Registered Plans Directorate technical manual

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• 20 8517 – Transfer – Defined Benefit to Money Purchase
• 20.1 8517(1) – Prescribed Amount
• 20.2 8517(2) – Minimum Prescribed Amount
• 20.3 8517(3) – Plan Wind-up or Replacement
• 20.4 8517(3.1) – Benefits Provided with Surplus on Wind-up
• 20.5 8517(4) – Amounts of Lifetime Retirement Benefits Commuted
• 20.6 8517(5) – Normalized Pension
• 20.7 8518(2) – Pension Adjustment Limits

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20 8517 – Transfer – Defined Benefit to Money Purchase

20.1 8517(1) – Prescribed Amount

The prescribed amount is a maximum, which limits the amount that may be transferred to an RRSP or MP provision from a DB plan. By virtue of 8502(k) of the Regulations, it also restricts the amount that may be transferred to members' accounts on conversions from DB to MP.

When commuting benefits for the purpose of transfer, paragraph 8503(2)(m) of the Regulations must be applied first. It restricts the commuted value from exceeding the present value of the benefits that cease to be provided as a result of the commutation. This means that if the commuted value is less than the prescribed amount, only the commuted value may be transferred. Generally, if the commuted value is more than the prescribed amount, it must be taken in cash. It may be possible under 8503(7) to reduce or eliminate an amount that would otherwise have to be taken in cash.

In the A x B formula that determines the prescribed amount, A is the amount of annual pension that will be foregone as a result of the transfer. Some or the entire pension may be commuted and transferred. The B factor starts at 9 and increases up to 12.4 at age 65 after which it declines. The factor formerly decreased to 0 at age 72 which prevented amounts from being transferred when the individual was older than 71. Changes released in February, 1997, but effective to transfers after 1995, extend the B factor on a declining basis to 3.0 at age 96 and thereafter so that transfers are possible throughout the individual's lifetime. However, amounts cannot be transferred to an individual's RRSP or to another RPP after the end of the year in which the individual turns 71 so the only transfer option if the individual is older than 71 is to a RRIF.

Subsection 8517(1)(b) of the Regulations allows interpolation between factors up to age 65. For example, if the individual is age 55 and 6 months at the time of transfer, the B factor is 10.5. (At 55 it's 10.4 and at 56 it's 10.6.) The B factor to be used depends on the member's age at the time of transfer. For example, if a plan terminates in 1992 but does not pay out benefits until 1994, the members' ages in 1994 must be used to determine the B factor. Because we seldom know the date of transfer, we should not approve or specify exact amounts as meeting the prescribed amount limits.

Plan Text:

It is not necessary for plans to specify that any amounts transferred to RRSPs or MP will not exceed the prescribed amount. Plans must, however, provide for transfers in a general way if they intend to permit them.

Cross References:

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

Commutation of LRBs – 8503(7)

20.2 8517(2) – Minimum Prescribed Amount

The net contribution account is a concept, rather than necessarily a true account, which exists in order to ensure that members retain their rights to their own contributions plus interest, to the extent that they have not been used up to pay the benefits promised under the plan. In some cases, members will have contributed or transferred to the plan amounts which exceed the amount obtained using the A x B formula. In that case, the net contribution account becomes the prescribed amount and may be transferred to an RRSP or MP provision. This only applies where the member is transferring the full entitlement under the provision.

Plan Text:

It is not necessary for plans to refer specifically to net contribution accounts, or to provide specifically that such amounts may be transferred. Plans must, however, provide for transfers in a general way if they intend to permit them.

20.3 8517(3) – Plan Wind-up or Replacement

While the 50 members and 5-year stipulations may be waived by the Minister, it is not intended that waivers should be granted for individual pension plans.

20.4 8517(3.1) – Benefits Provided with Surplus on Wind-up

Subsection 8517(3.1) of the Regulations provides a special transfer limit that applies when a member commutes stand-alone ancillary benefits provided in accordance with subsection 8501(7). It applies to amounts transferred in respect of stand-alone ancillary benefits that are provided after 1996 (second-stage transfer). A member can use the unused 8517-transfer room from the first-stage transfer to allow rollover of the commuted ancillary benefits to an RRSP, RRIF or MP.

If surplus is used to upgrade benefits after LRB’s have been commuted:

• additional LRB’s and their associated ancillary benefits can be transferred to an RRSP subject to the normal prescribed amount test (8517(3.1)(a))
• the part which are stand-alone ancillary benefits** can be transferred to an RRSP subject to the limit prescribed by 8517(3.1)(b), which is the lesser of:
  • the present value of the stand-alone ancillary benefits
  • the unused part of the first-stage transfer limit
  • and is approved by the Minister.

** Stand-alone ancillary benefits are ancillary benefits based on LRB’s that were previously commuted.

Conditions applicable to the approval of the Minister

Where we receive an amendment that upgrades benefits on plan windup that would be considered stand-alone ancillary benefits, we require the following information from the administrator, in order to approve the provision of stand-alone ancillary benefits under subsection 8501(7) and their subsequent transfer under subsection 8517(3.1):

• Member’s name
• Member’s date of birth
• Date of first transfer
• Commuted value previously transferred (including excess contributions transferred)
• 8517 – Prescribed amount as at date of first transfer
• Unused prescribed amount from the first transfer
• Commuted value of new LRB’s and their associated ancillary benefits and/or commuted value of new stand-alone ancillary benefits provided with respect to the previously commuted amount. If the member was entitled to a PAR (i.e. terminated after 1996), the commuted value of stand-alone ancillary benefits provided must be broken down by:
  • Commuted value of post-1989 benefits
  • Commuted value of pre-1990 benefits

Cross References:

Benefits Provided with Surplus on Plan Wind-up – 8501(7)

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

20.5 8517(4) – Amounts of Lifetime Retirement Benefits Commuted

Paragraph 8517(4)(a) of the Regulations applies where the pension is in pay, and the member decides to have part or all of it commuted and transferred to an RRSP. Where that is the case, the amount used for "A" in the A x B formula is simply the annual amount by which the pension payments are reduced as a result of the commutation and transfer.

Paragraph 8517(4)(b) of the Regulations applies where the amount is commuted and transferred before the pension payments begin (for example, on plan termination or termination of employment). Where that is the case, the normalized pension assumptions set out in subsection 8517(5) apply. The amount of LRBs commuted is the amount by which the normalized pension computed using the assumptions of subsection 8517(5) is reduced as a result of the transfer.

Paragraph 8517(4)(c) of the Regulations applies where, in conjunction with a transfer from an RPP on behalf of an individual, another payment is also made from the plan on behalf of the individual. This paragraph provides that the reduction in the individual’s LRBs or normalized pension, as the case may be, as a result of that other payment is taken into account in determining the LRB commuted in connection with the transfer.

Paragraph 8517(4)(c) of the Regulations does not apply, however, with respect to a payment made in settlement of rights on the breakdown of a marriage or common-law partnership if the payment is transferred to an RPP or an RRSP in accordance with subsection 147.3(5) of the Act. In other words, the individual’s normalized pension is determined only upon the individual’s remaining entitlement [original entitlement less the spousal entitlement] to benefits under the plan. The commuted value of the remaining entitlement to LRBs must be less than or equal to the individual’s prescribed amount.

Example:

If a court orders the transfer following marriage breakdown, the spouse can transfer his/her entitlement as established under subsection 8501(5) to a RPP, RRSP or RRIF. Note that the spouse’s half of the commuted value is not subject to the prescribed amount under section 8517, since subsection 147.3(5) doesn’t refer to it. But if the member wants to transfer the remainder of his benefits under 147.3(4), his prescribed amounts are calculated as if he had always been entitled to only half of his benefits, 8517(4).

A member is 49, the commuted value of his benefits is $120,000, paragraph 8503(2)(m). The pension commences at 60 and is equal $1,000 a month. The prescribed amount is $1,000 X 12 X 9 = $108,000, section 8517. The spousal transfer can be $120,000/2 = $60,000, subsection 147.3(5). The member is limited to $500 X 12 X 9 = $54,000, paragraph 147.3(4)(c). The total transfer to both RRSP ($60,000 + $54,000 = $114,000) exceeds the amount the member could have transferred (without marriage breakdown) $108,000.

20.6 8517(5) – Normalized Pension

A normalized pension is calculated for transfer purposes if the member has not commenced receiving retirement benefits at the time of transfer, for example at termination of employment prior to retirement age. The assumptions used are essentially the same as those used for calculating PA, with a few omissions.

8517(5)(f)

This excludes any additional benefits which might become payable as a consequence of the PBSA and provincial requirements that employees fund no more than half of their benefits.

As a result, such additional benefits may not be transferred to RPPs or RRSPs where retirement benefits have not yet commenced to be paid (unless they qualify under 147.3(6) as pre-1991 contributions).

Cross Reference:

Designated Laws – 8513

20.7 8518(2) – Pension Adjustment Limits

This is an exception to the PA limits rule, and applies only in specific circumstances. There will be no need to stipulate it in plan texts.