This bulletin gives guidelines and examples of reasonable methods to apportion assets and actuarial liabilities for the purpose of funding a defined benefit (DB) provision of a registered pension plan that has more than one participating employer.

Apportioning assets and actuarial liabilities

When a DB provision of a registered pension plan has more than one participating employer, subparagraph 147.2(2)(a)(vi) of the Income Tax Act requires that plan assets and actuarial liabilities be apportioned among the participating employers in a reasonable way.

This requirement makes sure that any unfunded liability associated with a participating employer (and related participating employer contributions) is not excessive. It is also intended to make sure that there is a reasonable determination of each participating employer’s actuarial surplus for the purpose of paragraph 147.2(2)(d)^{Footnote 1} of the Act.

Who is a participating employer?

A participating employer, defined in subsection 147.1(1) of the Act, is an employer that has made, or is required to make, contributions to a registered pension plan for its employees or former employees. Applications to register a pension plan or amend a registered pension plan will not be accepted if there is no valid participating employer. This makes sure that a plan will always meet the primary purpose condition that applies to all pension plans, which is to provide periodic payments to individuals after retirement and until death for their service as employees.

When is an apportionment method acceptable?

Generally, we accept apportionment methods that do not create a bias towards a particular participating employer. Distorting the assets, liabilities, or qualifying transfers may lead to a participating employer making larger than appropriate contributions. Apportionment methods based on lifetime retirement benefits accrued with each participating employer are generally acceptable.

In cases where we find a disproportionate allocation between participating employers or the allocation is questionable, we will work with the submitter to make sure the allocation and recommended contributions are acceptable.

Acceptable apportionment methods

Actuarial valuation reports sent after December 31, 2020, must use apportionment methods that are consistent with this bulletin.

For actuarial valuation reports sent before January 1, 2021, the actuary is still required to allocate the assets and liabilities appropriately. We will take into consideration all allocation methods that are not consistent with this bulletin. However, we may not approve the participating employer contributions as recommended by the actuary if they are not reasonable due to the apportionment method used by the actuary.

The following are apportionment methods we consider to be reasonable.

Liability apportionment – prorated to earnings

This method apportions the liabilities based on each participating employer’s share of a member’s lifetime retirement benefits. If a member receives pensionable earnings (compensation) from multiple participating employers in the year, the actuary must use those pensionable earnings to prorate the accrued lifetime retirement benefit (LRB) and DB limit in the year.

The accrued LRB and DB limit must be prorated using pensionable earnings from all participating employers in each calendar year, even if pensionable earnings from one of the participating employers would produce the maximum pension by itself.

For 2017, it is not acceptable to credit a lifetime retirement benefit equal to the DB limit to Employer #2 even if the pensionable earnings from this employer generate by themselves, the DB limit allowed under subsection 8504(1) of the Income Tax Regulations.

Asset apportionment – prorated to liabilities

This method apportions the assets in proportion to the liabilities allocated to each participating employer using the pensionable earnings. Generally, prorating the assets to the liabilities would result in an appropriate funding request.

However, there are cases where prorating assets based on liabilities may become inappropriate. This would be the case if one of the participating employers takes a contribution holiday and makes a lower contribution than the amount recommended in the actuarial valuation report, while the other participating employers keep making the recommended contributions.

This may result in a significant shift in assets between participating employers, which could lead to inappropriate funding requests. In these cases, the actuary must use the separate accounting method.

Asset apportionment – separate accounting

The separate accounting method divides plan assets based on each participating employer’s actual contributions, related investment income and other cash flows.

By accounting for plan assets separately, there may be an unfunded liability for employees of one participating employer at the same time as there is an actuarial surplus for employees of another employer who participates in the same plan.

In order for us to compare the actuary’s recommended contributions with the actual contributions, we require a reconciliation of assets for each participating employer to be included in the actuarial valuation report. The reconciliation of assets must contain:

• the initial value of assets for each participating employer, i.e. the value of assets reported at the previous valuation date
• the final value of assets for each participating employer, i.e. the value of assets reported at the current valuation date
• All cash flows (such as current service contributions, contributions made towards the unfunded liability, investment income) for each participating employer between the previous and current valuation dates

Qualifying transfer

There are also certain reasonable apportioning methods of qualifying transfers.

Qualifying transfer apportionment – past service pension adjustment

This method apportions the member’s qualifying transfer based on each employer’s share of the past service pension adjustment (PSPA). First, the accrued LRB and DB limit must be calculated as per the section Liability apportionment – prorated to earnings for each participating employer. Second, the PSPA is calculated for each participating employer. The qualifying transfer must be apportioned among the participating employers in proportion to the ratio of their PSPA to the total PSPA for all participating employers.

Qualifying transfer apportionment - prorated to liabilities

This method is similar to the Asset apportionment– prorated to liabilities method. Here, the actuary divides the qualifying transfer based on the proportion of the liabilities for each participating employer.

When is an apportionment method unacceptable?

