Section 147.1

Subsection 147.1(1) - Definitions

Compensation

Administrative Policy

1C 98-2 "Prescribed Compensation for Registered Pension Plans".

3 June 1992 External T.I. 5-921532 -

A retiring allowance is not included in "compensation".

Participating Employer

Administrative Policy

Actuarial Bulletin No. 4 - Draft Bulletin for Industry Consultation "Reasonable Methods to Apportion Assets and Actuarial Liabilities" 8 January 2020

Purpose of participating employer requirement

A participating employer … 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.

26 June 2019 Internal T.I. 2019-0791761I7 - Participating employer in RPP

dissolved corporation can be a “participating employer” in an RPP

Where more than one employer participates in a registered pension plan, s. 147.2(2)(a)(vi) requires that the assets and actuarial liabilities be apportioned in a reasonable manner among the participating employers in respect of their employees and former employees.

After noting that the phrase “an employer who participates in the plan” in s. 147.2(2)(a)(vi) was a “grammatical variation” of the defined term, CRA indicated that it considers that for the purpose of s. 147.2(2)(a)(vi) and other uses of the concept of a participating employer, an employer is considered to be a participating employer even if it has been dissolved or otherwise ceased to exist. Thus, in the example of the application of s. 147.2(2)(a)(vi), RPP assets and liabilities continue to be apportioned to the dissolved employer.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 147.1 - Subsection 147.1(2) - Paragraph 147.1(2)(a) - Subparagraph 147.2(2)(a)(vi) contributing employer who ceases to exist nonetheless considered to be an “employer [who] participates” 234
Tax Topics - Statutory Interpretation - Interpretation Act - Subsection 33(3) expansive phrase was as defined in short phrase definition 27

Defined Benefit Plan

Articles

Terra L. Klinck, Susie S. Taing, "How Target Benefit Plans Fit Into the Current Income Tax Act Registered Pension Plan Regime", Taxation of Executive Compensation and Retirement, Special Pension Edition, Volume XVII, No. 2, 2013, p. 1068.

Features of target benefit plan (p.1068)

[W]e refer to TB plans as workplace pension plans with the following three characteristics:

  • the TB plan includes a benefit formula which is a "target," and is not guaranteed;
  • employer contributions (and where applicable, employee contributions) to a TB plan are fixed, whether by collective agreement or otherwise; and
  • both past service benefits and future benefits can be reduced while the plan is ongoing and upon wind-up. [fn 2: Alternatively, when assets are more than sufficient to pay the "target" benefit, benefits may be increased and/or ancillary benefits may be added.]

TB plans have characteristics that resemble both defined benefit ("DB") and defined contribution ("DC") plans. The contributions that an employer is required to make to a TB plan are fixed, similar to a DC plan (e.g., a percentage of an employee's earnings or a flat amount per hours worked). Once contribution levels are known, a benefit formula is set. The benefits payable to members from the TB plan are not directly tied to contributions made to the plan, as is the case with a DC plan. Instead, benefits under a TB plan are similar to a traditional DB plan in that the formula for the "targeted" amount of benefits to be paid are known in advance and calculated based on a plan member's years of service (e.g., a flat-rate benefit formula), or years of service and earnings (e.g., a final-average earnings or career-average earnings formula)….

Characterization as defined benefit plan (p. 1069)

TB plans are similar in design to MP plans in that contributions to the TB plan are fixed. From a policy perspective, one can argue that TB plans should be treated the same as MP plans for PA purposes. [fn 8: As discussed below, the MP PA calculation rules apply to SMEPs, which have many of the same design features as a TB plan.] TB plans do not, however, fall within the MP regime. A MP provision is currently defined as the terms of a pension plan (a) which provide for a separate account to be maintained in respect of each member to which contributions are credited, and (b) under which the only benefits payable to a member are benefits determined by the amount in the member's account. [fn 9: Section 147.1 of the Act.]

As TB plans provide a benefit formula that is not solely tied to a DC account balance, a TB plan does not meet the current definition of a MP provision.

DB Provisions

A DB provision is defined under the Act as the terms of a plan under which benefits in respect of each member are determined in any way other than that described in the definition of "money purchase provision." [fn 10: Section 147.1 of the Act.] Based on this definition, a TB plan would fall within the definition of DB provisions under the current RPP regime in the Act.

