The 2014 RPP Practitioners’ Forum – Summary Report

Table of contents

• Overview
• Opening Remarks
  • Welcome
  • Director General’s Opening Remarks
  • Assistant Commissioner’s Address
• Registered Plans Directorate Business Transformation
  • Drivers for change
  • What was and what will be
  • How will the new review process work?
    • Actuarial valuation reports
• What you can expect
• What will not change
• Next steps
• Summary of the business transformation questionnaire
  • Priorities
  • Key elements
  • Contacting the plan administrator
  • Timelines
  • Amendments
  • Other factors to consider
• RPD’s Electronic Services
  • Background
  • RPAS – current and future state
  • Future state – Longer term
  • Next steps and challenges
  • Summary of the e-services questionnaire
    • Industry views and concerns
    • Tasks
    • Pilot project
• The Audit Division’s Mandate
  • Division review
• What your client can expect from an RPP audit
  • Selecting RPPs for audit
  • The auditor
  • The plan administrator and authorized representative
    • Request to plan administrator
    • Request to third parties
  • Finalizing an audit
  • Historical records
  • IPP reviews
  • Validation of IPP earnings and service
  • Qualifying transfers to IPPs
• Appendix – Summary of the feedback on the 2014 RPP practitioners’ forum
  • Overall experience
  • Suggestions for improvement

Overview

On November 5, 2014, 26 representatives from the pension industry took part in the 2014 Registered Pension Plan Practitioners’ Forum held at the International Development Research Centre. The goal of the forum was to engage registered pension plan (RPP) practitioners on our business transformation, electronic services, and RPP audit issues.

Opening Remarks

Welcome

The forum’s host, Chantal Paquette, Director of the Registration Division, welcomed everyone and explained the day’s agenda. Each attendee received handouts. Every folder included English and French versions of the agenda, the slides for each presentation, questionnaires, and a feedback form.

Director General’s Opening Remarks

Mike Godwin, Director General of the Registered Plans Directorate, welcomed attendees and explained why we had not held any practitioners’ fora since the last one in 2009. Several reasons contributed to this, budgetary restrictions being one.

Mr. Godwin explained that a few years ago we received funding for a new information technology system. We chose to take the opportunity to make changes to our business process which we explained throughout the day. The main goal of this forum was to solicit input on our business transformation, on our electronic services (e-services) vision, and on our audit measures before we go any further with these plans making this forum more interactive than the ones before.

Assistant Commissioner’s Address

Rick Stewart, Assistant Commissioner of the Legislative Policy and Regulatory Affairs Branch, stressed the importance of the pension system as the foundation of retirement income for Canadians. It is important that pension plans are prudently invested and managed. Although not easy, we all have a part in making the pension system work. It is important for the pension industry professionals to give prudent advice.

In Mr. Stewart’s opinion, the best outcomes come from collaborative input, and that was the goal of this forum. The attendees are the advisors of plan administrators. It is important that plans are set up properly, right from the start in a fully compliant way. The RPP practitioners help plan administrators better understand the complex tax system. Because we can’t be everywhere, we need their help to better serve plan administrators. A strong partnership helps us better manage the complex tax system. It allows us to be more service oriented instead of more compliance oriented.

Registered Plans Directorate Business Transformation

The presentation was given by Mike Godwin. We wanted to inform the attendees on our business transformation plan. We also wanted to get their input on how we can collectively make these changes work.

Drivers for change

We are proposing these changes because we want to better meet our mandate; which is to register and monitor deferred income and savings plans according to the Income Tax Act. We want to give plan administrators more certainty that their plans comply with the rules under the Act.

What was and what will be

With pension reform in 1989, we focussed on plan terms. We did extensive reviews of all plans based on a first-in first-out approach to submissions. In 2005, we went through a business reengineering process and changed our focus to plan administration. Although we still use a first-in first-out approach to submissions, only high-risk issues on high-risk plans are fully reviewed. Starting in April 2015, with our business transformation, we want our registration activities to focus on both the plan terms and some aspects of plan administration. We are exploring moving to a case-based, cyclical and risk-based review of all plans.

This business transformation would affect registered pension plans (RPPs), deferred profit-sharing plans (DPSPs), and supplementary unemployment benefit plans (SUBPs). It would change the registration activities relating to plans, specifically:

• the review and approval of applications for registration;
• the review and approval of applications for amendments; and
• the review of actuarial valuation reports and approval of funding requests.

Under our current process and with a high volume of submissions, we do not have enough staff to fully review all submissions received within a year. Some submissions get approved with little or no review. Under the new process, we want to rebalance our approach and make sure that plan terms comply with the Act. All plans will get a full review, whether submissions were sent in or not. Although we would like a shorter delay between reviews, considering current resources, we expect to be able to offer a six year cyclical review. However, if a submission that we consider to be high risk comes in, we would open a case and start a review before the six years has passed.

How will the new review process work?

A work assignment (case) will be opened when a plan is chosen for review, based on certain risk triggers. These triggers will evolve over time and could include, for example:

• a change in the status of the plan;
• the risk of non-compliance;
• the need to coordinate with other areas of the RPD, and the CRA;
• the review cycle has ended and the plan must be reviewed.

When reviewing a case, the analyst will be responsible to make sure that the plan fully complies with the Act. This review will include the plan terms, the funding, and other elements of administration of the plan. Once all of the issues on the plan have been resolved and the plan terms are fully compliant, the analyst will send a letter of confirmation (approval) and close the case.

Actuarial valuation reports

Under most pension benefit standards legislation, an actuarial valuation report (AVR) must be filed every three years. Therefore, with our proposed case-based cyclical review, only every other AVR will get a full review unless certain risk triggers are met. For an individual pension plan, the Financial Services Commission of Ontario asks for yearly AVRs. In such a case, generally only every 6^th AVR will get a full review (assuming a 6 year review cycle). A risk-based review will be done on the other AVRs.

We will send an approval letter to the plan administrator for all AVRs so that the contributions will be eligible under the Income Tax Act.

For individual pension plans, the process of doing more limited reviews of some AVRs may mean that the earnings and service will not be reviewed in those AVRs. For example, in the case above, we might not validate the earnings and service used to calculate the benefits in the 2019 AVR. When we do a more thorough review of the 2022 AVR, if we see an error in the earnings, we will ask you to correct the 2022 AVR and all future AVRs. Our approval of the 2019 AVR, however, would stand.

What you can expect

With the new change, plan administrators will be able to rely on our acceptance letters as a clear statement that the plan terms were reviewed and are compliant. If the plan is administered in accordance with those terms, it is compliant.

Our letters will address many submissions and issues. We will need a quicker reply for the corrections we have asked for. We will continue to work with you to bring an RPP into compliance.

Most of the issues we uncover would be fixed on a prospective basis. Although it really depends on the circumstances, here are examples of issues that we would fix on a prospective basis:

• A money purchase plan calls for a 5% contribution rate, but it was administered with a 6% contribution rate. As long as the pension adjustment was calculated based on actual contributions and the pension adjustment limits were respected, this would be fixed prospectively.
• The plan terms offer a bridge benefit that is a little off.

Examples of issues that we would not consider fixing on a prospective basis would be:

• a primary purpose issue;
• a benefit accrual rate that is over what is allowed in the Act;
• an employee contribution rate over 9%, unless a waiver has been given.

What will not change

Once an amendment is sent to us, the legislation says that the amendment makes up part of the “plan as registered” as long as it is reasonable to assume that the Minister will accept it. Therefore, between the time that the amendment is submitted to us and the time that we rule on it, you must apply it as part of your plan as registered. We will continue to review amendments when asked and tell the plan administrator if it is acceptable. This is a service that we already offer.

New applications for registration will continue to be a priority. Our service standards for waivers, administrative relief, written enquiries, and validations of earnings and service will not change. We will also continue to review draft plan terms when asked.

Next step

We expect to implement the business transformation in April 2015.

Summary of the business transformation questionnaire

Priorities

We asked the attendees, concerning our comprehensive risk-based cyclical reviews, which plans they think we should review on a priority basis and why?

They said that it was very important that we give priority to new registrations and any change to an RPP’s design or status (for example, terminations, splits, mergers, target benefit plans, contribution changes). Some attendees noted that there could be problems when plans convert, for example, from a money purchase to a combination plan and the administration of the RPP after the conversion.

Some attendees also considered IPPs and plans where new past service is being added to be a priority. Some felt that larger RPPs should also be a priority and raised concerns about participating employers and who should be taking the deduction. Some were concerned that even a small mistake in a large RPP could have large tax implications.

Some attendees identified the change of sponsor or corporate identity as a priority because the custodian may not accept the funds without our approval. Some also suggested that we should take a closer look at RPPs with a history of non-compliance or if the company has been audited by the Compliance Program Branch and problems were uncovered.

