Icon

IPP - What Advisors Need to Know

Implementation Guide for Advisors


Attend an IPP Introductory Seminar

It is essential for Advisors to have a thorough understanding of what an IPP is and how it works before recommending this option to your clients.  We offer monthly introductory IPP seminars and webcasts as well as self-educational tools available on our website.

Identify IPP Candidates
 
It is essential that you target the ideal IPP candidates.  Refer to our IPP Feasibility Checklist  for details.

Gather preliminary data from your IPP Candidate

The following preliminary data is required to prepare a self-assessment of IPP funding room:

  • Date of Birth
  • T4 income history since 1991.  Often IPP Candidates do not have access to their T4 slips.  We recommend they make a request to CRA for this information
  • Retirement fund balance (including RRSP/LIRA, RRIF, and Defined Contribution RPP)
  • Unused RRSP deduction limit as at previous year-end.

Online quoting system

Each individual quotation is free, immediate and anonymous. Please note that if your client does not meet the condition to use our quoting system, we will prepare a customized quote for you. You can request this quote by emailing us at IPP-Quote@WAInc.ca

Present the IPP to your Candidate

Use the results from our Quoting System to present the IPP to your Candidate.  If they wish to meet with Westcoast Actuaries they must attend an IPP seminar or webcast

Choose the IPP Funding Arrangement

It is important to review each of the IPP funding arrangement options with your client.  Choosing an insurance only (IO) policy or deposit administration contract with a Canadian insurance company, or a corporate trustee, will reduce the client’s annual fees by 8%.  In addition, these institutions will have systems in place to administer IPPs in accordance with pension legislation.  Choosing a 3-individual trustee arrangement to fund the IPP will be more costly in terms of annual fees and riskier as there will be no system in place to ensure the IPP assets are administered correctly.

Choosing a 3-individual trustee arrangement to fund the IPP will be more costly in terms of annual fees due to the additional filing requirement. It is also riskier as there will be no institutional system in place to administer the account as a registered account. It is the trustees' duty to ensure the plan assets are managed in accordance with pension and tax laws and Plan terms.

Implement the IPP

Please visit our IPP implementation page to download our implementation form.  See our IPP Implementation Timeline for information on the time to official registration.

Westcoast Actuaries deliver the IPP implementation documents

Once Westcoast receives payment of the initial fees and has validated the information, an implementation package will be delivered to you within 2 weeks.  You should arrange to meet with your client and have them sign the implementation documents.

Submit to governing authorities

Upon receipt of the executed documents from the client, Westcoast will submit an application for registration package to the Canada Revenue Agency (CRA) and the provincial governing body as applicable.

Setting up an IPP Funding Arrangement

You will be responsible for setting up the IPP Funding Arrangement.  Employer contributions for past service and current service can be made as soon as the IPP Funding Arrangement is ready.

CRA issues letter acknowledging receipt of the application

 Westcoast Actuaries will receive a Deemed Registration Letter from CRA and we will provide you with a copy.

Official Registration Letter from provincial governing authorities

For clients subject to provincial registration, the client and Westcoast will receive an official registration certificate or letter from the authorities. The timing of registration varies by province. Westcoast will provide you a copy of this letter via email.

Official Registration letter from CRA

Westcoast Actuaries will receive an Official Registration Letter from CRA and a copy will be provided to you. It is at this time that Westcoast will send an email to you regarding the Qualifying Transfer.  This amount, as specified in the actuarial valuation report (AVR), must be transferred from the client's RRSP account to their IPP account within 90 days of the date the official registration was granted.


IPP Annual Administration


Invest IPP assets to achieve a conservative rate of growth

The investment strategy must accommodate the diversification requirements and the “prudent man” standard.

Ensure we receive copies of the IPP’s investment statements

The statements should be provided to us at least once each calendar year and include: January 1st market value; Employer contributions; Employee contributions; Qualifying Transfers; investment earnings; and December 31st market value.  The statements should be addressed to us, Attention: IPP STMTS. For easy identification, a statement should include the 7-digit CRA number, the Employer name and the Employee name.

