Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.
Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.
Principal Issues: Can an individual buy back past service with a former employer under his current employer's registered pension plan?
Position: No.
Reasons: The current employer's RPP does not allow for the buy back of such service.
XXXXXXXXXX 992762
M. P. Sarazin
January 10, 2000
Dear Sir:
Re: Early Retirement - Pension Contributions
This is further to our letter of July 5, 1999 (990722) and in response to your letter of October 5, 1999, wherein you requested further clarification regarding your inability to purchase four years of pre-1992 service with a former employer under your current employer's registered pension plan ("RPP"). We have reviewed both the further information provided in your letter and from your pension administrator and can advise that the reason you are unable to purchase your pre-1992 service is because of the terms of your current employer's registered pension plan. The following discussion provides elaboration.
We understand that you were employed by a provincially funded hospital in XXXXXXXXXX from 1978 until 1982. When you left the hospital's employ, you received a refund of your pension contributions and you transferred the refund to your registered retirement savings plan ("RRSP"). Under your current employer's RPP, you may be able to retire early if you are allowed to buy back the four years of service with your former employer in your current employer's RPP. Further, you wish to use the funds in your RRSP to buy back these years of service.
In our letter dated July 5, 1999 (the "Letter"), we explained how the Income Tax Act (the "Act") and the Income Tax Regulations (the "Regulations") allow for the transfer of amounts from an RRSP to an RPP for a taxpayer's benefit. We also enclosed a copy of Pension Reform Newsletter 92-8R (the "Newsletter"), dated July 12, 1993 which explains what years of service may be counted for benefits to be provided by an RPP. The Newsletter discusses eligible service and notes that it is restricted to service with an employer that contributes to the particular RPP. However, it also notes the exception that exists when there is a reciprocal agreement between a participating employer in the RPP and the individual's former employer.
In its letter to you dated September 16, 1999, your employer's pension plan administrator explained what years of service may be counted for benefits under your employer's RPP. They confirmed that, in order to be eligible to purchase pre-1992 service, paragraph 8503(3)(e) of the Regulations restricts such service to service with another contributing employer under the RPP. They also make it very clear that your former employer was not a contributing employer to your current employer's RPP.
As noted in the Newsletter, there is an exception to this restriction where a participating employer in the RPP has a reciprocal agreement with the employee's former employer. In this case, where the reciprocal agreement allows the RPP to provide for the crediting of the employee's service with his or her former employer, then the employee will be entitled to buy back the years of service with his or her former employer. The pension plan administrator's letter acknowledges the existence of this exception and explains why your service with your former employer is not eligible under your current employer's RPP. Their letter explains that section XXXXXXXXXX of your current employer's RPP provides for the recognition of service with a former employer only where the member still has pension entitlements under the former employer's RPP. Since you withdrew your pension contributions under your former employer's RPP and you have no rights under your former employer's RPP, your current employer's RPP does not allow for the recognition of the service with your former employer. Consequently, it is the terms of your current employer's RPP that do not permit you to buy-back the years of service with your former employer.
We trust the above comments will be of assistance to you.
Yours truly,
Patricia Spice
for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate
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