Registered Plans DivisionFinancial IndustriesS.M. KotlarDivision Director
Attention: H.H. Sorensen
Registered Pension Plan ("RPP") Contributions Amount Deductible by Employer Subsection 147.2(2) of the Income Tax Act
This is in reply to your memorandum of August 31, 1993 requesting our advice on certain concerns raised by XXXXXXXXXX
XXXXXXXXXX concerns relate to the following wording contained in subsection 147.2(2) of the Act:
"A contribution made by an employer......is an eligible contribution if it......is made pursuant to a recommendation by an actuary in whose opinion the contribution is required to be made so that the plan will have sufficient assets to pay benefits under the defined benefit provision of the plan."
With respect to that wording, XXXXXXXXXX raises the following three questions:
1. Does Revenue Canada interpret the word "required" to mean that the only acceptable contribution would be one based on the minimum contribution requirement according to provincial standards?
XXXXXXXXXX concern here is that if so, this would involve reducing contributions as much as possible if there is any surplus and if the plan document so permits, and similarly amortizing an unfunded liability over the longest possible period.
2. Must the valuation report include a single contribution as being the amount that is considered appropriate in the actuary's opinion?
3. Is a recommendation by the actuary required or may the valuation report merely set out the contribution requirements? If a recommendation is necessary, can the actuary recommend that the employer contribute between a specified minimum and maximum?
Our Comments:
To answer 1 above, it seems necessary to first address the initial part of 3 above. In this regard, subsection 147.2(2) of the Act provides that a contribution will be an eligible contribution if it....."is made pursuant to a recommendation by an actuary". It is thus our view that a recommendation by the actuary is required. However, in preparing his recommendation, an actuarial surplus may be disregarded by the actuary in determining the contribution requirement to the extent provided in paragraph 147.2(2)(d) of the Act. Consequently, deductible current service contributions may be made while an RPP has a moderate amount of surplus.
The wording of subsection 147.2(2) of the Act does not in our view preclude an actuary from stating a minimum amount and a maximum amount required to fund an RPP and recommending that the plan sponsor contribute an amount between the two, provided the maximum amount does not exceed that determined under subsection 147.2(2) of the Act after taking into consideration paragraphs (c) and (d) thereof. For example, the actuary might word his recommendation as follows:
"It is thus recommended that the employer contribute an amount that is not less than this minimum amount and not more than this maximum amount."
Where an actuary has made such a recommendation, the provisions of subsection 147.2(2) of the Act would in our view be met where the employer contributes either that minimum or maximum amount or an amount between the two.
Please contact the writer should you require further assistance on this matter.
for DirectorFinancial Industries DivisionRulings DirectorateHAA7217-1