Registered Plans Directorate technical manual

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• 8 8502 – Conditions Applicable to all Pension Plans
• 8.1 8502(a) – Primary Purpose
• 8.2 8502(b) – Permissible Contributions
• 8.3 8502(c) – Permissible Benefits
• 8.4 8502(d) – Permissible Distributions
• 8.5 8502(e) – Payment of Pension
• 8.6 8502(f) – Assignment of Rights
• 8.7 8502(g) – Funding Media
• 8.8 8502(h) – Investments
• 8.9 8502(i) – Borrowing
• 8.10 8502(j) – Determination of Amounts
• 8.11 8502(k) – Transfer of Property Between Provisions
• 8.12 8502(l) – Appropriate Pension Adjustments
• 8.13 8502(m) – Participants in GSRAs

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8 8502 – Conditions Applicable to all Pension Plans

8.1 8502(a) – Primary Purpose

The main purpose of a pension plan is to provide periodic payments to members after retirement and until death.

Plan Text:

Some plans contain a general "purpose of the plan" clause, which is helpful in meeting this requirement. A plan may provide for the commutation of lifetime retirement benefits (LRB) and still pass the primary purpose test.

We will not register a plan whose main purpose is something other than to provide LRBs. For example, a DB plan that provides a maximum bridging benefit and minimal LRBs, say $1 per month per year of service, would fail the primary purpose test and thus would be refused registration. In such cases the minimum amount of LRBs provided must be reasonable so that the plan satisfies the primary purpose rule.

We will not register a plan if we know that it will be terminated shortly afterwards, unless the members are about to retire or terminate employment or have already retired or terminated employment.

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

• 8502(a) – Primary Purpose
• 8502(b)(iii) – Permissible Contributions
• 8503(3)(a)(i) – Eligible Service
• 147.1(1) – Definitions of "member" and "participating employer"
• 147.2(2) – References to Former Employees

8.2 8502(b) – Permissible Contributions

Paragraph 8502(b) of the Regulations outlines those contributions, made after 1990, that are permissible contributions to a pension plan.

As per subparagraph 8502(b)(i), members may contribute in accordance with the plan as registered. Paragraph 8503(4)(a) of the Regulations sets out the only restriction on amounts that may be contributed. Paragraph 147.2(4)(a) provides for the deduction from income of all employee contributions made in respect of service after 1989, if in accordance with the plan as registered. Ensure that the text provides that the employee contributions will be credited to their accounts.

Subparagraph 8502(b)(ii) requires that employer contributions will be in respect of the employer's employees or former employees. Subparagraph 8502(b)(ii) prevents the gifting of property to the plan unless the fair market value of the gift is considered to be the "required contribution". A gift with an assumed fair market value is therefore not required and not permissible.

Subparagraph 8502(b)(iii) specifies that employers may contribute "eligible contributions". Subparagraph 8502(b)(vi) states that eligible contributions are as defined in 147.2(2) of the Act.

Under subparagraph 8502(b)(iv), if a plan is to accept direct transfers from other plans in accordance with the listed subsections, the plan text must state that it will do so. The amount transferred can include funds transferred for the purposes or purchasing past service, the plan terms must specify that this is permitted.

If a plan allows transfers from a foreign pension plan, as per subparagraph 8502(b)(v), it must state that the amount transferred is, in every case, subject to Ministerial approval.

Contributions coming from a provincial guarantee fund, such as the Ontario Pensions Guarantee Fund, satisfy the condition under subparagraph 8502(b)(vii) if the fund forms part of the provincial pension body which in turn is a part of Her Majesty in the right of the province or an agent of Her Majesty in the right of the province.

Legislated Plans:

Although legislated plans use the term "contributions" to describe employer funding, in practice amounts are journal vouchers rather than contributions, when the funds are held in consolidated revenue accounts. This means that for these plans, the question of eligible contributions does not arise.

SMEPs:

Employer contributions are deemed to be eligible contributions under paragraph 8510(6)(a), if made in accordance with the plan as registered.

Cross References:

Employer Contributions – DB Provisions – 147.2(2)

8.3 8502(c) – Permissible Benefits

The plan can provide for benefits that are described in paragraph 8502(c):

• Benefits that are provided under one or more DB provisions, that are in accordance with subsection 8503(2), paragraphs 8503(3)(c), (e), (f), (g), (h), (i) and section 8504 of the Regulations.
• Benefits that are provided under one or more MP provision that are in accordance with 8506(l) of the Regulations.
• Benefits that are required under a law of Canada or a provincial law.
• Benefits to a spouse, common-law partner, former spouse or common-law partner due to the breakdown of their marriage or partnership.

Difficulties have been encountered in determining where one plan (the pension plan) ends and another (the RCA) begins. For example, an employer may sponsor an integrated DB registered pension plan. In addition, the employer also sponsors an unregistered "top hat" plan. Submitters should be encouraged to send in one document containing only the RPP provisions.

50% employer contribution rule

Benefits referred to under subparagraph 8502(c)(iii) of the Regulations are benefits required to be provided to satisfy the 50% rule of the governing PBSA or provincial PBAs. Basically, when a member's contributions fund more than 50% of his or her benefits, the excess contributions are a benefit entitlement of the member. The 50% rule applies to all years of service for any jurisdiction.

Our legislation permits payment of the excess contributions in the form of cash, or new or improved benefits. Such new or improved benefits are not subject to the conditions and limits that apply to other permissible benefits. Also, 50%-rule benefits are excluded from the calculation of a PSPA and the prescribed amount.

On the one hand, this means that excess contributions in the form of new or improved benefits do not generate a PSPA for the member. On the other hand, since the new/improved benefits are not included in the normalized pension, they do not increase the individual's prescribed amount. The member can only transfer the portion of the excess contributions (representing a refund or the commuted value of new/improved benefits) that is within the prescribed amount (including the commuted value of LRBs) to a MP provision, RRSP or RRIF on a tax-free basis under subsection 147.3(4) of the Act. Pre-1991 excess contributions can also be transferred under paragraph 147.3(6) of the Act.

Plan Text:

We will accept a single document that contains, for example, both RCA and RPP provisions if it is clear that the RPP provisions are complete stand-alone provisions (not subject to any of the terms under the RCA provisions) and the RPP provisions are self-contained in an identifiable part of the document. We would not accept documents where the RPP must be read with reference to the RCA. In addition, the RPP and RCA funds must be accounted for separately.

Grandfathered Plans:

Paragraph 8502(c) of the Regulations does not apply to grandfathered plans until 1992.

Cross References:

Transfer – DB to MP, RRSP or RRIF – 147.3(4)

Calculation of PA Excludes Benefits Resulting from 50% Rule – 8302(3)(m)

Provisional PSPA – 8303(3)

Designated Laws – 8513

Benefits Excluded from Calculation of Prescribed Amount – 8517(5)(f)

Newsletter No. 98-2, Treating Excess Member Contributions under a Registered Pension Plan

Newsletter No. 91-4R, Registration Rules for Money Purchase Provisions

8.4 8502(d) – Permissible Distributions

Permissible distributions deal with the payment of member and employer entitlements.

Reasonable administrative, investment and similar expenses are a legitimate cost of the plan. For MP provisions, payment of expenses with forfeited amounts is further endorsed by paragraphs 8506(2)(f) and 8506(3)(b) of the Regulations. Therefore, expenses can be paid:

• Directly by the employer (with no impact on the plan at all or to be refunded to the employer out of the plan funds where the plan provides that such expenses are to be paid by the fund but were paid by the employer);
• Out of the plan's investment earnings;
• If it is a DB plan, out of the plan's funds;
• If it is a MP plan:
  • Out of the members' accounts;
  • On or before April 5, 1994, out of unallocated forfeited amounts or related earnings; or
  • After April 5, 1994, out of forfeited amounts or related earnings.

If the plan amendment permits the return of contributions, which are “excess contributions” under a provincial 50% funding rule, the amendment must provide for the cessation and repayment of any additional benefits, which members had received as a result of the provincial 50% rule, as per 8502(c)(iii).

We will accept amendments that permit the return of prior contributions for situations where the contribution rate is at 0%. These situations will occur when, for example, a plan is contributory until 1997 and then becomes non-contributory. In 2000, the company decides to make the plan retroactively non-contributory. Even though the current rate is at 0%, we will permit the refund of past contributions.

When a plan is amended to reduce the future contributions that have to be made by members, some or all of the contributions already made to the plan can be refunded, i.e., the amendment to reduce the required contributions can be retroactive. Note that a refund of contributions made to a DB provision before 1991, plus interest, can be transferred to an RRSP or another plan as described in subsection 147.3(6) of the Act. The payment of interest on the refunded contributions is a permissible distribution under subparagraph 8502(d)(v).

The “Net Contribution Account” concept under subsection 8503(l) of the Regulations does not apply to the return of contributions under subparagraph 8502(d)(iv). The payment of benefits with respect to a member does not impact on the amount of contributions that may be returned. As long as future contributions are reduced on the same basis, subparagraph 8502(d)(iv) allows the return of any contributions that had not been previously returned. This return may be made to any person, including former members who have commuted their benefits and beneficiaries of deceased members.

The wording of 8502(d)(iv) requires that the contribution must have been made to the DB provision of the plan which is returning contributions. It is permissible for the return of contributions to apply to contributions a plan member made to the DB plan of a prior employer, which contributions were transferred to the subject plan.

Interest on a refund of contributions may be paid to the employee if the refund is in accordance with subparagraph 8502(d)(iv). No interest may be paid on contributions returned to avoid the revocation of a plan.

The return of the members required contributions to the spouse, common-law partner or former spouse or common-law partner would not be a permissible distribution under subparagraph 8502(d)(iv) and cannot be transferred to an RRSP or other plan as described in subsection 147.3(6) or 147.3(7) of the Act.

Plan Text:

DB plan terms which state that employer contributions may be returned if they have been subsequently determined to be an overpayment of contributions, or if they were made in error, must be amended. A return of contributions to the employer will only be allowed in order to avoid the revocation of the plan as per paragraph 8502(d)(iii) and/or 8503(4)(c) of the Regulations.

Section 61.1 of the Pension Benefits Standards Act of British Columbia presently permits the refund of contributions made in error, without requiring as a condition, that the refund of such contributions have to be made to avoid revocation of the plan’s registration under the Income Tax Act. This is not acceptable since it does not comply with subparagraph 8502(d)(iii) of the Regulations, and therefore, an amendment should be requested. Plans may be silent with respect to payment of surplus.

Plans may state that surplus will be paid to employees or employers or both. Plans should not provide that the surplus would be paid to a trust. Subparagraph 8502(d)(vi) allows the surplus to be paid at any time to any person who has an interest in it. "Person", as defined in subsection 248(1) of the Act, is a very broad term and could include both employees and employers, and potentially other parties.

The surplus may not be paid out as a periodic retirement benefit. The surplus may only be paid out as a single lump sum payment.

Grandfathered Plans:

We will not revoke a grandfathered plan for the sole reason that distributions before 1992 were not in accordance with 8502(d).

Cross References:

Return of Contributions – 8503(4)(c)

Payment or reallocation of Forfeited Amounts – 8506(2)(f)

Extension of Reallocation of Forfeitures – 8506(3)(b)

Transfer – Pre-1991 Contributions – 147.3(6)

Net Contribution Accounts – 8503(l)

Conditions Applicable to Amendments – Return of Contributions – 8511(2)

8.5 8502(e) – Payment of Pension

A plan has to provide that the member's lifetime retirement benefits will commence no later than the end of the year in which the member turns 71.

Clause 8502(e)(i)(A) provides that benefits under a DB provision can commence to be paid after age 71 if the Minister gives approval. We have the discretion to allow benefits to commence at a later date under a plan, however, there can be no accrual of benefits beyond the 71st year and no increases in pension due to the delay of the payment. It is not intended that the discretion be applied to allow estate planning. Where the approval is given, the pension payments cannot increase as a result of the deferral.

Where benefits are provided under a money purchase provision in accordance with paragraph 8506(1)(e.1), clause 8502(e)(i)(B) permits benefits to begin no later than the end of the calendar year in which the member turns 72.

The plan must also provide that pensions will be paid no less frequently than annually.

Grandfathered Plans:

Paragraph 8502(e) of the Regulations does not apply in grandfathered plans until 1992.

Cross References:

Pre-Retirement Survivor Benefits – Alternate Rule – 8503(2)(f)

Pre-Retirement Survivor Benefits – MP – 8506(1)(e)

Variable Benefits – 8506(1)(e.1)

8.6 8502(f) – Assignment of Rights

The plan must stipulate that no right of a person under the plan is capable of being assigned, charged, anticipated, given as security or surrendered. These words must be used in the plan text.

Assignment does not include the splitting of benefits on the breakdown of the marriage or partnership pursuant to a court order or written agreement, payment from the plan because of an order for support or maintenance (before or after retirement) or assignment to the individual's legal representative on death.

Some provincial pension legislation exclude from their assignment clause the garnishment of pension benefit credits pursuant to a garnishing order. Since the non-assignment clause is pursuant a garnishing order to enforce a maintenance order against a member of a pension plan, we will accept it.

Some provincial pension legislation excludes additional voluntary contributions from their non-assignment clause. Since the assignment of any right would not comply with the requirements of 8502(f), we cannot accept a plan provision that prohibits assignment "except as specifically required or permitted under pension legislation".

Where a plan is experiencing a severe solvency deficiency, the employer(s) may choose to submit an amendment that retroactively reduces benefits already accrued by the members, rather than funding the deficiency. If this case arises, it should be referred to the Technical Services Section of the Policy & Communications Division.

Grandfathered Plans:

Paragraph 8502(f) of the Regulations does not apply to grandfathered plans until 1992.

8.7 8502(g) – Funding Media

Paragraph 6(e) of Information Circular 72-13R8, Employees’ Pension Plan, describes the currently acceptable funding media, with two exceptions:

• We no longer require one of three individual trustees to be independent as noted in paragraph 6(e)(ii).
• We no longer require that non-insured plans established in Quebec, British Columbia, Newfoundland and Saskatchewan, provide evidence of a written trust agreement or contractual arrangement between the employer or union and persons acting as trustees. Due to the fact that the Pension Benefits Acts for these provinces create a statutory trust for non-insured registered plans under which the members of the pension committee are trustees without having to accept their designation and responsibilities in writing.

These types of funding are acceptable for a MP provision although retirement benefits have to be provided through the purchase of an annuity. Under proposed legislation, MP provisions can provide retirement benefits from the plan, similar to benefits provided from a RRIF.

The Agency will permit a bank or credit union to act as fund custodian. The individual trustees will remain ultimately responsible to ensure that all areas of the trust agreement are respected. The individual trustees are responsible for the filing of returns.

The Agency will also permit that the trustees of a pension plan contract out to a payroll company the responsibility for producing payments to plan members. The fund will remit payments out of the plan to the payroll company, who then process the payments. The trustees will remain ultimately responsible to ensure that all areas of the trust agreement are respected.

Cross References:

Information Circular 72-13R8, Employees’ Pension Plan

Newsletter No. 91-4R, Registration Rules for Money Purchase Provisions

Newsletter No 04-2, Registered Pension Plan Applications – Processing an Incomplete Application

8.8 8502(h) – Investments

Plans may be silent on investments. Those plans that are subject to pension benefits standards legislation will probably already contain wording restricting investments to what is acceptable under the applicable legislation. No changes would be required to a plan with such restrictions.

8.9 8502(i) – Borrowing

There are two allowable situations for borrowing. Plans may provide for one or the other or both. Whenever one of the situations is provided for, the applicable restrictions must also be stated. In the first situation,

• The borrowing term must be for less than 90 days;
• The borrowing cannot be part of a series of loans or other transactions or repayments; and
• The plan property may not be held as loan security except to avoid the distressed sale of plan property.

The above stipulations must appear whenever a plan provides for borrowing unless the second situation applies.

The second situation is where money is borrowed to buy real estate to produce rental income. If the plan states that money will be borrowed for that purpose, it must also state that

• The loan will not exceed the cost of the property and that
• No plan property (other than the real estate itself) will be used as security for the borrowed money.

Plan Text:

Not all plans permit borrowing. If the plan is silent on this issue, then it is not permitted. If it is permitted, often the clause will be in the trust agreement, it must meet the restrictions contained in this paragraph.

8.10 8502(j) – Determination of Amounts

Subsection 8502(j) requires that, where assumptions are used to determine amounts under an RPP, the assumptions must be reasonable. It is up to the actuary to justify whether the assumptions being used are reasonable.

The requirement to use reasonable assumptions applies at any time amounts are being determined under an RPP. It is expected that the use of reasonable assumptions will apply primarily to determining amounts under a DB provision.

The second, and more important aspect of this subsection is that, where reasonable assumptions are used that they must also be acceptable to the Minister. The assumptions that are acceptable to the Minister are set out below under the sub-headings "commutation of benefits" and "eligible employer contributions".

The determination of amounts under any circumstances must also be done in accordance with generally accepted actuarial principles. We will rely on the advice given by our Actuarial Division as to whether a determination of an amount complies with this condition.

Commutation of Benefits

The assumptions set out below are reasonable and are acceptable to the Minister for the purposes of determining the commuted value of benefits under a DB provision.

We will continue to accept the use of the 1988 CIA Minimum Transfer Value Recommendations that were effective from November 1, 1988 when the date of the termination or conversion is effective before September 1, 1993.

In addition, we will continue to accept the use of any other reasonable assumptions or actuarial methods that we had previously been accepted (under paragraph 9(c) of IC 72-13R8) if the commutation is effective before September 1, 1993. Also, if the reasonable assumptions or actuarial methods had not previously been accepted, we will give consideration to accepting the use of the assumption and methods, if the date of commutation is effective before September 1, 1993. In effect, we will continue to consider the use of other reasonable assumptions or actuarial methods on a case-by-case basis for pre-September 1, 1993 commutations.

As mentioned above, the use of assumptions and actuarial methods will primarily apply to the determination of amounts under a DB provision.

Plan Text:

The terms of a DB provision or plan can be silent on the use of assumptions. However, if the plan does stipulate what assumptions and/or methods are to be used or gives the plan administrator the authority to select the assumptions and/or method to be used then the plan terms must indicate that the assumptions and methods used will be those that are acceptable under the Income Tax Act.

Eligible Employer Contributions

The assumptions set out in paragraphs 22 and 23 of the IC 72-13R8 are reasonable and acceptable to the Directorate.

Designated plans are subjected to the maximum funding restrictions set out in section 8515 of the Regulations.

The use of solvency assumptions as mandated under the PBSA or a similar law of a province is acceptable for funding purposes. We will not accept the use of solvency assumptions that are not mandated to be used. For example, the valuation of a plan registered under the Newfoundland Pension Benefits Act using the solvency assumptions mandated under the Ontario Pension Benefits Act would not be acceptable. Where a plan has members who are employed in different provinces, the funding of the plan is subject to the benefits mandated by the province having authority for the registration of the plan.

Plan Text:

The terms of a DB provision or plan can be silent on the use of assumptions. However, if the plan does stipulate what assumptions and/or methods are to be used or gives the plan administrator the authority to select the assumptions and/or method to be used then the plan terms must indicate that the assumptions and methods used will be those that are acceptable under the Income Tax Act.

