29 February 1996 Internal T.I. 9602356 - MONEY PURCH SURPLUS, PLAN EXPENSES

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

Principal Issues:

Can surplus in a money purchase plan be used to cover the plan's operating expenses?

Position:

No

Reasons:

Under 147.3(8), amounts can only be used to satisfy employer's obligations to make contributions

			February 29, 1996

	HEADQUARTERS	HEADQUARTERS
	Stella M. Black	M.P. Sarazin
	Director	957-3499
	Registered Plans Division	

			960235

Payment of Plan Expenses with Transferred Surplus

This is in reply to your memorandum from J. Hollinger of the Technical Review Section dated January 8, 1996 and your memorandum from D. Wurtele of the Policy Section dated December 19, 1995 wherein you requested our comments as to whether plan expenses can be paid out of surplus in a converted pension plan which has been drafted so that no transfer rule is invoked on the payment of those expense.

Comments

As stated in our memorandums to your Division dated April 28, 1994 (file #941024) and April 6, 1994 (file #940608), surplus cannot be used to cover plan expenses subsequent to the conversion of a defined benefit plan to a money purchase plan because the employer's obligations under subsection 147.3(8) of the Act would not be satisfied. The argument has been presented that expenses can be paid out of surplus in a converted pension plan "provided the plan is drafted so that no transfer rule is invoked on the payment of those expenses". We are of the view that the conversion of the defined benefit plan to a money purchase plan automatically results in the transfer rule being invoked. Consequently, the employer's responsibilities under subsection 147.3(8) of the Act would have to be satisfied. We are also of the view that the conversion results in the actuarial surplus being transferred to the other plan to be held in connection with a money purchase provision of the other plan for the purposes of subsection 147.3(8) of the Act.

In the situation where a single pension plan has two benefit provisions and one of the provisions has an actuarial surplus, we would consider the costs associated with each of the benefit provisions as costs of the particular plan. Since a plan may provide for the payment of all reasonable administrative, investment and similar expenses incurred in connection with the plan, the surplus could be used to pay for the expenses associated with the plan, including the expenses related to the other benefit provision.

We trust the above comments will be of assistance to you.

for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate