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Individual Pension
Plans - IPPs
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Registered Pension
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A1. What is an Individual Pension Plan (IPP)?
An IPP is a one-person maximum Defined
Benefit Pension Plan (DB Plan) which allows the plan
member to accrue retirement income on a tax-deferred basis.
As such, an IPP must conform to the Income Tax Act (ITA)
and its regulations (ITR) as well as the requirements
of the Canada Revenue Agency (CRA) with respect to defined
benefit pension plans. Some of these rules and regulations
are:
a) The plan sponsor is an incorporated,
active company;
b) The plan member is an employee of the corporation
who earns T4 or T4PS income from the corporation;
c) The pension plan document indicates a formula defining
the amount of benefit to be earned by the plan member;
d) Plan Investments must follow strict guidelines;
e) Plan sponsor contributions, as certified by an actuary,
are deductible from corporate income; and
f) Benefits paid out of the IPP are taxed upon receipt.
A2. Who is the IPP member?
The IPP member is a Connected
Person or a Highly-paid
Employee (who is a non-Connected Person). The ITR defines
these members as Specified Individuals.
A3. Who is the IPP plan sponsor?
The
plan sponsor is the corporation employing the member and
paying the member's T4 income. IPP contributions are essentially
a portion of the member’s T4 income transferred via the
corporation to the plan funding vehicle.
IMPORTANT: An IPP may have more than
1 plan sponsor, provided each plan sponsor pays (or has
paid) T4 income to the member. Our actuarial reports will
pro-rate the member’s actuarial liability during a calendar
year based upon T4 income from that plan sponsor divided
by T4 income from all plan sponsors. Note that our fees
increase when the IPP has more than 1 plan sponsor.
A4. Can a "predecessor employer" sponsor an IPP?
Yes,
but only if it meets the following definition in ITR 8500:
"predecessor employer" means, in relation to a particular
employer, an employer (in this definition referred to
as the "vendor") who has sold, assigned or otherwise disposed
of all or part of the vendor's business or undertaking
or all or part of the assets of the vendor's business
or undertaking to the particular employer or to another
employer who, at any time after the sale, assignment or
other disposition, becomes a predecessor employer in relation
to the particular employer, where one or more employees
of the vendor have, in conjunction with the sale, assignment
or disposition, become employees of the employer acquiring
the business, undertaking or assets.
A5. How are eligible IPP contributions calculated?
DB
Plan contributions must be calculated by an Actuary
based on the benefit formula, the member’s age and T4
earnings history, and a set of actuarial assumptions.
Because
the IPP only provides benefits to Specified
Individuals, the IPP is termed a Designated
Plan. While a Designated
Plan, the IPP is subject to maximum funding restrictions.
Maximum
funding restrictions require the actuary to use ITR-mandated
actuarial assumptions.
When the IPP is no longer a Designated
Plan, the actuary may use his discretion to determine
appropriate actuarial assumptions.
B1. What is a Registered Retirement Savings Plan (RRSP)?
An RRSP is a type of Defined
Contribution Pension Plan (DC Plan) which allows the
owner to accumulate assets for retirement income on a
tax-deferred basis. An RRSP must conform to the ITA, the
ITR and CRA requirements. Some of these rules and regulations
are:
a) The owner can contribute up to 18%
of previous year’s earned income, up to a specified
dollar maximum limit for the year; and
b) The owner is taxed when receiving benefits out of
the RRSP.
B2. How are DB
Plan benefits related to DC
Plan contributions?
The
Federal Government has created the magic factor of 9 whereby
$9 of contributions is deemed equivalent to $1 of annual
pension payable from age 65. This magic factor ‘equalizes’
the tax-assisted savings between DC
Plans and DB
Plans. This equalization is reported administratively
on the plan member’s T4 Slip Box 52 – Pension
Adjustment (PA).
IMPORTANT: The magic factor of 9 represents
an average over a plan member’s entire working career.
Because of the power of compound interest, the ‘true’
relationship is $2 - $3 at younger ages and $13 - $14
at older ages for each $1 of annual pension payable from
age 65.
B3. How is a Pension
Adjustment (PA) calculated?
The
PA
reduces the member’s RRSP contribution room in the following
calendar year.