Some felt that we should also look at union negotiated RPPs, RPPs with a foreign administrator (either delegated or actual, mainly because submitters run into problems about awareness of Canadian legislation relating to RPPs), new submitters (new to the business), and new money purchase plans. RPPs that have too many amendments or that have not been restated within a certain time period or RPPs that have not been amended in some time should also be a priority.

Some attendees felt that multi-employer plans (MEPs) have many existing issues.

Almost all attendees felt that RPPs should be reviewed when the plan administrator asks. This is a service that we are already providing, and will continue to promote.

Key elements

We asked which elements of an RPP should be reviewed and why?

The attendees said major definitions, contributions, benefit administration and calculations (specifically when they are close to the maximums), service, and qualifying transfers in both defined benefit and money purchase plans should all be reviewed. Some indicated a review would be necessary when adding new past service or when a plan is amended retroactively. Other elements mentioned were flex features, contingency reserves, commuted value calculations, the plan’s definition of compensation, and related employers.

Contacting the plan administrator

We asked the attendees when they thought we should contact the plan administrators. Should we contact them to acknowledge that we have received a submission that will not be reviewed until later and why?

The majority of attendees said that communication is important and that we should acknowledge receiving submissions. They also felt it was important to specifically note in our letters what we had received. They also want us to include a paragraph explaining what our new cyclical review process is and the actions we will take for the different types of submissions. We were also asked if it was possible to include timelines for the review. Some asked that we include in our letter the offer for an earlier review if needed. Some suggested a two tier process; they want to know if the submission has triggered a review or not.

Some suggested they would like the acknowledgement letter to include a paragraph advising the plan administrator to administer the plan according to the amendments that are submitted. Consultants also indicated that they wanted to be copied.

The attendees asked us to place a general notice of our process change on our website so that their clients are aware. Others felt that we should write to the plan administrators to inform them of the change in our process so they don’t have to go look for the information. Some felt that the process should also be explained in our registration letters.

We asked attendees if they wanted us to inform the plan administrator when their RPP has been selected for a comprehensive review and why?

They were divided on this question. Some felt that for sake of transparency and workload management that we should be letting the plan administrators know at the beginning of the review. Others felt strongly that we should not advise the plan administrators because it might raise concerns and calls to the submitters. These attendees suggested that we should only inform the plan administrators of the review if we need more information or if we have issues with the plan.

Overall, the attendees felt that if we were going to inform the plan administrators, we have to give them a clear explanation of what is to come and the expected timelines. We should make sure that the plan administrators know that this is a review and not an audit. The wording of our letters is very important. They could include an explanation of the process and a link to more information which would be placed on our website. We should also send a follow-up letter with the result of our review. The attendees felt that we should also copy consultants on all letters. Some indicated that plan administrators would not need much notice (possibly 2 or 3 weeks) before the review.

Timelines

To keep the review cycle within reasonable timelines, we need to start and finish our reviews within one year. We are considering asking plan administrators to submit corrections within 60 days. We asked the attendees if they felt that this was reasonable in most situations. If not, why?

The attendees agreed that a deadline is needed. However, most perceived 60 days to be unreasonable. They mentioned that this timeline doesn’t coincide with board meetings and getting the pension committee in Quebec to review and sign the amendments. Many felt that timelines should vary depending on what we were asking for (amendments versus clarifications). Some also mentioned that there can be much back and forth with the provincial authority. They suggested that the delay should be 90 days and that we should be open to allowing extensions depending on circumstances.

Others felt that the 60 days could be acceptable if used as a default and if we are only expecting an acknowledgement reply and an action plan based on the next board meeting. There was talk at one table of consequences, such as financial penalties, to make sure that plan administrators understand the importance of complying.

Amendments

We asked attendees if there are any problems created by waiting for a number of years for us to review amendments. If there are, how can we lessen these problems?

The attendees were not concerned about having to wait for amendment approvals. They indicated, however, that we should consider the type and nature of the amendment (for example, a new plan design might be more critical). Several factors contributed to their level of comfort. The first is that amendments form part of the plan as registered. The second factor relates to our risk triggers (including change of status and plan design). The attendees assumed that a review would be triggered if the amendment posed a risk.

One of the biggest reassurances for the attendees regarding the time it would take for us to review amendments was that we will be working with consultants and plan administrators on a prospective basis and that we would not ask them to fix issues retroactively (except in limited circumstances). Some were also comforted by the fact that we would review amendments if asked. Some attendees asked for a form to flag those submissions that they would want us to look at.

One table noted that our new process might generate more calls on our general enquires line and that we should have more experienced and knowledgeable staff on the lines that can answer questions.

One attendee remarked that the new process could “encourage proactive plan governance by plan administrators”.

Other factors to consider

We asked if there was anything else that the attendees would like for us to consider in designing our new process.

• It was suggested that we ask for input on forms. The attendees said that our process seemed to be better, but that the Ontario forms were better designed.
• Various provinces allow for e-submission. Attendees suggested joint forms and streamlining (like for the T920). They also mentioned that they would like to see expandable form functionality.
• One attendee wondered how we would meet our service standards with all of these changes.
• One of the suggestion made was that we allow the T1004 and T1007 forms to be sent in with the registration package so that we do not have to send a reminder to send in those forms if they have already been sent in (one option might be to remove this paragraph from the deeming letter).
• As part of our process one group asked that we consider cost benefit and materiality.
• Consultants asked to know who was in charge of their plan.
• Some asked that we review our older publications.
• Some asked that we consider changing our position stated in our Newsletter No. 94-4, Wind-Up Valuation Report, and ask that wind-up reports be sent to us.
• Once we approve something, will we ever go back on it (taxpayer certainty)?
• Need to improve general enquiries lines.

RPD’s Electronic Services

The presentation was given by Janice Laird, Director of the Policy, Actuarial, and Communications Division. The subject was RPD’s electronic services (e-services) vision and how our registered plans application suite (RPAS) will help us achieve our vision.

Background

We started developing RPAS in 2007 when the government of Canada announced the registered disability savings plan program. We then expanded the development to include the tax free savings account announced in 2008. Because of the similarities with some of our other programs, we were able to incorporate functionality for the registered educations savings plan, the registered retirement savings plan, and the registered retirement income fund. Other changes to these programs were announced in later federal budgets which added to the RPAS development timeline.

Even though we completed the first phase of RPAS in 2010, only half of our programs were under this system. Registered pension plans (RPPs), which represent 65% of our workload, were covered under a different mainframe system. This other system was antiquated, costly to update, and not sustainable over the long term. Deferred profit sharing plans (DPSPs), supplementary employee benefit plans (SUBPs), and registered investments (RIs) were also covered under this older system. It held only basic data; no information on submissions or their risk characteristics, nor did it capture compliance results. We developed a number of separate local information technology (IT) system applications to bridge this gap to be able to conduct some rudimentary risk analysis.

Given that we had two separate mainframe applications and a number of local ones, we thought about how to bring all of our programs under one comprehensive IT system. We put forward a business case for funding to incorporate the other programs into RPAS. In September 2011, our proposal was accepted and we started the development to incorporate RPPs, DPSPs, SUBPs and RIs into RPAS under Phase 2. When the pooled registered pension plan was announced in 2012, the RPAS scope was expanded to include this new program as well.

RPAS Phase 2 is planned in two stages (releases). The first release was implemented in April 2014, at which time the other system and most of the local applications were shut down. There will be a final release in April 2015 and all of our programs will be covered by RPAS.

RPAS – current and future state

With the April 2014 release of RPAS, we have incorporated functionality to store our letters using Enterprise Correspondence (EC). This is the storage and retrieval solution used throughout the CRA. RPAS is built on the required platform to make it easier to communicate with you electronically. EC is the essential first step for us to successfully carry out our full e-service vision. This means that our system is already set up to allow us to send information to you electronically, although we are unable to do so without the secure portal infrastructure and a unique program identifier.

RPAS will help with our business transformation. It will create program efficiencies in the short term by automating several processes that are currently done manually, and, in the longer term, it will help shape our compliance regime towards an intelligence-based approach.

Although some of this functionality is now available for our specialty products workloads, by April 2015, RPAS will allow us to use the data in the system to better assess risk, conduct research, and identify emerging trends for the other workloads, including RPPs.

Analyzing this data, and our compliance results, will help us further develop our risk profiles and so more effectively focus our resources on the areas of highest risk; both from a comprehensive plan review and an audit perspective.

Also, in April 2015, the analysis and processing of our actuarial valuation report (AVR) workload will be greatly enhanced due to the link being built between RPAS and our AVR review tools. At the moment, the information is entered manually in these tools and, given that there is no interconnectivity between the CRA systems and our Excel tools, there is some duplication in our current processes. This will change with the automated processes and we will be more efficient.

Future state – Longer term

We are looking into possibly using the existing secure portal functionality of the CRA to communicate with you electronically. As you act on behalf of the plan administrator, we would use the “Represent a Client” (RAC) functionality. Although it will not be the only way to communicate with us, we will strongly encourage you to use this method.

We would be allowed to communicate with you concerning the plan once the plan administrator authorizes you through RAC. You would not need to have any special encryption software or other programs to log in to the CRA’s portals and use these services. As long as you have access to the internet and the proper authorization, you could communicate with us electronically.

The way we see this working is that you would send the information to us electronically using the CRA portals. All of this information is automatically encrypted, which makes it a very secure way to communicate with us. Once we have reviewed your documents and have prepared our reply, you will receive an email notification that there is something new on your account. This would be a “You’ve got Mail” feature. You would then be able to log into your account through the portal and retrieve our reply.

It is our understanding that many of you would like to communicate with us electronically. However, we are not able to do so right now because emails are not a secure way to send taxpayer information. This electronic solution, once implemented, will solve that problem.

Data sent in electronically will be more reliable. We also expect faster processing times (especially for AVRs). Your submissions will be sent directly to us electronically and will not get misplaced. Because the submissions would not be routed through the centralized CRA mailroom, delays would be reduced.

We are also considering moving towards online fillable forms. In the meantime, where harmonized actuarial summary information forms exist, we are working with the other supervisory authorities to see if we can streamline the process so that you don’t have to send the documents to each of us separately. We have reached an agreement in principle with the Financial Services Commission of Ontario. They will capture all of the information on these forms electronically and will send us the relevant data using the existing link between our systems. We are also exploring similar strategies with our other provincial partners.

Next steps and challenges

For our e-services vision, we are in preliminary discussions with the area of the CRA responsible for the secure portal to determine if it is possible to create a unique program identifier for each pension plan. In most cases, there is one participating employer in a pension plan. But some plans have more than one participating employer, which makes coming up with an identification number difficult. We believe that we have found a solution and are developing high level business requirements so that the systems developers can give us an estimate of the cost for this functionality.

Once the cost has been established, we will need to get funding. If we can get this funding, we will then identify timelines and work towards developing the final piece in our e-services vision. The earliest we can expect to be able to roll this out is April 2016, if we are able to get funding soon. We are moving forward with this date in mind.

As you can see, there are many things to consider and address before we can move forward with any certainty. Once we have cleared some of the hurdles, we may set up a pilot project to iron out any problems we encounter before we carry out our vision on a larger scale.

Summary of the e-services questionnaire

Industry views and concerns

We asked the attendees for their views about our future systems vision and whether they have any concerns about moving to electronic communication with us.

Everyone said that they would like to communicate with us electronically and four already use the CRA’s secure portals. All attendees were highly supportive of this direction as many organizations are moving to paperless offices. They were also pleased that future electronic communication with the CRA will be voluntary rather than compulsory.

Many attendees suggested that we consult with other regulators who currently use secure portals to benefit from the lessons they have learned and avoid the pitfalls experienced by their clients during this transition.

Tasks

We asked attendees what tasks (for example, enquiries, filing returns, managing representatives) they would like to do related to their registered plan or savings account through the CRA’s secure portals.

Everyone agreed that they wanted to be able to do everything electronically that they currently do on paper. One attendee suggested that it would be useful to be able to access items that have been filed and see their status (under review, review pending, registered). Another suggested that we consider a ‘live chat’ feature to give technical support when needed.

Although we had planned to investigate offering fillable forms, the attendees overwhelmingly did not want this. Their systems have been programmed to auto-populate the CRA’s required forms so instead of fillable forms, they want to be able to send batch filings through the portal.

Pilot project

We asked if attendees would like to participate in a pilot project to send in documents to us electronically if we are able to conduct such a pilot. Fifteen attendees said they would be interested. One of the attendees was tentative, saying that the company would need more details and would want to secure a client agreement before participating.

One attendee wanted us to start with the annual information return and the Form T920, Application to amendment a registered pension plan, if possible. Another one suggested starting with the AVR and Form T1200, Actuarial Information Summary.

The Audit Division’s Mandate

The presentation was given by Andrew Donelle, Director of the Audit Division. The Audit Division delivers a national audit program for deferred income and savings plans. It develops risk assessment strategies to select high risk files for field audits and desk reviews, to identify and correct non-compliance. It also provides technical support to the Tax Services Offices and to other Branches of the CRA.

There are five different audit groups in the Audit Division. Three are focussed on audit activities related to registered pension plans (RPPs).

• Sensitive RPP Files: This group (currently managed by André Martin) focusses on primary purpose, large-scale voluntary disclosure issues (large contribution errors or transfer errors), referrals from other audit groups, individual pension plans (IPPs), and cases that have proceeded to the Tax Court of Canada or the Federal Court of Appeal, among other things. The team provides technical guidance to other Branches of the CRA.
• Field Audit: This group (currently managed by Stéphane Laplante) conducts comprehensive audits that involve on-site interviews with administrators of medium and large RPPs. It also conducts registered educations savings plan and registered disability savings plan audits.
• RPP Desk Review: This group (currently managed by Anju Battu) does not have a field audit mandate, but rather it conducts limited-scope audits based on referrals from the Registration Division and from tax data from the tax-filer databases. Limited-scope desk reviews generally include verifying and correcting pension adjustments, past service pension adjustments, excessive transfers from an RPP to a registered retirement savings plan and smaller-scale voluntary disclosures of non-compliance.
• Tax-Free Savings Accounts: This group (currently managed by Michelle Charlebois) conducts audits of the tax-free savings accounts.
• RRSP/RRIF/RI: This group (currently managed by Gilles Lalonde) conducts audits of registered retirement savings plans, registered retirement income funds, and RIs.

Division review

We are reviewing our Division’s activities. We are looking into bolstering our audit procedures, tools, and systems, identifying and ranking at-risk files, and centralizing the workload development for our six groups (including a new Oshawa-based group in April 2015). We are also determining our long-term audit plans and how we can better evaluate our effectiveness and efficiency. Our goal with this review is to work towards effective audit results from limited resources.

We have completed the first of two phases of our Division review. As a result, we have recently set up a Strategic Support Team to be a centralized hub to help us focus on some of the business improvement measures listed above. Jessica Rosebush, one of our lead auditors, is currently leading this strategic initiatives group.

What your client can expect from an RPP audit

Selecting RPPs for audit

Before we select RPPs for audit, we first decide what risk criteria we will use for file selection. The list of items at risk of non-compliance is large and evolves over time. To determine what may be a high risk issue, we look at past audit results, trends, leads, test cases (research audits), legislative framework (for example, maximums), and we scan the CRA tax-filer database.

In some cases, we test the compliance of a particular group of plans. If test results indicate that there is significant non-compliance within the group, we may audit plans or members on a local, regional, or national basis. Initial population sizes are generally very large and need to be narrowed down to a manageable size using various sampling methods. Every file has an equal chance of being selected for audit.

The auditor

The auditor will first contact the plan administrator to set up a date for the initial interview and audit at the place of business. He or she will then send an advanced letter with the general information about the scheduled audit, such as the scope of the audit, which tax years will be reviewed, an estimate of on-site time, and what information he or she will need to conduct the audit.

The auditor then conducts a preliminary review of the file to prepare questions for the on-site visit. The preliminary review of the file generally includes a review of the plan text or specimen, Board resolutions, correspondence (for example, concern letter sent by the Registration Division), AVRs, corporate tax returns, trust agreement, information slips (T4, T4A, T2, PSPA, PAR), and the annual information returns.

When the auditor arrives at the place of business, he or she will:

• explain the audit process and answer related questions;
• discuss the general nature of the business;
• conduct an initial interview that will include questions on the participating employer, the plan, the nature and duties of each member;
• if there are associated companies, we will often ask for a corporate organizational chart or ask questions about the relationship between the companies;
• identify designated staff to handle audit queries;
• request written authorization (if not already in our files) for authorized representatives (accountant, actuary) to be included in communications and instructions from the CRA; and
• review the records of the establishment and operation of the plan and the fund, and records associated with service and earnings of the members.

The auditor will tell the plan administrator how much time he or she will need to be on-site to conduct the interview and gather the information. The auditor may need a day to several days. The state of the records, the size and complexity of the business and of the RPP, influence the auditor’s visit. He or she may have to borrow documents and bring them to Ottawa. In this situation, the auditor will give a detailed receipt (Form T2213) for the borrowed documents. Once the documents are copied, the auditor will return them to the plan administrator by registered mail.

