OBA Professional Development Seminar 5 May 2017

­This summarizes CRA responses provided during a CBA professional development seminar on pensions held on May 5, 2017 in Toronto to questions briefly summarized in the headings. The CRA presenters were Michael Godwin, Director General, Registered Plans Directorate, and Jeffrey Boxer, Manager of Policy and Communications.

Q.1 What are current trends and priorities?

Michael Godwin: I would like to introduce Sean Malloy, who is our new director of our audit area, who joins us from the Compliance Programs Branch bringing a wealth of knowledge on business intelligence and risk analysis.

(a) DC Decumulation

One of the newest concerns put on our radar screen is the DC decumulation, which was raised repeatedly at the last CAPSA (Canadian Association of Pension Supervisory Authorities) meeting.

We took back everything we heard that day to our colleagues in the Department of Finance, so they are aware of the issue and can consider if there is any added flexibility that is needed in that area. That being said, we think that the Act does afford a fair amount of flexibility with defined contribution (DC) plans. It accommodates traditional annuities, flexible annuities similar to what can be obtained through an RRSP, and also RRIF-type payments made directly from the plan.

Trends are similar to last year. We are continuing to see a movement away from the traditional defined benefit plans towards either DC (defined contribution) or target benefit plans. I think that will always be a priority for CRA, the Department of Finance, and our provincial colleagues to keep challenging ourselves to look for different opportunities for employers to help their employees save for retirement in the most secure way possible.

We have seen DB plans tending to be better funded than they were a few years ago, which is a good sign, but it is probably not suffficient to give employers the comfort that they want to stay in that type of plan.

(c) Priorities

E-delivery is an ongoing priority.

As I mentioned, we have brought Sean on board, and we are going to develop a new team from a Directorate perspective to really focus on business intelligence and risk-assessment to try to take a more structured approach to our risk-base approach to file reviews.

We are revamping our website to be more task-oriented. This will be a long-term project, because we have to rewrite most of the material - so that will be an ongoing priority for us as well in the next year or two.

Q.2 What are the implications of introducing target benefit plans in the PBSA?

Michael Godwin: The answer to this question is similar to last year.

The federal Pension Benefits Standards Act is moving towards the target benefit plan, and a lot of the provinces are moving towards target benefit plans. There will have to be amendments made to the Income Tax Act as well to accommodate the target benefit plans.

We have been working with our Finance colleagues on what those changes might be. They have not landed on what that legislative framework would look like, but they are actively working on it. Sean’s predecessor has gone back to the Department of Finance to work on some of these items. That will be helpful for us because that is someone who is really familiar with Registered Pension Division and the pension world.

In the meantime, although there definitely will have to be some broad-based legislative changes for target benefit plans, currently we are able to accept some as long as the only thing that is violated is the equal periodic rule. Under target benefit plans, the benefits could fluctuate up and down. Currently, we are prepared to accept target benefit plans, if that is the only current legislation that it fails to comply with.

Q.3 How is electronic filing progressing?

Michael Godwin: We are making baby steps towards electronic filing. Ultimately, we want to get to the point where we can communicate electronically in a secure fashion with all of our clients, but we are not there yet.

We are at least in the process of getting various forms that we use available to be filed through an Internet file-transfer. Starting this month, there are 3 forms that can be filed electronically, which are:

  • the RPPAIR (the registered pension plan annual information return)
  • the application to register a PRPP (pooled registered pension plan); and
  • an amendment to a PRPP.

In October, the target is to have the T510, which is the application to register an RPP, the T920, which is the one to amend the RPP, another PRPP form, a TFSA form, and an RI application form.

We recognize, however, that being able to file the T510s for a pension plan application electronically does not really do you a lot of good if the plan document cannot be filed as well, and we are not there yet. We are working with our CRA counterparts to access the portals. The portals are the only secure way that CRA will let us communicate electronicalyl with our clients - we cannot just use email. The problem is that we do not use business numbers or SINs as our reference number - we like to use a plan number. A plan could have a hundred BNs under it, and thousands of SINs—so the traditional way of accessing the portals does not really work for in a pension context. In the past, that was always a roadblock in us gaining access to the portals but, over time, we have worn everyone down, because we keep going back to them and talking to them.

They understand our business now, and we are on their radar screen as far as recognizing that CRA needs to look for more opportunities to get the niche programs like ours onto those portals. We are hopeful. Getting the electronic forms now is a first step, and eventually we will be able to have the complete electronic sharing of information with you. But again, it is taking time.

Q.4 What is CRA's approach to issuing written acceptance of plan amendments?

Michael Godwin: in mid-2015, our Registration Division modified their business processes. They moved from a widget-based process, where we tried to reply to everything that came through the door within six months to a year, to a cyclical review basis. In this way, amendments come in, and we review plans on a cyclical basis so that, in theory, at least once every six years, a plan will get a comprehensive review.

If something risky is happening on that plan, such that we see a need to look at things sooner rather than later, then that review will get assigned right away.

So it is possible that you could submit an amendment, and get a written acknowledgment of that amendment, but the acknowledgement is not a review of that amendment, per se, and that amendment would be reviewed when the plan came up for its cyclical review, wherever it is in that cycle.

If employers or any of your clients are uncomfortable with waiting, we committed, when we introduced this new process, that we will look at anything that your clients want us to look at sooner rather than later. So if they are not comfortable with an amendment sitting on the file and being looked at when the plan come up for review, we will look at it on a priority basis.

To help us identify those situations, your clients need to fill out a form T2014, and that will flag, for our mail room, that this file should not simply go in the normal cycle but instead be assigned to an officer right away. If you just write in the covering letter that you want a priority review on it, we might miss it, but if you fill out that form it identifies, for people in the mail room, that this one goes to an officer - it does not go into the bank.

So, again, if your clients are not comfortable with waiting, we will definitely provide that service and provide the review up front. We will also approve draft-amendments, so if you are not certain of the wording, and you want to know whether something will fly or not, again, you can submit that to us, and we will review it on a priority basis, so you will know that once you do submit it, it will be fine.

Q.5 Will CRA accept old versions of the T510 and T920MC?

Jeffrey Boxer: The T510, which is the application to register a pension plan, and the T920, which is the form for amending a particular plan, were both updated.

We expect, as of May 1st, that if the forms have been submitted using the old version of the form, we will return the application as incomplete. A newsletter in 2004 set out the process we follow with respect to incomplete applications. When the T510 was updated around December 29th of last year, we did put information on our website indicating that there was an expectation as of May 1st to use the new form for the T510 - and then that was reconfirmed on February 9th of this year with respect to the T920. So we do believe that we have provided advance notice.

Obviously, if plan administrators are going to avail themselves of electronic filing, then we will need the current versions of the forms.

Q.6 Will CRA accept Excel files for PSPA applications?

Jeffrey Boxer: We forwarded this question to our colleagues at the Individual Returns Directorate (the entity that actually processes those applications), and they have indicated that they would be amenable to receiving Excel files. I would invite you or your clients to contact them directly at pension.demandes@cra-arc.gc.ca.

Q.7 What does "all or a significant number of employees" mean in Reg. 8500(1) - "predecessor employer"?

Jeffrey Boxer: In November of last year our Registered Plans Directorate hosted a practitioner’s forum in Ottawa, and the same question was asked. The minutes and the Q&As were posted about 10 days ago on our website, so you can actually go find the response to that. [See Q. 5 of The 2016 RPP Practitioners’ Forum, Summary Report].

It is true that, in interpreting the phrase “all or a significant number of employees” for the vendor, in the definition of “predecessor employer” under subsection 8500(1), we have not adopted any specific threshold test.

That answer refers to other sections of the Act and Regulations that do define the term. There is a slight nuance there - those particular definitions are “significant interest” and there are different thresholds. However, we have not adopted a specific threshold test for the purposes of determining whether or not there is a predecessor employer for the purposes of applying the tax rules (primarily for eligible service and permissible contributions for registered pension plans).

Similarly, we have not been able to locate anything defining “significant” in Canadian case law. That being said, we typically draw on the ordinary meaning in the dictionary. We take the view that whatever constitutes a significant number of employees for the purposes of a predecessor employer is a question of fact and can only be determined based on each particular case.

We also accept that the significant test can be based on absolute numbers or it can be applied on a percentage basis. If, for example, a distinct segment of a particular company were sold off, we would take the position that it would appropriate to look only at that particular segment of the company, rather than the company as a whole, in determining whether or not a significant number of employees have been acqujired in relation to the purchase and sale agreement for the purposes of the "predecessor employer" definition.