DC
Plans can provide a maximum tax-sheltered contribution
of 18% of earnings up to $22,000 in 2009, $22,450 in 2010,
22,970 in 2011, and indexed to the increase in the average
industrial wage after 2011. The maximum dollar contribution
limit for RRSP is always one year behind the maximum dollar
contribution limit for DC
Plans to allow for the lag in the reduction of RRSP
deduction limit resulting from the reporting of the PA.
For
a DC
Plan, the PA
equals the actual contributions made to the member’s credit
during a calendar year, up to a dollar maximum.
DB
Plans can provide a maximum annual pension equal to
2% of earnings up to a dollar limit of $2,444.44 in 2009,
$2,494.44 in 2010, 2,552.22 in 2011 and indexed to the
increase in the average industrial wage after 2011.
For
a DB
Plan, the PA
equals 9 times the member’s pension accrual during a calendar
year less $600, up to a dollar maximum.
The
IPP provides an annual pension equal to 2% of the member’s
Indexed
Earnings for each year for Connected
Persons subject to the maximum pension limit for DB
Plans. The annual pension for a non-connected individual
can be based on best 3-year average earnings basis rather
than on indexed
earnings each year. Our IPP
Pension Adjustment Calculator determines the PA
for a maximum benefit IPP.
B4. When can the IPP tax-shelter larger contributions than the maximum
RRSP?
Because
of the magic factor of 9, older plan
members can gain an advantage by being in an IPP instead
of being in a DC
Plan.
To maximize the tax-effectiveness of
an IPP, the plan member should be between age 40 and age
71, and have Pensionable
Earnings equal to the maximum pension limit divided
by 2.0% (e.g., $124,722 for a member retiring in 2010,
and $127,611 for a member retiring in 2011) or more. For
a plan member with these age / earnings characteristics,
the IPP will be able to tax-shelter larger contributions
than the maximum RRSP contributions from plan
inception to retirement age.
IMPORTANT: For a plan member age 40 or
older with Pensionable
Earnings of less than the maximums shown above, the
IPP will provide a proportional contribution advantage
over the RRSP. In other words, for members at least age
40, the IPP will generate a Current
Service contribution greater than 18% of T4 earnings.
The 2011 Maximum Contributions can be seen by clicking
here.
B5. How is the IPP Member’s Past
Service Pension Adjustment (PSPA) Determined?
The 2011 federal budget imposes additional
conditions in determining the PSPA determined when an
IPP is implemented for connected persons.
The
new regulations specify that the PSPA (and, therefore,
the required qualifying transfer to be made to the IPP
on plan implementation) is based on the greater of:
a) The PSPA calculated on the old basis:
or
b) The connected person's accumulated RRSPs (also including
RRIFs and Money Purchase Pension Plan account balances)
prorated over the period from age 18 to current age up
to a maximum of 35 years, plus any unused RRSP contribution
room. For further information on this additional condition,
see our federal
budget changes commentary.
Unless
the individual has a relatively high RRSP balance, the
old basis will still apply. The calculation for a connected
member who has sufficient T4 Earnings to accrue benefits
at the maximum permissible level for the period January
1, 1991 to December 31, 2011 is as follows:
|
YEAR
|
(1)
MAXIMUM T4 EARNINGS
($) |
(2)
DOLLAR OFFSET
($) |
|
| 1991 |
69,444 |
1,000 |
11,500 |
| 1992 |
69,444 |
1,000 |
11,500 |
| 1993 |
75,000 |
1,000 |
12,500 |
| 1994 |
80,556 |
1,000 |
13,500 |
| 1995 |
132,333 |
1,000 |
22,820 |
| 1996 |
132,333 |
1,000 |
22,820 |
| 1997 |
132,333 |
600 |
23,220 |
| 1998 |
132,333 |
600 |
23,220 |
| 1999 |
132,333 |
600 |
23,220 |
| 2000 |
132,333 |
600 |
23,220 |
| 2001 |
132,333 |
600 |
23,220 |
| 2002 |
132,333 |
600 |
23,220 |
| 2003 |
132,333 |
600 |
23,220 |
| 2004 |
132,333 |
600 |
23,220 |
| 2005 |
132,333 |
600 |
23,220 |
| 2006 |
132,333 |
600 |
23,220 |
| 2007 |
132,333 |
600 |
23,220 |
| 2008 |
132,333 |
600 |
23,220 |
| 2009 |
132,333 |
600 |
23,220 |
| 2010 |
132,333 |
600 |
23,220 |
| 2011 |
132,333 |
600 |
23,220 |
| (3) = (1) x 2.0% x 9
- (2) |
__________
442,940 |
The
PSPA amounts are not to be used for PA reporting. See our IPP
Pension Adjustment Calculator for PA reporting purposes.
