Summary of the 2009 RPP Practitioners' Forum

June 2, 2009

Fifty-two participants form the pension industry attended the 2009 Registered Pension Plan (RPP) Practitioners' Forum (the Forum), which took place at the RA Centre in Ottawa.

The day began with a meet and greet session, where industry participants and Registered Plans Directorate (RPD) employees had an opportunity to mingle and talk informally.

Opening Remarks / Introduction - Danielle Laflèche (Director General, Registered Plans Directorate)

Ms. Laflèche's presentation opened the Forum, covered organizational changes in the Directorate since the 2008 RPP Practitioners' Forum, implementation of revised RPD forms, Registered Plans - What's New (our electronic mailing list) and several other topics of interest.

Danielle Laflèche welcomed everyone to the Forum and introduced herself as the Director General of RPD. She discussed the importance of having the face-to-face interaction at the Forum with the industry participants.

Ms. Laflèche mentioned how we had previously sought input from the industry about how we could improve the value of the Forum. We incorporated the feedback received into the format of the day. This year's Forum will include presentations on topics that are of interest to the industry and will also include the usual Question and Answer session as well as an Open Forum.

Handouts

Each participant folder included English and French versions of the following documents:

• Agenda
• Slides of each presentation
• Organizational charts for the Directorate
• Technical questions and answers
• Feedback form

Organizational Changes since the Last Forum

Ms. Laflèche discussed the change of Director of Registration Division in the fall of 2008 from Roxanne Descôteaux to Mike Godwin. Changes in the management team in the Registration Division were mentioned, with a reference to the organizational charts.

In the Actuarial and Policy Division, Janice Laird returned to her role as Director, after a leave of nine months. Changes in the management team in the Actuarial and Policy Division were also mentioned, with a reference to the organizational charts.

John O'Meara retired as the Director of Compliance Division a couple of months ago. His replacement as Director of Compliance Division is Pamela Massad, who comes to RPD with a wealth of experience in both management and compliance.

Odette David has replaced Stéphane Laplante as the Manager of Directorate Services section.

These organizational changes are necessary to adapt to changing human resources needs, to adapt to changes in the financial and pension sectors and to adapt to new government initiatives. Since the last Forum, teams were created within RPD to implement the new Tax Free Savings Account (TFSA), which was initially made available to the public in January 2009 and the new Registered Disability Savings Plan (RDSP), which was initially made available to the public in late 2008. We also implemented changes to Registered Retirement Income Funds (RRIFs) announced by the Government in the fall of 2008.

We are currently focusing our efforts on areas where a higher risk of non-compliance exists and improving our processes for requests and files where a lower risk of non-compliance exists. We maintain flexibility in our structure and services, as it allows us to focus on areas of importance and to improve our services to our clients.

Implementation of Revised RPD Forms

We recently revised Form T510, Application to Register a Pension Plan and Form T920, Application to Amend a Registered Pension Plan. These forms were redesigned to streamline the plan registration and amendment processes by assessing the potential risk involved with each of these submissions at the outset. The new versions of these forms were posted on our website on May 6, 2009. As of September 1, 2009, applications that use a previous version of the form will not be accepted and will be returned to the submitter.

We are currently revising Form T1200, Actuarial Information Summary. Although the T1200 is not a prescribed form, we strongly encourage its use for faster processing of actuarial valuation report (AVR) submissions.

Registered Plans - What's New

Ms. Laflèche urged the Forum participants to subscribe to our electronic mailing list - Registered Plans - What's New. All documents that we prepare and/or revise, including questions and answers, bulletins and forms are posted on our website. The electronic mailing list allows us to share all new documents with our subscribers in a timely manner. It is also used to notify the industry about upcoming events, such as Practitioners' Forums.

Compliance Bulletin No. 6

Compliance Bulletin No. 6 was posted on our website on May 29, 2009. The bulletin focuses on several areas of non-compliance with the Income Tax Act (Act) and its Regulations, related to registered plans and outlines their potential tax impact. Further, the bulletin also discusses RPD's compliance requirements for the TFSA and the RDSP.

Status of Systems Development Project

A sophisticated information technology system for RPD is continuing to be developed. This new system will allow us to improve our processes and services by assisting with our risk-based approach for plan submissions. It will enable us to easily capture the necessary data to perform risk analysis. Some components of the new system have already been implemented. Other portions of the system will be implemented during fall and winter 2009-2010 and in 2011.

