Registered Plans Directorate Technical Manual

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• 1 147.1(1), 248(1), 8300(1), 8500 – Definitions
  • 1.1 Actuary – 147.1(1)
  • 1.2 Active Member – 8500(1), 8500(7)
  • 1.3 Additional Voluntary Contributions (AVCs) – 248(1)
  • 1.4 Administrator – 147.1(1)
  • 1.5 Average Consumer Price Index – 8500(1)
  • 1.6 Average Wage – 147.1(1)
  • 1.7 Beneficiary – 8500(1)
  • 1.8 Benefit Provision – 8500(1)
  • 1.9 Bridging Benefits – 8500(1)
  • 1.10 Certifiable Past Service Event – 8300(1)
  • 1.11 Common-law Partner – 248(1)
  • 1.12 Compensation – 147.1(1)
  • 1.13 Complete Period of Reduced Services – 8300(1)
  • 1.14 Connected Person – 8500(3)
  • 1.15 Consumer Price Index (CPI) – 8500(1)
  • 1.16 Deemed Contribution – 8500(7)
  • 1.17 Defined Benefit Limit – 8500(1)
  • 1.18 Defined Benefit Provision – 147.1(1)
  • 1.19 Dependant – 8500(1)
  • 1.20 Disabled – 8500(1)
  • 1.21 Eligible Period of Reduced Pay – 8500(1)
  • 1.22 Eligible Period of Temporary Absence – 8500(1)
  • 1.23 Eligible Survivor Benefit Period – 8500(1)
  • 1.24 Grandfathered Plan – 8500(1)
  • 1.25 Lifetime Retirement Benefits – 8500(1)
  • 1.26 Member – 147.1(1), 8300(1)
  • 1.27 Money Purchase Limit – 147.1(1)
  • 1.28 Money Purchase Provision – 147.1(1)
  • 1.29 Multi-employer Plan – 147.1(1), 8500(1)
  • 1.30 Participating Employer – 147.1(1)
  • 1.31 Past Service Event – 147.1(1), 8300(1), 8300(2)
  • 1.32 Pensionable Service – 8500(1)
  • 1.33 Period of Disability – 8500(1)
  • 1.34 Pre-reform Service & Post-reform Service
  • 1.35 Public Safety Occupation – 8500(1)
  • 1.36 Retirement Benefits – 8500(1)
  • 1.37 Single Amount – 147.1(1)
  • 1.38 Specified Multi-employer Plan – 147.1(1)
  • 1.39 Spouse – 8500(5), 252(3)
  • 1.40 Surplus – 8500(1) & (1.1)
  • 1.41 Totally and Permanently Disabled – 8500(1)
  • 1.42 Wage Measure – 147.1(1)
  • 1.43 Year's Maximum Pensionable Earnings (YMPE) – 8500(1)

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1 147.1(1), 248(1), 8300(1), 8500 – Definitions

Any reference in this manual to the “Act” is in reference to the Income Tax Act and any reference to the “Regulations” is in reference to the Regulations under the Income Tax Act.

1.1 Actuary – 147.1(1)

This is primarily relevant for purposes of employer contributions to a DB plan under subsection 147.2(2) of the Act.

If the plan defines who will be the actuary, only a member of the Fellow of the Canadian Institute of Actuaries (FCIA) is acceptable. Reference to a firm, a member of whom is a member of the FCIA, is considered acceptable.

Paragraph 17(d) of Information Circular 72-13R8, Employees Pension Plan, allows submissions from other actuaries if it's in respect of a foreign plan. This is no longer applicable, as foreign plans are not acceptable for registration under the legislation.

1.2 Active Member – 8500(1), 8500(7)

An active member of a pension plan within a calendar year is:

• A member who has made contributions to a MP provision within the year;
• A member to whom benefits accrue in a year under a DB provision; and/or

1.3 Additional Voluntary Contributions (AVCs) – 248(1)

Contributions made by a member to a MP provision of a pension plan where participation by the member in the MP provision is not required as a general condition of plan membership is defined as an AVC. The two conditions that make a contribution by a member an AVC are:

• the contribution must be made to a MP provision; and
• participation in that MP provision must not be required as a general condition of plan membership.

Where a pension plan contains both a MP and a DB provision and member participation in the MP provision is optional or voluntary, any member contributions whether required or not under the MP provision would qualify as an AVC.

Where a pension plan contains only MP provisions and member participation in one of the MP provisions is optional or voluntary, any member contributions whether required or not under that MP provision would qualify as an AVC.

The terms of the provisions of the pension plan must be written in a way that makes it clear that member participation in a particular MP provision is optional or voluntary so that member participation in the provision is not considered a general condition of plan membership.

Under the PBSA or a similar law of a province required contributions to a MP provision may not be treated as AVCs. However, we will consider the contributions to be AVCs under the Act if the contributions satisfy the definition of an AVC.

Maximum Pension Limit for Pre-reform Benefits

The combined value of benefits under both a MP provision and a DB provision for pre-reform service is subject to the maximum pension benefit limit of paragraph 9(g) of Information Circular 72-13R8. AVCs are not included in calculating the maximum pension benefits payable in respect of pre-reform service. Employer required contributions plus the earnings (interest) on those contributions made under a MP provision are to be included in calculating the maximum pension benefits payable in respect of each member. The inclusion of any MP benefits in calculating the maximum pension benefits payable only applies to benefits accrued in respect of pre-reform service.

Contributions made by a member and/or an employer to a MP provision of a pension plan that also contains a DB provision are not included in calculating the maximum LRB that can be paid in respect of a member for post-reform service.

Accepting AVCs in plans with an 18% required contribution rate

We will accept for registration plans that provide for an 18% required contribution rate formula under one of the MP provisions and also allows for AVCs to be made under another MP provision. The plans will need to be assessed on a case-by-case basis to determine whether or not the making of AVCs is acceptable despite the existence of a required contribution rate of 18%.

An example would be where the 18% required contribution rate was limited to an employer amount of $3,500 and an employee amount of $3,500 (a condition seen in a number of plans where the employer continues to limit the maximum contribution rate to the pre-reform deductible limit), AVCs can be made where the member's compensation from employment is more than $19,444.

Another example is where the definition of earnings or compensation under the plan excludes over-time, bonuses, expense allowances, commissions, or other taxable benefits a member's compensation for purposes of the PA limits may greatly exceed the earnings definition in the plan, leaving the member considerable room to make AVCs without exceeding the appropriate PA limits. Where a plan defines earnings in a way that excludes some portion of a member's compensation and there is no reason to suspect that the plan may become revocable pursuant to 147.1(8) of the Act, we will accept the terms allowing for AVCs to be made.

Cross References:

Definition of Compensation – 147.1(1)

Pension Adjustment Limits – 147.1(8)

Conditions for Registration – 8501(1)(e)

Pre-1991 Benefits – 8503(3)(e)

Maximum Benefits and Contributions – Paragraphs 9(g) & 11 of Information Circular 72-13R8

1.4 Administrator – 147.1(1)

The plan administrator is the person who has the ultimate responsibility for administering the plan. It could be the employer, a board of trustees, consulting firm, insurance company, etc.

Please note that other pension regulators might have a more restrictive definition of administrator. Employers, service providers and consultants should refer to the applicable pension benefit supervisory authority for additional information.