Subsection 147.1(2)

Paragraph 147.1(2)(a)

Subparagraph 147.2(2)(a)(vi)

Administrative Policy

26 June 2019 Internal T.I. 2019-0791761I7 - Participating employer in RPP

contributing employer who ceases to exist nonetheless considered to be an “employer [who] participates”

Does the apportionment condition in s. 147.2(2)(a)(vi) apply where one of the employers ceases to have any involvement with the plan, e.g., because of bankruptcy, winding-up, dissolution, sale of business, or voluntary exit from the plan?

After referencing the requirement in s. 147.2(2)(a)(vi), which “ensures that any unfunded liability associated with a participating employer, and thus the employer’s contributions in respect of that liability, are not excessive,” and the s. 147.2(2)(d) requirement that “there is a reasonable determination of each participating employer’s actuarial surplus,” CRA stated that in such situation:

[T]he particular employer would nonetheless continue to be considered a participating employer … . Consequently, in applying the apportionment condition described above, assets and liabilities should continue to be apportioned to that employer. In this regard, we understand that your Directorate considers reasonable an apportionment method that preserves the funding ratio applicable to the employer as at the time the employer ceased to be actively involved in the plan. This helps avoid problems that could arise from experience gains or losses. …

This position applies regardless of whether the particular employer ceases to exist, except where specific rules provide otherwise. Paragraph 147.2(8) provides that a former employee of a predecessor employer of a participating employer in relation to a pension plan is deemed to be a former employee of the participating employer in relation to the plan if certain conditions are met.

Words and Phrases
participating employer
Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 147.1 - Subsection 147.1(1) - Participating Employer dissolved corporation can be a “participating employer” in an RPP 129
Tax Topics - Statutory Interpretation - Interpretation Act - Subsection 33(3) expansive phrase was as defined in short phrase definition 27

Subsection 147.1(11) - Revocation of registration — notice of intention

Administrative Policy

4 June 1991 Memorandum (Tax Window, No. 4, p. 29, ¶1279)

A pension plan could be revoked retroactively.

Subsection 147.1(12) - Notice of revocation

Cases

Hodge v. Canada (National Revenue), 2009 DTC 6048, 2009 FCA 210

On July 17, 2008, the Minister issued a notice of intent to revoke the registration of a pension plan established by the taxpayer, with the proposed revocation to be as of June 1, 2001 (the date of the plan's initial registration) on the basis that there was no evidence that the plan had ever complied with Regulation 8502(8). On July 13, 2008, the administrator of the plan wrote to the Minister requesting that the revocation of the plan be as of August 31, 2008.

Subsection 147.1(12) authorized the Minister to specify June 1, 2001, as the date on which the Plan's revocation would be effective, as there was no basis for the Court to vary the date of revocation from that specified by the Minister. Giving effective priority to the Minister in determining the date of revocation recognized the Minister's responsibility for administering the Act.

See Also

Mammone v. The Queen, 2018 TCC 24, rev'd 2019 FCA 45

subsequent deregistration of RPP beyond normal reassessment period nonetheless retroactively validated reassessment

The CRA revocation of a registered pension plan (the “New Plan”) was invalid due to inadvertent failure to comply with the 30-day notice requirement in s. 147.1(12). Graham J found that the contemporaneous reassessment of the taxpayer under s. 56(1)(a)(i) for having purportedly transferred the commuted value of his (OMERS) pension plan to the New Plan was valid since the CRA’s subsequent issuance (well beyond the normal reassessment period, but nonetheless in accord with s. 147.1(12) ) of a further retroactive deregistration of the New Plan effectively also retroactively validated such reassessment.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 152 - Subsection 152(4) RPP revocation beyond the normal reassessment period retroactively validated an unsupportable reassessment under s. 56(1)(a)(i) 398
Tax Topics - Income Tax Act - Section 152 - Subsection 152(9) subsequent retroactive deregistration of RPP also retroactively validated an assessment factually made on basis of plan’s invalidity 200
Tax Topics - Income Tax Act - Section 152 - Subsection 152(4) - Paragraph 152(4)(a) - Subparagraph 152(4)(a)(i) subsequent retroactive deregistration of RPP would not establish carelessness in previous return filing 185
Tax Topics - General Concepts - Effective Date subsequent deregistration of RPP retroactively validated reassessment 223
Tax Topics - Income Tax Act - Section 56 - Subsection 56(1) - Paragraph 56(1)(a) - Subparagraph 56(1)(a)(i) valid assessment for transfer to an RPP that was retroactively deregistered 83