Sustainable Development Practices

Prior to next year's RPP Practitioners' Forum, we will be posting all of the material for the Forum on our website in advance, instead of providing all participants with bilingual paper copies of the documents at the Forum. This will allow you to print only the material you choose and to do so in the language(s) of your choice. Your support of our effort to increase our sustainable development practices within RPD is appreciated.

Did You Imagine a Career in "Pensions"? - Andrew Donelle (Senior Tax Policy Officer, Finance Canada)

Mr. Donelle's presentation discussed the different perspectives he had while working in the Registered Plans Directorate (1991 - 2000), working as a consultant in the pension industry (2000 - 2008) and while working for Finance Canada (2008 - present).

Mr. Donelle discussed many aspects of each position that he has held in the field of pensions. He compared and contrasted his roles and functions with each employer. He noted that each position has its fair share of common acronyms, numbers and formulae, although there are some that are unique to each position.

Administrative Relief, Retroactive Lump-Sum Payments - Ed Lemieux (Technical Policy Officer, Actuarial and Policy Division)

Mr. Lemieux's presentation focused on the recent streamlining of RPD's approval process for retroactive lump-sum payment requests.

Under the current process, plan administrators submit written requests in advance of a lump-sum benefit being paid from the plan. Under the new process, the payments can be made immediately. A list of these payments must be provided to RPD not less than once per calendar year.

This applies to benefits paid from defined benefit (DB) plans, not from annuities or other arrangements. The lump-sums represent missed payments that would have been paid at the eligible date of retirement, as the plan was registered at that time. These payments do not cover amounts for retroactive increases to benefits for retired members, such as a retroactive amendment to the benefit formula of the plan; these increased payments are permissible on a going-forward basis only.

An exemption to the new process is the case where the plan member in question is over the age of 69/71 (depending on the terms of the plan). Plans in this situation must ask for assurance that such a retroactive payment will not result in the revocation of the plan, since paragraph 8502(e) of the Regulations requires the explicit expression of these payments in the plan text. Update: The requirement to request separate approval for age 69 / age 71 has been removed. Please see Question 12 in the frequently asked questions.

If the plan administrator is uncomfortable with the new process, they can continue with the old process, and delay the retroactive payments until we have responded in writing.

Our Compliance Division will review that proper reporting of the lump-sum payments has occurred, using the information provided on the annual lists.

This change is effective immediately. The new process will remain in effect for the foreseeable future. Depending on the success of this process, we may consider further ways of streamlining our new process. Details of these changes have been published on our website.

Questions and discussions following Mr. Lemieux's presentation

Q: What would an acceptable annual list consist of?

A: An acceptable annual list would consist of retroactive lump-sum payments for a DB plan, as long as the payments were calculated as the plan was registered at that time. Retroactive increases to benefits for members who are already retired are unacceptable.

Q: What about the situation where a deferred vested member is not located until after the intended commencement date of his / her pension payments. Would this be an acceptable reason to pay a retroactive lump-sum payment?

A: Under the new process, this would not be rejected.

Q: Could you clarify the age 69 / age 71 stipulation contained in subsection 8502(e) of the Income Tax Regulations (ITR)?

A: Retroactive lump-sum payments that are bound by the age 69 / age 71 stipulation contained in subsection 8502(e) of the ITR cannot be made in advance and included on the annual list. Subsection 8502(e) of the ITR requires the plan terms to be explicit concerning age 69 / age 71. For these situations, please continue to submit written requests for approval. Update: The requirement to request separate approval for age 69 / age 71 has been removed. Please see Question 12 in the frequently asked questions.

Q: How far back can these retroactive lump-sum payments go? For example, is 18 months an acceptable timeframe?

A: There are currently no time limits in place. We are going to examine the timeframes we receive in the new requests.

Q: If retroactive lump-sum payments have already been made and an annual list is submitted with a payment that is deemed ineligible after review, what happens?

A: This will be discussed further and the information on our website will be updated accordingly.

Q: What about retroactive lump-sum payments that have received a prior denial?

A: If new information exists, the request can be re-submitted. All retroactive lump-sum payment requests that are currently in our inventory will be reviewed using the new process.

Q: What types of reasons are expected to be given when submitting a retroactive lump-sum payment request?

A: Some acceptable reasons are as follows:

• Unable to locate the plan member
• Plan member went missing
• Plan member retires late in a calendar year and the benefits are not calculated until the following calendar year

Q: Will you be updating the policy on your web site to clarify the difference between benefit upgrades and missing plan member scenarios.