The plan administrator and authorized representative

The plan administrator is responsible to determine with their authorized representative when and how they will be involved during the interview and audit work. The auditor will copy the authorized representatives (based on authorizations filed with us) on all letters issued from the initial contact to the closing of the audit. We will inform the plan administrator that, throughout the audit, the auditor may need help from the authorized representatives to get the information and documents.

The authorized representative should be familiar with all correspondence sent to the plan administrator during the audit, cooperate during the audit, help the plan administrator during the interview and audit work, and give the auditor supporting documents and responses when asked.

A requirement for information is a legal document that compels a plan administrator or a third party to provide the information and documents requested by the auditor.

Request to plan administrator

Subsection 231.1(1) of the Income Tax Act gives the inspection power to an auditor to request information and documents from the plan administrator. The plan administrator has 30 days to comply with a request for information. If the plan administrator does not comply with the request, a second request will be sent to the plan administrator in writing which is a warning and not an extension. The letter will state that if the information and documents previously requested are not provided within the next 30 days, we will ask the Department of Justice Canada to seek a compliance order under subsection 231.7(1) of the Act.

Request to third parties

When the auditor requests information and documents from third parties such as a financial institution (Bank), a requirement for information is issued under subsection 231.2(1) of the Act, and they will have 30 days to comply. If the third parties do not comply, we will ask the Department of Justice Canada to seek a compliance order under subsection 231.7(1) of the Act.

In both cases (requests to administrators and requests to third parties), we will take into account situations that may result in the information or documents not being given to us within the timeframe. In these situations the auditor will ensure that the person to whom the request was made is aware of the severity of not complying with the request and the possibility of a compliance order.

Finalizing an audit

The auditor completes the audit work and file at the office. He or she may contact the plan administrator or authorized representatives to ask for more information. In some situations, the auditor may consult a senior technical advisor, a manager, or a rulings officer to make sure that he or she has applied the correct interpretation of the Income Tax Act.

The auditor will prepare the pension audit file that will include all working sheets with the supporting documents, the audit summary, and the final audit letter that will be approved by the manager. The auditor will consider all of the information and explanations given by the plan administrator and authorized representatives before closing the audit.

Sometimes the result of the audit will be “no reassessment” (or a “nil audit”). In that case, the auditor will send a letter to the plan administrator to say that the audit has been completed and that we will not take any further action. In some cases, the auditor might send an education letter that will list the small non-compliance issues that we have found. Even though we may not pursue these non-compliance issues, they will need to be corrected by the plan administrator on a prospective basis.

The results of the audit may lead to a reassessment (often an income inclusion) and the auditor will inform the plan administrator of the proposed adjustments in writing. A specified period will be given to the plan administrator to respond to the proposed adjustments. If a plan administrator disagrees with an action or decision, we encourage them to discuss their concerns with the auditor. The auditor will review the response and all documents received from the plan administrator or the representative. The auditor will inform his or her manager of the final decision.

A final letter explaining the results of the audit will be sent to the plan administrator, with a copy to the authorized third parties. A notice of reassessment, if any, would be sent separately. If the taxpayer disagrees with the reassessment, the taxpayer can file a notice of objection within 90 days of the notice of reassessment date. The notice of reassessment will inform the taxpayer of his or her appeal rights.

Historical records

We recommend that you keep historical earnings and service records for plan members, former members, and prospective members. The general guidelines regarding the retention and destruction of records are noted in information circular IC78-10R5, Books and Records Retention/Destruction.

Historical earnings and service records for members (in some cases as much as 25 years) are needed to correctly calculate the benefit entitlements, the pension adjustments, and the past-service pension adjustments. Relying on incomplete records makes recognizing past service very difficult.

IPP reviews

After the final disbursal of funds from an IPP, we review the benefit and commuted value calculations to make sure that they are accurate. We review the transfers to make sure that they are not over the prescribed limit under section 8517 of the Income Tax Regulations. We also verify that cash payments (for example, the commuted value above the maximum transfer limit) are reported to the CRA as taxable income.

IPP audits are generally focussed on the primary purpose condition. We verify that the earnings and service recognized under the plan are with the participating employer or a predecessor employer. We will also look into new IPPs that are set up after a transfer of service and funds from large defined benefit plans.

Validation of IPP earnings and service

Before an AVR is prepared for past-service purchase, we are willing to review the proposed pensionable earnings. We informed the pension industry of this by teleconference in April 2014, and in Newsletter No. 14-1, Reviewing earnings and service for IPPs, available on our website. We will provide you with this service if you ask for it and send in a complete application for registration.