Ensure that the Employee’s T4 slip includes a Pension Adjustment (PA)

It is the Employer’s responsibility to report pension adjustments on T4 slips issued to active IPP members.  Retired and inactive IPP members do not need to report PA.

Ensure we are informed of any data changes.

These changes could include: new accountant; new Employer; new beneficiary; new address; etc.

Content

【A】


Actuarially Equivalent - A benefit of equivalent actuarial present value when computed on the basis of interest, mortality and/or other rates and tables.


【B】



【C】


Canada Pension Plan (CPP) - A governmental pension plan that provides benefits to workers and their beneficiaries in Canada except Quebec in the event of retirement, disability or death.


CRA - Canada Revenue Agency - also known formerly as: Canada Customs and Revenue Agency; Canada Customs, Excise and Taxation; Revenue Canada, Taxation; and Department of National Revenue.


Commuted Value - A lump sum amount that is actuarially equivalent to a pension determined using certain actuarial bases. Most commuted values are determined in accordance with the Canadian Institute of Actuaries Revised Standards of Practice for Determining Commuted Values (CIA Commuted Value Standard), which came into effect April 1, 2011. Prior to April 1, 2011, commuted values were mostly calculated in accordance with the Canadian Institute of Actuaries Standard of Practice for Determining Commuted Values which came into effect on February 1, 2005.


Connected Person- A person who owns directly or indirectly 10% or more of any class of shares of a company or is not dealing at arm's length with such person.


Consumer Price Index (CPI) - A statistic that measures the change in the cost of living for consumers.  It is often used to measure inflation.


【D】


Defined Benefit (DB) - A pension design that defines the benefits payable at retirement.  The contribution amount is determined through actuarial valuation.  If a plan is registered for tax purposes, the maximum pension payable is defined by tax regulations.

Defined Benefit Limit (Defined Benefit Pension Plans) - The maximum amount of annual pension that can be paid from a defined benefit pension plan to a member for each year of pensionable service (or called credited service).  Based on current tax rules, the limit can be found on the CRA website. The limit is defined as the greater of $1,722.22 and 1/9 of the Money Purchase Limit.

2/3 Pensionable - Please note that for pre-1990 pensionable service recognized after June 7, 1990, the limit is only $1,150.00 (instead of $1,722.22) for years up to and including 2003 and 2/3 (two-thirds) of the Defined Benefit Limit for years after 2003.  These years of pre-1990 service are usually referred to as 2/3 pensionable.


Defined Contribution (DC) - A pension design that defines the amount of contributions, usually a percentage of salary.  The benefits payable at retirement depend on factors such as future investment return and annuity rate at retirement.  If a plan is registered for tax purposes, the maximum contribution amount (usually a percentage of earnings or income up to a dollar limit) is defined by tax regulations.


Defined Contribution Limit or Money Purchase Limit (Defined Contribution Pension Plans) - The maximum dollar amount of contribution that can be contributed to a defined contribution pension plan on behalf of a member.  Based on current tax rules, the aggregate contribution limit (the total of employer regular, employee regular and employee voluntary)  can be found on the CRA website. After 2016 the limit will increase at the rate of increase of the Average Industrial Wage Index for Canada.


Designated Plan - A Designated Plan is defined in Income Tax Regulation 8515(1) as a Registered Pension Plan that is primarily for the benefit of Connected Persons and Highly-Paid Employees.

【E】



【F】



Flexible Pension Plan - A defined benefit pension plan that allows plan members to earn Optional Ancillary Benefits by making Optional Ancillary Contributions.


【G】



【H】



Highly-Paid Employee - An employee who is paid at least 2.5 times the Year's Maximum Pensionable Earnings (YMPE) as defined by the Canada Pension Plan. The current YMPE can be found on the CRA website.

【I】



【J】


【K】



【L】


Life Income Fund (LIF) - A type of RRIF under which the owner must withdraw each year an amount that is between a minimum percentage prescribed by the Income Tax Act (Canada) and a maximum percentage prescribed by pension legislation (click here for applicable percentages for B.C.).


Locking-In - A condition imposed by pension legislation that requires funds either be used to provide a pension at retirement or be kept in a locked-in plan such as a Locked-In RRSP, LIRA, LRIF or LIF.