A: Yes. We will modify the written policy on our website soon. When it has been modified, we will send a message to the subscribers of Registered Plans - What's New, our electronic mailing list.

Q: Do you have any guidelines for interest paid on retroactive lump-sum payments?

A: The interest rates normally applied to RPPs would be considered reasonable. Update: See Section 2 of Newsletter 09-1 for more information on acceptable interest rates.

Compliance Activity, Application of Penalties - Michelle Charlebois (Technical Policy Officer, Compliance Division)

Ms. Charlebois's presentation outlined the various non-compliance penalties that RPD will begin imposing in January 2010.

With the publication of Compliance Bulletin No. 6, RPD is reminding the deferred income plans industry that in certain circumstances where the plan administrator or the employer fail to comply with the duty or obligation imposed by the Act, they are subject to a penalty. Penalties are not new and some of them are already being applied. For example, the late filing penalty of the T244, Registered Pension Plan Annual Information Return has been imposed for several years.

In January 2010, Canada Revenue Agency (CRA) will apply penalties under subsections 162(5) and 162(7) where non-compliance is uncovered through the course of an audit. During 2009, RPD will be educating the industry on these penalties in most of our correspondence. As well, through the course of any audit completed in 2009, our letters will note the instances of non-compliance and advise that for similar non-compliance uncovered in 2010, penalties will be applied.

Some of the situations where penalties will be applied include: unreported or misreported pension adjustments (PA) on T4 slips, failure to file the T1007, Connected Person Information Return, misreported amount or failure to file a prescribed form for past service pension adjustments (T215, Past Service Pension Adjustment (PSPA) Exempt from Certification) or pension adjustment reversals [T10, Pension Adjustment Reversal (PAR)].

For application of Subsection 162(5), the RPD will examine the details of each particular situation before applying the penalty. We may begin to impose penalties covered in other sections of the Act without prior notification. Please refer to Compliance Bulletin No. 6 for more information.

I would like to briefly go through the provisions of the Act pertaining to penalties under subsections 162(5), 162(7), 162(7.01) and 162(7.02):

• Subsection 162(5) of the Act imposes a flat penalty of $100 for failure to provide information on a prescribed form.
• Subsection 162(7) of the Act imposes a penalty of $25 per day, to a maximum of 100 days, and a minimum of $100, for the late filing of a prescribed form. Paragraph 162(7)(b) applies to failure to comply with a duty or obligation imposed by the Act or the ITR.
• The 2009 Federal Budget introduced subsections 162(7.01) and 162(7.02) of the Act. These subsections impose a penalty for failure to file an electronic return.

For further information on registered pension plan compliance, consult Compliance Bulletin No. 6 and the RPD Technical Manual.

Questions and discussions following Ms. Charlebois's presentation

Q: Being a small business owner myself, if I phone RPD for information on T4s, I am directed to Business Windows and they have no idea about the calculation and reporting of PAs. Will there be an education process for Business Windows staff about PAs if you are going to start imposing penalties?

A: Yes. There must be an education process with our Business Windows staff. The Minister of National Revenue recently announced changes made to the business and personal enquiries lines . Enquiry lines staff will be required, if asked, to give their name and an identification number. This new procedure will create more accountability for the answers given and should improve the quality of the answer received. RPD's enquiries staff can assist callers with the calculation of pension adjustments. Business Windows can assist callers with questions about pension adjustment reporting.

Q: Is CRA going to assess the $2500 maximum penalty for every single employee for a PA that was reported but the amount of the PA was incorrect?

A: The penalty assessed under subsection 162(7) of the Act - $25 a day to a maximum of $2500 - is for late filing only. If a T4 was submitted before the filing deadline and the PA amount was left blank, a $100 flat penalty (per slip and summary) could be applied under subsection 162(5) of the Act. If misreported PAs are uncovered during the course of an audit, a penalty under subsection 162(5) of the Act - a $100 flat penalty, per error - could be applied.

Under paragraph 162(5)(a) of the Act, we look at whether a reasonable effort was made on behalf of the administrator to obtain the information. For example, if an administrator of a multi-employer pension plan has tried to gather the information and experienced difficulties, as long as they can show us that they made a reasonable effort, an exemption from the subsection 162(5) penalty may be granted.

