Supplemental Plan
In addition to a defined contribution registered pension plan (“RPP”) under which the employer contributes a fixed percentage of each member’s pensionable earnings and also matches employee voluntary contributions, the employer also provides an unfunded and unsecured plan for RPP members whose contributions are capped by the RPP limits. Under each Supplemental Plan, notional contributions (and interest) are allocated to the member’s account based on the same contribution rate as the RPP less the actual employer contributions made to the RPP.
The plan also allows the member to elect to reduce or forego future bonus entitlements and accrued vacation pay entitlements for additional allocations (of equal amounts) to the member’s account. At the earliest of termination of employment, retirement or death, the member is entitled to benefits equal to their account balance as a lump sum, or annual instalments over up to 10 years.
Retirement Allowance Plan
Under the Retirement Allowance Plan, notional contributions are allocated each month to an executive’s account of 7% of the executive’s monthly remuneration, plus a further one-time $125,000 notional contribution at the start of the plan.
The executive, at the earlier of termination of employment or attaining 65, is entitled to the account balance as a lump sum, or in 10 annual instalments – and also (outside of the plan) to an amount equalling 24 months’ base salary plus an amount in lieu of pension and automobile benefits.
SDA rules
Do the SDA rules apply? CRA responded:
Where a [supplemental pension] plan provides benefits that are not reasonable superannuation or pension benefits, we are of the view that one of the main purposes is to postpone tax payable and an SDA will exist.
The CRA generally takes the position that supplementary pension benefits will be considered reasonable if:
- the terms of the plan are substantially the same as those of the RPP that applies to the same beneficiaries to whom the plan applies; and
- the benefits that can be paid under the plan are the same as the benefits that would have been paid under the RPP but for the defined benefit or money purchase limit. …
[T]he basic contribution component of the Supplemental Plan appears to be largely consistent with the CRA’s general position outlined above. … However, the bonus contribution and vacation pay contribution components of the Supplemental Plan, as well as the Retirement Allowance Plan, appear to be primarily motivated by tax deferral considerations …[and] would most likely constitute an SDA.