B6.
What is my RRSP deduction limit if I join an IPP in the current year?
If
you are not a Connected
Person, your RRSP deduction limit is not impacted for the
year you join an IPP.
If you are a Connected
Person and your 1990 Pension
Adjustment (PA) was $0, your RRSP
deduction limit for the year you join an IPP is reduced
by a special amount prescribed by ITR 8308(2). This reduction is 18%
of your earned income for RRSP purposes for the year 1990, up
to a maximum of $11,500.
A T1007 Form (Connected
Person Information Return) will be filed with CRA. CRA reduces the RRSP
deduction limit for the year the Connected
Person joins a pension plan by the prescribed amount as calculated in the
previous paragraph.
IMPORTANT: If the member has
already made full RRSP contributions for the year; the member should use a
T3012 (Tax Deduction Waiver On The Refund Of Your Unused RRSP Contributions
Made) Form to withdraw the excess on a tax-free basis and claim only the
allowable RRSP deduction limit for the calendar year.
B7. What are eligible
periods of IPP Past
Service?
The granting of
Past
Service is optional.
Past
Service commences at the later of: the member’s date of hire;
the Company’s date of incorporation; and January 1, 1991. Past
Service ends the day prior to the effective date of the IPP.
For example, if the IPP is effective on January 1, 2011 then Past
Service could be from January 1, 1991 to December 31, 2010.
IMPORTANT: The entire period of Past
Service need not be granted at Plan implementation.
IMPORTANT: The granting of Past
Service requires satisfaction of the PSPA
through a Qualifying
Transfer, certification of a provisional PSPA,
or a combination of both.
IMPORTANT:
Our IPP On-Line Quoting
System© automatically calculates the Past Service
available to the member.
B8.
How can I determine my current RRSP deduction limit?
Go to the CRA
website and access their
My
Account online service or phone the Tax Information Phone Service at
1-800-267-6999.
IMPORTANT: The information CRA has available will only
be correct if they know you are a member of an IPP, and if a Pension
Adjustment has been entered on your T4 slip for every year that you have
been an IPP member.
B9.
What are the advantages and disadvantages of the IPP compared to
an RRSP?
The advantages of the IPP
are:
a) Higher
contribution amounts;
b) Creditor-proof assets;
c) Flexible benefit
settlement options;
d) Higher investment standards -- e.g., maximum of 10%
invested in any one company; and
e) Deficits can be made up using pre-tax
dollars.
The
disadvantages of the IPP are:
a) No access to funds while
employed;
b) Locking-in;
c)
More legislation, therefore higher expenses; and
d) Excess
Surplus may reduce future contributions.
C1. What are the possible
IPP funding vehicles?
The two types of IPP funding vehicles are
the life insurance deposit administration contract and
the pension trust. The pension trust may be either a corporate
trustee, or a group of individual trustees (at least 3
individual trustees, all Canadian residents). (Please
note that one trustee must be independent
of the company sponsoring the plan.)
Westcoast Actuaries Inc. does not provide investment services.
The plan sponsor is responsible for selecting and executing the
IPP funding vehicle.
C2. What are the minimum IPP funding requirements?
The Qualifying
Transfer should be satisfied within 90 days
of the Plan being granted formal registration status by CRA. The
Qualifying
Transfer can be completed by using Income Tax Form T2033.
Company minimum funding requirements depend on the province in
which the IPP is registered.
British Columbia (BC) & Manitoba
(MB) provincial pension legislation exempts
IPPs from registration and minimum funding requirements. Thus,
the Company’s minimum contribution for all IPPs is $0.
