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12 8504 – Maximum Benefits

12.1 8504(1) – Lifetime Retirement Benefits

12.1.1 8504(1)(a)(i) – Maximum for Connected Persons

The maximum in subparagraph 8504(1)(a)(i) is only applicable to benefits for a calendar year if:

  • The year is after 1990;
  • The member was connected to the employer at any time in the year; and
  • The employer participated in the plan in the year for the benefit of the member.

When reviewing a plan in which connected persons participate or have participated after 1990, verify that the reference to the maximum pension payable is general enough to include the connected persons' career average restriction for connected persons. It is acceptable for the benefit formula for connected persons to be based on final average earnings, however, the benefit must be capped by the career average restriction in subparagraph 8504(1)(a)(i) of the Regulations. This Regulation places a limit on the benefits accrued for each year to the lesser of a) the DB limit for the year of commencement (prorated for partial years of service) and b) 2% of indexed compensation for the particular year. [Footnote 1]

Plans may incorporate the maximum formula or may refer to it as "the maximum lifetime retirement benefit as stated in the Income Tax Act and Regulations" or by referring to section 8504 of the Regulations. We will not accept references to the requirements of the Canada Revenue Agency, as the Agency is merely enforcing the requirements of the legislation as prepared by the Department of Finance.

When connected persons are participating or have participated after 1990, the maximum clause must either be general enough to encompass the connected persons' maximum or must specifically refer to the connected person’s restriction.

The maximum is based only on compensation from an employer “who participated under the provision…for the benefit of the member”. It cannot be based on compensation received from a prior employer who did not participate under the provision.

The career average earnings maximum in subparagraph 8504(1)(a)(i) does not apply to benefits for service from a prior employer who did not participate in the year under the provision for the benefit of the member. The final average earnings maximum in subparagraph 8504(1)(a)(ii) would apply to benefits for service with the prior non-participating employer whether or not the member is connected with the prior non-participating employer or with the current participating employer. The final average earnings maximum will be based on the member’s earnings from the current participating employer(s) and not on the earnings from the prior non-participating employer.

MEPs:

These restrictions do not apply where the plan is a MEP, including SMEPs.

Grandfathered Plans:

Grandfathered plans are not restricted by this clause until January 1, 1992, and not retroactively. Only benefits accrued after 1991 are affected.

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

Pre-October 1968 and 1980 shareholder plans may add the higher dollar limit, only in respect of service after 1991. Benefits in respect of pre-1992 service must continue to be restricted by the old limits in Information Circular 72-13R8, Employees’ Pension Plans. This will have particular impact on the 1968 plans, which are restricted by the old $1143 maximum.

Cross References:

Participating Employer – 147.1(1)

Highest Average Compensation – 8504(2)

12.1.2 8504(1)(a)(ii) – Maximum Lifetime Retirement Benefits

This maximum applies to LRBs payable under a single DB provision. Therefore, it does not apply to:

  • LRBs payable under a combination of provisions of the same plan or under a combination of plans; or
  • To any portion of the pension that will disappear as a result of the plan providing for a reduction in benefits once CPP, QPP or OAS public pension benefits become payable. (The portion of the pension that disappears is a bridging benefit by definition, and therefore subject to restrictions on bridging benefits.)

Also see:

  • Subsection 8504(10) of the Regulations for possible exceptions to the maximum when retirement is due to total and permanent disability or when retirement occurs after age 65 years of age;
  • Subsection 8504(5) of the Regulations for a combined limit that may apply where the plan provides LRBs at or close to the maximum as well as a bridging benefit; and
  • Subsections 8504(6) and (7) of the Regulations for a stricter dollar limit (greater of $1,150 and 2/3 of the DB limit for the year in which the LRBs start to be paid) that may apply where the plan provides LRBs for pre-1990 service.

Plan Text:

A plan has to:

  • incorporate the maximum formula as stated in the Regulations (or equivalent wording);
  • make a general reference to the "the maximum LRB permitted in the Income Tax Act and Regulations" (or equivalent wording);
  • refer to section 8504 of the Regulations; or
  • incorporate or continue to include paragraph 9(g), or a modified paragraph 9(g), of IC 72-13R8 (see below).

Paragraph 9(g) of Information Circular 72-13R8 - "the 9(g) maximum"

Pre-reform service — Regardless of when a plan is or was submitted for registration, the 9(g) maximum continues to apply to LRBs for pre-1990 service, generally, pre-1992 service under a grandfathered plan, with two exceptions. First, the 9(g) maximum doesn't apply to LRBs for service credited before 1992 under a grandfathered plan that was not subject to the 9(g) maximum. Second, the exemption for annual LRBs of less than $300 ceases to apply unless the plan is a grandfathered plan.

Post-reform service — Continued use of the 9(g) maximum to LRBs for post-1989 service (or, generally, post-1991 service under a grandfathered plan) is also acceptable for purposes of the 8504(1) maximum, provided that:

  • no connected persons participate in the plan (they are subject to a "career-average-earnings" maximum);
  • it doesn't apply after 1989 to combined MP and DB benefits under the plan; and
  • MP benefits affected by a DB cap conflict with paragraph 8502(l) which requires PAs to be determinable. Moreover, they appear to conflict with subparagraph 8502(c)(ii) in that the MP benefits are not being paid out of a pure MP provision, i.e. a provision under which benefits are determined solely with reference to, and provided by, the amount in the member's account.
  • the exemption for annual LRBs of less than $300 ceases to apply.

Modified 9(g) maximum

The 9(g) maximum can be modified in five ways for LRBs for pre-1990 or post-1989 service.

First, the dollar limit in the 9(g) maximum (or a more restrictive dollar limit imposed by the plan), may be increased to the defined benefit limit, as per subsection 8500(1) of the Regulations. The increased dollar limit can also apply to the LRBs being paid to retired members, but not retroactively for pre-1990 service.

Second, the remuneration on which LRBs are based in the 9(g) maximum can be replaced with highest average compensation, as described in subsection 8504(2).

Third, the date the 9(g) maximum applies can be changed from the date of retirement, termination of employment or termination of the plan to the calendar year in which LRBs start to be paid. This change is only beneficial if at least one of the above modifications is made. In other words, without the indexation inherent to use of the highest average compensation or increased dollar limit, the amount of LRBs a member is entitled to remains the same regardless of when they become payable.

Fourth, the 35-year cap on pensionable service in the 9(g) maximum need only apply to pre-1990 years of service (generally, pre-1992 years under a grandfathered plan).

Example

On July 31, 1989 a member attained 35 years of pensionable service. Those 35 years and service starting on January 1, 1990 may be counted as pensionable service (if they otherwise qualify). But, the five months between August 1 and December 31, 1989 cannot be counted as pensionable service.

Fifth, the restriction in paragraph 9(g)(vi) of Information Circular 72-13R8 that the 9(g) maximum apply to a member's total LRBs paid or payable under more than one RPP or previously registered plan of an employer or a group of related employers need only apply to LRBs for pre-1990 service. While it can legally be argued that one plan cannot be made subject to the terms of another plan, we continue to apply the restriction to LRBs for pre-1990 service because the checks and balances in place for post-1989 years (e.g. the PA and PSPA rules) did not exist for pre-1990 years. Where a plan imposes the restriction on total LRBs that include LRBs for post-1989 service, only ask for its removal, or its limited application to pre-1990 LRBs if we know one of the other plans is an MP plan. As stated earlier, this is because PAs are not determinable and it is questionable that a MP provision exists when MP benefits are affected by a DB maximum. Otherwise, any dispute among the members, employers and plan administrators is a legal issue to be addressed by the courts.

To summarize, where all five modifications are possible, the 9(g) maximum becomes the more generous than the maximum under subsection 8504(1) of the Regulations. Where the more restrictive aspects of the 9(g) maximum have to apply, i.e. for pre-reform years of service, the 35-year cap and the cap on total LRBs, the remaining three modifications bring the 9(g) maximum closer to the maximums in subsection 8504(1). On the other hand, the maximum of subsection 8504(1) is more restrictive to all but grandfathered plans, because it does not exempt annual LRBs of less than $300.

9(g) maximum and DB benefit to MP conversions

Upon conversion of DB benefits to MP benefits, there may exist a surplus that arose from the prior arrangement. So long as the surplus remains unallocated, the terms of the plan have to limit total LRBs payable to the member affected by the conversion for pre-1991 service to the 9(g) maximum or to the modified 9(g) maximum. This is to prevent entitlement to excessive LRBs or payments that the members would not have been entitled to had conversion not occurred. If the plan is amended to provide for the elimination of the surplus by allocating it to the members' MP accounts, or by a cash refund to the employer or cash payment to the members, the maximum can be removed.

