Before You Start

Is this guide for you?

This guide has general information about how to calculate a pension adjustment reversal (PAR). It is designed to help administrators of registered pension plans (RPPs) and trustees or employers of deferred profit sharing plans (DPSPs) calculate a PAR for plan members who quit their membership.

This guide describes:

• what a PAR is and its components
• how to calculate PARs for RPPs and DPSPs.

This guide also has general information on the overall limit that applies to tax-assisted retirement savings for individuals and the effect that a PAR has on this limit.

The guide also provides sample PAR calculations.

There could be changes to the laws before this guide is next revised, which could affect the information in this version. If you are not sure that you have the most recent information, contact the Registered Plans Directorate. The address is at the end of this guide.

If you are blind or partially sighted, you can get our publications in braille, large print, etext or MP3 by going to About multiple formats. You can also get our publications in these formats by calling 1-800-959-8281.

La version française de cette publication est intitulée Guide du facteur d'équivalence rectifié.

1. What is a pension adjustment reversal?

A pension adjustment reversal (PAR) is an amount that is added to an individual’s registered retirement savings plan (RRSP) and pooled registered pension plan (PRPP) contribution room when they stop being members of a DPSP or of an RPP.

In a DPSP or money purchase RPP, the PAR is the amount of the employer contributions that the individual is not entitled to (forfeited amount) when membership ends. In a defined benefit provision of an RPP, the PAR is generally the amount of a member’s combined pension adjustments and past-service pension adjustments that are in excess of the member’s lump-sum payment of benefits from the provision.

Specified multi-employer plans (SMEPs) do not qualify for PARs. So, when a member of a SMEP receives a benefit that is less than the contributions made to the plan, no PAR is reported and no RRSP contribution room is restored.

1.1 Tax-assisted retirement savings

To encourage Canadians to save for retirement, the Income Tax Act allows individuals to take part in tax-assisted retirement savings. The system is based on an overall limit of 18% of an individual’s earned income, to a specified dollar limit. The overall limit applies to total retirement savings under RPPs, DPSPs, RRSPs and PRPPs.

Individuals who are members of RPPs and DPSPs have a pension credit reported each year. The pension credit is the benefit the member earned under the plan during the calendar year. The method used to calculate the pension credit depends on the type of plan. With RPPs, the method also depends on the type of provision (defined benefit or money purchase). A member’s pension adjustment (PA) is the total of their pension credits from all RPPs and DPSPs of the employer that the member participates in during the year. The PA reduces the member’s contribution limit to RRSPs and PRPPs in the following year.

Pension adjustments make sure that all employees at similar income levels will have access to comparable tax-assisted retirement savings, regardless of what type of retirement savings plan they belong to.

In addition to the benefit a member earned in a current year, defined benefit RPPs can provide or improve member benefits for previous years.

If a member of a defined benefit RPP is credited with new or improved benefits for previous years, that are after 1989, the increase in the member’s lifetime retirement benefits means that a past service pension adjustment (PSPA) has to be calculated. A PSPA is the additional pension credits that would have been included in the member’s PA for those previous years if the upgraded benefits or service had actually been provided at that time. Similar to a PA, a PSPA reduces the member’s contribution limit to RRSPs and PRPPs.

By restoring RRSP contribution room, PARs make the tax-assisted retirement savings system fair and more effective for people who change jobs or move in and out of the workforce.

As of 1997, administrators of RPPs and trustees or employers of DPSPs must calculate PARs for individuals who quit a plan or provision. An individual is considered to have quit a plan or provision when they are no longer entitled to benefits. An individual’s employment does not have to end to qualify for a PAR. The date the individual’s membership in the plan ends, also called the date of termination, is generally the date on which the provision or plan pays the termination benefit. This can be a cash payment to the individual or a transfer to the individual’s RRSP or PRPP. For example, if an individual left employment in 2016 but receives their termination benefit in 2017, a PAR must be calculated for the individual in 2017.

Plan administrators of RPPs and trustees or employers of DPSPs must report PARs quarterly. A PAR will be added to an individual’s RRSP contribution room for the year the membership ended.

Pension adjustment reversals are calculated only for RPPs (other than SMEPs) and DPSPs as defined under the Act. They are not calculated for RRSPs and PRPPs or for foreign pension plans.

2. Glossary

In this section, we define terms or expressions used in this guide. References to the Act mean the Income Tax Act and references to the Regulations mean the Income Tax Regulations.

We have tried to use plain language to explain the laws and terms you need to know to calculate a pension adjustment reversal for RPPs and DPSPs. Since this guide is not a legal text, see the Act and the related Regulations for the exact wording of the rules it describes or contact us at the Canada Revenue Agency's (CRA) Registered Plans Directorate. See Where to get help near the end of this guide.

Additional voluntary contribution
A contribution a member makes to buy more retirement benefits under a money purchase provision of an RPP.

Deferred profit sharing plan (DPSP)
An arrangement where an employer or related employers may share profits from their business with all or a designated group of employees to provide benefits. Also see section 3.2.

Forfeited amount
An amount a member no longer has rights to under a DPSP or a money purchase provision of an RPP. Amounts are often forfeited when a member stops working before employer contributions have vested. If forfeited amounts are reallocated to other members’ accounts in the plan or provision, they must be included in their pension credit in the year they are allocated.

Grossed-up PSPA amount
When an individual gets past service benefits under a defined benefit provision of an RPP, the value of the new pension credits associated with the past service benefits is the individual’s grossed-up PSPA. A provisional PSPA can be reduced by qualifying transfers made to the RPP from a money purchase RPP, DPSP, RRSP, SMEP or PRPP. A qualifying transfer can also include a lump-sum amount received from another RPP that was paid from the other RPP as a death benefit or because of marriage breakdown. The grossed-up amount is the provisional PSPA amount without qualifying transfers and redetermined pension credits attributable to defined benefits under an RPP of a previous employer or plan. In other words, it is the A – B value when the basic PSPA method is used in calculating the PSPA, and the A + B value when the modified method is used, assuming the individual’s former benefits had ceased to be provided immediately before the past service event. For more detail on the grossed-up PSPA amount, see section 5.3. You can find more information on PSPAs in Guide T4104, Past Service Pension Adjustment Guide.

Member
An individual who has a right to receive benefits under the plan or provision of an RPP or DPSP. This does not include an individual who has such a right only because another individual is participating in the plan (for example, a member’s beneficiary is not a member of the plan).

Money purchase limit
The money purchase limit is:

For years after 2009, the limit is whichever of the following two amounts is greater:

For a calendar year, the average wage is the sum of wages over a 12-month period ending on June 30 of the previous calendar year, divided by 12. For example, you determine the 2017 average wage by adding up all of the wage measures from July 1, 2015, to June 30, 2016, and then divide the total by 12. You can get information on the average wage from Statistics Canada by calling 1-800-263-1136. You can also call the Labour Statistics Division at 1-866-873-8788.

Past service pension adjustment
A past service pension adjustment (PSPA) only occurs under a defined benefit provision of an RPP. It occurs when a member is credited with additional pensionable service for prior years or when the benefits a member earned previously under the provision are upgraded. Do not include in a PSPA calculation the additional prior service before 1990 or benefit upgrades for periods before 1990. For more information on PSPAs, see Guide T4104, Past Service Pension Adjustment Guide.

Pension adjustment
An individual’s total pension credits for the year under a specific employer. It reflects the accumulation of benefits or level of savings in a year by or on behalf of a member because of his or her participation in one or more RPPs or DPSPs. An individual’s PA in a year reduces the amount that they can contribute to an RRSP and PRPP in the following year. For more information on PAs, see Guide T4084, Pension Adjustment Guide. A PA can be zero, but it is never a negative amount.

PA transfer amount
If an individual’s pension benefits are transferred between defined benefit provisions, the PA transfer amount may apply to the pension adjustment reversal calculation. This amount represents the value of an individual’s benefits provided under the new defined benefit provision or, if less, the value of the PAs already reported for the same service. The administrator of the new provision must give the PA transfer amount to the administrator of the former provision (exporting provision or plan). For details, see section 5.3.

Pension credit
A pension credit reflects the accumulation of benefits or level of savings in a year by or on behalf of a member in a DPSP or under a provision of an RPP.

Provision
The terms of an RPP that describe how benefits are calculated for a member. There may be more than one provision in an RPP. A provision can be either defined benefit or money purchase.

Registered pension plan
An arrangement by an employer to provide periodic payments to individuals after retirement and until death for their service as employees. Also see section 3.2.

RRSP dollar limit
An amount that applies to a particular year, other than 1996 and 2003, equal to the money purchase limit (see the definition above) for the previous year. The RRSP dollar limit for 1996 is $13,500 and for 2003 is $14,500.

Service
The number of full and partial years of service for which the provision provides retirement benefits. Partial years are expressed as fractions of the year. The particular plan you administer defines what is included as service. Plans often refer to this as pensionable or credited service.

Specified multi-employer plan
An RPP, offered by a group of employers or by a union acting together with such employers, that meets the conditions of subsection 8510(2) of the Regulations.

Specified distribution
An amount paid to a member from a defined benefit provision of an RPP for periods after 1989. Specified distributions are included in the PAR calculation and reduce the amount of a member’s PAR.

Surplus
A surplus occurs in a defined benefit provision of an RPP when the assets exceed the liabilities necessary to fund benefits under the provision.

A surplus in a money purchase provision exists if a money purchase provision replaces a defined benefit provision and there was an actuarial surplus under the defined benefit provision.

Vesting, vested
This is the period of time that a member must be in the plan before being entitled to receive benefits from the plan. If a member leaves before this time, no benefits are payable (other than a return of member contributions).

3. Calculating a PAR – Basic concepts

3.1 PAR

The purpose of a PAR is to restore RRSP and PRPP contribution room when an employee’s membership in a provision of an RPP or DPSP stops and their termination benefit is less than the total PAs and PSPAs that have been reported to the Canada Revenue Agency. You have to calculate a PAR any time an individual stops being a member of a provision or plan after 1996. An individual does not have to terminate employment, only terminate plan membership. A person is a member of a DPSP or a provision of an RPP as long as they have rights to a benefit.

An individual who has rights to a benefit from the provision or plan only because of another individual’s participation in it is not considered a member. For example, consider the surviving spouse of a deceased member in the same RPP or DPSP: the survivor could get a PAR if his or her membership in the RPP or DPSP was terminated even though he or she continues to enjoy survivor benefits because their spouse was a member of the same RPP or DPSP.

If an individual is entitled to benefits under an annuity contract to satisfy their entitlement under a provision or plan, for purposes of the PAR determination, they are still considered to be a member of the provision or plan. However, if the individual’s entitlement to benefits is paid in cash, or is commuted (exchanging a series of future payments for a lump sum) and transferred to an RRSP, registered retirement income fund (RRIF) or PRPP before the annuity is purchased, the individual is considered terminated from the provision or plan and you have to calculate a PAR.

You have to calculate a PAR for each provision from which an individual stops being a member. However, an individual who is a member of a supplemental provision must stop being a member from all provisions before you can calculate a PAR. For more information, see section 6.2.

A special PAR rule applies to an individual’s continuing rights to a surplus under a provision. If a person stops being a member in all ways except for any future surplus allocations or distributions, we treat the individual as though they have no entitlement to the surplus until it is actually allocated. This allows you to determine a PAR if surplus ownership is in dispute or payment of the surplus is delayed. If you calculate a PAR for an individual at termination, any future surplus can only be used to provide ancillary benefits for periods before 1990.

When an individual quits a DPSP or RPP and later rejoins the plan, the next time the individual quits the plan the PAR calculation will not include any amounts used in the previous PAR.

Round all PARs to the nearest dollar.

3.2 Types of plans

DPSP

A DPSP is an arrangement under which an employer may share profits from their business with all or a specified group of employees to provide benefits. Contributions are generally stated as a percentage of the employer’s profits or employee’s earnings. Members cannot contribute to a DPSP. These plans are governed by the Act and Regulations and are not subject to provincial pension legislation.

RPP

An RPP is an arrangement by an employer to provide periodic payments to individuals after retirement and until death for their service as employees. An RPP is subject to the Act and Regulations, and may also be regulated by provincial and federal pension legislation (for example, the Pension Benefits Standards Act).

There are two basic types of benefit provisions for RPPs:

Defined benefit provisions come in various forms:

Some plans consist of more than one benefit provision or take into account the benefits payable under another plan or provision. For example, a plan may consist of a defined benefit provision and a money purchase provision, or the benefits under a defined benefit provision may be reduced by the benefits payable under a money purchase provision or under a DPSP.

4. Calculating a PAR for deferred profit sharing plans

4.1 Termination conditions for deferred profit sharing plans

You have to calculate a PAR for an individual who meets the following conditions:

If an individual meets these conditions, the PAR is:

Earnings on allocations or on contributions are not included in the PAR because they were never included in the pension credit.

The total of an individual’s pension credits includes the pension credit for the year of termination, even though this pension credit may not be reported until after the PAR is reported. Therefore, you have to consider unvested contributions and other unvested amounts, such as forfeitures allocated to an individual in the year of termination, when you calculate both the individual’s pension credit for the year and the PAR.

5. Calculating a PAR for registered pension plans

5.1 Termination conditions for registered pension plans

You must calculate a PAR for an individual who meets the following conditions:

5.2 Money purchase provision

If an individual meets the termination conditions in section 5.1, the PAR is the total of:

Earnings on allocations or on contributions are not included in the PAR because they were never included in the pension credit for the PA calculation.

The total of the individual’s pension credits includes the pension credit for the year of termination, even though this pension credit may not be reported until after the PAR is reported. Therefore, you have to consider unvested contributions and other unvested amounts, such as forfeitures or a surplus allocated to an individual in the year of termination, when you calculate both the individual’s pension credit for the year and the PAR.

Any amounts allocated after the person has quit the plan will be included in a pension credit at that time, but will not affect the PAR that has already been calculated.

5.3 Defined benefit provision

If an individual meets the termination conditions in section 5.1, the PAR is calculated using the following formula:

A + B – C – D

Amount A is the total of the individual’s pension credits earned under the provision when their membership ended. In the case of high-income earners, the maximum amount of a pension credit for a particular year included in amount A is the RRSP dollar limit (see section 2) for the following year.

For example, an individual had a pension credit of $14,900 for 2001, but the RRSP dollar limit for 2002 was $13,500. The amount included in A for 2001 is $13,500, as that is the amount of RRSP room the member actually lost.

Amount A includes the individual’s pension credits up to the date of termination, even though these pension credits may not be reported until after the PAR is reported (see section 7 for more information).

Amount A for a plan that is a specified multi-employer plan (SMEP) is zero.

Amount B is the total of the grossed-up amounts of PSPAs associated with any past service benefits the individual received under the provision before their membership ended. The additional pension credits that are associated with the past service benefits are added to the member’s PAR. More specifically, the grossed-up amount is what the PSPA for the individual would have been if there had been no qualifying transfers to fund the past service benefits, and if any previous pension credits and PSPAs that may have applied to offset the PSPA amount were ignored.

For example, a member joins a defined benefit provision in 2013 and the plan allows the member to buy back two years of past service that was not previously pensionable service under a registered pension plan. The pension credits for these past service benefits total $12,000. The member partially funds these past service benefits with a qualifying transfer of $3,000 from their RRSP. The member’s PSPA is $9,000 ($12,000 – $3,000), but the grossed-up PSPA is $12,000, which is the value of the past service benefits, ignoring any qualifying transfers. Using the grossed-up PSPA amount, rather than the actual PSPA amount, reflects the fact that the member gave up $9,000 worth of contribution room available for future RRSP contributions to buy past service benefits and gave up $3,000 worth of existing tax sheltered RRSP funds. For more details on how to calculate PSPAs, see Guide T4104, Past Service Pension Adjustment Guide.

Amount B for a plan that is a SMEP is zero.

Amount C is the total specified distributions made for the individual under the provision on or before their membership ended. A specified distribution is the part of an amount paid from the plan for the individual’s post-1989 benefits. The following amounts are not considered specified distributions under amount C:

If a lump-sum payment relates partly to pensionable service before 1990 and partly to service after 1989, only the part of the payment that can reasonably be considered to relate to service after 1989 is included in amount C. If the benefit formula has not been amended during the individual’s service, prorating the payment, based on the post-1989 proportion of the total period of pensionable service, is normally acceptable. However, if the rate of benefit accrual under the defined benefit provision has not been the same for all years of service, you have to consider this when you determine the post-1989 part of the payment.

There are two examples later in this guide that show you how to calculate a PAR where there are specified distributions that relate to post-1989 and pre-1990 service. There is another example that shows you how to calculate a PAR when the member is entitled to excess contributions by applying the 50% employer funding rule. Again, only the part of the excess contribution that relates to service after 1989 is included as a specified distribution. Section 6.1 describes how to calculate the PAR if there was a breakdown of marriage or common-law partnership.

Amount D is the individual’s PA transfer amount (see section 2). This amount arises when the individual is credited with past service benefits under another defined benefit provision of an RPP for a period that was pensionable service under the former defined benefit provision. The PA transfer amount occurs where past service benefits are transferred directly between plans under a reciprocal or portability arrangement when an individual changes jobs. A PA transfer amount will also arise when an individual’s benefits under the terminating provision are being replaced with benefits under another defined benefit provision of an RPP maintained by the same employer. In these two situations, the provisional PSPA associated with the past service benefits is calculated based on the modified PSPA rules. Under those rules, the sum of all PAs previously provided to the individual under the terminating provision is applied to offset the PSPA, resulting in a PSPA that is either zero or greatly reduced. The PA transfer amount reduces the member’s PAR by the sum of all PAs previously provided to the individual. This is consistent with the fact that those benefits have not been lost — they have simply been replaced.

The administrator of the new plan gives this amount to the exporting plan administrator. The new plan administrator must tell the exporting plan administrator within 30 days of the transfer that there will be a PA transfer amount as a result of the past service benefits being recognized under the new plan. The new plan administrator has 60 days from the date of the transfer to tell the exporting plan administrator of the actual PA transfer amount, so that the administrator of the exporting plan can calculate the PAR.

The exporting plan administrator must report the individual’s PAR to the member and to the Canada Revenue Agency by the later of the following two dates:

6. Special situations

This section describes how to calculate PARs for defined benefit provisions in special situations. If you cannot find an adequate description of your specific situation in this section, contact the Registered Plans Directorate. The contact information is at the end of this guide.

6.1 Breakdown of marriage or common-law partnership

If there has been a breakdown of a member’s marriage or common-law partnership before their membership ended and, as a result of the breakdown, the member no longer has rights to all or a part of their benefits, the following rules apply:

6.2 Defined benefits supplemental to or dependent on other defined benefits

As explained in section 3, if benefits provided to an individual under a defined benefit provision are in addition to or otherwise depend on benefits that the individual receives under one or more other defined benefit provisions, that individual is not considered to have ended their membership until they have terminated from all related defined benefit provisions.

In addition, any benefits provided or amounts paid to the individual under one of the provisions are also considered to be benefits provided or amounts paid from each of the other provisions. This means that specified distributions from one provision are also deemed to be specified distributions from each of the other provisions.

In certain circumstances, it may be more appropriate for you to use another method to calculate the specified distributions for a particular individual. You can ask permission for an alternative to the PAR calculation by writing to the Registered Plans Directorate. The address is listed at the end of this guide.