The plan terms are not required to state who the administrator will be.

Cross Reference:

Administrator – 147.1(6)

Obligations of the Administrator – 147.1(7)

1.5 Average Consumer Price Index – 8500(1)

The average consumer price index for a year is 1/12 of the aggregate of the consumer price indexes for each month in the 12-month period ending on September 30 of the immediate preceding calendar year. The average consumer price index is used for various maximum clauses.

For the purposes of several rules pertaining to pension plans, the Federal Consumer Price Index is the sole acceptable CPI measure that can be used.

Cross References:

Maximum Lifetime Retirement Benefits – 8504(1)

Maximum Retirement Benefits Before Age 65 – 8504(5)

Maximum Pre-1990 Benefits – 8504(6)

Additional Lifetime Retirement Benefits on Downsizing – 8505(3)

1.6 Average Wage – 147.1(1)

The average wage for a calendar year is 1/12th of the total of the wage measures for 12 months ending on June 30 of the immediately preceding year. For example, to determine the average wage for 1992, you would total the wage measures for July 1990 to June 1991 and then divide the total by 12.

Average wage is used to determine the MP limit for 1996 and subsequent calendar years, to apply the maximum pension rule in section 8504 of the Regulations, and to determine, for certain situations, the amount that can be excluded from a member's PSPA resulting from a benefit upgrade or recognition of additional service.

Cross Reference:

Maximum Benefits – 8504

1.7 Beneficiary – 8500(1)

Beneficiary is defined as any "person" who has a right to receive benefits under the plan after the death of the member. "Person" is defined in 248(1) of the Act, it is broad enough to include the estate of the member for death benefit purposes.

1.8 Benefit Provision – 8500(1)

It is important to note that any benefit provision must meet the applicable requirements. A DB provision must meet the DB requirements and a MP provision (including an AVC provision) must meet the MP requirements.

1.9 Bridging Benefits – 8500(1)

Any benefit, which ends at a date determinable at the time the benefits commence to be paid, is a bridge benefit. Thus, a plan which is directly integrated with CPP/QPP (i.e. the lifetime retirement benefits are reduced by CPP/QPP payments) is providing a bridging benefit from the time the lifetime retirement benefits commence until the time they are reduced for CPP/QPP. The bridging benefit is the amount, which ceases to be paid once CPP/QPP payments commence.

Plan Text:

All bridging benefits must meet the various bridging benefit restrictions. We must be able to identify bridging benefit clauses in a plan text even when the plan does not use the term "bridging benefits" to describe them.

Cross References:

Bridging Benefits – 8503(2)(b)

Additional Bridging Benefits – 8503(2)(l)

Survivor Bridging Benefits – 8503(2)(l.1)

Bridging Benefits – Cross-plan Restriction – 8503(3)(k)

Retirement Benefits Before Age 65 – 8504(5)

Conditions Applicable after 1991 to Benefits under Grandfathered Plan – 8509(2)(a)

Defined Benefits Under Grandfathered Plans Exempt From Conditions – 8509(4)(b)

Conditions Applicable to Amendments – 8511(1)(b)

1.10 Certifiable Past Service Event – 8300(1)

For PSPA purposes, a certifiable past service event is any transaction, event or circumstance that causes a plan member’s lifetime retirement benefits for post 1989 years of service to be retroactively improved under a DB provision. Prior to improving the benefits for the member, the Minister must certify this past service event.

1.11 Common-law Partner – 248(1)

A common-law partner is a person of the opposite or same sex who is not the taxpayers’ spouse, with whom they live and have a relationship, and to whom at least one of the following situations applies. He or she:

• is the natural or adoptive parent (legal or in fact) of the taxpayers’ child;
• has been living and having a relationship with the taxpayer for at least 12 continuous months; or
• lived with the taxpayer previously for at least 12 continuous months as their spouse or common-law partner.

Under proposed changes, the last condition will no longer apply. A person will be considered the taxpayers’ common-law partner only after their current relationship with the person has lasted at least 12 continuous months. The proposed change applies to years after 2000.

The term "12 continuous months" in this definition includes any period where they were separated for less than 90 days because of a breakdown in the relationship.

1.12 Compensation – 147.1(1)

Compensation is defined as any of the following:

• Taxable income from employment in Canada or remuneration from an office in Canada
• "Prescribed compensation" as per section 8507 of the Regulations
• Non-resident income acceptable to the Minister

Plan Text:

There should be an indication of the amounts that are included in earnings, e.g. salary or wages, etc. General wording such as "as determined by the employer" is not an acceptable definition for a DB provision.

A similar term that is used in many other provisions of the Act and Regulations is "remuneration". Remuneration is not defined in section 147.1, subsections 8300(1) or 8500(1) of the Act. It is defined in section 100(1) of the Regulations, but as that section applies to tax deductions, it is not clear that it would necessarily apply to the RPP Regulations.

Cross References:

Pension Adjustment Limits – 147.1(8)

Pension Adjustment Limits – Multi-employer Plans – 147.1(9)

Member Contributions – 8503(4)(a)

Maximum Lifetime Retirement Benefits – 8504(1)

Highest Average Compensation – 8504(2)

Alternate Compensation Rules – 8504(3)

Part-time Employees – 8504(4)

Maximum Additional Benefits – 8505(3)(d)

Prescribed Compensation – 8507

1.13 Complete Period of Reduced Services – 8300(1)

A complete period of reduced services of a member is a period of reduced services that is not part of a longer period of reduced services

Cross Reference:

Definition of Periods of Reduced Services – 8300(1)

1.14 Connected Person – 8500(3)

Generally, a connected person is an individual who:

• owns directly or indirectly 10% or more of the issued shares of any class of the capital stock of the employer or of any related corporation;
• does not deal at arm's length with the employer; or
• is a specified shareholder by reason of paragraph (d) of the definition of specified shareholder in subsection 248(1) of the Act.

Also, an individual is deemed to be a connected person if shares of the employer or of a related corporation are owned by:

• someone related to the individual;
• a trust of which the person is the beneficiary; or
• a partnership of which the person is a member.

Paragraph (d) of the definition of specified shareholder contains a special rule that applies where an individual provides services to an employer that would be carrying on a personal services business if certain conditions were satisfied.

Subsection 8503(14) deems an individual to be a connected person for purposes of the limit on maximum lifetime retirement benefits when PAs have been artificially reduced.

Connected person vs. significant or controlling shareholder

The description of a connected person is broader than that of a significant or a controlling shareholder in paragraph 8(d) of Information Circular 72-13R8, Employees’ Pension Plans. A significant shareholder is an individual who alone, or in combination with a parent, spouse or child owns 10% or more of the voting shares of a participating employer.

A controlling shareholder is an individual who controls the corporation of which he or she is a significant shareholder.

This distinction is relevant for the purposes of the "50/50", "reasonable remuneration" and "prior DPSP or RPP coverage" rules outlined below. It may also be relevant for limits on 1990 MP required contributions, also discussed below.

The following is an overview of the special legislative requirements that apply to connected persons and former connected persons. They replace, or are in addition to, those that apply to plans in which no connected persons participate.