The maximum does not apply to LRBs for post-1990 service because after 1990 the PA limits control the amount of surplus that may be allocated to members under a MP provision.

SMEPs:

The maximum does not apply to benefits payable under SMEPs.

Grandfathered Plans:

Grandfathered plans are exempt from subsection 8504(1), but only for LRBs for pre-1992 service.

Where a grandfathered plan has a formula and one of the rates is above 2.0%, the plan can update the earnings base as long as the plan is amended to limit pre-reform benefits to the maximum of paragraph 9(g) of the Information Circular 72-13R8.

LRBs under a DB provision, or under DB and MP provisions (excluding LRBs stemming from additional voluntary contributions) under a grandfathered plan for pre-1992 service have to be acceptable to the Minister. They are considered acceptable if:

  • the LRBs comply with the 9(g) maximum; or
  • the LRBs were not subject to the 9(g) maximum.

A grandfathered plan can be amended for most of the modifications to the 9(g) maximum described above for all years of service. The one exception is the 35-year cap on pensionable service. Generally, this cap continues to apply to LRBs for pre-1992 service. However, if the plan is amended to comply in all respects for the legislation earlier than January 1, 1992 (but no earlier than January 1, 1990), the cap need only apply to LRBs for service prior to the effective date of the amendment. For example, if the plan is amended to comply with the legislation as of January 1, 1991, the 35-year cap can apply to LRBs for pre-1991 service rather than pre-1992 service.

Where a grandfathered plan continues to limit LRBs as of the date of retirement or of termination of employment/plan, as opposed to the year LRBs commence to be paid, we may administratively allow the plan to provide for a "projected maximum". Projected maximum means the maximum can be determined using an assumption for AIW-based indexation from the date the 9(g) maximum is applied to normal retirement age. However, whereas subsection 8504(1) usually applies to LRBs for post-1991 service only, our acceptance of a projected maximum is subject to subsection 8504(1) applying to all years of service. This condition precludes LRBs from being excessive. LRBs would be considered excessive, for example, if they were more than the sum of pre-1992 LRBs, based on a non-indexed 9(g) maximum calculated as of the actual date of retirement/termination, and post-1991 LRBs, based on the 8504(1) maximum which only allows indexation after 1995.

LRBs in pay before 1992 under a DB provision of a plan that was submitted for registration after March 27, 1992 (i.e. not a grandfathered plan) are permissible if they are acceptable to the Minister. They are acceptable to the Minister if they comply with the 9(g) maximum or the modified 9(g) maximum.

Cross References:

Definition of Bridging Benefit – 8500(1)

Pre-1991 Benefits – 8503(3)(e)

Highest Average Compensation – 8504(2)

Retirement Benefits Before Age 65 – 8504(5)

Excluded Benefits – 8504(10)

Pre-1992 Benefits Under Grandfathered Plans – 8509(1) & (3)

Exemption for Grandfathered Plans for Pre-1992 – 8509(2)(b) & (c)

Benefits Under Plan Other Than Grandfathered Plan – 8509(9)

Special Rules – SMEPs – 8510(6)

Newsletter No. 92-11, Maximum Pension Limits


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12.1.3 8504(1)(b) – Indexing

This subsection restricts plans that provide for indexing of the LRBs. If no indexation is provided under the plan, the restriction in paragraph 8504(1)(a) of the Regulations for the year of commencement will continue to apply for all years.

The first restriction that applies is that only those forms of indexation which are permitted under paragraph 8503(2)(a) may be provided under the plan.

Paragraph 8504(1)(b) is a further restriction on the indexation that may be paid. The result is that a plan which pays the maximum benefits (2%) may not pay greater indexing than is warranted by increases in the average CPI.

However, where the LRBs payable under the plan are lower than 2%, it is possible that indexation could be greater than as warranted by CPI. This is because there is no requirement for the indexing to be treated separately. The entire package of LRBs plus indexing as promised under the plan is restricted as a whole to the maximum pension plus CPI indexing.

Plan Text:

Plans that provide for indexing must restrict the LRBs payable in years following the year of commencement to the maximum stated in paragraph 8504(1)(b) of the Regulations.

There are several possible ways for plans to impose this restriction. Where the indexing provision in the plan is based on a percentage of CPI (up to 100%), no additional restriction is required.

Where indexing is not directly related to CPI (eg. where it is 4% flat indexing or based on excess earnings), the plan may cap the indexation at CPI. If it does not, the maximum pension clause reference in the plan must be worded so that the maximum pension rule for years following the year of commencement is included. General references to the maximum lifetime retirement benefit as stated in the Income Tax Act and Regulations or to section 8504 of the Regulations would be acceptable for this purpose.

SMEPs:

Subsection 8504(1) does not apply to benefits payable from a SMEP.

Grandfathered Plans:

Grandfathered plans that did not contain these restrictions in the past are not restricted until January 1, 1992, and it is not retroactive. Only benefits accrued after 1991 are affected.

Where we have registered a pension plan after March 27, 1988 that provides for indexing which does not comply with these conditions, any retirement benefits that commenced to be paid before 1992 are not affected, as long as they are acceptable to the Minister.

Paragraph 8504(1)(b) will replace paragraph 9(i) of Information Circular 72-13R8 for all years of service, except if the plan is a pre-1968 or a 1980 shareholder plan, or a designated plan.

12.2 8504(2) – Highest Average Compensation

Compensation is defined in subsection 147.1(1) of the Act and includes compensation that is prescribed by section 8507 of the Regulations.

The maximum pension rule in section 8504 is not based on best average earnings of three consecutive years, but rather on best average earnings of three periods (not necessarily consecutive) of 12 consecutive months. For this purpose, earnings may be indexed based on AIW increases from 1986 on.

Highest average compensation only includes compensation from an employer “who participated under the provision for the benefit of the member”. It does not include compensation received from a prior employer who did not participate under the provision.

Subsection 8504(2) is amended as a consequence of the introduction of subsection 8503(17), which enables an RPP to provide for the payment of bridging benefits on a stand-alone basis (i.e., without the simultaneous payment of lifetime retirement benefits) to qualifying employees. Bridging benefits are considered to be retirement benefits. The amendment to subsection 8504(2) replaces the expression "retirement benefits" with the expression "lifetime retirement benefits". This ensures that, in computing the highest average indexed compensation of a member who has received stand-alone bridging benefits, the member's compensation can be indexed to the year in which the member's lifetime retirement benefits commence to be paid, rather than the possibly earlier year in which the bridging benefits commenced to be paid. [Footnote 2]

This amendment applies to the 2008 and subsequent calendar years. [Footnote 2]

Plan Text:

For maximum pension purposes, there is no requirement that compensation be limited to the plan's pensionable earnings. Compensation may include any form of compensation described under subsection 147.1(1) of the Act. As a result, the definition of pensionable earnings for benefit purposes may be more restrictive than the definition of compensation for maximum purposes.

Indexed compensation may be used for purposes of the plan benefit formula as well as for the maximum. For purposes of calculating the maximum, though, the indexation may be no greater than that permitted under paragraph 8504(2) of the Regulations. Greater indexation for purposes of the plan benefit formula, while not prohibited, would lead to a PSPA.

General references to the maximum lifetime retirement benefit as stated in the Income Tax Act and Regulations would be acceptable for this purpose. Otherwise it must be specifically stated or referred to.

If it is clear that indexed earnings will not be used in the plan for any purpose, there will be no need to refer to the limitations on the indexing.

SMEPs:

SMEPs are exempted from this rule by subsection 8510(6).

Grandfathered Plans:

LRBs that commence to be paid from a grandfathered plan after January 1, 1992, may be based on highest average indexed compensation for all years of service, if the plan provides.

Pre-October 1968 and 1980 shareholder plans and benefits for partners are not eligible for this option. Connected person members of other plans may have highest average compensation apply to their benefits for pre-reform service as long as the 50/50 value test continues to be met as at December 31, 1990 for new plans and December 31, 1991 for grandfathered plans.

Benefits may continue to be calculated on either the best 3 or best 5 years of service, as provided in Information Circular 72-13R8, subject to the maximums of subsection 8504(1) of the Regulations.

Cross References:

Participating Employer – 147.1(1)

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


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12.3 8504(3) – Alternative Compensation Rules

Plans may be structured to include in their pensionable earnings for the year amounts actually paid to employees in the year, or to include amounts that can be considered to have been earned in the year, even if paid later (such as is often the case with bonuses).

