part-Time Employees – 8504(4)
Conditions Applicable to Amendments – 8511(1)(a)

10.10 8503(3)(j) – Offset benefits

Paragraph 8503(3)(j) of the Regulations applies to a DB plan where the amount of a member’s LRBs under the provision are reduced by either i) the amount of LRBs provided to the member under another provision of a plan, or ii) the amount of a life annuity provided to the member under a DPSP, and the member receives a lump-sum amount in lieu of the benefits available under i) or ii).

If this occurs, this paragraph requires the offset be determined as if the lump sum had not been paid. In other words, the DB LRB has to be reduced by the offsetting benefits, even if those benefits have been commuted and paid out as a lump-sum amount.

The purpose of paragraph 8503(3)(j) of the Regulations is to ensure that the benefits provided under a DB provision of an RPP correspond with the pension credits determined for the provision. Where the benefit formula includes an offset, the offset is taken into account in calculating the pension credits.

SMEPs

SMEPs are not subject to this requirement.

Grandfathered plans

Members who receive their pensions 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.

Cross references:

Conditions Not Applicable to Grandfathered Plan – 8509(5)(a)
Special Rules – Specified Multi-Employer Plan – 8510(6)(c)

10.11 8503(3)(k) – Bridging benefits – cross-plan restriction

The general rule is that members may not accrue bridging benefits under two DB provisions at the same time, with two exceptions.

The first exception to the general rule is that the Minister may waive its application. Waivers will be given on a case-by-case basis, and normally only where the total bridging benefit payable to the member under the combined provisions won't exceed what could have been payable as one bridging benefit under one provision. This would occur, for example, where one bridging benefit is offset by the other, or where half of a bridging benefit is payable under each provision.

The second exception is where subparagraphs 8503(3)(k)(i), (ii), and (iii) of the Regulations are met.

Plan text

Where a plan has more than one DB provision that provides bridging benefits, it must be clear in the plan text that each member is entitled to a bridging benefit under only one provision unless a Ministerial waiver has been granted.

MEPs

Where the plan is a MEP, including SMEPs, bridging benefits payable under other plans may be disregarded for the purpose of this rule. The only part of the rule which applies to MEPs is the general rule that bridging benefits should be payable under only one provision of the particular plan. This would be subject to a Ministerial waiver as described above.

Grandfathered plans

If a member receives more than one bridging benefit from a participating employer or a related employer before 1992, they may continue to receive them. After 1991, plans can’t provide for this unless exempted.

Cross references:

Conditions Not Applicable to Grandfathered Plan – 8509(5)(a)
Special Rules – Multi-Employer Plan – 8510(5)(c)

10.12 8503(3)(l) – Division of benefits on breakdown of the marriage or common-law partnership

Any wording regarding marriage breakdown in the plan terms must conform with paragraph 8503(3)(l) and subsection 8501(5) of the Regulations.

Under paragraph 8501(5)(c) of the Regulations, the member's pension is paid to the spouse or common-law partner or former spouse or former common-law partner rather than to the member. In this case, the member's and spouse or common-law partner's pensions are treated as one pension for purposes of the Regulations and paragraph 8503(3)(l) has no application.

Paragraph 8503(3)(l) of the Regulations applies where the situation is as outlined in paragraph 8501(5)(d). In that situation, a provision of the PBSA or similar law of a province requires that a spouse or common-law partner be entitled to certain benefits, and that those benefits either (A) become payable to the spouse or common-law partner at the time other than when the member receives the pension or (B) gives the spouse or common-law partner additional rights to the benefits.

Grandfathered plans

Grandfathered plans that allowed the member’s benefits to increase to compensate for benefits assigned to a spouse on marriage breakdown may no longer do so after 1991. Such benefits which were already in pay before 1992 may continue to be paid.

Cross references:

Benefits Payable after the Breakdown of the Marriage or Common-Law Partnership – 8501(5)
Conditions Not Applicable to Grandfathered Plan – 8509(5)(a)

Page details

Date modified: