11 December 1995 Internal T.I. 9527956 - RPP, CONTRIBUTIONS DURING LEAVE

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 a RPP allow a member to make contributions to the plan 	during a period of leave even though the period will not be 	credited until the member has worked 70 days after the 	leave?

Position:

Yes

Reasons:

	Plan allows leave and contributions are permissible so 	treat like unvested contributions.

			December 11, 1995

	HEADQUARTERS	HEADQUARTERS
	Registered Plans Division	M.P. Sarazin
	Stella M. Black	(613) 957-3499
	Director
Attention: J. Hollinger
			952795

XXXXXXXXXX Pension Plan

This is in reply to your memorandum dated October 23, 1995 wherein you requested our comments regarding the computation of the pension adjustment where a member of the above registered pension plan (the "RPP") makes contributions during a leave of absence or break in service period (the "Leave Period") and, under the terms of the RPP, the service in respect of the contributions may only be credited after the member completes seventy days of service subsequent to such Leave Period. In addition, you have requested our comments on whether such contributions should be permitted in the above circumstances.

Comments

Our understanding of the facts is that the RPP allows its members to make contributions during Leave Periods but the benefits under the RPP for the Leave Period are not credited until a condition subsequent to the Leave Period is satisfied. The condition is the completion of seventy days of service subsequent to the Leave Period. In our view, this situation is analogous to pension plans which allow contributions by employees even though the benefits associated with such contributions are not vested until the employees satisfy certain employment conditions. Therefore, the contributions to the RPP would constitute permissible contributions in the above circumstances.

The pension credit is determined pursuant to Part LXXXIII of the Income Tax Regulations (the "Regulations"). Subsection 8301(6) of the Regulations defines pension credit for a defined benefit provision of a registered pension plan basically as 9 times the benefit entitlement less $1,000 and section 8302 of the Regulations defines the benefit entitlement to be the benefit accrual which is based on the normalized pension that accrued in respect of that year. The normalized pension is determined at the end of a particular year using the suppositions stated in subsection 8302(3) of the Regulations, one of which is that all of the benefits to which the individual is entitled are vested. For the purposes of determining the pension credit, we are of the view that the leave of absence or break in service period, in the above situation, should be treated like unvested pension benefits. Consequently, the contributions to the RPP during the leave of absence or break in service period would give rise to a pension credit for the period.

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

for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch