2000 Ruling 2000-0051223 - UNFUNDED SUPPLEMENTAL PENSION PLAN

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: Supplemental retirement arrangement (unfunded pension plan).

Position: Not an SDA, RCA or EBP

Reasons: Not funded, salary deferral purpose not met.

XXXXXXXXXX 						2000-005122

Attention: XXXXXXXXXX

XXXXXXXXXX, 2000

Dear Sirs:

Re: Advance Income Tax Ruling
XXXXXXXXXX (the "Employer") (XXXXXXXXXX)

This is in reply to your letter of XXXXXXXXXX and your letter faxed to us on XXXXXXXXXX, requesting an advance income tax ruling on behalf of the above-noted taxpayer. We also acknowledge the information provided during our various telephone conversations (XXXXXXXXXX).

Our understanding of the facts, proposed plan and purpose of the proposed plan is as follows:

Facts

1. The Employer is a registered charity, as defined in subsection 248(1) of the Income Tax Act (the "Act").

The Employer's address is XXXXXXXXXX. It files its tax returns with the Charities Division of the Canada Customs and Revenue Agency.

2. The Employer maintains the XXXXXXXXXX (the "Pension Plan"). The Pension Plan is a registered pension plan for its XXXXXXXXXX staff, XXXXXXXXXX. The Pension Plan is a money purchase pension plan.

3. Under the Pension Plan, members contribute XXXXXXXXXX% of their pensionable earnings, less Canada or Quebec Pension Plan contributions. Members may elect to make additional voluntary contributions for current service. The Employer matches the member contributions to the Pension Plan.

4. The Employer and member contributions to the Pension Plan are limited to the limits in the Act on the total money purchase contributions. In the event that the Employer and member contributions exceed the limits set out in the Act, the excess contributions are returned to each of the contributors.

Proposed Plan

5. The Employer will establish a supplemental pension arrangement ("Supplemental Plan") for the benefit of certain employees affected by the Pension Plan contribution limits set out in the Act. The Supplemental Plan will include the following terms:

(a) Notional contribution accounts ("Notional Accounts") will be established for individuals who, by virtue of their income level and designation by the Board XXXXXXXXXX of the Employer, are eligible to participate in the Supplemental Plan (the "Participants"). These accounts will be notionally credited annually with the difference between the contributions the Employer would make to the Pension Plan in that year on behalf of the Participant if the contribution limits in the Act did not apply, and the contributions the Employer actually makes on behalf of the individual in that year.

(b) The Employer will annually set aside and invest sums of money (the "Earmarked Assets") equal to the amounts credited to the Notional Accounts for that year. These Earmarked Assets will continue to belong to the Employer; the Participants will not have any direct claims against the Earmarked Assets. The Earmarked Assets will not be held in trust for the benefit of the Participants and no assets of the Employer have or will be set aside in the name of any Participant in respect of the Supplemental Plan. The Earmarked Assets will be available for the general creditors of the Employer.

(c) The Supplemental Plan will operate like a money purchase plan even though no assets will be held in trust for purposes of the Supplemental Plan. The Notional Accounts will be adjusted annually to reflect the investment experience of the Earmarked Assets, net of the Supplemental Plan's administrative expenses. Where there are losses, the Notional Accounts will be reduced by their proportionate share of the losses.

(d) Participants will be provided with statements each year. The statements will reflect the amounts added to and deducted from a Participant's Notional Account for that year.

(e) No entitlement will be payable under the Supplemental Plan before XXXXXXXXXX days following the earliest of a Participant's date of retirement, date of termination of employment from the Employer or date of death.

(f) If a Participant retires on or after reaching retirement age, as defined in the Pension Plan, the Employer will pay an amount equal to the balance in the Participant's Notional Account to the Participant in equal annual instalments over a period of XXXXXXXXXX years. However, if the Participant elects XXXXXXXXXX days prior to his or her retirement, the Employer will pay the amount in equal annual instalments over the number of years designated by the Participant in the election, not to be fewer than two.

(g) On termination, including early retirement prior to normal retirement as defined in the Pension Plan, a Participant will be entitled to receive from the Employer the balance in the Participant's Notional Account in a lump sum.

(h) If a Participant dies before termination of employment and has designated his or her spouse as the beneficiary under the Supplemental Plan, the spouse will be entitled to receive from the Employer the balance in the Participant's Notional Account either in a lump sum or in equal annual instalments over a period of not more than XXXXXXXXXX years. The spouse will be required to elect the form of payment within XXXXXXXXXX days of the Participant's death or the amount will be paid to the spouse in a lump sum. If there is a non-spouse beneficiary, then the Employer will make a lump sum payment equal to the balance in the Participant's Notional Account to such beneficiary.

(i) If a Participant who has retired or terminated employment with the Employer dies before receiving the full balance in the Participant's Notional Account, the Employer will pay the deceased Participant's designated beneficiary in the same manner in which it was payable to the Participant. If however, the Participant has not designated a beneficiary under the Supplemental Plan, or if the designated beneficiary has predeceased the Participant, on the death of the Participant, the Employer will pay the balance in the deceased Participant's Notional Account to the Participant's estate in a lump sum.

(j) Lump sum payments will be made and annual instalments will commence on the first day of the month following the XXXXXXXXXX-day period after the date on which the Participant retires, terminates or dies, or the date elected by the Participant or designated beneficiary if later. Succeeding annual payments will be made on the anniversary date of the first payment.

6. The Employer will have the right to amend or terminate the Supplemental Plan provided that no such amendment or termination shall affect the amount credited to a Participant's Notional Account prior to the date of such amendment and no amount will be paid out prior to the date specified in 5(e) above.

Purpose of the Proposed Plan

7. The purpose of the Supplemental Plan is to provide pension benefits to Participants to the full extent permitted under the Pension Plan as if there were no restrictions on the contributions that could be made to the Pension Plan.

Additional Information

8. To the best of your knowledge and the knowledge of the Employer, none of the issues involved in this request for an advance income tax ruling:

(a) is in an earlier return of the Employer, a Participant or of a person related to either of them;

(b) is being considered by a tax services office or tax centre in connection with a previously-filed return of the Employer, a Participant or of a person related to either of them;

(c) is under objection by the Employer, a Participant or by a person related to either of them;

(d) is before the courts; or

(e) is the subject of a ruling previously issued by the Income Tax Rulings and Interpretations Directorate to the Employer or a Participant.

Rulings Given

Provided that the preceding statements constitute a complete and accurate disclosure of all of the relevant facts, proposed Supplemental Plan and purpose of the proposed Supplemental Plan, and provided that the Supplemental Plan is implemented as described in 5 above, we rule as follows:

A. The Supplemental Plan will not constitute a salary deferral arrangement, as that term is defined in subsection 248(1) of the Act.

B. The Supplemental Plan will not constitute a retirement compensation arrangement, as that term is defined in subsection 248(1) of the Act.

C. Subsection 12(4) will not apply to a Participant in the Supplemental Plan to require any amount to be included in computing the Participant's income for a year as interest in respect of any entitlements the Participant may have under the

Supplemental Plan.

D. Each payment made by the Employer to a Participant, his or her spouse, estate or designated beneficiary, as the case may be under the Supplemental Plan, will be required to be included in the income of the recipient in the year it is received as a superannuation or pension benefit pursuant to subparagraph 56(1)(a)(i) of the Act.

E. No amount will be included in the income of a Participant under subsection 5(1) of the Act, paragraph 6(1)(a) or 56(1)(a) of the Act as a result of, in and by itself, the Participant's participation in the Supplemental Plan, other than as indicated in ruling D.

The above rulings, which are based on the Act in its present form and do not take into account any proposed amendments thereto, are given subject to the general limitations and qualifications set out in Information Circular 70-6R3 dated December 30, 1996, and are binding on the Canada Customs and Revenue Agency provided that the Supplemental Plan is implemented by XXXXXXXXXX.

Yours truly,

XXXXXXXXXX
for Director
Financial Industries Division
Income Tax Rulings Directorate