Money Purchase Provision or Plan

The prescribed compensation rules and the definitions of eligible period of temporary absence and eligible period of reduced pay combine to have the following effect as of January 1, 1991:

• Contributions cannot be made by or on behalf of a connected person for an unpaid period of temporary absence; and
• Contributions for a period of reduced pay have to be based on actual earnings, not earnings that would have been paid if earnings were unreduced.
• Required contributions by or on behalf of connected persons for 1990, made up until the end of February 1991, are subject to the limits in paragraph 11(a)(iii) of the Circular (which used to apply to significant shareholders) if the plan:
  • Was submitted for registration on or after June 27, 1990; and
  • Was primarily for the benefit of connected persons.

A waiver to this rule is possible if:

• The plan is a MEP;
• The pension benefits are subject to a collective bargaining or a similar agreement;
• The connected persons are obliged to participate in the plan as a condition of union membership; and
• Union membership is a condition of employment.

Defined Benefit Provision or Plan

Contributions

Often a plan in which connected persons participate is a designated plan. Under a designated plan, employer contributions for both current and past service, and member contributions for past service only, are subject to more restrictive rules. They are commonly referred to as the maximum funding rules.

Benefits – Post-reform Service

The following requirements apply to all plans, except MEPs:

• Maximum LRBs for post-reform service during which the member was at any time a connected person are based on indexed, career average earnings.
• No benefits may be provided for an unpaid period of disability, an unpaid period of temporary absence or a period of reduced pay if, at any time during such periods, the member was a connected person.
• If the member was a connected person at any time after 1990,
  • the minimum service requirement for an unreduced bridging benefit is 10 years of actual, full-time service,
  • LRBs on early retirement due to total and permanent disability may not be calculated on an unreduced basis, and
  • disability and pre-retirement survivor benefits payable before age 65 may not be based on benefits that would have accrued had retirement occurred at age 65.

Benefits – Pre-reform Service

Reference to pre-October 1968 and 1980 shareholder plans means plans established primarily for the benefit of significant shareholders and related persons before October 1968 or in 1980.

• The Minister has to be notified when benefits for pre-1991 service are provided after 1988.
• Benefits for pre-reform service have to be acceptable to the Minister. Benefits are acceptable to the Minister if they comply with the rules of Information Circular 72-13R8, except that the rules that used to apply to significant or controlling shareholders apply, as of June 27, 1990, to:
  • Connected persons even if they weren't a connected person during the pre-reform service for which benefits are provided; and
  • Former connected persons, i.e. members who are not connected persons now but who were connected persons during the pre-reform service for which benefits are provided.

50/50 Rule

This rule applies for each employer participating in a plan on behalf of its employees whenever new or improved benefits are provided for pre-reform service. Generally, the total present value of benefits, including the new or improved benefits, for pre-reform service of active connected persons cannot be more than 50% of the total present value of benefits for pre-reform service of all active members, under all registered pension plans of the employer. Generally, an active connected person does not include a member who has ceased to accrue benefits under the plan. However, if additional pre-reform service of the connected person is being recognized or the connected person's accrued benefits for pre-reform service are being improved, then the connected person is considered active for purposes of the 50/50 rule.

Since the proportionality condition restricts the amount of pre-1990 service that can be recognized at a given time, a 50/50 demonstration is required each time additional pre-1990 service is acquired by a connected person who is subject to the proportionality condition.

Example

Up and coming Co. sponsors a plan in which connected persons participate. The plan is amended effective January 1, 1995 to include pre-reform service as pensionable service. If we accept the amendment, the value of benefits under the plan as at January 1, 1995 is $900,000, broken down as follows:

Value of Benefits

	Persons Connected	All Active Members	Total
Pre-reform Service	$300,000	$250,000	$550,000
Post-reform Service	100,000	250,000	350,000
Total	$400,000	$500,000	$900,000

The present value of benefits for pre-reform service for connected persons is 54.55% of the present value of all benefits for pre-reform service ($300,000/$550,000). Therefore, even though the present value of connected persons' benefits for pre- and post-reform service is 44.44% of the present value of all benefits for pre- and post-reform service ($400,000/$900,000), the amendment is not acceptable.

If the employer participates in another plan increasing the present value of benefits for pre-reform service for active members from $250,000 to $300,000 or more, the amendment would be acceptable (subject to compliance with other applicable rules). Failing this, the employer may want to revise the amendment by reducing the number of years of pre-reform service being recognized if the reduction will result in satisfaction of the 50/50 rule.

Present Value of DBs

Where earnings are a component of the formula for calculating benefits, the present value of benefits is based on earnings for pre-reform service.

In determining the present value, the actuary may choose any reasonable valuation basis (such as going-concern, solvency, or wind-up) as long as the same basis is used for valuing the defined benefits for both connected persons and non-connected persons. If the benefits for the non-connected persons are provided on a MP basis (and therefore not valued using actuarial methods) the actuary is free to choose any reasonable valuation basis for valuing the connected persons' benefits.

Where deferred annuities were purchased to provide benefits, the present value is the value of the promised benefits as of the date the 50/50 rule is applied (i.e. not the original purchase price).

For union-sponsored MEPs, it may be impractical to determine the present value of benefits on an actuarial basis. In these cases, the present value is considered to be the total pre-reform contributions on behalf of active members, plus associated earnings, as of the date the 50/50 rule is applied. If it isn't possible to distinguish between contributions for active members and contributions for inactive members, the present value is considered to be total pre-reform contributions for all members excluding associated earnings.

Present Value of MP Benefits

The present value for each active member is the pre-reform contributions in the member's account, comprised of employer and member required contributions plus associated earnings on the pre-reform contributions earned up to the date of determination of the 50/50 rule. Additional voluntary contributions (AVCs) are excluded, except for past-service AVCs made before October 9, 1986. In the few cases where deferred annuities were purchased with MP funds, the present value is the value of the annuities as of the date the 50/50 rule is applied.

The 50/50 rule does not apply to pre-October 1968 and 1980 shareholder plans. This is because any provision of new or improved benefits, or the addition of new employers or connected persons in the case of a 1980 shareholder plan, contravenes the rule disallowing increased benefits, or the cost of benefits, under such plans [see paragraph 8(d) of Information Circular72-13R8].

Also, a waiver of the 50/50 rule is possible if:

• The plan is a MEP;
• The pension benefits are subject to a collective bargaining or a similar agreement;
• The connected persons are obliged to participate in the plan as a condition of union membership; and
• Union membership is a condition of employment.

Proportionality Test

In addition to the 50/50 rule, when recognizing pre-1990 service for connected persons, the proportionality conditions outlined in Newsletter 99-1 must be considered. If none of the three exceptions apply, the present value of the LRBs being provided in respect of pre-1990 service must not exceed the present value of LRBs provided to the individual on a current service basis, in respect of post-1989 service. We must give a written notice to the plan administrator that the LRBs are acceptable.

Prior DPSP or RPP coverage

Service cannot be recognized if it was previously recognized under a DPSP or another RPP of the participating or related employer. Where the prior plan was an RPP, we will waive this requirement if the plan administrator of the existing RPP confirms in writing that:

• there was no break in service between coverage ceasing under the prior RPP and becoming provided under the existing RPP;
• all funds associated with the employer contributions under the prior RPP have been or will be transferred to the existing RPP to fund the new or improved benefits.