In addition, since highest average compensation is based on months, compensation may be apportioned uniformly over a year even if not actually paid uniformly.

SMEPs:

SMEPs are exempted from this rule by subsection 8510(6).

12.4 8504(4) – Part-time Employees

12.4.1 8504(4)(a), (b), (c) – Compensation

Under the general maximum pension rule, actual earnings are used to calculate the pension, and there is no requirement to actualize service. In other words, a full year of service could be counted for a member who works part-time, as long as the actual earnings paid to the member for the part-time work are also used in the calculation.

Paragraph 8504(4)(a) of the Regulations provides an exception to this general rule. Instead of using actual earnings, annualized earnings may be used, but only if service is actualized. Thus, for a member who works part-time and earns $20,000, annualized earnings of $40,000 may be used in the calculation of the maximum, as long as service is actualized. In this case, the member's actualized service would be .5 of a year. Because of paragraph 8503(3)(i), the exception provided by paragraph 8504(4)(a) must be used for final average and best average earnings plans.

Full-time is whatever is normal full-time employment with the particular employer.

Where an employee works for more than one employer in the year on a part-time basis, they are treated as one employer. The result is that no employee should be credited with more than one year of service per calendar year for maximum pension purposes.

Plan Text:

It is not always clear in the plan text whether part-time employees participate in the plan. Forms T510, Application to Register a Pension Plan and T244, Registered Pension Plan Annual Information Return can be used to verify this where it is not otherwise clear.

SMEPs:

SMEPs are exempted from this rule by subsection 8510(6).

Grandfathered Plans:

These restrictions do not apply to grandfathered plans until 1992.

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

Cross Reference:

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

12.4.2 8504(4)(d) – Eligible Periods

Periods of reduced pay

Periods of reduced pay are not an eligible period of temporary absence. Rather, it is a situation where members have taken temporary pay cuts.

Special rules under subsection 8503(4)(a) (member contributions) 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.

Periods of temporary absence

Eligible periods of temporary absence can include leaves of absence, layoffs, strikes, lockouts 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. 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.

Disability

For purposes of the maximum pension, the member is deemed to have performed regular service for commensurate pay.

SMEPs:

SMEPs are exempted from this rule by subparagraph 8510(6).

Grandfathered Plans:

These restrictions do not apply to grandfathered plans until 1992.

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

Cross References:

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

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

Definition of “Disability” – 8500(1)

Prescribed Compensation – 8507

12.5 8504(5) – Retirement Benefits Before Age 65

Under subsection 8504(1) of the Regulations, lifetime retirement benefits are restricted to the lesser of 2% of compensation and the DB limit times years of service.

Subsection 8504(5) restricts "retirement benefits" as opposed to LRBs. Retirement benefits include both LRBs and bridging benefits. As subsection 8504(1) is more restrictive than subsection 8504(5), subsection 8504(5) ends up applying only to plans that provide a bridging benefit.

It is structured so that the bridging benefit of a member who had accrued less than the DB limit times years of service will not be as greatly restricted as for someone who had accrued the maximum.

In the formula, (0.25 x C) represents the maximum CPP for the year. The maximum CPP is about 1/4 of YMPE.

The restriction contained in subsection 8504(5) is in addition to the restrictions imposed by 8503(2)(b). The lesser of what is permitted under paragraph 8503(2)(b) and what is permitted by 8504(5) may be paid.

Subsection 8504(5) does not restrict additional benefits paid in lieu of LRBs on an actuarially equivalent basis, in accordance with paragraph 8503(2)(l).

Plan Text:

This limit is applicable only to plans that provide some sort of bridging benefit.

Bridging benefits are defined as all benefits that are payable on a temporary basis. In a plan where benefits are reduced when public pension benefits (CPP/QPP, OAS) become payable, the portion of the benefit, which will disappear when the public pension benefits are paid, is a bridging benefit by definition.

It is not necessary for plans to specifically refer to this restriction if it is clear that the bridging benefits provided under the plan would never exceed it. Where the bridging benefit is based on CPP/QPP only and is accrued over 35 years or more, there is no need to ask for this limitation.

Where this is not the case, an acceptable reference to the maximum benefits will suffice, as long as it is general enough to include subsection 8504(5). If the wording of the maximum pension clause refers only to LRBs, it is not acceptable for this purpose.

SMEPs:

This rule also applies to SMEPs.