Cross References:

Employer Contributions – DB Provisions – 147.2(2)

Specified Individual & Eligible Contributions – 8515(4) & (5)

Payment of Commuted Value – Pre-Retirement Death – 8503(2)(i)

Commutation of Benefits – 8503(2)(m)

Commutation of Benefits – Death of the Member – 8503(2)(n)

Newsletter No. 95-5, Conversion of a Defined Benefit Provision to a Money Purchase Provision

Newsletter No. 94-3, Using Assumptions to Compute the Present Value of Benefits

8.11 8502(k) – Transfer of Property Between Provisions

When an RPP has more than one provision, it should not permit the assets of one provision to fund the benefits under the other provision unless, if the provisions were in separate plans, the use of the assets would meet the transfer rules of subsection 147.3(1) to (4.1), (6), (7.1) or (8) of the Act. This means, for example, that funds for accrued benefits under a DB provision may not be reclassified as additional voluntary contributions unless they are transferable under 147.3(4) or (6) of the Act.

This rule also applies to conversions from DB to MP and vice versa. However, when a MP provision converts to or is replaced by a DB provision, the transferred amounts necessary to fund the DBs are not currently considered qualifying transfers under the law.

If the transfer exceeds the limits set out in section 147.1, the plan becomes a revocable plan for failure to comply with paragraph 8502(k). The income inclusion and deemed contribution rules of subsection 147.3(10) do not apply to excess "transfers" within the same plan.

Plan Text:

The terms of the plan must clearly provide for the transfer of amounts between the plan's provisions. The terms need only indicate that the transfer will be done as permitted by the Income Tax Act.

Cross References:

Qualifying Transfers – 8303(6)

Transfers – 147.3

8.12 8502(l) – Appropriate Pension Adjustments

When reviewing a plan with an unusual benefit formula, we should ensure that the plan structure would not result in pension credits that do not reflect the benefit earned under the plan.

We now accept $66 and $111 flat benefit plans subject to an appropriate PA being reported.

The PA should be calculated based on the annual retirement pension that would be payable based on all years of service up to and including the year for which the PA is being calculated, minus the annual amount of retirement pension that would have been payable based on all years of service up to, but not including, the year for which the PA is being calculated.

Tailored Individual Pension Plans (TIPPs)

A TIPP is a DB pension plan established for an individual who has earnings that would support a benefit accrual each year that is equal to the DB limit or $1,722 (i.e. earnings over $86,000). As an example, the plan terms may limit the individual’s benefit accrual to a specific amount for each year until 2005, by imposing a dollar limit on the accrual or by capping pensionable earnings. The limit is then indexed strategically each year by the anticipated growth in the average wage so that, after indexing, the individual’s benefit accrual for 2004 will be at or close to the DB limit of $1,722.

Since the PAs are determined on the basis of the pre-indexed accrual, the individual is able to generate additional room for contributions to their RRSP. In effect, TIPPs have been designed to specifically circumvent the freeze of the DB limit through 2004, as announced in the 1995 and 1996 Federal budgets.

Newsletter No. 01-3, Tailored Individual Pension Plans, specifies that we will not be registering TIPPs.

If benefits are based on career average earnings, we may not consider the plan to be a TIPP.

Example 1:

For each year of pensionable service, the benefit is 1.40% Indexed Compensation.

The maximum benefit for each year of pensionable service is the lesser of the DB limit and 2% Indexed Compensation.

Definitions:

• “Compensation” means all salary and bonuses received from the participating employer.
• “DB limit” is $1722.22.
• “Indexed Compensation” is the members’ compensation for a year of pensionable service indexed by increases in the average wage from the later of 1986 and the year in which Compensation was paid to the year the benefit is determined.

	Compensation	Indexed Compensation	PA for year	Benefit Paid for year
1991	$64,197.00	$128,764.67	$898.76	$1,722.22
1992	$72,961.00	$138,714.00	$1,021.45	$1,722.22
1993	$71,562.00	$128,961.34	$1,001.87	$1,722.22
1994	$73,000.00	$124,694.55	$1,022.00	$1,722.22
1995	$76,256.00	$123,465.65	$1,067.58	$1,722.22
1996	$80,450.08	$123,465.65	$1,126.30	$1,722.22
1997	$84,874.83	$123,465.65	$1,188.25	$1,722.22
1998	$89,542.95	$123,465.65	$1,253.60	$1,722.22
1999	$94,467.81	$123,465.65	$1,322.55	$1,722.22
2000	$99,663.54	$123,465.65	$1,395.29	$1,722.22
2001	$105,145.04	$123,465.65	$1,472.03	$1,722.22
2002	$110,928.01	$123,465.65	$1,552.99	$1,722.22
2003	$117,029.05	$123,465.65	$1,638.41	$1,722.22
2004	$123,465.65	$123,465.65	$1,722.22	$1,722.22