Where the prior plan was a DPSP, there has to have been simultaneous coverage under an RPP of the participating or related employer and the above conditions have to be satisfied in respect of the prior RPP. If this is the case, the DPSP funds may be (but do not have to be) transferred to the existing RPP along with the funds under the prior RPP.

This rule does not apply to pre-October 1968 and 1980 shareholder plans for the same reason the 50/50 rule doesn’t apply [see paragraphs 8(d) and (e) of Information Circular 72-13R8].

It also doesn’t apply if the connected person is obligated to be a member of the plan as a condition of union membership that is a prerequisite to employment and the connected person is subject to the same rights and conditions as all other members.

Transfers under another RPP and name changes

In cases where accrued benefits under another RPP are transferred to the plan, the 50/50 rule will only apply if the previously accrued benefits are upgraded. If the previously accrued benefits are not upgraded, the 50/50 rule does not apply to these benefits.

Transfers in situations of name changes (where a connected person or IPP retain the existing plan documents and request a name change to effectively transfer the pension plan to a new employer) are acceptable and are not subject to the 50/50 rule. However, the 50/50 rule will apply in the event the benefits are upgraded.

Reasonable remuneration rule

Regardless of whether LRBs are based on remuneration, new or improved benefits for a pre-reform year of service can only be provided if the connected person's remuneration for the year is at least the lesser of:

• $65,000; and
• 75% of the connected person's average remuneration for the prior best three consecutive years, but never a nil amount.

It should be noted that the restriction on remuneration above only applies to the pre-reform years (1981 and subsequent years) where the member was a connected person. For example, if a plan is recognizing past service from 1985 to 1990, and the member did not become a connected person until 1988, do not apply the above remuneration test to the years 1985, 1986 or 1987.

If requested to do so, consideration will be given to a waiver of the remuneration rule if the employer certifies that for the year(s) under consideration:

• Insufficient company earnings precluded the payment of the above minimum remuneration;
• No dividends were declared or paid to connected persons;
• No increase in retained earnings of the employer occurred;
• No retained earnings of the employer were transferred to a related corporation.

Financial statements have to accompany the certification

Plan Text:

The plan text has to contain the special restrictions on contributions and benefits that apply to connected persons, unless the plan is a MEP.

Cross References:

Definition of Compensation – 147.1(1)

Description of Arm's Length – 251

Definition of Specified Shareholder – 248(1)

Definition of Eligible Period of Temporary Absence – 8500(1)

Definition of Eligible Period of Reduced Pay – 8500(1)

Definition of Multi-employer Plan – 147.1(1) & 8500(1)

Bridging Benefit – 8503(2)(b)

Pre-retirement Survivor Benefits – 8503(2)(e)

Eligible Service – 8503(3)(a)

Early Retirement – 8503(3)(c)

Increased Benefits for Disabled Members – 8503(3)(d)

Pre-1991 Benefits – 8503(3)(e)

Artificially Reduced Pension Adjustments – 8503(14)

Maximum Lifetime Retirement Benefits – 8504(1)(a)

Employer Contributions Acceptable to the Minister – 8506(2)(a)

Prescribed Compensation – 8507

Conditions Applicable After 1991 to Benefits Under a Grandfathered Plan – 8509(2)(b)

Special Rules – MEP – 8510(5)

Designated Plans – 8515(1)

Designated Plans in Previous Year – 8515(2)

Maximum Funding Rules for Designated Plans – 8515

Newsletter No. 99-1, Proportionality Conditions for Pre-1990 Pension Benefits

1.15 Consumer Price Index (CPI) – 8500(1)

The national CPI for a month is published by Statistics Canada.

1.16 Deemed Contribution – 8500(7)

An amount allocated to a member under a MP provision that is attributable to:

• Forfeitures and earnings on forfeitures; and
• Surplus and earnings on the surplus, is deemed to be a contribution on behalf of the member for certain purposes. For more information on these purposes, refer to:
• Eligible service rule in 8503(3)(a)(v);
• Exemption to the pre-1990 $1,150 limit in 8504(7)(d);
• Description of qualifying period for prescribed compensation in 8507(3)(a); and
• Description of MEP in 8500;
• Description of SMEP in 8510(2).

The amount is deemed to be a contribution made on behalf of the member.

Plan Text:

It is unlikely that specific wording will appear in plan texts on this issue.

1.17 Defined Benefit Limit – 8500(1)

The defined benefit limit for a calendar year is the greater of:

• $1,722.22 and
• 1/9 of the money purchase limit for the year.

Cross Reference:

Maximum Lifetime Retirement Benefits – 8504

1.18 Defined Benefit Provision – 147.1(1)

Whenever benefits under a provision are determined in any way other than solely as contributions plus interest, the provision is a DB provision.

Plan Text:

Most plans contain only one DB provision. Some do, however, provide for two or more. For example, one class of employees might be entitled to a 1% benefit, while another could be entitled to a separate 2% benefit under the same plan. These would be two DB provisions. Another example is where the type of benefit between classes of employees differs under the same plan. For instance, the benefits of salaried employees may be earnings-based (as in the previous example) while the benefits of hourly employees are a flat benefit of a specified dollar amount per month per year of service.

Each DB provision has to meet the requirements of the Act, as applicable. For example, if a member is entitled to benefits under two DB provisions, the maximum pension under section 8504 of the Act applies to each provision separately. However, the plan may be more restrictive and limit the combined benefits to the limit in section 8504 of the Act. Where it doesn't, the PA limits of subsection 147.1(8) and subsection 147.1(9) of the Act restrict the combined benefits payable under the plan for any one employer or non-arm's length employers.

DB and MP combination plans are not acceptable if the aggregate benefits, or the MP benefits, are capped by a DB limit. This is not acceptable because the cap makes the arrangement a DB provision for which there is no legislative method of calculating pension credits and, therefore, PAs are indeterminable. Examples of unacceptable arrangements are those where the member is promised:

• DB and MP benefits, the aggregate of which is capped by the maximum pension permitted under paragraph 9(g) of Information Circular 72-13R8, or under section 8504 of the Regulations;
• A pension that can be purchased by twice the member's contributions plus interest, capped by the maximum pension permissible under a DB provision;
• DB based on an earnings-related or flat benefit DB formula, with a minimum guarantee of a pension that can be purchased by twice the member's annual contributions, or by the total employer and member's contributions, plus interest, capped by the maximum pension permissible under a DB provision;

A plan that promises the greater of DB and MP benefits is also not acceptable, even where only the DB is capped by a DB maximum. This is because the "greater of" benefits will only be known when they become payable. Pension credits, determined annually, are therefore indeterminable.

A combination arrangement that may be acceptable is one that provides DB and MP benefits, where the DB benefits are reduced by the MP benefits. This arrangement is acceptable only if:

• The MP benefits are unaffected by DB limits; and
• The MP and DB provisions are otherwise independent of each other.

Grandfathered Plans:

The combination and greater of plans, described above as "not acceptable", were permitted prior to pension reform. Therefore, pre-1992 benefits that accrued on a current service basis under these arrangements continue to be acceptable.

Cross Reference:

Determination of Lifetime Retirement Benefits – 8503(3)(f)

1.19 Dependant – 8500(1)

Death benefits in the form of periodic payments may be paid to a spouse, common-law partner, former spouse or common-law partner, or a dependant. Dependants are not entitled to the pre-retirement survivor benefit alternative under paragraph 8503(2)(f) or the additional post-retirement survivor benefits under paragraph 8503(2)(k).

Information Circular 72-13R8 provides for a reasonable pension to a spouse or to a parent, brother, sister or child, as long as such persons were dependent on the member at the time of the member's death.

The definition of dependant under subsection 8500(1) of the Regulations also includes grandparents and grandchildren.

A survivor benefit can be provided to the dependants, as defined for purposes of the Regulations, based on all years of service.

Plan Text:

We will, however, consider granting exemptions for pre-1992 death benefits where survivor retirement benefits are payable to beneficiaries other than the spouse, former spouse or dependant as defined for purposes of the Regulations.

Where a plan provides acceptable death benefits in the form of periodic payments to a beneficiary other than a spouse or former spouse, it must be clear that such beneficiaries meet the definition of dependant. It must, therefore, be clear that they were, in all cases, dependent on the individual for support as well as meeting at least one of the other three criteria (i.e. under age 19, in school or infirm).

1.20 Disabled – 8500(1)

This is used in the definition of period of disability, for eligible service purposes only. It does not apply to retirement due to disability.

The definition refers to an impairment that prevents the individual from performing the duties of the employment in which the individual was engaged before the commencement of the impairment. This definition also encompasses partial disability. An individual can be disabled to the extent that none of the former duties can be carried out or to the extent the duties can only be carried out to a lesser degree.

Under subparagraph 8503(3)(a)(iv), persons who were connected with the employer after 1990 may not accrue pensionable service during periods of disability, unless the period would otherwise qualify as service with the employer.

The only other restriction on accruals during periods of disability is that the deemed remuneration on which it is based cannot exceed what it is reasonable to expect they would have earned had they been employed on their regular basis (i.e. full-time if usually full-time, part-time if usually part-time). Unlike eligible periods of reduced pay or temporary absence, there is no formula restricting the total amount of remuneration which may be deemed for disability. Members may fund the entire benefit accruing during a period of disability.

For purposes of the maximum, members are deemed to have rendered their regular rate of service for earnings commensurate with what they were previously earning.

Plan Text:

We will accept a period during which an individual is receiving benefits from Workers' Compensation, a long-term disability plan and CPP disability benefits for this purpose. Otherwise, the plan must use wording which expresses the same or a more restrictive meaning. A medical certification is required, as per paragraph 8503(4)(f) of the Regulations.

Cross References:

Eligible Service – 8503(3)(a)

Member Contributions – 8503(4)(a)(ii)

Evidence of Disability – 8503(4)(f)

Part-Time Employees – Eligible Periods – 8504(4)(d)

Prescribed Compensation – 8507

1.21 Eligible Period of Reduced Pay – 8500(1)

This is a period of employment with the employer during which the remuneration received by the member is less than what the member could reasonably be expected to have received had the member worked on a regular basis at a rate of pay consistent with what the member was receiving before the period. The regular basis on which the member worked will usually be either full-time or part-time. If the member is a person who is connected with the employer at any time during the period, that part of the period is not an eligible period of reduced pay. Under the definition, the employer must have employed the member for at least 36 months before an eligible period of reduced pay can occur.

Generally, compensation is not prescribed for wage freezes. However, in certain circumstances of broadly based wage rollbacks under austerity programs, even if there is no reduction in time worked by plan members, the period may qualify for prescribed compensation, and the 36 month employment required may not apply.

Special rules under paragraph 8503(4)(a) allow members to contribute the amounts necessary to fund the benefit accrued during a period of reduced pay.

For purposes of the maximum pension, members are deemed to have worked at their regular rate of pay and regular time basis during eligible periods of reduced pay.

Section 8507 of the Regulations automatically prescribes a notional amount to be included in compensation of the member for purposes of the PA limits so that members may accrue full benefits, as though they were working on a regular basis, during a qualifying period (up to certain limits). This amount is based on the difference between what you would have earned had you worked a regular year earning your regular rate of pay less what you actually receive. Example, if a member normally worked on a regular basis for a regular rate of pay of $50,000, but actually earned $0 in the year, a full year's compensation of $50,000 is prescribed even though it is not needed to support the PA.

Plan Text:

The provision of pension benefits in respect of periods of reduced pay is not a common practice. It is seldom part of an initial plan design, but more likely appears as a plan amendment due to economic difficulties resulting in job sharing, phased retirement, etc.

Ensure that:

• Connected persons are not eligible for periods of reduced pay (unless the plan is a multi-employer plan or a specified multi-employer plan); connected persons may, however, accrue with respect to a period of pre-reform service, if it is in accordance with Information Circular 72-13R8 and the plan provides for it,
• The plan states that members must have worked for 36 months for the employer or predecessor employer in order to qualify for the deemed service and pay.

If the plan refers specifically to an eligible period of reduced pay as defined in the Regulations it is not necessary to ask for the connected person and 36 month stipulations. Plans will not necessarily use the words eligible period of reduced pay. If the effect of the plan is to provide for deeming of earnings and service during periods when members are being paid less than they would normally receive for that amount of work, the restrictions must be met.

Ensure also that the remuneration being attributed to periods of reduced pay (deemed remuneration) does not exceed the rate of pay that the member would have received if the member worked on a regular basis.

Cross References:

Member Contributions – 8503(4)(a)

Part-Time Employees – Eligible Periods – 8504(4)(d)

Prescribed Compensation – 8507

Salary Deferral Leave Plan – 8508

1.22 Eligible Period of Temporary Absence – 8500(1)

Eligible periods of temporary absence can include leaves of absence, layoffs, strikes, lock-outs or any other circumstance acceptable to the Minister.

The types of leave stated in paragraph 8(e) of Information Circular 72-13R8 will continue to be allowed. These include the following:

• Paid leave
• Educational leave
• Maternity, paternity or adoption leave
• Active service in the Canadian Armed Forces or active service with allied forces during World War II or the Korean War
• Short-term appointment to federal or provincial governments, committees or commissions
• Loan to a union, educational institution or charitable organization.

Types of leave other than those listed above may also be considered for post-reform service on a case-by-case basis. The determining factor for the inclusion of a leave of absence as an eligible period of temporary absence is that it be an actual leave of absence, and not a severance of employment. The leave is only restricted to the extent that the PA limits are not exceeded.

Unpaid or partially paid leaves of absence taken after 1990 will be subject to the prescribed compensation provisions of section 8507 of the Regulations. The amount of leave taken before 1991 does not affect the prescribed compensation limit or the amount of post-1990 leave that may be recognized as eligible service.

Members may fund the entire benefit accruing during an eligible period of temporary absence.

For purposes of the maximum, members are deemed to have rendered their regular rate of service for earnings commensurate with what they were previously earning.

Section 8507 of the Regulations automatically prescribes a notional amount to be included in compensation of the member for purposes of the PA limits so that members may accrue full benefits, as though they were working on a regular basis, during a qualifying period (up to certain limits). This amount is based on the difference between what you would have earned had you worked a regular year earning your regular rate of pay less what you actually receive. Example, if a member normally worked on a regular basis for a regular rate of pay of $50,000, but actually earned $0 in the year, a full year's compensation of $50,000 is prescribed even though it is not needed to support the PA.

