April 28, 2015

This bulletin replaces information that was on our website

This bulletin gives guidance to pension plan administrators and actuaries on what information they need to send us when they ask for a waiver under subsection 8503(5) of the Income Tax Regulations.

Limit on member contributions

Paragraph 8503(4)(a) of the Regulations sets a limit on member contributions that can be made to a defined benefit (DB) provision of a registered pension plan. Generally, the limit on member current service contributions for a year is the lesser of:

i) 9% of a member’s compensation; and

ii) the sum of $1,000 plus 70% of the member’s pension credit for the year.

Subsection 8503(5)

Under subsection 8503(5) of the Regulations, the Minister may waive the limit in paragraph 8503(4)(a) if member contributions are determined in a way that is acceptable to the Minister. It must also be reasonable to expect that, on a long-term basis, the total regular current service contributions made under the provision by all members (including those contributions under subsection 8501(6.1), if it applies) will not fund more than half of the related benefits.

We also verify that member contributions over the above limit do not result in larger benefits for most of the members because of the minimum employer contribution rule under section 21 of the federal Pension Benefits Standards Act, 1985, or a similar law of a province. We review this to make sure that:

• member contributions are not out of proportion to their promised benefits; and
• the minimum employer contribution rule does not increase the member’s benefit as no pension adjustment or past service pension adjustment would be reported for such an increase.

Subsection 8501(6.1)

Subsection 8501(6.1) of the Regulations applies to plans with shared-funding arrangements where members must fund part of a plan’s unfunded liability.

Deeming member contributions as current service contributions under subsection 8501(6.1) of the Regulations, in combination with any required current service member contributions, may result in member contribution rates over the limit in paragraph 8503(4)(a). If this is the case, you must apply for a Ministerial waiver under subsection 8503(5).

What you need to do

When you ask for a waiver under subsection 8503(5) of the Regulations, you must send us:

• a written request;
• an actuarial valuation report which specifies and supports the level of contributions requested (for the members and every participating employer); and
• the amendment to the plan text, if necessary, that relates to member contributions, along with Form T920, Application to Amend a Registered Pension Plan.

You must also provide the result of this calculation:

• The calculations must include all active members of the plan and cannot be done on an individual basis.
• The PVFEEC for each active member equals the sum of all contributions with interest (actual member contribution balances) as at the plan valuation date and the present value of contributions to be made by the members after the date of valuation.
• The future member contributions must reflect the requested contribution rates.
• Any member contributions made under subsection 8501(6.1) of the Regulations can be excluded after the first four years for this calculation.
• The PVFB is the plan liability for benefits for past and future periods of service.
• The PVFB should reflect any expected changes to the plan benefit for future years of service.
• The PVFB must specifically leave out any benefits added because of the minimum employer contribution rule related to future contributions over the limit under paragraph 8503(4)(a) of the Regulations.
• The assumptions used to calculate the PVFEEC and the PVFB must be reasonable and consistent with those used for the most recent going-concern valuation.
• The relevant data and methods used to calculate the PVFEEC and PVFB must clearly be shown in the actuarial valuation report included with the waiver request.

We may ask for more data to complete our analysis.

We will grant the waiver if this ratio is below 50%, and the conditions in subsections 8503(5) of the Regulations are met. This approval will be granted for a four-year period after the date of the actuarial valuation report. If the ratio is over 50%, more information and analysis may be needed to make a final determination.

You must send in a new request, along with an updated actuarial valuation report, if the member contribution levels over the limit under paragraph 8503(4)(a) of the Regulations are needed after the first four-year period.

To speed up our review when you ask for a waiver under subsection 8503(5) of the Regulations and member contributions are made towards an unfunded liability, please confirm that:

• member contributions are calculated based on the actuarial liabilities for service accrued before the contribution is required;
• the contributions cannot reasonably be considered to be for the member’s own benefits;
• the contributions are made under an arrangement approved by the Minister under which all or a significant number of the active members of the plan must make similar contributions; and
• the main purpose for the arrangement is to make sure that the plan is adequately funded.

Conditional waiver

In limited circumstances, we may grant your waiver request on a conditional basis if you have not sent the amendment along with your waiver request. You may ask for a conditional waiver in a situation where there is a lengthy legislative or collective bargaining process to amend your plan. If you ask for a conditional waiver, please include the reason.

Once we receive the required plan amendment we will give our formal approval of the waiver, as long as we also accept the amendment.

How to contact us

If you have questions about this bulletin, contact us at the Registered Plans Directorate.

Our telephone enquiries service is available Monday to Friday from 8:00 a.m. to 5:00 p.m., Eastern Time. A voice mailbox system takes messages outside those hours. Calls will be returned on the next business day.

In the Ottawa area:

• For service in English, call 613-954-0419.
• For service in French, call 613-954-0930.

Toll-free elsewhere in Canada:

• For service in English, call 1-800-267-3100.
• For service in French, call 1-800-267-5565.

Plan administrators who need guidance on issues related to a specific plan can write to us at the Registered Plans Directorate, Canada Revenue Agency, Ottawa ON K1A 0L5, or fax us at 613-952-0199.

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