| 19(1) | File No. 7-4704 |
| D.S. Delorey | |
| (613) 957-3495 |
February 28, 1990
Dear Sirs:
Your letter of December 15, 1989 addressed to the Registered Pension and Deferred Income Plans Division has been referred to this Division for reply.
You mention that where an outside party performs the management and administrative functions related to a registered pension plan ("RPP"), the payment for such services is made by the trustee of the RPP out of the plan funds and the payments are authorized under the terms of the RPP. You describe a situation where the employer, rather than an outside party, performs the management and administrative functions related to a defined benefit RPP that it has for its employees, except for actuarial valuations that are performed by an outside consultant who is paid by the RPP trustee out of the plan funds. You ask if the internal cost incurred by the employer in maintaining and operating the RPP may be paid from the RPP funds. Such internal costs could include
(a) full salaries and benefits of employees who work on the plan full time,
(b) the pro-rata share of salaries and benefits of employees who work on the plan part-time,
(c) the full cost of any equipment and supplies purchased or leased solely to help maintain and operate the plan,
(d) the pro-rata cost of any equipment and supplies purchased or leased in part to help maintain and operate the plan, and
(e) that portion of the rent and overhead that is attributable to the employees and equipment operating and maintaining the plan.
Our Comments
Where the payments are authorized under the terms of the RPP and the requirements in Information Circular 72-13R8 are met in respect of the RPP, reasonable costs related to the management and administration of the RPP may be paid by the trustee out of the RPP funds to the person who performs those services, whether that person is the employer or an outside party. Whether or not the amount of a particular cost is reasonable can be determined only on a case-by-case basis having knowledge of all the facts. Such a determination would be made by the relevant District Taxation Office.
Where the relevant costs are reasonable, our views on the five points raised on page 2 of your letter are as follows:
1. It is immaterial whether the RPP is in a deficit or a surplus position, or whether the RPP is a defined benefit plan or a defined contribution plan.
2. We would expect that any actuarial valuation would take into consideration amounts to be paid out of the RPP for management and administration cost, regardless of to whom those payments are made or how they are to be effected. The method (e.g., implicit or explicit) by which the actuary reflects the fact that such costs were considered is immaterial in and of itself.
3. Who performs the services or how the payment for such services is effected is immaterial in and of itself.
The above comments are an expression of opinion only and are not binding on the Department, as explained in paragraph 24 of Information Circular 70-6R. We trust however that they are of assistance to you.
Yours truly,
for DirectorFinancial Industries DivisionRulings Directorate