Q: Will a penalty be assessed if a plan administrator discloses a PA or Past Service Pension Adjustment (PSPA) error to RPD on a voluntary basis?

A: No. The penalties discussed will only be applied to non-compliance that is uncovered during the course of an audit of a pension plan.

Q: Can you comment on the number of pension plans that you currently audit each year? Also, is there any intention of increasing the timing of or the frequency of the number of pension plans that are audited in the future?

A: As of January 1, 2010, we will begin applying penalties to pension plans. As of that date, there will be a small increase in the number of pension plans that we audit. We audit a wide range of plans in addition to RPPs.

Q: If an error is discovered that affects hundreds or thousands of plan members, can a list of amended PAs be submitted to RPD or does each T4 slip have to be amended separately?

A: We would likely accept a list for such a case; however, this would require coordination between RPD and the Individual Returns and Payments Processing Directorate (IRPPD) area of CRA.

Q: Would a penalty be assessed if the pension plan registration number is not provided in box 52 of the T4 slip?

A: Not at this time. Our current focus is on omitted or incorrect PAs and PSPAs.

Compliance and Client Service - Mike Godwin (Director, Registration Division)

Mr. Godwin's presentation was concerning the review of pensionable earnings and eligible service by RPD's Registration Division.

Historically, the review of earnings, service and contributions was not part of the pension plan registration process. Re-engineering resulted in a shift in focus for RPD; in December of 2007, the Registration Division expanded its review processes to include these items, in cooperation with the Compliance Division and the Actuarial & Policy Division. These changes were implemented to help ensure that pension plan members will receive their expected amount of pension benefits.

Some common problems that have been uncovered during the review of earnings and service are ineligible earnings and ineligible service. Ineligible earnings may include total income from a T1 return, or business or professional income that is not reported on a T4 slip. Ineligible service may include periods of service with a non-participating employer, or recognizing the service of a connected person* prior to the incorporation date.

* Post-Forum clarification: In this instance, "connected person" refers specifically to a sole proprietor. Anyone considered connected to the sole proprietor could have accrued pensionable service prior to the incorporation date provided that they were an employee for that period and received compensation, as defined under subsection 147.1(1) of the Income Tax Act. The employee would still be subject to all of the connected person restrictions and unable to recognize pre-reform service without satisfying the 50/50 test.

For new pension plan registration applications, the consequences of recognizing ineligible earnings or ineligible service may include denial of the pension plan's registration, a reduction in the amount of eligible service that can be recognized by the member(s), the requirement to file a revised AVR, and / or the requirement to amend the terms of the pension plan.

For RPPs, the consequences of recognizing ineligible earnings or ineligible service may include a reduction in the amount of eligible service that can be recognized by the member(s), the requirement to file a revised AVR, the requirement to amend the terms of the plan and denial of contributions made to the plan.

The consequences of over contributing to a RPP may include the over contributions not being tax deductible by the employer, the plan becoming a revocable plan in accordance with subsection 8502(b) of the ITR, and the removal of the over contribution from the plan, with the funds being included in the contributor's income.

If a member makes an excess qualifying transfer into the plan to fund a past service event, the excess funds would have to be removed from the plan and paid out to the member. The funds would then be included in income in the year in which the refund occurs, as per paragraph 56(1)(a) of the Act. Alternatively, the excess funds could remain in the DB plan and be listed as assets in that plan (provided the plan terms permit the member to make contributions to fund the benefit), as long as the excess does not exceed the total liability relating to the past service event and the employer had not already funded the remaining portion of the liability.

The new review process identified high levels of non-compliance within new pension plan registrations. Since the new review process was implemented, there has been a vast improvement in the compliance of new pension plan registrations.

Questions and discussions following Mr. Godwin's presentation

Q: With respect to eligible service, you mentioned subparagraphs 8503(3)(a)(i) and (ii) only. Do the other subparagraphs of 8503(3)(a) also qualify as eligible service?

A: Yes, they do. The main focus of this review process is on eligible service with the participating employer(s) and any predecessor employer(s).

Q: As a pension consultant, it is illegal for me to ask for a member's T4 slips from CRA. I have to get permission from each individual member to ask for their respective T4 slips. Therefore, I usually obtain a member's employment income from their employer's accountant. It would be helpful if I knew the amount of employment income that I am attempting to prove. Would you consider providing the amount of employment income that you have on file?

A: We are planning on amending the request letters that are sent to be more informative and to focus on the specific year(s) in which we notice a discrepancy. We will look into whether the amounts that our records support can be included in the request letters, however, without the written authorization from the taxpayer, it is unlikely that we will be able to release specific tax information to the pension plan consultant.

Q: For an excess qualifying transfer situation, if there is a defined contribution (DC) provision in the plan, can the excess transfer amount go into the DC provision?

A: An excess qualifying transfer amount might be able to go into the DC provision, depending on the circumstances. For more information, see Compliance Bulletin No. 6.

Q: Given the current investment market situation, have you considered that any over contributions to a pension plan that you ask to be removed, might have been made based on a much higher market value?

A: We would certainly take this into consideration. If there is no money left in the plan, we cannot force any money to be removed from the plan. Each situation is looked at on a case-by-case basis.

Q: If a pension plan contains a DB provision and a DC provision, and a transfer from a registered retirement savings plan (RRSP) is made into the DC provision of the plan, does the same certification process apply if you then make a transfer from the DC provision to the DB provision and an excess amount remains in the DC provision?

A: Regardless of whether the money was transferred from an RRSP or from a DC account into the DB account, the situation is the same. There is no provision allowing excess funds to be moved back into an RRSP or a DC account.

Technical Questions and Answers

Industry participants submitted technical questions in writing in advance of the Forum. RPD responded to 11 technical questions. The questions and answers were provided to all participants prior to the session and were also included in the participant folders.

The questions and answers were presented and open for discussion. Where follow-up questions refocused the topic addressed, responses have been updated to incorporate the expanded discussion. Other significant questions and responses have been captured below in the section titled "Open Forum Session". Updated answers will be posted on the RPD website.

Open Forum Session

During the Open Forum Session, the floor was opened to participants to ask additional questions and provide comments. The following is a summary of the relevant discussions.

Q: The excess surplus rule is causing a lot of problems for public sector employers. I have some clients who are public sector employers that are stressed because of the excess mandatory contribution holding rule. I suggest that you take a look at that threshold and see if a more reasonable limit can be put in place.

A: Unfortunately, this issue would have to be raised with Finance Canada. It is not something that RPD can comment on here.

Q: The .pdf version of the technical manual has been removed from the RPD website. Are there any plans to put the .pdf version of the technical manual back on the RPD website?

A: Last time the RPD Technical Manual was amended, we neglected to modify the .pdf version accordingly, and it was consequently removed from our website. The .pdf version of the RPD Technical Manual will be re-posted on our website soon.

Q: There is a lot of information available on the RPD website; however it is sometimes difficult to find specific information. Can an index be created?

A: CRA is working to improve its own search engine. Unfortunately, the RPD website is bound by the CRA common look and feel standards, which prevents us from being able to change the format. We are working to increase the number of hyperlinks included in each posted document, to make finding information on our website easier. Other internet search engines are very effective when used to search for specific information on the RPD or CRA websites.

Q: I have to file approximately 600 T3P returns each year for my clients. The filing deadline for T3P returns is March 31, however; I do not receive the capital gains and capital losses information until the end of February. Since the capital gains, capital losses and interest on dividends must be reported on separate lines, it is often difficult for me to file all of my clients' T3P returns on time. Can the lines for capital gains, capital losses and interest on dividends be merged into one line for total investment income?

A: RPD is not the author of the T3P form. The form belongs to IRPPD. We have discussed the situation with IRPPD to see if they have any plans to amend the T3P beyond the foreign content removal change. General questions concerning the T3P form should be directed to the individual income tax enquiries lines at 1-800-959-8281 for service in English and 1-800-959-7383 for service in French.

Q: Will the modified T1200, Actuarial Information Summary (AIS) form still be a joint form with the Financial Services Commission of Ontario (FSCO) and the Office of the Superintendent of Financial Institutions Canada (OSFI)? When is it expected to be published?

A: The modified T1200 (AIS) form will still be a joint form with FSCO and OSFI. We expect to publish the new T1200 (AIS) within the next couple of months.

Q: On the new T1200 (AIS) form, will the instructions be clearer as to what interest rates should be input?

A: Yes. The instructions regarding the interest rates have been clarified.

Q: Do you plan to release any Compliance Division decisions or audit findings, with respect to RPPs? This would be a useful tool for the industry to know what to expect when dealing with RPD.

A: We are constantly adding information to the RPD website, including information on the topics that we discussed today. It is not our current policy to post Compliance Division decisions or audit findings on our website.