Plan Text:

Ensure that any provisions for accruals during leaves of absence are acceptable as set out above. If connected persons participate in the plan, ensure that they are not eligible to accrue benefits during unpaid periods of temporary absence, unless the plan is a multi-employer plan or a specified multi-employer plan. Reasonable sick leave, vacation, and jury duty for connected persons is considered acceptable, even though not specifically provided for in the Regulations.

Connected persons may accrue with respect to a period of pre-reform service, if it is in accordance with Information Circular 72-13R8 and the plan provides for it.

Ensure that the remuneration being attributed to periods of temporary absence does not exceed the rate of pay that the member would have received if the member had worked.

It is not necessary for the plan to cap eligible periods of temporary absence similar to the cap imposed on qualifying periods by subsection 8507(2). This is because, in some cases, the cap may not apply, i.e. if the periods of leave are picked up via a past service event.

MP Provisions

MP provisions that provide for contributions to be made by connected persons during a paid leave of absence may be accepted. Finance has confirmed that the general underlying principle is that they have sufficient earnings to justify the benefit they get under the plan; as long as they have the income they should be able to get the benefit, since they could have sheltered the money in an RRSP in any case.

Pre-reform service

The terms of the plan must indicate what pre-reform service is being included as eligible service. If pre-reform service is being credited after 1988 for new plans (after 1991 for grandfathered plans), the service must comply with the eligible service requirements of 8(e) of the Circular or, if more restrictive, the terms of the plan. The amount of pre-reform service taken does not affect the prescribed compensation limit or the amount of post-reform leave that may be recognized as eligible service.

Cross References:

Eligible Service – 8503(3)(a)

Member Contributions – 8503(4)(a)

Part-Time Employees – 8504(4)

Prescribed Compensation – 8507

1.23 Eligible Survivor Benefit Period – 8500(1)

Dependants are eligible for death benefits in the form of periodic payments until the end of the year they turn 18, unless they attend school or are infirm.

Plan Text:

Where a plan provides death benefits in the form of periodic payments to dependants, the date such benefits will cease must be clear in the plan and must comply with the definition.

1.24 Grandfathered Plan – 8500(1)

Grandfathered plans include provisions that are established to provide benefits under a DB provision to one or more individuals in lieu of benefits to which the individuals were entitled under a DB provision of a plan text that existed on March 27, 1988, whether or not benefits are also provided to other individuals.

Successor DB plans will be considered as grandfathered, if:

• One or more individuals in the prior plan have become members in the successor plan (new employees can be added), and
• The benefits provided under the plan being established replace the benefits the individual had accrued under the prior plan (i.e. no benefits are or will be payable out of the prior plan to the individuals who have been transferred), and
• The benefits being provided under the plan being established are substantially similar to those provided in the prior plan (increases in benefits would result in the successor plan being considered as a "new plan" eg. increase in benefit formula, addition of ancillary benefits, more beneficial form of settlement, etc.).

1.25 Lifetime Retirement Benefits – 8500(1)

Whenever lifetime retirement benefits are referred to in the Regulations, it is important to keep in mind that bridge benefits are excluded.

1.26 Member – 147.1(1), 8300(1)

A member of a pension plan is a person who has rights to receive benefits or is in receipt of benefits under the plan.

A member can be a person who is currently participating under the plan or an inactive member whose rights remain under the plan.

The definition of member does not include a person who has rights under the plan only because of the participation of a member. Such as a surviving spouse or common-law partner would not be considered a member.

1.27 Money Purchase Limit – 147.1(1)

The MP limit is used for purposes of the PA limits of subsection 147.1(8) and subsection 147.1(9) of the Act and for purposes of the DB limit defined in subsection 8500(1) of the Regulations.

Plan Text:

A plan text that quotes MP limits in effect prior to the most current limits in subsection 147.1(1) of the Act is not acceptable and has to be amended.

1.28 Money Purchase Provision – 147.1(1)

A MP provision is a provision where the benefits are determined solely by contributions plus related interest. Members’ additional voluntary contributions, under a DB or a MP plan, meet this definition. MP provisions are subject to the registration and pension credit rules applicable to a MP provision.

The Minister may exempt benefits under a MP provision of a grandfathered plan relating to pre-1992 contributions from the requirements of subsection 8506(1) of the Act (see subsection 8509(10)). This is done on a case-by-case basis. No guidelines have yet been established, as we are not aware of any situation that warrants an exemption.

Plan Text:

If a DB plan provides for the deferred payment to a member of an amount exceeding the prescribed amount, i.e. on commutation of the member's benefits, this eventuality creates a MP provision. However, this arrangement is unacceptable.

1.29 Multi-employer Plan – 147.1(1), 8500(1)

A MEP is a registered pension plan sponsored by a group of employers. However, not every plan in which more than one employer participates is considered a MEP.

We consider a registered pension plan to be a MEP if, at the beginning of the year, it is reasonable to expect that at no time in the year will more than 95 % of the active plan members be employed by a single participating employer, or by a group of related participating employers at any time during the year. The terms "related persons" and "related group" are defined in subsections 251(2) and 251(4) of the Act, respectively. Additional information can also be found in Interpretation Bulletin IT-419R, Meaning of Arm's Length.

The multi-employer plan limits only apply within the plan itself. There is no cross-plan element.

There are two tests which must be met in respect of each employee. The first is that the total of the member's pension credits in respect of each participating employer cannot exceed the lesser of the MP limit and 18% of compensation. The second is that the total of the member's pension credits in respect of all participating employers cannot exceed the MP limit.

Cross Reference:

Definition of MEP – 8510(1)

1.30 Participating Employer – 147.1(1)

A participating employer is an employer who has made or is required to make contributions to the plan in respect of his employees’ or former employees’.

A participating employer can also include an employer prescribed under subsection 8308(7) of the Regulations.

A prior employer is not considered to participate under a provision solely because funds have been transferred from that employer’s plan to the provision. For example, if Employer A makes contributions to plan A to fund an employee’s benefits and that employee then commutes those benefits and transfers them to Plan B, that transfer does not make Employer A a participating employer under Plan B.

Cross References:

Loaned Employees – 8308(7)

Re-employed Member – 8503(9)

Re-employed Member – Rules Not Applicable – 8503(10)

Maximum for Connected Persons – 8504(1)(a)(i)

Highest Average Compensation – 8504(2)

Qualification as a SMEP – 8510(3)

Minister's Notice – 8510(4)

Purchase of Additional Benefits – 8510(8)

Maximum Funding Valuation – 8515(7)(e)

1.31 Past Service Event – 147.1(1), 8300(1), 8300(2)

A past service event is any transaction, event, or circumstance that causes a plan member’s lifetime retirement benefits for post 1989 years of service to be retroactively improved under a DB provision.

