As the amount of borrowing in respect of certain real estate properties of a pension plan exceeded their cost, the Directorate considered “that the Plan contravened paragraph 8502(i) and thus is a revocable plan pursuant to paragraph 8501(2)(a).” The Plan’s representative (who was requesting confirmation on a no-names basis that there would be no revocation of registration) proposed that the Plan transfer all real properties for which there were borrowing issues to a newly-formed s. 149(1)(o.2)(ii) subsidiary, which would assume the related debts, with the Plan being released but perhaps being required to provide guarantees. The Directorate stated that this “appears to be a reasonable solution to resolve past non-compliance,” and that:
If the Plan is a defined benefit plan, there is perhaps less of a concern about leveraged investing as the income tax rules provide for a self-adjusting mechanism. A higher rate of return than appropriate results in lower employer contributions. However, if the Plan is a money purchase plan, the concern about leveraged investing takes on greater importance as the borrowing would have served in effect to circumvent the RPP contribution limits. In this case, consideration should be given to requiring any excess investment earnings to be withdrawn from the Plan.