15 December 1994 Internal T.I. 9430166 - DEFINITION OF MONEY PURCHASE PROVISION

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:

Commutation of defined benefits and deferral of payment, is this a money purchase provision.

Position TAKEN:

Yes

Reasons FOR POSITION TAKEN:

Meets definition of money purchase provision.

				December 15, 1994

	Registered Plans Division	Rulings Directorate
	Pierre Cloutier	(613) 957-8953
	Chief		D. Duff
	Policy Section

	Attention:  Sharon Yetts
			7-943016

Definition of Money Purchase Provision

This is further to our memoranda of July 5, 1994 and August 22, 1994 which were in response to your memorandum of April 14, 1994 requesting our comments on the commutation of a member's benefits under defined benefit provisions in an RPP and deferring part of the payment of the commuted amount.

As a follow up to those memoranda, we were asked to comment on the nature of the benefit entitling the member to the funds left in the plan, when all of the defined benefit provisions have been commuted and only part of the total commutation amount has been transferred out of the RPP.

A money purchase provision of an RPP is defined in subsection 147.1(1) of the Act to be terms that provide for a separate account for each member into which are credited contributions and other allocations and to which payments in respect of the member are charged, and benefits are determined only with respect to the amount in the account. In the situation described above, initially a member is entitled only to defined benefits. These are commuted and the commuted value is determined as of a specific date. Part of the amount, the maximum allowed by the Regulations, is transferred to an RRSP pursuant to subsection 147.3(4) of the Act. The balance is left in the RPP, and the member is entitled to that amount plus interest, all of which is to be paid at a later date, for example, when the member turns 65 years of age.

In our opinion this benefit entitling the member to a lump sum payment would be a money purchase provision of the RPP. The account would be set up on the date the commuted value is determined. The amount retained in the RPP would be an allocation to the member's account. Interest earned from the date of commutation to the date of eventual payment would be further allocations to the member's account. The benefit, which is the amount eventually paid out, is determined solely by reference to the amount, commuted value plus interest, in the member's account. All of these factors place the benefit within the definition of money purchase provision in subsection 147.3(4) of the Act.

for Director
Financial Industries Division
Rulings Directorate
Policy and Legislation Branch