1.32 Pensionable Service – 8500(1)

The plan provisions should not permit the accrual of more than one year of service in a calendar year. Although this requirement is not explicitly stated in the Act, the following Regulations support the Division’s position:

• Benefit Entitlement – 8302(1)
• Benefit Accrual for Year – 8302(2)
• Early Retirement – 8503(3)(c)
• Lifetime Retirement Benefits – 8504(1)

Cross References:

Bridging Benefits – 8503(2)(a)

Part-time Employees – 8504(4)

Retirement Benefits Before Age 65 – 8504(5)

Pre-1990 Benefits – 8504(6)

Whenever the Regulations refer to pensionable service, they mean elapsed time. Thus, a year of part-time service counts for a full year of pensionable service.

The restrictions of paragraph 8503(2)(a) and subsection 8504(5) are based on pensionable service as defined in 8500(1), as is the definition of "early retirement eligibility service" for purposes of the early retirement reduction in paragraph 8503(3)(c).

The maximum pension formulas are based on pensionable service as well, but require that the service be actualised and the earnings annualized.

1.33 Period of Disability – 8500(1)

Periods of disability qualify as eligible service as long as the member was not connected during the period. Members may fund the entire cost of the benefit accruing during the period of disability. Evidence of disability is required before the benefits in respect of that period may be paid to the member.

Periods of disability qualify as eligible service as long as the member was not connected during the period. A connected person may, however, include a period of pre-reform disability as eligible service. Members may fund the entire cost of the benefit accruing during the period of disability. Evidence of disability is required before the benefits in respect of that period may be paid to the member.

For purposes of the maximum pension, the member is deemed to have performed regular service for commensurate pay. The prescribed compensation rules allow prescribing of compensation for periods of disability with no cap on the number of years.

It is possible for a plan member to accrue benefits under an RPP in respect of periods of disability even after their employment with the employer has been officially terminated. Since a period of disability can be considered as eligible service under the plan terms, a benefit can accrue with respect to the period, even if the employee has terminated employment due to the disability.

Cross References:

Eligible Service – 8503(3)(a)(iv)

Member Contributions –8503(4)(a)(ii)

Evidence of Disability – 8503(4)(f)

Part-Time Employees – Eligible Periods – 8504(4)(d)

Prescribed Compensation – 8507

1.34 Pre-reform Service & Post-reform Service

Pre-reform service means pre-1991 service for all plans except grandfathered plans. Pre-reform service for grandfathered plans means all service prior to the earlier of January 1, 1992 and the effective date of the amendment made to the plan to comply with the Regulations, but in no event earlier than January 1, 1991. All service after those dates is post-reform service. Pre-reform benefits are benefits that accrue in respect of a period of pre-reform service. All other benefits are post-reform benefits.

1.35 Public Safety Occupation – 8500(1)

The list of qualifying jobs is to be strictly adhered to. This should not be a question of interpretation.

1.36 Retirement Benefits – 8500(1)

This is a more general term than the term "lifetime retirement benefits". It includes lifetime retirement benefits, bridge benefits and death benefits paid on a periodic basis.

1.37 Single Amount – 147.1(1)

A single amount is not part of a series of periodic payments. If an individual should have been in receipt of a series of periodic payments but missed receiving some of them, the lump sum which might be paid in lieu of the missed payments, is not a single amount. However, it is quite possible to receive two or more single amount payments over a stretch of time.

Cross References:

Transfers – 147.3

Lifetime Retirement Benefits – 8503(2)(a)

Lump Sum Payments on Termination – 8503(2)(h)

Commuted Value – Pre-retirement Death – 8503(2)(i)

Lump Sum Payments on Death – 8503(2)(j)

Commutation of Benefits – 8503(2)(m)

Commutations – Beneficiary’s Benefits – 8503(2)(n)

Offset Benefits – 8503(3)(j)

Undue Deferral of Payment – 8503(4)(d)

Commutation of Lifetime Retirement Benefits – 8503(7)

1.38 Specified Multi-employer Plan – 147.1(1)

A SMEP is a MEP that meets the following conditions:

• The employers participate in the plan under a collective bargaining agreement or similar agreement.
• All or substantially all (at least 90%) of the employers who participate in the plan are persons who are not exempt from tax under Part I of the Act. Examples of persons exempt from tax are labour organizations, municipalities, corporations owned by the Crown, and charities. You can find a complete list of exempt persons in subsection 149(1) of the Act.
• The employers make contributions according to a contribution formula negotiated under a collective bargaining agreement or similar agreement that does not provide for any variation in contributions as a result of the financial experience of the plan.
• The administrator is a board of trustees (or similar body) that is not controlled by representatives of the employers. The concept of “control” in the case of a trust relates to the control a person or persons have over the property and activities of the trust. For more information on the control of a trust, see the current version of Interpretation Bulletin IT-447, Residence of a Trust or Estate. In the case of a corporation, “control” means the right that rests in ownership of the number of shares necessary to provide a majority of the votes in the election of the board of directors of the corporation or authorize the wind-up of the corporation. If there is no share capital, a person who has the ability to appoint the board of directors of the corporation will be considered to control the corporation.
• The administrator has the power to determine the benefits the plan will provide, whether or not such power is subject to the terms of a collective bargaining agreement or a similar agreement.
• The contributions each employer will make in the year are based, in whole or in part, by referring to the number of hours worked by individual employees of the employer, or some other measure that is specific to each employee for whom contributions are made to the plan.
• It is reasonable to expect that:
  • at least 15 employers will contribute to the plan for the year; or
  • at least 10% of the active members of the plan will be employed by more than one participating employer (for this condition, all employers who are related to each other are considered to be a single employer).

A plan will also be a SMEP if:

• it was a SMEP that met the requirements described above in the previous calendar year and we have not given notice that it no longer qualifies as a SMEP; or
• we have designated it to be a SMEP in the year.

We only designate a plan to be a SMEP if it has satisfied several of the characteristics described above and the designation is needed to overcome serious PA reporting difficulties. Typically, this designation will only be given when it is reasonable to expect that at least 15 employers will contribute to the plan in the year or at least 10% of the active members will be employed by more than one participating employer.

Cross References:

Definition of SMEP – 8510(2)

Qualifications as a SMEP – 8510(3)

Minister’s Notice – 8510(4)

Special Rules – SMEP – 8510(6)

Additional Prescribed Conditions – 8510(7)

Purchase of Additional Benefits – 8510(8)

1.39 Spouse – 8500(5), 252(3)

With effect after 1992 and before 2001, subsection 252(4) of the Act extends the meaning of “spouse” to include a person of the opposite-sex with whom the individual cohabits in a conjugal relationship for at least one year or, if they have not cohabited for a full year, are natural or adoptive parents of the same child. Subsection 8500(5) of the Regulations applies subsection 252(3) of the Act to extend the meaning of “spouse” and “former spouse” to include parties to a voidable or void marriage.

Two recent events have had an impact on the legal meaning of “spouse.” First, as a result of the Federal Government’s refusal to appeal the decision rendered in the matter of Rosenberg and Canadian Union of Public Employees v. Canada, registered pension plans may provide survivor benefits to same-sex partners. As a consequence, we accept new plans, or amendments to existing pension plans, providing survivor benefits no earlier than the date the Rosenberg decision was rendered, April 23, 1998. The decision itself specified that it applied only to RPP survivor benefits. Therefore, it did not apply to any other RPP advantage such as a transfer. Neither did it apply to other registered vehicles, such as RRSPs and RESPs.