The following rules would apply to contributions not made:
If the Company can’t make a contribution in a particular calendar
year, then the Company will not have a tax-deductible IPP contribution
for that calendar year. If the plan is for a Connected
Person or Highly-paid
Employee, there is no legal obligation on the part of the
Company to make any minimum amount of contribution. The ‘missed’
contribution may be made up and deducted in the following calendar
year(s) with interest (by contrast, unused RRSP
room is carried forward without interest).
Prince Edward Island (PE)
has not yet proclaimed its provincial pension legislation. Thus,
the Company’s minimum contribution for all IPPs is $0.
Quebec (QC) provincial
pension legislation exempts IPPs for Connected
Persons from registration and minimum funding requirements.
Thus, the Company’s minimum contribution is $0 for IPPs for Connected
Persons.
Other Applicable
Jurisdictions Minimum funding
requirements apply. The Company must make minimum contributions
as specified in the most recent actuarial valuation report. The
minimum contribution by the Company each year is generally (please
refer to the actual governing
pension legislation for exact details on minimum funding)
the sum of:
-
-
the annual amortization payment
required to liquidate the unfunded liability* with respect
to Past
Service (on a going-concern basis) over a period of
15 years; plus
-
the annual amortization payment
required to liquidate the solvency deficiency* with respect
to Past
Service (on an assumed plan termination basis) over
a period of 5 years.
IMPORTANT: The solvency deficiency, if any, equals
a)+b)-c)-d) where:
a) is the solvency liability based upon the CIA commuted value
standard as at the valuation date;
b) is the fee for the
termination report ($2,000 per member);
c) is the market value of assets; and
d) is the present value of the payments amortizing the unfunded
liability (from the maximum funding valuation) payable over the next 5
years.
IMPORTANT: The maximum employer
contributions over the 3-year period covered by the actuarial valuation report
equals the unfunded liability plus the current service costs.
* As identified in the latest actuarial
valuation report.
C3. What is the
Frequency of Minimum IPP contributions?
If an IPP is subject to Company minimum
funding requirements, the frequency of minimum IPP contributions is as
follows:
|
JURISDICTION |
FREQUENCY |
|
Federal |
Quarterly |
|
British Columbia (1), (2) |
Quarterly |
|
Alberta |
Monthly |
|
Saskatchewan |
Monthly |
|
Manitoba (1), (2) |
Quarterly |
|
Ontario |
Monthly |
|
Quebec (1) |
Monthly |
|
New Brunswick |
Quarterly |
|
Nova Scotia |
Monthly |
|
Prince Edward Island (3) |
Monthly |
|
Newfoundland & Labrador |
Quarterly |
|
______________________________________________________________
|
|
|
|
|
|
(3) Provincial pension legislation not yet proclaimed in
force |
C4. What are the investment rules?
The investment rules for a registered
pension plan are outlined in Income Tax Regulation 8502(h)
can be found at http://www.laws-lois.justice.gc.ca/. It states that: The property held in connection with the
plan does not include: (i) a prohibited investment
under subsection
8514(1); (ii) at any time that the plan is subject to
the Pension
Benefits Standards Act, 1985 (Canada) or a similar law
of a province, an investment that is not permitted at that
time under laws as apply to the plan; or (iii) at any time
other than a time referred to in subparagraph (ii), an investment
that would not be permitted were the plan subject to the
Pension
Benefits Standards Act, 1985 (Canada).
The permitted
investments under Pension Benefits
Standards Act, 1985 (Canada) are outlined in Schedule
III of the Pension Benefits Standards Regulations, 1985. For provinces
where provincial registration of IPP is required, there may be additional
requirements imposed by the provincial pension legislation. The key
requirements, in brief, are:
IMPORTANT: Investments should follow prudent-man
standards with respect to quality and diversification standards in investment
of trust funds. Therefore,
-
investments should not be made in the securities of the pension plan
sponsor (participating employer) or related corporations;
-
each individual security (e.g., stocks or bonds) must not
exceed 10% of the book value of the fund at the time the security
is acquired - mutual funds and pooled funds are allowed as they are already
diversified;the 10% rule doesn't apply to the securities issued or fully guaranteed by the Government of Canada, the government of a province, or an agency there of. and
-
margin accounts are not allowed - pension
legislation stipulates that pension assets must not be assigned, charged,
alienated or anticipated and are exempt from execution, seizure or
attachment. Thus, pension assets can not be pledged as collateral for loan
purposes.
