CRA rules on the conversion of a defined benefit to a defined contribution SERP

CRA ruled on the conversion of two supplementary executive retirement plans (being unfunded plans) for the Company’s CEO and for its VPs, from defined benefit plans to defined contribution plans.

The revised terms contemplate that In respect of each month of service for which the member is making the maximum contributions under the Company registered pension plan (RPP), the Company will make notional contributions to the member’s account in an amount equaling the excess of 10% of the member’s targetcd compensation for such month (including 1/12 of the targeted year-end bonus) over the amount of the Company contributions made for such month to the member’s RPP, except that if such amounts for the year prove to exceed 18% of the actual compensation of the member for the year over the RPP limit of the member for that year, the employer will pay, as soon as possible, the excess in a lump sum to the member (or, if the member has died, to the member’s spouse).

The notional contributions in respect of a member will be credited with notional investment returns on a pooled investment fund available to the RPP.

If a SERP member ceases service for any reason other than death, the employer will pay the SERP benefit in 10 annual instalments, unless the member has elected for a fewer number of instalments or to have the balance in the member’s account paid as one lump sum.

If the member dies before benefit payments have commenced, the balance in the member’s account will be paid to the surviving spouse, or to a designated beneficiary.

Rulings included that these would not be salary deferral arrangements and that s. 5(1), 6(1)(a) or 12(4) would not apply to the member.

Neal Armstrong. Summary of 2021 Ruling 2020-0858321R3 under s. 248(1) – SDA.