Second, on February 11, 2000, the government tabled Bill C-23 to give effect to the Rosenberg decision across a wide spectrum of federal laws. This Bill received Royal Assent on June 29, 2000 becoming the Modernization of Benefits and Obligations Act (MBOA). Effective January 1, 2001, the MBOA amended the Act to offer same-sex couples the same tax treatment as opposite-sex common-law spouses. More specifically, as of January 1, 2001 subsection 252(4) of the Act was repealed and the term “common-law partner”, which contains no reference to persons of the opposite sex, was added to subsection 248(1) of the Act. Subsection 252(3) of the Act, which defines married or formerly married couples remain in effect. As a result, the Act now recognizes two categories of relationship equal in all respects under the Act: “ spouse” and “common-law partner”. The first includes only legally married individuals and the second, opposite-sex and same-sex individuals who establish their relationship by meeting subsection 248(1) of the Act.

Section 144 of the MBOA and of Bill C-23 permits taxpayers who make a “joint election” to be treated as common-law partners under subsection 248(1) of the Act in the 1998, 1999 and 2000 taxation years. If taxpayers choose to be treated as common-law partners, they must do so for all purposes of the Act, i.e., they cannot choose to be treated as common-law partners for some purposes and not for others. Since joint election is a condition that applies to individuals as taxpayers, we do not require the plan text to make specific mention of it. The election must have been made before April 30, 2001 or June 15, 2001, if the taxpayer is self-employed. There is no prescribed form for elections. Taxpayers can make elections by ticking a box on the T1 Return or by writing a letter to CRA.

Because, subsection 252(4) of the Act was not repealed until 2001, opposite-sex common-law partners continue to be treated as spouses and are not subject to the joint election requirement. In effect, the joint election requirement only affects same-sex common-law partners in 1998, 1999 and 2000.

Until Bill C-23 was tabled, the Rosenberg decision allowed plans to provide survivor benefits to same-sex partners and no joint election was possible. So, survivor benefits or annuities that commenced to be paid after April 22, 1998 (Rosenberg) and before February 11, 2000 (Bill C-23) do not require a joint election in order to continue the payments. Otherwise, the joint election requirement applies to all RPP benefit payments and transfers made in 1998, 1999 and 2000. After 2000, elections are not required; the nature of the relationship itself determines tax treatment. Meaning, when taxpayers self-identity as meeting the Act’s definitions of “spouse” or “common-law partner”, the actual relationship at the time dictates tax treatment.

Plan Text:

Many plans now use an expanded definition of spouse. Such definitions include: legally married individuals, opposite-sex common-law couples or, more recently, the equivalent of “same-sex partners.” Plans are not required to use the term “common-law partner”.

Effective January 1, 1998, whatever definition the plan uses, only individuals who:

• are legally married to each other according to the laws of Canada under subsection 252(3) of the Act,
• meet the extended meaning of “spouse” in subsection 252(4) of the Act, or
• meet the definition of “common-law partners” under subsection 248(1) of the Act can be included as the beneficiaries of survivor benefits or transfers under the plan.
• Effective January 1, 2001, plan definition(s) can only include individuals who:
  • are legally married to each other according to the laws of Canada under subsection 252(3) of the Act, or
  • meet the definition of “common-law partners” under subsection 248(1) of the Act.

With effect no earlier than January 1, 1998, the definition of spouse need no longer mention “opposite sex” or “same-sex.” The term that a plan uses to define the equivalent of “common-law partners” must now ensure that individuals involved cohabit in a conjugal relationship for at least one year and otherwise meet the requirements of subsection 248(1) of the Act. For opposite-sex couples, terms like “living together as husband and wife” or “consort” are equivalent to “conjugal relationship.”

Where a plan provides for survivor benefits, payments on partnership breakdown or transfers in respect of same-sex partners, you may advise the submitter that payments or transfers made in 1998, 1999 or 2000 are subject to joint election subject to an exception. The exception is that joint elections are not required where the plan has paid survivor benefits after April 22, 1998 and before February 11, 2000.

A legal representative of a deceased plan member and the surviving common-law partner of that member may now jointly elect to allow payment of survivor benefits or transfers as indicated above.

In June 2002, the Quebec National Assembly passed Bill 84 that amends the Supplemental Pension Plan Act to recognize civil unions. A civil union is similar to a marriage, with the exception that it is recognized for couples of the opposite or the same sex. Under Quebec law, civil unions will have the same rights and obligations as married couples, which may result in benefits being provided to individuals who are not untitled to such benefits under the Act. The definition of common-law partner under the Act only recognizes same-sex spouses who have cohabited for at least one year.

Plan terms that recognize civil unions must include an overriding clause specifying that only individuals meeting the definition of common-law partner under subsection 248(1) of the Act will be entitled to receive survivor benefits or benefits in respect of a division of property due to a breakdown in partnership.

Cross Reference:

Newsletter No. 92-2, Definition of Spouse

1.40 Surplus – 8500(1) & (1.1)

Surplus under a money purchase provision means such portion of unallocated amounts that are not reasonably attributable to forfeited amounts and related earnings, employer contributions under the provision that will be allocated to members, and plan earnings that will be allocated to members, other than earnings reasonably attributable to surplus.

The definition surplus in subsection 8500(1) applies for the purpose of subsection 147.3(7.1) of the Act.

1.41 Totally and Permanently Disabled – 8500(1)

An individual is "totally and permanently disabled" if the individual suffers from a physical or mental impairment that prevents the individual from engaging in employment for which the individual is reasonably suited by virtue of the individual's education, training or experience and if there is no reasonable expectation that the individual will recover from the disability.

This differs from the definition of "disabled" in that the individual is not expected to recover from the impairment and the impairment prevents the individual from performing the duties of any employment for which the individual is reasonably suited.

Plan Text:

A plan may provide unreduced early retirement under paragraph 8503(3)(c) or an additional benefit under paragraph 8503(3)(d) for a member who retires on account of total and permanent disability. In order to qualify for these benefits, it has to be evident from the plan that the individual meets the definition of "totally and permanently disabled" or that the individual is eligible for a disability pension under the CPP or the QPP.

A member who retires on account of disability can receive an unreduced pension without meeting the definition of totally and permanently disabled if the member would otherwise qualify for an unreduced pension under paragraph 8503(3)(c) by meeting the age and service criteria.

Cross References:

Early Retirement – 8503(3)(c)(ii)(D)

Increased Benefits for Disabled Member – 8503(3)(d)

Evidence of Disability – 8503(4)(e)

Suspension or Cessation of Pension – 8503(8)

Re-employed Member – 8503(9)

1.42 Wage Measure – 147.1(1)

Wage measure is the monthly industrial aggregate in Canada representing average weekly earnings for all employees, including overtime. The term is used for purposes of the definition of average wage and to determine the amount that can be excluded from the PSPA of a member who has ceased to accrue benefits and whose deferred benefits are increased.

The Employment and Earnings Statistics Division of Statistics Canada can provide you with the current figures.

1.43 Year's Maximum Pensionable Earnings (YMPE) – 8500(1)

Although YMPE is defined in the Canada Pension Plan, it is acceptable for an RPP to define YMPE by referring to the Quebec Pension Plan.