C5. What are the minimum T4 earnings necessary
to produce the maximum dollar Current Service Contribution?
For
a Connected
Person, the Current
Service Contribution is a percentage of the member’s T4 earnings.
Our actuarial valuation reports show this percentage as well as
the maximum dollar Current
Service Contribution by calendar year. Dividing the maximum
dollar Current
Service Contribution by the percentage produces the minimum
T4 earnings.
Suppose
the actuarial valuation report shows that the contribution percentage
is 22.3% and the maximum dollar Current
Service Contribution is $28,463. Then the minimum T4 necessary
to produce the 2011 maximum dollar Current
Service Contribution is $127,611 ($28,463 divided by 22.3%).
C6. What is the Contribution
In-Kind?
Pension
contributions do not necessarily have to be made in cash; they can be made in
kind. For example, investments can be transferred from the Company's
corporate account to the pension account in the amount of the pension plan
contribution. This would potentially save the liquidation costs by the
Company and the acquisition costs by the pension fund. Attention should
be paid to the following:
- The
contribution amount is based on the market value of the investments at the
time of the transfer;
- The
investments being transferred or made in kind satisfy
the investment
rules for pension funds; and
- The
investments transferred from the company's corporate account to the pension
account would be treated as a deemed disposition. The company's accountant
should be consulted to determine the effect of this deemed disposition
(vis-à-vis capital gains or losses).
D1. How do I know if I’m a good candidate
for an IPP?
If each
answer to the following 11 questions is “yes”
then an IPP is feasible – otherwise, the IPP is not recommended
at this time. The questions are:
1. Does the Employee want a pension from a “Super sized RRSP”?
2. Does the Employer want larger deductions than an RRSP can provide?
3. Do the Employer and Employee want the IPP for the long-term?
4. Is the Employee at least age 40? [See Question B4.]
5. Does a bona-fide Employer - Employee relationship exist?
6. Does the Employee receive T4 income? [See Question A1.]
7. If the IPP is subject to provincial pension regulation, is the
Employer willing to make regular contributions? [See Question C2.]
8. Is the Employee willing to follow investment guidelines? [See
Question C4.]
9. Is the Employee willing to have IPP monies locked-in? [See Question
B9.]
10. If investment earnings are < 7.5% per year, is the Employer
willing to make additional contributions? [See Question B9.]
11. If investment earnings > 7.5% per year, is the Employer willing
to forgo making contributions? [See Question B9.]
If
all the above answers were “yes” then the next
step is to utilize our free IPP
On-Line Quoting System©. Enter the Employee’s
data (date of birth, gender, province of employment, T4 earnings
history, current RRSP market value and current RRSP unused contribution
room) to generate a quotation. Each quotation shows an IPP Contribution
Summary Report and an IPP/RRSP Comparison. These reports show
contributions made, total registered assets accumulated each year
to age 71, and estimated pension under both the “With IPP” option
and the “Without IPP” option. You will then be able to judge whether
the IPP is a better option than an RRSP.
D2. If the IPP / RRSP comparison is favourable, what do I do next?
Contact
Westcoast Actuaries Inc.
to request an IPP Implementation Data Sheet. Once Westcoast Actuaries Inc. has received the data,
we will prepare all implementation documentation and our invoice
for implementation services. Sign the necessary documents and
return them along with Westcoast’s implementation fee, and the
registration fee for the provincial regulator, if applicable.
Westcoast will then file the implementation package with CRA and
with the provincial regulator, if necessary. Please refer to the
section on IPP
Implementation Time Table for expected time lines.
D3. Why does Westcoast Actuaries
Inc. recommend IPPs with only one member?
Westcoast Actuaries Inc. makes this
recommendation for four reasons:
a) an IPP with spouses as plan members
could prove difficult to split if a marriage breakdown should occur;
b)
IPPs with more than one plan member may have very contentious surplus
entitlement issues i.e., how surplus is to be split between the two or more
plan members;
c) Consider two 1-member IPPs, one whose plan is in surplus
and one whose plan is in deficit. Now assume that those 2 members are in the
same IPP. If the surplus is large enough, the Company would not be able to
contribute because the deduction for a DB
Plan is on a total plan basis, not on an individual member basis.
d)
Terminal funding can not occur in an IPP with more than 1 member unless all
members are retired and CRA has waived designated
plan status.
