Background
The Employees and Executive Employees of Employerco (a Canadian public corporation) may participate in the Company Group RRSP under which: an Employee or Executive Employee can elect that an amount between 1% to 9% of their base salary be deducted from each pay and contributed to the Company Group RRSP; and Employerco matches that contribution through a contribution to the Company Group RRSP equalling the lesser of 50% of the RRSP contribution limit under the Act and 9% of the employee’s base salary for the year.
Employerco pays annual bonuses (the “STIP Bonuses”) under its short-term incentive plan to such employees after an annual evaluation.
Proposed transactions
Employerco will amend the terms of the Company Group RRSP to provide that an Employee or Executive Employee can elect that up to 8%, of the their base salary plus any STIP Bonus received in a pay period, will be deducted from such pay and contributed to the Company Group RRSP, and that Employerco will make a contribution to the Company Group RRSP of the lesser of 125% of such employee contribution during the year; and 5/9th of the RRSP dollar limit under the Act for that year, or such lower amount as may be specified by the employee – with the employee responsible for ensuring that the total of such contributions does not exceed the applicable RRSP contribution limits.
In addition, an unfunded and unsecured “Supplemental Plan” will be established under which Employerco will make a notional contribution to the Member’s Notional Member Account in an amount equal to the lesser of:
(i) 18% of the excess, if any, of the Employee’s "Earnings" (i.e., base salary plus STIP Bonus) for the year over the Earnings level engaging the RRSP dollar limit for that year; and
(ii) 15% (or 10%) of the Executive Employee’s (or Employee’s) earnings for the year less any amounts contributed by Employerco to the Company Group RRSP in respect of the year for such Employee.
Furthermore, the amount in the Notional Member Account will be increased each year based on an interest-rate factor (based on 5-year Government of Canada bond yields).
On Termination of Employment, that Member shall be entitled to the total value of that Member’s Notional Member Account, which shall be distributed, in consecutive annual payments of equivalent amounts payable over 10 years, commencing no later than one year following the date on which the Member’s entitlement to receive benefits under the Supplemental Plan arises - except that the Member may elect to receive the distributions as a lump sum, or over 1 to 9 years commencing no later than one year later.
There will be no reduction of salary or wages, that would have otherwise been paid to the Members, in return for the benefits under the Supplemental Plan.
Rulings
- The Supplemental Plan is not a salary deferral arrangement or retirement compensation arrangement
- No inclusion to Member under s. 5(1), 6(1)(a) or 12(4) and, instead, inclusions under s. 56(1)(a)(i) as superannuation or pension benefits are received.
- Subject to ss. 18(1), 67 and 78, Employerco entitled to deduction when Employerco is required to pay such amounts.