January 6, 2025

This bulletin provides guidelines on 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 (RPP) with more than one participating employer. It reflects feedback from RPP industry representatives in a consultation process held by the Canada Revenue Agency (CRA).

This bulletin does not apply to specified multi-employer plans (SMEPs).

Definitions of participating employer and predecessor employer

What is a participating employer?

A participating employer, defined in subsection 147.1(1) of the Income Tax Act (Act), is an employer that has made, or is required to make, contributions to, or payments under, a registered pension plan (RPP) for the employer’s employees or former employees.

Applications to register a pension plan or amend an RPP will not be accepted if there is no valid participating employer. This ensures that an RPP will always meet the primary purpose condition under paragraph 8502(a) of the Income Tax Regulations (Regulations). That primary purpose is to provide periodic payments to members after retirement and until death for their service as employees.

What is a predecessor employer?

A predecessor employer is an employer (referred to as vendor) who has sold, assigned, or otherwise disposed of all or part of their business. Also, as a result of the disposition, all or a significant number of the vendor’s employees have 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 the CRA can ensure that subsection 147.2(8) of the Act is respected.

Under subsection 147.2(8) of the Act, former employees of a vendor are employees of a participating employer if the agreement involves an assignment of an RPP with a DB provision from the vendor to the participating employer. This allows the participating employer to contribute to the RPP to fund the 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 Act.

The assets and liabilities of the predecessor employer should be apportioned to the continuing participating employer. The continuing employer can contribute to the RPP for the former employees of the vendor.

Legislative requirement for apportionment

When a DB provision of an RPP has more than one participating employer, subparagraphs 147.2(2)(a)(vi)^{Footnote 1} of the Act and paragraph 8515(6)(d) of the Regulations require 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 the related participating employer’s contribution, are not excessive.

This requirement 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 2} of the Act.

Apportionment of assets and liabilities among participating employers for individual pension plans (IPPs)

Acceptable apportionment methods for IPPs

Generally, the CRA accepts apportionment methods that do not create a bias towards a particular participating employer. Misrepresenting assets, liabilities, or qualifying transfers may lead to a participating employer making contributions that are too large. Apportionment methods based on lifetime retirement benefits (LRBs) accrued with each participating employer are generally acceptable.

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

Actuarial valuation reports (AVRs) for IPPs^{Footnote 3} sent after January 6, 2025, must use apportionment methods that are consistent with this bulletin.

For AVRs sent, but not approved, before January 6, 2025, the actuary must still allocate the assets and liabilities appropriately to get CRA approval of employer contributions. The CRA will consider all reasonable allocation methods used by the actuary that are not consistent with this bulletin.

The CRA will not cancel previously approved AVRs, even if the methods used to apportion assets and liabilities were not reasonable.

Liability apportionment methods for IPPs

The liability apportionment prorated to earnings is the liability apportionment method the CRA considers reasonable for IPPs. This method apportions the liabilities based on each participating employer’s share of a member’s LRBs. 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 LRB and DB limit in the year, even if pensionable earnings from one of the participating employers would produce the maximum pension independently.

Example

• Benefit formula: 2% of indexed earnings
• Date of valuation: January 1, 2024
• 2024 DB limit: $3,000 (for simplification)
• IPP with one member and two participating employers

Asset apportionment methods for IPPs

The following are asset apportionment methods the CRA considers reasonable for IPPs.

Prorated to liabilities

This method apportions the assets in proportion to the liabilities allocated to each participating employer.

Generally, prorating the assets to the liabilities would result in an appropriate funding request; however, there are cases where it may be inappropriate. Prorating assets to the liabilities would be inappropriate if one of the participating employers takes a contribution holiday and makes a lower contribution than the amount recommended in the AVR, 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 described below.

The CRA considers the following scenarios reasonable for the continued use of the prorated to liabilities method:

• The maximum recommended contributions are made by each participating employer during the period since the previous AVR
• A similar proportion of the maximum recommended contribution is made by each participating employer during the period since the previous AVR. For example, if there are two participating employers and each contributes 70% of their respective maximum contributions, this would be a similar proportion and is acceptable

Separate accounting

This method apportions 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 one participating employer at the same time as there is an actuarial surplus for another participating employer in the same plan.

For the CRA to compare the actuary’s recommended contributions with the actual contributions, the CRA requires a reconciliation of assets for each participating employer to be included in the AVR. The reconciliation of assets must contain:

• the value of assets for each participating employer at the previous valuation date
• the value of assets for each participating employer at the current valuation date
• all cash flows (such as current service contributions, contributions made towards the unfunded liability, and investment income, benefit payments) for each participating employer between the previous and current valuation dates

Qualifying transfer apportionment methods for IPPs

Plan assets resulting from a qualifying transfer, under subsection 8303(6) of the Regulations, may be treated separately from other plan assets in determining the asset allocation.