Grandfathered Plans:

If the plan was already registered on June 7, 1990 or was submitted for registration by June 8, 1990, the restriction will only apply to the portion of the member's benefits which relate to post-1991 years of service, regardless of when a bridging benefit is added to the plan. Benefits that relate to years of service before 1992 can be paid even if they exceed the 8504(5) restriction. See 8509(7).

Where we have registered a pension plan after March 27, 1988 but before June 7, 1990, any retirement benefits which commenced to be paid before 1992 are not affected. See 8509(9).

Cross Reference:

Excluded Benefits – 8504(11)


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12.6 8504(6) – Pre-1990 Benefits

The annual $1,150 limit (2/3 x $1,725) applies when recognition of benefits for pre-1990 years of service occurs after June 7, 1990. This means that pre-1990 benefits are subject to the lesser of:

  • 2% x earnings x pensionable service; and
  • $1,150 x pensionable service.

The above limit does not apply if the benefits for pre-1990 years of service were recognized before June 8, 1990. In this case, those benefits are subject to the higher maximum pension limitations of subsection 8504(1), which is the lesser of:

  • 2% x pensionable service; and
  • $1,722.22 x pensionable service.

Plan Text:

If it is clear that pre-1990 benefits cannot be purchased (e.g., the eligibility section excludes pre-reform service), there is no need for the plan to specify the $1,150 limit. In any other case, the $1,150 limit should be contained in the plan text. A plan's reference to the maximum benefit rules, if otherwise acceptable will also suffice, as long as the reference is general enough to include subsection 8504(6).

SMEPs:

Subsection 8504(6) also applies to SMEPs.

Grandfathered Plans:

This limit does not apply to pre-1990 benefits paid out of a grandfathered plan before 1992. However, if such offside benefits have not been fully paid out before 1992, they must be restricted by the $1,150 limit. Otherwise, the plan is revocable. Purchase of an annuity or lump sum settlement (usually for transfer to an RRSP) qualifies as full payment. Payment out of the plan itself does not.

Where we have registered a plan after March 27, 1988 that doesn't comply with the limit, any retirement benefits which started to be paid before 1992 are not affected. However, the benefits must be acceptable to the Minister.

Please note that the $ 1,150 limit cannot be indexed to CPI prior to the date of commencement of the pension. Some plans have included the limit in the benefit formula of the plan. The plan is then restricted to the 9(g) maximum for all years. Another section of the plan provides that the benefits may be increased with CPI as long as it does not exceed the 9(g) maximum. In effect this would entitle the member to an increase in the $1,150 that is not allowed under the Regulations until the commencement of the pension. The maximum pension clause in this case must be amended to include the $1,150 limit for pre-1990 years.

Cross References:

Limit Not Applicable – 8504(7)

Exemption of grandfathered plans from regular DB rules for pre-1992 benefits – 8509(1)(b)

Exemption of non-grandfathered plans from regular DB rules when payment of benefits started before 1992 – 8509(9)

12.7 8504(7) – Limit Not Applicable

The limit in subsection 8504(6), further explained in the preceding section, does not apply if:

  • at any time before June 8, 1990, any part of the pre-1990 year was pensionable service under any DB provision of any employer's RPP;
  • on June 7, 1990, there existed a written agreement to treat any part of the pre-1990 year as pensionable service under any DB provision of any employer's RPP, whether or not the treatment was conditional on the member making contributions;
  • the individual:
    • was a member of an RPP in the pre-1990 year and the previous year;
    • accrued DB benefits under the RPP for the previous year; and
    • did not accrue DB benefits under the RPP for the pre-1990 year because of a disability or leave of absence;
  • before June 8, 1990, contributions were made for the pre-1990 year by or for the member under a MP provision of any RPP for any employer (contributions include AVCs and allocations of forfeitures or surplus, plus related earnings); or
  • contributions were made by or for the member to any DPSP in the particular year.

Plan Text:

We don't require these exceptions to be stated in the plan text. However, where we believe that the $1,150 limit should apply (e.g., when reviewing an executive plan termination and it appears that pre-1990 service was credited after June 7, 1990), we ask the submitter to provide details and documentation demonstrating that an exception applies. Relevant details could include:

  • the name and registration number of the RPP under which DB benefits accrued for the pre-1990 year (or for the previous year, in the case of a member who didn't accrue DB benefits in the pre-1990 year because of disability or leave of absence);
  • the name and registration number of the RPP to which MP contributions were made for the pre-1990 year;
  • the name of the employer for whom the individual worked in the pre-1990 year;
  • a certified copy of the agreement in existence on June 7, 1990 which recognized the pre-1990 year(s) as pensionable service;
  • the name and registration number of the DPSP to which contributions were made in the pre-1990 year.