D4. Should I set up an IPP with the commuted value transfer from my
previous defined benefit pension plan?
CRA has some
concerns about this procedure – please read the following information from
their website:
There is a new trend where certain Individual Pension
Plans are being established primarily to accept a transfer of
funds from a prior registered
pension plan. What is the CRA's opinion of
these plans?
We have noticed a trend in which
individuals near normal retirement age leave large employers and establish
their own corporation. The individual is hired by the corporation, and the
corporation sponsors an IPP for the individual that recognizes the prior
service under the public sector pension plan. Once the IPP is established, the
full commuted value of the individual's prior pension is transferred to the
IPP, as the transfer rules of the Income Tax Act do not limit transfers from
one defined benefit plan to another. We are concerned that while some of these
IPPs may be acceptable, many will not meet the requirements for registration
under the Act.
The primary purpose of every registered pension plan
must be to provide retirement benefits to individuals in respect of their
service as employees. This requirement is reflected in the Act as a condition
of registration. If it is determined that a plan is established for a reason
other than this primary purpose, it will not qualify for registration under
the Act.
The first issue we have with these arrangements is the
legitimacy of the employee/employer relationship. Our concern is that the
reason the corporation and the pension plan are being established is to avoid
the transfer rules of the Act. If there is not a bona-fide relationship that
has the employee rendering legitimate services to the employer, the plan will
fail the primary purpose test.
Even if this relationship is
established and nominal earnings are received, there may still be an issue
with the primary purpose test. The Act only permits a pension plan to base
retirement benefits on the earnings received from an employer who participates
in the plan. In most cases, the earnings with the new corporation are much
lower than what was received with the prior employer, and therefore the
benefits under the IPP are significantly lower than the benefits that the
individual would have received from the prior plan. This creates a large
surplus in the IPP.
When an individual foregoes a substantial
retirement benefit by transferring the associated funds to a recently
established IPP that provides a much smaller retirement benefit, it can be
argued that the primary purpose test is not met. In these cases, we may
conclude that the primary purpose of establishing the IPP was to facilitate a
transfer of funds from a prior plan that would have been limited by the Act
had it been transferred to an RRSP. The conclusion that the primary purpose
condition is not met is further supported by the fact that following the
transfer, the IPP holds significant surplus assets rather than providing
retirement benefits of a level comparable to those that would have been paid
from the prior plan. As mentioned earlier, if the primary purpose of a plan is
for any reason other than providing retirement benefits with respect to the
individual's service as an employee, the plan will fail to qualify for
registered status.
If it is apparent at the time of registration that
the IPP will not meet the primary purpose test, the CRA will refuse to
register the pension plan. Unfortunately, in many cases, it will not be
apparent until a year or two later that the primary purpose test was not met.
This situation can be more problematic for individuals as they may have
already transferred funds into the IPP.
If it is determined that a
registered plan does not, and never did, meet the primary purpose test, the
plan's registered status can be revoked as of the original effective date. .
The consequences to the member could be financially devastating if the CRA was
to revoke the registration of the plan upon discovering that the purpose for
incorporating a company was simply to establish a pension plan to hold the
transferred pension for a specific member. The impact of this action is that
all the assets of the plan would become taxable.
It is for this reason
that we want to ensure that individuals are made aware of these concerns. We
will be asking individuals for evidence of the following:
a) the company
was established for a reason other than to establish a pension plan for the
purpose of transferring benefits from a prior plan;
b) there is a
bona-fide employer/employee relationship between the plan member and this
company; and
c) the plan member expects to receive earnings at a level comparable to
the earnings they received from the prior employer.
If these facts cannot
be confirmed, we will consider that the plan does not meet the primary purpose
and it will not be registered.
E1. What are Westcoast Actuaries Inc.’s annual fees for an IPP?
Westcoast’s
initial fee for the first calendar year becomes payable immediately upon the
submission of data for Plan implementation. Thereafter, the annual fee is
payable each February 1st.
Please click here to
get a summary of our annual fees by jurisdiction for our IPP Service
Package for Actuarial & Administration Services. Westcoast Actuaries Inc. began to offer the IPP
Service Package for Actuarial & Administration Services in
2002.
