T.D. Peters (613) 995-0051 May 6, 1986
Dear Sirs:
Re: Employee Benefit Plan (EBP)
This is in reply to your letter of February 18, 1986 requesting our views with respect to certain payment provisions, to be incorporated in an EBP, which are described below.
Your first concern is whether an EBP has to provide for payments to employees out of the EBP to start at the earliest of retirement, disability, death or "other termination of employment". It is our view that it would be quite acceptable to eliminate the "other termination of employment", as a date upon which the payments would start, if it is felt to be appropriate in the circumstances, when the EBP is drafted.
You also mentioned in your letter that an employee benefit plan was established to receive employee contributions that in effect represent retiring allowances. We want to point out that the Department considers an amount to have been received by an employee upon the earlier of the date upon which payment is made and the date upon which the employee has constructively received a payment. Constructive receipt is considered to occur in situations where an amount is credited to an employee's debt or account, set apart for the employee, or otherwise available to the employee without being subject to any restriction concerning its use. Where at a certain date the employee has constructively received a payment but directs his employer after that date to contribute same to an EBP, this Department will consider the contribution to be made by the employee and not the employer which would result in such amount being included in the employee's income in that year.
The second concern raised was whether the EBP may stipulate that in the case of demonstrated financial hardship the custodian will only pay out the amount required to relieve the financial need and not the entire amount standing to the participant's credit in the plan. It is our view that any or all of the amount may be paid where financial hardship is demonstrated, however, we do require that such payment be made in one lump sum and not spread over a period of time.
While not yet enacted, the Budget of February 26, 1986 proposed to prevent the deferral of tax on contributions to deferred compensation plans by requiring the employee to report such income on an accrual basis.
This opinion is our best interpretation of the law as it applies generally. It may however, not always be appropriate in the circumstance of a particular case, and, as stated in paragraph 24 of Information Circular 70-6R, it is not binding on the Department.
Yours truly,
for Director Financial Industries Division Rulings Directorate Legislative and Intergovernmental Affairs Branch