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RPP Consultation Session - Questions from the Industry
November 30, 2005
Questions and Answers - Archive
The following publications are archived and kept for historical purposes. Caution should be used when referring to these documents, as they may not reflect the law or policy currently in force. If you have any interpretative questions about the current law or policy, contact the Registered Plans Directorate by phone at (613) 954-0419. Also, see our list of current Questions from the Industry, RPP Consultation Session (November 30, 2005).
Under certain circumstances, it is not possible to commence pension payments at normal retirement age, for instance, when the administrator does not have a current mailing address for the member. In addition, due to the complexities involved with calculating pension benefits, mistakes can occur. In such cases, can an adjustment be made to pensions in pay without violating the equal and periodic requirement? Can lump-sum payments be made for missed payments? Can overpayments go back to the plan?
Answer 16:
Note: RPD has made some changes to the approval process of retroactive lump-sum catch-up payments. Our position on retroactive lump-sum catch-up payments can be found in Newsletter 09-1 and in the administrative relief FAQ.
For overpayments of benefits, there is no restriction in the Regulations that would prevent the plan administrator from recovering benefits from the pensioner if an overpayment has occurred. However, the contribution of the overpayment amount back into the plan would not be permitted, because it is not considered a permissible contribution under paragraph 8502(b) of the Regulations. The Income Tax Act does not require an administrator to recover an overpayment from a pensioner if they should choose not to do so. An administrator may request an advanced income tax ruling concerning any proposed payment into the plan to determine if it is a contribution, and to obtain certainty concerning tax consequences. If a favourable tax ruling is obtained, the administrator must submit to RPD or request the Income Tax Rulings Directorate of the Canada Revenue Agency to copy RPD on the ruling before making the payment.
It would not be acceptable to pay a reduced amount over a period of time in order to account for previous overpayments, because this action would further place the plan in a revocable position by continuing to provide a benefit to the pensioner that is not in accordance with the terms of the plan as registered.
Under certain circumstances, it is not possible to commence pension payments at normal retirement age, for instance, when the administrator does not have a current mailing address for the member. In addition, due to the complexities involved with calculating pension benefits, mistakes can occur. In such cases, can an adjustment be made to pensions in pay without violating the equal and periodic requirement? Can lump-sum payments be made for missed payments? Can overpayments go back to the plan?
Answer 16:
If pension benefits are being paid in an amount not provided for under the terms of the plan, the plan is in a revocable position. An adjustment to the pension in pay would further put the plan in a revocable position on the basis of the equal and periodic requirement. However, a request can be made to the Registered Plan Directorate (RPD) to make a one-time lump-sum payment and commence or correct the periodic pension. The registered status of the plan would not be affected upon approval of the lump-sum payment and late commencement or correction of the periodic pension.
To explain, when an administrator has made a legitimate error they may request RPD's permission to make a lump-sum retroactive payment from the plan. While a lump-sum payment of the missed pension payments would not be made in accordance with the plan as registered as it would violate paragraph 8503(2)(a) of the Income Tax Regulations (Regulations) and would not be a permissible distribution under paragraph 8502(d) of the Regulations, we may allow such payment, or, more correctly, we may choose not to revoke the plan's registration on account of such a payment, on a case-by-case basis as a form of administrative relief. A lump-sum payment of 1) missed pensions due to the absence of a mailing address (when the member terminated employment many years before the pension became due) or 2) as a result of underpaid pensions would in all likelihood meet RPD's requirement of a legitimate error on the part of the administrator and approval would be granted.
A lump-sum payment of missed payments that is made by December 31 of the year in which pension payments were due to commence would not need our approval.
There is no restriction in the Regulations that would prevent the plan administrator from recovering benefits from the pensioner if an overpayment has occurred. However, the contribution of the overpayment amount back into the plan would not be permitted, because it is not considered a permissible contribution under paragraph 8502(b) of the Regulations. The Income Tax Act does not require an administrator to recover an overpayment from a pensioner if they should choose not to do so. An administrator may request an advance income tax ruling concerning any proposed payment into the plan to determine if it is a contribution, and to obtain certainty concerning tax consequences. If a favourable tax ruling is obtained, the administrator must submit to RPD or request the Income Tax Rulings Directorate of the Canada Revenue Agency to copy RPD on the ruling before making the payment.
It would not be acceptable to pay a reduced payment over a period of time in order to account for previous overpayments, because this action would further place the plan in a revocable position by continuing to provide a benefit to the pensioner that is not in accordance with the terms of the plan as registered.