The following are apportionment methods CRA considers reasonable for qualifying transfers.

Based on the past service pension adjustment (PSPA)

This method apportions the member’s qualifying transfer based on each employer’s share of the PSPA. First, the accrued LRB and DB limit must be apportioned to each participating employer using an acceptable liability apportionment method. Second, the PSPA must be calculated for each participating employer based on the allocated LRB and DB limit. The qualifying transfer must then be apportioned among the participating employers in proportion to their share of the PSPA.

Prorated to liabilities

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

Unacceptable apportionment methods for IPPs

Here are examples of apportionment methods that the CRA has determined unreasonable and that are therefore unacceptable:

• the actuary did not give an actuarial justification for their apportionment method
• the apportionment method creates a bias towards a particular participating employer
  • for example, when an IPP with only one member recognizes past service with two participating employers. In the initial AVR, the plan assets (which include qualifying transfers) are allocated entirely to one participating employer to maximize the other participating employer’s tax-deductible contribution

Generally, it is not acceptable to use an apportionment method that produces a different result than the acceptable methods outlined in this bulletin. Other apportionment methods that may also be reasonable, depending on the circumstances of the plan, will be considered on a case-by-case basis.

The CRA can assess any apportionment method that differs from those described as acceptable in this bulletin before the submission of the next AVR.

To make sure the CRA can process submissions promptly, submitters should send the CRA an accurate description of the proposed apportionment method, an example, and an explanation of how the proposed apportionment method meets the requirements of the Act.

Once the CRA has completed a review, it will notify the submitter, in writing, of the decision.

Request for CRA’s assessment may be sent by mail using the contact information at the end of this bulletin.

Reporting requirements for IPPs

Documentation sent to the Registered Plans Directorate after the publication date of this bulletin 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
• the unfunded liabilities and actuarial surplus, if any

The AVRs must also include the following information:

• each member’s pensionable earnings (compensation) from each participating employer
• the total amount of contributions remitted by each participating employer since the previous AVR
• the allocation of each member’s qualifying transfer, between participating employers
• the maximum eligible current service contributions in dollars for each participating employer, adjusted for excess surplus,^{Footnote 4} if any participating employer is in an excess surplus position
• a confirmation from the actuary that each participating employer paid their share or made contributions as recommended by the previous AVR, 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.

The CRA also expects that the apportionment method used by the actuary is consistent from one valuation to the next, unless the previous method becomes unreasonable at a later date. If there is a change in apportionment method, the AVR must include the justification for the change. The CRA will determine the acceptability of apportionment methods on a case-by-case basis.

Removing a participating employer from an RPP

There may be circumstances where one of the participating employers stops participating in an RPP because of bankruptcy, wind-up, dissolution, sale of business, or voluntarily removing itself as a participating employer. If this occurs, that participating employer has no further involvement in the RPP. Although the CRA labels them as an inactive employer, the CRA still consider them to be a participating employer for the purposes of the Act and Regulations.

Actuaries should continue to apportion assets and actuarial liabilities to inactive employers. 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 RPP. 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.

Some RPPs use a method which apportions the liabilities to each participating employer by allocating the liabilities for each member to their current employer or to the participating employer they were employed by when their accruals in the plan ended. This simplifies the administration of the plan because the past service with each participating employer does not need to be tracked for each member. This type of method is not acceptable for IPPs and it is not possible for an inactive employer to allocate liabilities to other participating employers. For other types of plans, the CRA will accept this type of method on an administrative basis.

If this method is used, it is acceptable to allocate the inactive employers’ liabilities toward the remaining participating employers, to the extent that the inactive employers’ employees become employed by the remaining participating employers.

Furthermore, contributions towards the unfunded liabilities of an inactive employer are acceptable under subsection 8516(3) of the Regulations when they are required by pension benefits standards legislation.

Employer contributions mandated by pension benefits standards legislation

Subsection 8516(3) of the Regulations permits employer contributions to be made to a DB provision of an RPP, other than a designated plan, when they are required under pension benefits standards legislation. If all of the conditions of subsection 8516(3) of the Regulations are met, and ministerial approval is provided, required employer contributions set out in a valuation report to fund benefits under the provision of a plan as registered are permitted regardless of the apportionment method used.

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.