IMPORTANT: These fees are for 1-member, 1-plan
sponsor IPPs with post-reform service only (i.e., post-1989 service for
non-Connected Persons and post-1990 for Connected
Persons and using Westcoast's plan text). Additional fees apply to IPPs
that don’t fit these parameters – please contact us for a
quotation.
E2. What services are included in Westcoast Actuaries Inc.'s
IPP Service Package for Actuarial & Administration Services?
The
services covered by the Westcoast Actuaries
Inc. IPP Service Package for Actuarial & Administration
Services are as follows:
Plan Implementation
-
Preparation of the following documents:
• Board resolution to adopt pension
plan.
• Canada Revenue Agency (“CRA”) Application To Register A Pension
Plan form (T510 Form).
• Provincial Application For Registration Form and
other documents required by the federal / provincial pension regulator, as
applicable.
• Pension plan document and, if required, trust agreement.
• Initial actuarial valuation report on a maximum funding basis
and request for tax-deductibility of pension plan contributions.
- Submission of application for
registration and correspondence with CRA and provincial pension regulator as
applicable to secure plan registration.
- Completion and filing of CRA
Connected
Person Information Return form (T1007).
- Completion and filing of
CRA Application For Certification Of A Provisional Past
Service Pension Adjustment (PSPA) form (T1004), if
required.
Annual Administration
- Assisting the
client with reporting of Pension
Adjustment (PA) on T4 and claiming pension deduction on T2 corporation tax
return.
- Preparation and filing of CRA Registered
Pension Plan Annual Information Return form (T244 Form) or CRA
and provincial joint Annual Information Return (AIR) as applicable.
- Preparation and filing of CRA
Employees’ Pension Plan Income Tax Return form (T3P Form) if plan is governed
by a pension trust.
- Preparation of the Summary of Contributions and
Investment Information Summary, if required.
-
Annual member statement.
Triennial (Every Three Years) Valuation
- Preparation of the triennial actuarial valuation report on a
maximum funding basis.
- Filing of the triennial actuarial valuation report and request
for tax-deductibility of pension plan contributions with CRA.
- Filing of the triennial actuarial valuation report and actuarial
cost certificate with provincial pension regulator as applicable.
F1. What is terminal funding?
IPPs
are Designated
Plans which must comply with ITR-mandated
actuarial assumptions. These assumptions include funding to
be based upon retirement from active service at age 65, and a valuation
interest rate of 7.5% per year.
The removal of these funding restrictions will result in the company
being able to make additional contributions -- terminal funding
contributions. Terminal funding can be considered "catch-up"
funding when IPP restrictions are removed. Some of these funding
restrictions are removed if the member has commenced benefits, or
if CRA has approved the removal of the IPP from the Designated
Plan category.
IMPORTANT: Terminal Funding is optional.
IMPORTANT:
A plan member scheduled to retire early next year may instead
consider retirement late this year so as to advance the timing
of terminal funding contributions. The member will also benefit
from the $2,000 pension income deduction for tax purposes. With
an eligible spouse for income-splitting purposes, the member may
be able to receive up to $4,000 of pension income tax-free each
year.
F2.
How does terminal funding work?
For details on how terminal funding works, please refer
to our brochure "IPP
Terminal Funding".
G1. What are the death benefits?
The value of
pre-retirement death benefits is equal to the
commuted
value of the member's accrued pension payable at age 65.
Post-retirement
death benefits depend on the pension option elected by the member at
retirement.
G2. What are the benefit options?
The benefit
options available on termination, retirement or termination of the pension
plan are as follows:
a) an immediate
or deferred pension paid from the pension plan;
b) annuity purchased from an insurance company; or
c) a lump sum commuted
value of accrued pension benefits, transferred to a locked-in
RRSP or locked-in RRIF/LIF up to a maximum
amount prescribed by Income Tax Regulation. Plan assets in excess of the maximum transfer
limit will be taxed as income to the member and applicable withholding
taxes will apply. (i.e., 10% on a lump sum under $5,000, 20% on
a lump sum between $5,000 and $15,000, and 30% on a lump sum greater
than $15,000)
Note
that choosing either benefit option b) or c) is irrevocable. If
benefit option a) is chosen, then either benefit b) or c) is still
available.
End
of IPP FAQ
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