If the plan administrator or actuary doubts whether past service of the member is with a participating employer or a predecessor employer, we are willing to comment, if asked, based on the details we have been given at the time of past-service purchase.

We want to offer you this service to give you greater certainty that the plan complies with the Act and Regulations. We also want to improve the timeliness of our AVR approvals and reduce the chances that we will discover problems at the time of an audit or on plan wind-up.

Where we reduce earnings or service, which in turn reduces past-service liabilities, we give the plan administrator 90 days to correct the qualifying transfers. We will allow a transfer of the “excess qualifying transfer” amount from the defined benefit provision of an IPP to an additional voluntary contribution provision in the same IPP when the conditions of the Newsletter have been met.

We question why a plan administrator would complete a qualifying transfer before receiving a registration letter or approval of the pertinent AVR. We strongly encourage you to advise your clients to wait for the earnings and service to be confirmed, and for the AVR to be approved.

Qualifying transfers to IPPs

The average past-service buy-back is 10 years. The average provisional PSPA is $150,000 to $200,000, with large qualifying transfers to reduce the PSPA. A buy-back of 20 or more years of past service (at the defined benefit limit) could generate a PSPA and a qualifying transfer of over $500,000.

On audit, we have found cases of non-compliance related to qualifying transfers. In some cases, the transfers were never completed (or only partially completed) and lump sum contributions were made instead for which business deductions were taken. Although AVRs would typically show an increase in assets, it would not necessarily prove that a proper qualifying transfer was done.

The Director of the Audit Division proposed that, within 12 months after receiving the registration letter (or approval of the amendment or AVR that adds new past service), the plan administrator could send us an account statement plus the RRSP account statement for the month in which the transfer occurred.

The general consensus from the industry was that proof of qualifying transfers is in the mutual best interest of the CRA and the IPP consultants’ community. The attendees felt that proof should be sent in to us much sooner than the proposed 12-month timeframe, but that the proposed new requirement should be restricted to IPPs or designated plans as this is not an issue for broad based pension plans.

There was some discussion but no discernible consensus about what would constitute acceptable evidence of a qualifying transfer, whether a new prescribed form should be created, and what the role of the trust custodians and financial institutions would be in this.

We also asked if they had other ideas on how we can work together to find solutions for proof of qualifying transfers.

We agreed to establish an informal Qualifying Transfer Advisory Committee to discuss options and make recommendations. The committee will be chaired by the Director of the Audit Division. It will include two or three other RPD employees and four representatives from the IPP actuarial community (Marc-André Vinson of Buck Consultants, Jean Lafleur of J. Lafleur Consultants, Stephen Cheng of Westcoast Actuaries, and Lindsey McKinnon of McFarlane Amerlee Consulting). We expect to arrange this conference call in the first quarter of 2015.

Appendix – Summary of the feedback on the 2014 RPP practitioners’ forum

Overall experience

• We received feedback from 22 of the 26 industry representatives
• Everyone said that the session met or exceeded their expectations
• They all said that the format was better than past events because they really enjoyed the interactive dialogue with us and the opportunity to give us early input
• They loved our open, proactive approach
• They are optimistic about our future plans
• They hope we continue to do these forums annually
• We discussed significant issues and practical solutions
• They found it a good opportunity to learn from others
• They wanted to get right to the presentations and discussions; suggested we could dispense with the Assistant Commissioner’s address. They wanted the Director General’s welcoming remarks to be shorter to get right down to business

Suggestions for improvement

• Send material further in advance
• Highlight questions that will be discussed; many missed them at the end of the presentations
• They wanted more time to interact with us
• Suggested that we add a questions and answers part like we have done in past sessions – not necessarily on topics being presented; may need to be a separate event
• Invite industry questions in advance from attendees; prepare answers to share in the session and discuss with attendees as a group
• Have a separate meeting for IPP issues
• The qualifying transfer issue should have been addressed in a subgroup due to its limited scope
• Identify specific processes, service standards, and forms and have specific discussion on how they can be improved
• Suggestion that we should encourage participants who are less vocal to participate more fully
• Some wanted to be able to ask questions during the presentations rather than at the end
• One found the location cramped – wanted more room between tables
• Invite topics from industry representatives
• Mix up tables for the second half of the forum

Date modified:

2015-03-05