7. Reporting PARs

7.1 General

If an individual has ended their membership in a provision of an RPP or a DPSP, a PAR that is greater than zero must be reported to both the Canada Revenue Agency and to the employee. As the plan administrator in the case of RPPs, or the plan trustee or employer in the case of DPSPs, you have to report the PAR on the T10 return. The T10 return includes the T10 Summary, Summary of Pension Adjustment Reversals (PARs); T10 slips, Pension Adjustment Reversal (PAR); and in some cases, T10 Segment forms. Employees do not have to make any tax filings for their PAR. Once the Canada Revenue Agency has processed the T10 slip, the individual’s RRSP contribution room will be increased by the amount of the PAR.

7.2 Filing deadlines

You have to report PARs quarterly. A PAR return has to be filed by 60 days after the end of the first three calendar quarters. The PAR return for the last quarter has to be filed before February. The calendar quarters are:

Only file a PAR return if one or more employees has ended their membership in a DPSP or a provision of an RPP in a quarter and have a PAR that is greater than zero.

7.3 Penalties for late filing and for providing inaccurate information on a PAR return

If you file a PAR return after the filing deadlines mentioned above, you might have to pay a late-filing penalty. Each slip is an information return and we base the penalty on the number of slips filed late. The penalty is the greater of $100 or a penalty calculated as follows:

Also, if you leave out any information that is required on a PAR return, you might have to pay the following penalty:

Note that intentionally reporting incorrect information on a PAR return can be viewed as leaving out required information.

7.4 Zero PARs

A zero PAR may result if a plan member ends their membership and receives a distribution amount from the benefit provision of the RPP or from the DPSP that is equal to or greater than the total of pension adjustments and past service pension adjustments that were previously reported for that provision. If the calculation results in a zero or negative PAR amount, do not report the PAR.

For example, if an individual quits either a money purchase RPP or a DPSP and is fully vested, the calculation will result in a zero PAR.

7.5 Amounts to report

You must report a PAR if one of these conditions applies:

This does not apply if the employee asks that the PAR be reported accurately or if the Canada Revenue Agency asks you to report the PAR accurately.

7.6 T10 Return

You have to calculate all PARs and report them to the Canada Revenue Agency by completing a T10 return. The return consists of:

You can find these forms through the links listed at the end of this guide.

Important filing information

A PAR return is reported for a calendar quarter for each DPSP or provision of an RPP. If a person ends their membership from more than one DPSP or RPP provision, file a separate PAR return for each DPSP or RPP provision. You may have situations where a member quits a pension plan that has two different benefit provisions and therefore, technically, two PARs. If there is only one plan, add the two PARs together and report it as if there was only one PAR.

Find more information on situations where a member is eligible for more than one PAR in the same year with the same employer from the Registered Plans Directorate.

Completing the T10 return

Each part of the T10 return is explained below. Most lines and parts on the different forms that make up a T10 return are self-explanatory.

T10 Slip

Distributing T10 slips

T10 Summary

Distributing the T10 Summary

T10 Segment

If your T10 return has more than 100 sheets or 300 separate T10 slips, you have to file T10 Segment forms in the following way:

7.7 Amended PARs

If you have to report an amended PAR, file another T10 slip and enter “A” in box 5, Report Code, of the form.

Make sure the amended T10 slip contains the revised total PAR amount for the year from the plan, not an additional or negative amount.

Your totals on the T10 Summary and T10 Segment forms (if applicable) will reflect the number of amended T10 slips included with the PAR return.

You can file amended forms with original PAR slips as long as they are for the same year and plan number.

8. Where to get help

Registered Plans Directorate

You can find more information at Savings and pension plan administration.

By telephone

Toll-free in Canada and the United States: 1-800-267-3100.

If you are calling from outside of Canada or the United States, call us collect at 613-221-3105. The Registered Plans Directorate accepts collect calls.

By mail and courier

Registered Plans Directorate
Canada Revenue Agency
875 Heron Rd
Ottawa ON K1A 0L5

Forms and publications

Find all of the forms and publications at Forms and publications.

Forms

Guides