30 November 1997 Ruling 9812433 - UNFUNDED SUPP 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: Supplementary pension for employees with high earnings not an RCA?

Position: Not an RCA

Reasons: No funding and no trust set up.

XXXXXXXXXX
XXXXXXXXXX 						981243
XXXXXXXXXX 

Attention: XXXXXXXXXX

XXXXXXXXXX, 1998

Dear Sirs:

Re: Advance Income Tax Ruling
Proposed Supplemental Retirement Arrangement
XXXXXXXXXX (the “Employer”) XXXXXXXXXX

This is in reply to your letter dated XXXXXXXXXX, wherein you requested 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 and proposed transactions is as follows:

Facts

1. The Employer is a corporation without share capital created under XXXXXXXXXX. Its address is XXXXXXXXXX. The Employer is a registered charity under paragraph 149(1)(f) of the Income Tax Act (the “Act”) (Registration # XXXXXXXXXX).

The Employer files its tax returns with the XXXXXXXXXX Taxation Centre and it is located within the area served by the XXXXXXXXXX Tax Services Office.

2. The Employer established XXXXXXXXXX (the “RPP”) with effect from XXXXXXXXXX. The RPP is a registered pension plan, as defined in subsection 248(1) of the Act, under Revenue Canada registration number XXXXXXXXXX. The Employer is the administrator of the RPP, through its Board XXXXXXXXXX. The RPP is a defined benefit plan which currently has a significant surplus.

3. The RPP provides benefits to the Employer’s employees. These employees are senior administration staff, non-unionized employees and members of the Employer’s XXXXXXXXXX who are represented by the XXXXXXXXXX (the Association”) and members of the Employer’s staff who are represented by the XXXXXXXXXX (the "Union”). The Association and the Union are certified bargaining units under the XXXXXXXXXX and are the exclusive bargaining agents for the Employer’s XXXXXXXXXX and staff, respectively. The collective agreements between the Employer and each of the Association and the Union incorporate benefits under the RPP.

4. On XXXXXXXXXX, the Employer and the Association entered into the XXXXXXXXXX Agreement in Principle on Pension and other Retirement Benefit Issues (the “XXXXXXXXXX Agreement”). The XXXXXXXXXX Agreement sets out certain amendments and changes to the pension and other retirement benefits that will be provided to the Employer’s employees who are members and former members of the Association, including retirees, and other employees who have the right to enter the bargaining unit represented by the Association (hereinafter these members will be referred to as “Eligible Members”). The Employer and the Association will make every effort to conclude a final legal agreement to implement the XXXXXXXXXX Agreement. The final legal agreement will be subject to ratification by the Employer and the Association and thereafter will form part of the collective agreement or a separate agreement.

Proposed Transactions

5. Subject to the approval of the Registered Plans Division of Revenue Canada and the appropriate provincial pension authorities, the terms of the RPP will be amended in respect of the Eligible Members.

6. Pursuant to the ratification referred to under paragraph 4 above, the Employer will establish the “XXXXXXXXXX” (the “Plan”), with effect from XXXXXXXXXX.

7. The Plan will provide lifetime retirement benefits to Eligible Members of the RPP equal to the difference between the lifetime retirement benefits that would otherwise be payable to the Eligible Member out of the RPP if there was no limit to the benefits under subsection 8504(1) of the Income Tax Regulations (the “Regulations”) and the lifetime retirement benefits payable to the Eligible Member under the RPP. In addition, the Plan will only recognize the Eligible Member’s pensionable earnings up to the maximum salary step under the collective agreement between the Employer and the Association (currently $XXXXXXXXXX). The maximum pensionable earnings under the Plan will reflect any adjustments to the maximum salary step that may be made under the collective agreement.

8. The additional benefits provided under the Plan will apply to all benefits payable to Eligible Members out of the RPP, including retirement benefits, termination benefits, death benefits, disability benefits and indexation and shall be payable at the same time and in the same forms of payment as the benefits payable to the Eligible Member out of the RPP.

9. The Employer will use its operating funds to pay the required benefits to the Eligible Members as required under the Plan. For financial accounting purposes, the Employer shall set aside funds in a "special purpose fund" to fund its liabilities under the Plan. At all times, the Employer will retain ownership of all of the funds set aside in the special purpose fund. The Employer will not contribute amounts to a trust or to any other person or legal entity in respect of the Plan and the Employer will ensure that the assets set aside in the fund shall not constitute trust property. The funds held in the special purpose fund will not be subject to the direct claim of any of the Eligible Members that may receive benefits under the Plan and the funds will be subject to the claims of the Employer’s creditors in accordance with applicable bankruptcy legislation in the event of the Employer’s receivership, bankruptcy or wind-up. However, in order to maximize its return on the funds held in the special purpose fund, the Employer will seek the advise of a third party investment manager when making its investment decisions.

10. The funds to be set aside by the Employer each year will be equal to the difference between the amounts contributed by the Eligible Members to the RPP in the particular year and the amounts contributed to the RPP by the Employer in respect of the Eligible Members of the RPP (currently nil because of the surplus) in the particular year. If the special purpose fund set aside by the Employer to fund its liabilities under the Plan exceeds its liabilities under the Plan, the amount set aside for the particular year may be reduced, subject to agreement between the Employer and the Association.

11. Subject to agreement between the Employer and the Association, the accrual of benefits by Eligible Members under the Plan may be suspended from time to time or terminated in whole.

Purpose of the Proposed Transactions

12. The purpose of the proposed transactions is to provide supplementary retirement benefits to Eligible Members of the RPP that have their RPP retirement benefits restricted as a result of limits imposed by the Act and Regulations. The Employer will fund such retirement benefits by setting aside funds that it would normally have to contribute to the RPP if it were not for the surplus in the RPP.

Additional Information

13. 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 or of a person related to the Employer;

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

(c) is under objection by the Employer or by a person related to the Employer;

(d) is before the courts; or

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

Rulings

Provided that the preceding statements constitute a complete and accurate disclosure of all of the relevant facts, proposed transactions and purpose of the proposed transactions, and provided the proposed transactions are completed in the manner described herein, our rulings are as follows:

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

B. Provided the Plan does not result in the creation of a trust, the Plan will not constitute a retirement compensation arrangement as that term is defined in subsection 248(1) of the Act.

C. All payments made by the Employer to an Eligible Member or his or her beneficiary, as the case may be, under the terms of the Plan will 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.

D. No amount will be included in the income of an Eligible Member under subsection 5(1) of the Act or paragraph 6(1)(a) of the Act as a result of, in and by itself, the Eligible Member’s participation in the Plan, other than as indicated in ruling C above.

The above rulings, which are based on the Act in its present form and does 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 is binding on Revenue Canada provided that the proposed transactions are completed within six months of the date of this letter.

Comments

This letter does not express or imply, and should not be construed as expressing or implying, that any ruling, opinion, confirmation or approval in respect of the proposed amendments to the RPP. This approval can only be given by the Registered Plans Division.

Yours truly,

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