Background
The Participant, a retired employee of Employerco, is entitled to defined benefits under both a registered pension plan and an existing retirement compensation arrangement (the Existing Supplemental Plan) funded by the Existing RCA Trust, whose trustee (the Existing RCA Trustee) generally only acts upon instructions from Employerco.
Proposed transactions
Employerco and the Participant will enter into a New Supplemental Plan for the purpose of providing retirement income to the Participant in respect of the Participant’s service as an employee and in substitution for the benefits provided to the Participant under the Existing Supplemental Plan.
Under the terms of the New Supplemental Plan, the amount of the annual benefits payable (quarterly) to the Participant is not materially different from those under the Existing Supplemental Plan, with a lump sum payable to the surviving spouse or other beneficiary on death; however, the Participant may, at any time
(i) following material changes in the Canadian economy or the financial needs of the Participant or Participant’s family, apply in writing to the Custodian to vary the amount of annual benefits, or
(ii) following the occurrence of a Specified Event, apply in writing to the Custodian, to receive a lump sum payment equal to the value of the Participant Account (i.e., the property in the trust including the right to the refundable tax) and the Custodian shall distribute the property then held by the New RCA Trust to the Participant, as well as any refundable tax generated in due course by such distribution.
“Specified Event” means the occurrence of:
(i) a significant health event or other emergency that … creates an unexpected change in financial circumstances and/or financial need, (ii) a material deterioration in the Canadian economy, (iii) a material change in personal income tax rates …, or (iv) any other event that could not have reasonably been foreseen by the Participant and creates an immediate need by the Participant for the use of funds held by the Trustee under the terms of the New RCA Trust.
Employerco will cause the Existing RCA Trustee to transfer a lump sum (equalling ½ of the actuarial equivalent value of the benefits accrued to the date of settlement) directly from the Existing Supplemental Plan to the custodian of the New Supplemental Plan, and apply for a corresponding amount of refundable tax to be now held by CRA for the account of the New rather than Existing RCA Trust.
Rulings
The New Supplemental Plan will qualify as an RCA; and s. 207.6(7) will apply to the transfer to it.