| To: | From: |
| Stella Kotlar | Ruling Directorate |
| Director | Financial Industries |
| Registered Pension and | Division |
| Deferred Income Plans | W.C. Harding |
| Room 4004, 400 Cumberland | 957-3499 |
| 7-4597 |
Subject: Letter of February 16, 1990
24(1)
This is in reply to your referral of the above noted letter together with your proposed reply for our comment.
19(1)
requests your confirmation of the actions necessary to prevent revocation of a pension plan pursuant to proposed regulation 8503(21) and offers four alternative courses of action:
(1) The Minister approves the employer's deduction under 20(1)(s) for the 1989 tax year and, in addition to providing the past service benefit to the employee, the employer pays the employee a bonus in 1990 equal to the additional salary/bonus that the employee would have been entitled to had the employer not provided the employer not provided the past service pension benefit in 1989, in addition to the employee's regular remuneration for 1990.
We concur that this is acceptable provided the employer provides the Department evidence that he has acknowledged his legal obligation to pay the bonus and that it has been made known to the employees involved.
In applying this alternative, care would have to be taken in defining the "employee's regular remuneration for 1990" to ensure no reductions of renumeration occur at a subsequent date.
(2) The employer does not deduct the amounts under 20(1)(s), but includes an equal amount in the employee's income for the 1989 tax year. The employer then amends the plan to allow the employee to deduct the contributions under 8(1)(m) and 147.2(4) as the case may be, over the number of future years that are necessary to amortize the amounts contributed.
We concur that this is an acceptable alternative provided the employees are made party to an agreement stating the amount is their income. In general, care should be taken in using this alternative to ensure the amended T4s are issued and any reassessments are made before the employees' returns are statute barred. This, however, would only be a problem if resolution was delayed for a number of years.
(3) With the approval of the necessary provincial authority, the employer withdraws the unapproved contribution from the trust fund ab initio (i.e. returned to the contributing employer and treated as though such amount had never been paid).
In our opinion this may result in the plan being an R.C.A. over the period from when the initial contribution was made until all amounts are withdrawn. We would, however, have no objection if you ignored this consequence on an administrative basis.
(4) Any combination of the above methods.
Our above comments would apply as required. However, in our opinion this option is more complex than needed to simply correct an error.
The writer has also requested our comments on the acceptability of:
1. funding current service normal cost on behalf of an employee in lieu of an equal amount of salary or bonus and
2. doing this on a three year pre-funded basis.
We concur that it is acceptable for the employer to fund current service normal costs in this manner on a yearly basis. We do not, however, accept this on a three year pre-funded basis and note that it cannot be done under the provisions of either 20(1)(q) or 20(1)(s) of the Act.
Yours truly, for Director Financial Industries Division Rulings Directorate