Background
Plan A is a U.S. multi-employer defined benefit pension plan under which eligible plan participants accrue retirement benefits, which is maintained and administered by the Plan A Trustees pursuant to the Plan A Trust Agreement as a qualified plan under s. 401(a) of the Internal Revenue Code of 1986 (“IRC”). Although most of the participants live and work (or are retired) live in the U.S. (so that it is not a “retirement compensation arrangement” pursuant to para. (l) of the definition), there are a small number of Canadian Participants.
Specific rules (the “Plan A Canadian Program”) set out in the Plan A rules document, apply only to Canadian Participants, and contain provisions customarily found in Canadian registered pension plans, including protection of accrued benefits, vesting, pension eligibility, and benefit formulae. Significantly, a Canadian Participant is prohibited from commencing pension benefits until attaining the normal retirement date or early retirement eligibility.
The Plan A Canadian Program is administered so as to be exempted from the resident’s arrangement rules in ss. 207.6(5) and (5.1) by satisfying the prescribed contribution conditions in Reg. 6804 relating to foreign plans maintained by foreign non-profit organizations.
Proposed transactions
The Plan B Sponsor will establish Plan B as a U.S. multi-employer defined benefit pension plan under which eligible plan participants will accrue retirement benefits, which will thereafter be maintained as a qualified plan under IRC s. 401(a).
Specific rules (the “Plan B Canadian Program”) will be established that will be substantially similar to the Plan A Canadian Program. On a similar basis to Plan A, no portion of the Plan B will be deemed to be an RCA pursuant to the resident’s arrangement rules in ss. 207.6(5) and (5.1).
The Plan A Trustees and the Plan B Trustees will enter into an agreement (the “Spin-Off Agreement”) to authorize the direct transfer of pension assets and liabilities relating to certain Plan A participants from Plan A to Plan B (the “Proposed Transfer”). None of the affected participants will have any direction or control over the Spin-Off Agreement, other than any general rights that may be afforded under a collective bargaining agreement.
The Proposed Transfer will not result in a distribution from Plan A to any affected participants and will not be a taxable event pursuant to the IRC, and will apply to a portion of the Canadian Participants of Plan A (the “Affected Canadian Participants”), who will cease to be participants of Plan A upon completion of the Proposed Transfer.
Rulings
No amount will be included in computing the income of an Affected Canadian Participant under s. 6(1) or 56(1)(a), nor be subject to withholding under s. 153(1), solely because of the Proposed Transfer.