Locked-In Retirement Account (LIRA) - A type of RRSP where the funds are subject to locking-in under pension legislation. These funds must be used to purchase a life annuity, or be transferred to a LIF or an LRIF by the end of the year the owner attains age 71 at the latest. It is available in all jurisdictions except under the federal PBSA which provide for the locked-in RRSP that is very similar to the LIRA.


Locked-In Retirement Income Fund (LRIF) - A type of RRIF under which the owner must withdraw each year an amount that is between a minimum prescribed by the Income Tax Act (Canada) and a maximum amount prescribed by pension legislation. The LRIF is only available in Manitoba and in Newfoundland and Labrador.


Locked-In RRSP - A type of RRSP that is available under the federal PBSA to maintain funds that are locked-in as required by pension legislation. These funds must be used to purchase a life annuity or be transferred to a LIF by the end of the year the owner attains age 71 at the latest.


【M】


Maximum Transfer Limit - The maximum amount that can be transferred from a defined benefit pension plan to a money purchase provision (defined contribution pension plan, RRSP or RRIF) according to Income Tax Regulation 8517.  Please click here for details.


Money Purchase Limit - Refer to Defined Contribution Limit.


【N】


【O】



Office of the Superintendent of Financial Institutions (OSFI) - The entity that ensures pension plans governed by the Pension Benefits Standards Act, 1985 (PBSA) comply with the act and are administered in accordance with its requirements.


Old Age Security (OAS) - A monthly pension paid to Canadians over age 65 out of Government general revenue.


Optional Ancillary Benefits (OAB) - Benefits which are provided by Optional Ancillary Contributions under a Flexible Pension Plan.


Optional Ancillary Contributions (OAC) - Contributions made under a Flexible Pension Plan in order to acquire Optional Ancillary Benefits.


【P】


Past Service Pension Adjustment (PSPA) - Any pension benefits earned in a year after 1989 would reduce an individual's RRSP deduction limit for the following year through the reporting of a Pension Adjustment (PA).  If post-1989 past service benefits are provided or improved, it would trigger a provisional Past Service Pension Adjustment (PSPA) for the pension plan member which must be satisfied through one (or a combination) of the following means before such post-1989 past service benefits can be provided:

1.     Approval by CRA of Form T1004 (Applying For The Certification Of A Provisional PSPA) filed with them.  CRA will approve the form if the individual has sufficient unused RRSP room carried forward to satisfy the PSPA amount.  Please note that the individual's unused RRSP room would be reduced by the PSPA amount upon CRA's approval; or

2.     Transfer (tax-free) an amount from the pension plan member's RRSP or account in a Defined Contribution (DC) Pension Plan to the pension plan that provides the past service benefits.  Such transfer is commonly referred to as a Qualifying Transfer; or

3.     Withdraw an amount from the pension plan member's RRSP using CRA Form T1006 (Designating An RRSP Withdrawal As A Qualifying Withdrawal).

 
Pension Adjustment (PA) - Starting with 1990, a Pension Adjustment (PA) is reported on a pension plan member's T4.  The PA would reduce the member's RRSP deduction limit for the following year.  PA for a Defined Contribution (DC) pension plan member is the total employee and employer contributions made on the member's behalf as well as any forfeitures allocated to the member.  PA for a Defined Benefit (DB) pension plan member is calculated by a formula.  In simplified terms, it is equal to the annual pension amount earned by the member during the year first multiplied by 9 then subtracted by a prescribed amount ($1,000 for years before 1997 and $600 for 1997 and after).


Pension Adjustment Reversal (PAR) - The purpose of a PAR is to restore RRSP contribution room when an employee's membership in a provision of an RPP or DPSP stops and their termination benefit is less than the sum of PAs and PSPAs that have been reported to the Canada Revenue Agency (CRA). The PAR is reported to the CRA so that the employee's RRSP contribution room that was previously reduced by a PA or PSPA can be restored.
A PAR must be reported any time an individual stops being a member of a provision or plan after 1996. An individual does not have to terminate employment, only terminate plan membership.


Portability - The legislated right for an individual to transfer vested benefits to another registered retirement plan upon termination of employment or membership.


【Q】



Qualifying Transfer from RRSP - Transfer from a pension plan member’s personal RRSP to satisfy PSPA. For new plans, the Qualifying Transfer must be processed within 90 days of official registration by CRA.

Quebec Pension Plan (QPP) - A governmental pension plan similar to CPP that provides benefits to workers and their beneficiaries in Quebec in the event of retirement, disability or death.


【R】


Registered Disability Savings Plans (RDSP) - A registered disability savings plan is a trust arrangement between a holder and an issuer (a trust company in Canada). The purpose of such a plan is to provide for the long term financial security of a beneficiary who has a prolonged and severe physical or mental impairment and is entitled to the Disability Tax Credit. The RDSP is being administered jointly with Human Resources and Skills Development Canada (HRSDC).

Registered Pension Plans - A Registered Pension Plan (RPP) in Canada is a plan that is registered with Canada Revenue Agency for tax purposes under Section 147.1 of the Income Tax Act and if applicable the federal or provincial pension regulator.  The plan can be on a Defined Benefit (DB) or Defined Contribution (DC) basis.

Registered Plans - Plans such as Registered Pension Plans, Registered Retirement Savings Plans, Deferred Profit Sharing Plans, etc. that are registered for tax purposes.  Contributions to registered plans by the employer, employee or individual are deductible subject to limits.  Investment income earned by a registered plan is not taxed.  Benefits paid from a registered plan are taxable to the member or beneficiary when received.

Registered Retirement Income Fund (RRIF) - An arrangement under which the owner must withdraw each year a minimum amount prescribed by the Income Tax Act (Canada).  Funds usually originated from matured RRSPs or transfers from other registered plans.

Registered Retirement Savings Plan (RRSP) - A registered savings vehicle under Section 146 of the Income Tax Act arrangement into which an individual makes contributions for retirement savings purposes.

Related Person - Please see 
here for the full definition according to Section 251 of the Income Tax Act.

RRSP deduction limit -
The RRSP deduction limit for a year is the taxpayer’s unused RRSP deduction room at the end of the preceding taxation year, plus 18% of prior year earned income up to the RRSP maximum dollar limit for the current year less the Pension Adjustment (PA) for the prior year.

RRSP maximum dollar limit - The maximum dollar limit for RRSP can be found on the CRA website. Please note that these dollar limits are always one year behind the Money Purchase Limit to allow for reporting of Pension Adjustment (PA) on T4.

Retirement Compensation Arrangement (RCA) - An arrangement defined in subsection 248(1) of the Income Tax Act (Canada) under which an employer, former employer, or in some cases an employee, makes contributions to a custodian.  The custodian holds the funds in trust with the intent of eventually distributing them to the employee (beneficiary) on, after, or in view of retirement, other severance from employment, or any substantial change in the services the employee provides.

【S】

Spouse - See Provincial Pension Acts   – Definition of Spouse.   

【T】

Tax Free Savings Account (TFSA) - Starting in 2009, Canadian residents who are 18 years of age or older are able to earn tax free investment income within a TFSA during their lifetime. The maximum amount that can be contributed to a TFSA can be found on the CRA website. This amount will be indexed to inflation and rounded to the nearest $500 in subsequent years. Unused TFSA contribution room can be carried forward to later years. The total of TFSA withdrawals in a calendar year is added to the TFSA contribution room for the next calendar year. The CRA is responsible for monitoring and operating the TFSA, as applicable under the Act.


【U】




【V】



Vesting - This term refers to the acquisition of an unconditional right to pension benefits by a pension plan member after the completion of a certain period of employment or membership and sometimes the attainment of a certain age.  If a member is not vested at termination, he or she will be entitled to a refund of his or her own contributions, if any, with interest.


【W】




【X】




【Y】



Year's Maximum Pensionable Earnings (YMPE) - The amount of earnings each year as defined for purposes of determining the maximum amount of contributions payable to and the maximum amount of benefits payable from the CPP/QPP.  The amount increases annually at the rate of average wage growth in Canada.


【Z】