The benefit accrued for PA purposes each year is the lesser of:

• 1.40% Compensation; and
• The lesser of: 2% Compensation and $1722.22

The benefit actually paid each year is the lesser of:

• 1.40% Indexed Compensation; and
• the lesser of: 2% Indexed Compensation and $1722.22

Example 2:

“Compensation” means all salary, bonuses and the value of taxable benefits received from and determined by the Company for the purposes of the plan. For the purposes of determining pension benefits for 1991, 1992, 1993, 1994 and 1995, Compensation shall mean $51,038, $52,940, $54,525, $55,317 and $56,110 respectively, or actual Compensation for the calendar year, if less. For the purpose of determining pension benefits for calendar years after 1995, Compensation shall mean the lesser of actual Compensation and $56,110 increased by 5.5% per annum for each year after 1995.

Benefit Formula:

2% of Member’s total Indexed Compensation subject to 8504(1)(a) limits in each year.

Example 3:

In the following example, the rate varies depending on the member’s salary

1.65% of Indexed Compensation for 1991, plus

1.63% of Indexed Compensation for 1992, plus

1.68% of Indexed Compensation for 1993, plus

1.45% of Indexed Compensation for 1994, plus

1.44% of Indexed Compensation for 1995, plus

1.50% of total Indexed Compensation for Pensionable Service after 1995.

Example 4:

A 2% plan in which the member has high earnings that can provide a maximum $1722 pension is amended to reduce the accrual rate, and the benefit is based on indexed earnings. The reduced accrual rate varies and is usually determined so that a maximum $1722 benefit is payable based on indexed compensation.

Section 78 of the Supplemental Pension Plans Act of Quebec

Section 78 of the Supplemental Pension Plans Act of Quebec (the SPPA) requires that the value of benefits accrued in a DB provision during the postponement period be at least equal to contributions made by the member during the same period, plus interest. To meet this requirement, a number of plans have a benefit formula based on the greater of a DB and a MP provision for service during the postponement period.

Even though these arrangements contravene:

• Paragraphs 8503(3)(f) and 8502(l) of the Regulations – A plan that promises benefits based on the greater of a DB and a MP provision is not acceptable. This is because “the greater of” benefits will only be known when they become payable. Pension credits, determined annually, are therefore indeterminable. A MP provision must be added for the postponement period to correct the situation.

At the present time no DB regulation allows for a periodic payment from the member’s net contribution account. Paragraph 8503(2)(h) of the Regulations only provides that any payment from the net contribution account be as a single amount.

The Directorate has decided not to require Quebec plans that contain section 78 of the SPPA to be amended to include a MP provision. These plans can provide for section 78 and continue to calculate the member’s pension credit during the postponement period on a MP basis when the member accrues service after normal retirement age, and not report a PA when the member does not accrue service after normal retirement age.

Grandfathered Plans:

Paragraph 8502(l) of the Regulations does not apply to grandfathered plans until 1992.

Cross References:

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

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

Increase in Accrued Benefits – 8503(3)(h)

Increase in Accrued Benefits – Part-Timers – 8503(3)(i)

Artificially Reduced PA – 8503(14)

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

Newsletter No. 01-3, Tailored Individual Pension Plans (TIPPs)

8.13 8502(m) – Participants in GSRAs

Paragraph 8502(m) of the Regulations provides that an RPP may not have a connected member who is also entitled to benefits under a government-sponsored retirement arrangement (GSRA).

Cross Reference:

Definition of Government-Sponsored-Retirement Arrangement – 8308.4(1)

Definition of Connected – 8500(3)