Cross Reference:

Deems allocation of forfeitures or surplus under MP provision to be contribution – 8500(7)

12.8 8504(8) – Cross-plan Restrictions

In other words, the limits on pre-65 benefits and the $1,150 limit may apply to the combined benefits payable under several DB provisions (which may or may not be in separate RPPs) if the provisions are "associated".

MEPs:

If the plan is a MEP, including SMEPs, the pre-65 benefits and the $1,150 limit apply within the plan itself only. There is no need to include any other plans in the limits.

Cross Reference:

Associated DB Provisions – 8504(9)

12.9 8504(9) – Associated Defined Benefit Provisions

Where a plan contains more than one DB provision, check the maximum clauses wording carefully. If there is a possibility that pre-1990 service will be purchased after June 7, 1990, it must be clear that subsection 8504(5) applies to the combined benefits payable under both provisions. If the plan provides for the payment of bridging benefits, it must be clear that subsection 8504(7) applies to the combined benefits payable under both provisions.

Where forms T510, Application to Register a Pension Plan and T244, Registered Pension Plan Annual Information Return, indicate that members accrue benefits under another RPP of the employer or a non-arm's length employer, check any DB plans listed to see if they also provide for bridging benefits. In accordance with paragraph 8503(3)(k)of the Regulations, the cross-plan bridging restriction, the plans should make it clear that each member is entitled to a bridging benefit under only one provision. However, the Minister may have waived this requirement. If that is the case, then the plan must clearly state that subsection 8504(5) applies to the combined benefits payable under both.

In addition, if there is a possibility that pre-1990 service will be purchased after June 7, 1990 under both plans, it must be clear that subsection 8504(6) applies to the combined benefits payable under both plans.


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12.10 8504(10) – Excluded Benefits

This subsection excludes certain benefits from LRBs for purpose of the maximum pension rule in subsection 8504(1) of the Regulations. Among the benefits that are excluded are additional benefits payable as a consequence of an actuarial increase in the pension to reflect the postponement of payment of the pension after age 65.

The SPPA of Quebec requires that a pension be actuarially increased from the normal retirement date to the actual postponed retirement date. If the plan provides a maximum pension, as per subsection 8504(1) and has a normal retirement date of less than age 65, then it would appear hat the increase on postponed retirement will result in a benefit that exceeds the maximum of subsection 8504(1) and which is not excluded under subsection 8504(10).

Paragraph 8504(10)(b) applies on the receipt of LRBs after age 65. It lets you calculate the maximum pension without including any actuarial increases due to the postponement of pension past age 65.

The exclusion of the actuarial increase from the maximum applies to all years of service. The exclusion for pre-reform service does not apply to pre-October, 1968 and 1980 Shareholder plans.

In comparison to Quebec's revalorisation, paragraph 8504(10)(b) only lets you exclude actuarial increases past age 65. Any actuarial increases prior to age 65 must be within the limits of section 8504 of the Regulations.

Plan Text:

Some plans registered in Quebec will use the wording such as “actuarially equivalent” or “actuarially increased” to provide for actuarial increases to pensions postponed beyond normal retirement date. These provisions are acceptable.

The terminology in plans that take the extra step to detail how the actuarial increase is calculated should be clear that subsection 8504(10) is respected. If the increase is based on the pension which can be purchased with the value of a notional account which comprises of missed payments including interest from normal retirement date to postponed retirement date, the results must not be more favourable than the actuarial basis as permitted under paragraph 8504(10)(b). However, if the provision establishes a pure MP account, it is not acceptable since the payments the member is to receive are being moved into a MP environment.

12.11 8504(13) – Alternative CPI Indexing

Paragraph 8504(1)(b) is based on the average CPI, which is defined in subsection 8500(1) as the average monthly CPI's for the 12 months ending on September 30 of the previous year. Something similar, for example using November rather than September, would be acceptable.

Footnote

[Footnote 1]
Addition made on April 27, 2007.

[Footnote 2]
Addition made on June 20,2008.

Date Modified: 2008-06-20

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