Here are examples of apportionment methods that we have determined to be unreasonable and are therefore unacceptable:

• the actuary did not give an actuarial justification for their apportionment method.
• there is a disproportionate bias between allocated employers’ assets or liabilities
  • for example, an RPP with only one member recognizes past service with two participating employers. In the initial AVR, the plan assets (qualifying transfer) are allocated entirely to one participating employer to maximize the other participating employer’s tax-deductible contribution.
• the member receives earnings from multiple employers in a calendar year. The actuary credits the accrued benefit to a primary employer and only recognizes the accrued benefit with the other employers as needed to maximize the member’s benefit.

Generally, it is not acceptable to use an apportionment method that produces a different result than the acceptable methods outlined in this bulletin.

We will be pleased to assess any apportionment method that differs from those described as acceptable in this bulletin before you send us your next actuarial valuation report.

To make sure we can process your submission promptly, please send us an accurate description of your proposed apportionment method, an example, and an explanation of how your apportionment method meets the requirements of the Act.

Once we have completed our review, we will notify you in writing of our decision.

You may send your request for our assessment by mail or fax it to us using the contact information at the end of this bulletin.

Removing a participating employer from a plan

There may be circumstances where one of the participating employers stops participating in the plan due to bankruptcy, wind up, dissolution, sale of business, or it voluntarily removes itself as a participating employer. If this occurs, that participating employer has no further involvement in the plan. Although we call them an inactive employer, we still consider them to be a participating employer for the purposes of the Act and Regulations.

For inactive employers, assets and actuarial liabilities should continue to be apportioned to that employer. It would not be acceptable to re-allocate the assets and actuarial liabilities that relate to an inactive employer’s employees and former employees to the other participating employers in the plan. Subparagraph 147.2(2)(a)(vi) of the Act makes sure that a participating employer in a DB pension plan cannot fund the benefits provided from another participating employer, even if that employer no longer exists.

However, on an administrative basis, we will consider an apportionment method that maintains the funded ratio of a participating employer at the time it became an inactive employer to be acceptable.

Therefore, the remaining participating employer or participating employers can fund actuarial deficits for their own employees or former employees and the experience losses for the employees or former employees of any inactive employers to keep the funded ratio for these employees unchanged. Any contributions made to the plan that increases the funded ratio in relation to any inactive employers will not be eligible.

To take advantage of this administrative position, send us:

• an actuarial valuation report at the time the employer becomes inactive
  • this report must include the funded ratio and show how the emerging losses will be funded.
• an amendment outlining the changes to the plan
• Form T920, Application to Amend a Registered Pension Plan

Predecessor employers

A predecessor employer is an employer (referred to as the vendor) who has sold, assigned or otherwise disposed of all or part of the vendor’s business and all or a significant number of employees of the vendor have, with the disposition, become employees of the employer acquiring the business, undertaking or assets. A predecessor employer is defined in subsection 8500(1) of the Regulations. Evidence of a buy and sale agreement and an assignment of benefits would need to be provided so we can make sure that subsection 147.2(8) of the Act is respected.

This deems former employees of a vendor to be employees of a participating employer if the agreement involves an assignment of a DB plan from the vendor to the participating employer. This allows the participating employer to contribute to the plan to fund benefits provided to employees of a predecessor employer.

Amalgamated corporations and subsidiaries that are merged into their parent corporation are also considered predecessor employers for purposes of the registered pension plan rules. The assets and liabilities of the predecessor employer should be apportioned to the continuing participating employer. The continuing employer can contribute to the plan for the former employees of the predecessor employer.

Actuarial valuation reporting requirements

Actuarial valuation reports sent to the Registered Plans Directorate after December 31, 2020 must specify the following information in a separate balance sheet for each participating employer:

• the share of the plan assets

• the share of the plan liabilities

• unfunded liabilities and actuarial surplus, if any

For individual pension plans^{Footnote 2}, the actuarial valuation report must also include the following information for each participating employer:

• the pensionable earnings (compensation) for each member

• the allocation of the amount of qualifying transfer for a service buyback for each member, if any

• the total amount of contributions remitted since the previous valuation report

• a confirmation from the actuary that each participating employer paid their share or made contributions as recommended by the previous actuarial valuation report, if the asset apportionment prorated to liabilities method was used

Further information is available in Newsletter 95-3, Actuarial Report Content, and in Actuarial Bulletin No. 2.

We also expect that the apportionment method would be consistent from one valuation to the next. For example, we may not allow the actuary to use a different method in a subsequent valuation, unless the previous method becomes unreasonable later on. If there is a change in apportionment method, the actuarial valuation report must include the justification for the change. We will make our determination on a case-by-case basis.

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

Due to a building refit spanning multiple years, the Registered Plans Directorate’s mailing address has been temporarily changed. Please use the following address for all correspondence until further notice:

Registered Plans Directorate
Canada Revenue Agency
2215 Gladwin Cres
Ottawa ON K1B 4K9

We welcome feedback on this bulletin. Send comments by email to RPD.LPRA2@cra-arc.gc.ca.