Proposed transaction
Employees of the Employer will be members of a new defined benefit registered pension plan (the “New RPP”) that replaces the previous defined benefit plan. In order to provide supplemental retirement benefits to employees based on the portion of their base full-time employment earnings that is not recognized under the New RPP as a result of the application of the defined benefit limit as defined in Reg. 8500(1), the Employer will establish a notional defined contribution supplemental employee retirement plan (the "SERP"). The SERP will entail the Employer each month notionally crediting each participant’s account with an amount equal to 1/12 of the participant’s “Eligible Salary” (based on the excess of the participant’s salary, subject to a cap, over the portion subject to the defined benefit limit). On the last day of each plan year, the balance in the participant’s notional account will be credited with notional investment returns (positive or negative) that generally correspond to the return earned by the New RPP.
Upon a participant’s retirement, the participant may elect to receive their notional account balance as a single lump sum payment from the Employer within a specified number of days following retirement, or in annual instalment payments from the Employer over a period not exceeding 10 years.
For financial accounting purposes, the Employer may periodically set aside assets as “funds for a specific purpose” in respect of its obligations under the SERP - but such assets will not be trust property, may be used for any other purposes in the Employer's discretion and will not be subject to any direct claim by Participants. Benefits under the SERP will be paid out of the Employer’s general revenues.
Rulings
Including that the SERP will not be a salary deferral arrangement (SDA) or retirement compensation arrangement, there will be no resulting inclusions to participants under s. 5(1), 6(1)(a) or 12(4), and the payments will be included under s. 56(1)(a)(i). The CRA summary stated:
The SERP will provide for reasonable pension benefits and therefore none of the main purposes will be to postpone the payment of tax.