2009 Annual Meeting ● Assemblée annuelle 2009 Halifax, Nova Scotia ● Halifax (Nouvelle-Écosse) 2009 Annual Meeting ● Assemblée annuelle 2009 Halifax, Nova Scotia ● Halifax (Nouvelle-Écosse) Canadian Institute of Actuaries Canadian Institute of Actuaries L’Institut canadien des actuaires L’Institut canadien des actuaires

Individual Pension Plans (IPP) Presentation Summary What is an IPP Special Rules Background and Context (Chart) Potential non-compliance under the ITA Possible Impacts of Revocation Federal Court of Appeal Cases Future of IPPs Communication objectives 2009 Annual Meeting Assemblée annuelle Annual Meeting Assemblée annuelle 2009

What is an IPP Defined benefit plan with less than 10 members and typically subject to designated plan funding rules (Section 8515 of Income Tax Regulations ITR) Designated funding rules apply where plan is primarily for benefit of “specified individuals” (connected persons or individuals earning more than 2 ½ times the YMPE) (Subsection 8515(4) of ITR) 2009 Annual Meeting Assemblée annuelle Annual Meeting Assemblée annuelle 2009

What is an IPP IPPs are generally not subject to provincial benefit standards legislation such as in British Columbia Annual Meeting Assemblée annuelle Annual Meeting Assemblée annuelle 2009

Special Rules for Connected Persons Service restrictions on bridging benefits (8503(2)(b)). Restrictions on benefits due to total and permanent disability (8503)(3)(d)) and pre-retirement death benefits (8503)(2)(e)). Early retirement restrictions (8503(3)(c)). Career Average Earnings formula (subparagraph 8504(1)(a)(i)) Annual Meeting Assemblée annuelle Annual Meeting Assemblée annuelle 2009

Special Rules for Connected Persons (Continued) No defined benefit accruals during periods of disability (8503)(3)(a)(iv) and no accruals during an “eligible period of temporary absence” (8500(1)). Cannot “prescribe compensation” under either a DB or MP plan for “eligible periods of reduced pay” as defined in subsection 8500(1) Annual Meeting Assemblée annuelle Annual Meeting Assemblée annuelle 2009

Special Rules for Connected Persons (Continued) PA and PSPA treatment. Funding (8515) and investment restrictions (8514) Annual Meeting Assemblée annuelle Annual Meeting Assemblée annuelle 2009

Background and Context Prior to 1991, no defined benefit plans could be registered if primarily for “connected persons. A pension plan is considered to be primarily for the benefit of connected persons and/or related persons if the present value of benefits purchased for or accrued to connected persons exceeds 50 per cent of the present value of the total benefits purchased for or accrued to active members under all registered pension plans of the employer. (Information Circular R8) Annual Meeting Assemblée annuelle Annual Meeting Assemblée annuelle 2009

Background and Context With Pension Reform, such plans can now be registered, resulting in the growth of IPPs for connected persons in the post-reform years Annual Meeting Assemblée annuelle Annual Meeting Assemblée annuelle 2009

Active IPPs Annual Meeting Assemblée annuelle Annual Meeting Assemblée annuelle 2009

Potential Non-Compliance Under the ITA Primary Purpose (8502(a)) The primary purpose of the plan must be to provide periodic payments to individuals after retirement and until death in respect of their service as employees Annual Meeting Assemblée annuelle Annual Meeting Assemblée annuelle 2009

Potential Non-Compliance Under the ITA Employee/Employer Relationship. The absence of this relationship would result in failure to comply with paragraph 8502(a) Annual Meeting Assemblée annuelle Annual Meeting Assemblée annuelle 2009

Potential Non-Compliance Under the ITA In many cases, IPPs are established to effect a transfers from other defined benefit plans. Transfer DB to DB (subsection 147.3(3)). Transfer DB to MP/RRSP (subsection 147.3(4) up to a prescribed amount section 8517 ITR) Annual Meeting Assemblée annuelle Annual Meeting Assemblée annuelle 2009

Potential Non-Compliance Under the ITA In some cases, participation within the IPP ends shortly after the funds are transferred from the original defined benefit plan. With little or no earnings received by the “member” of the IPP, the assets received from the original plan become surplus within the IPP Annual Meeting Assemblée annuelle Annual Meeting Assemblée annuelle 2009

Potential Non-Compliance Under the ITA Only earnings with a participating employer can be used for benefit purposes with a particular registered pension plan. A transfer of funds from a defined benefit pension plan of a former employer to an IPP under 147.3(3) does not make the former employer a “participating employer” within the IPP as defined in subsection 147.1(1) Annual Meeting Assemblée annuelle Annual Meeting Assemblée annuelle 2009

Potential Non-Compliance Under the ITA Permissible contribution rules distinguish between amounts paid by the employer for its employees (8502(b)(iii)) from amounts transferred into the particular plan (8502)(b)(iv)) Annual Meeting Assemblée annuelle Annual Meeting Assemblée annuelle 2009

Pension Plan Notice of Intent to Revoke If a plan fails to meet the primary purpose test, the plan’s registration would be revoked retroactively to its date of inception. The Income Tax Act does not contain any intermediate penalties 2009 Annual Meeting Assemblée annuelle Annual Meeting Assemblée annuelle 2009

Possible impacts of revocation Loss of tax-sheltered status Contribution deductions may be denied Amounts transferred in may be brought into income Amount transferred from a revoked plan to an RRSP are also subject to Part X.1 tax Annual Meeting Assemblée annuelle Annual Meeting Assemblée annuelle 2009

Appeals Heard by the Federal Court of Appeal Loba Ltd. (2004 FCA 342) Boudreau (2007 FCA 32) Ontario (2007 FCA 262) Jordan Financial (2007 FCA 263) Loba (2008 FCA 403) 2009 Annual Meeting Assemblée annuelle Annual Meeting Assemblée annuelle 2009

Future of IPPs Expect that number of IPPs will continue to grow IPP as a Supplement to other RPP Continued Audit Coverage 2009 Annual Meeting Assemblée annuelle Annual Meeting Assemblée annuelle 2009

Communication Objectives RPD give a fulsome front-end review of individual pension plans validate that the plan meets the primary purpose test at the time of registration 2009 Annual Meeting Assemblée annuelle Annual Meeting Assemblée annuelle 2009

Communication Objectives CRA web site Provide clients the opportunity to subscribe to RPD’s electronic mailing list that will advise when new information is added to the web site Improved client service Client outreach Publish Newsletters and Bulletins that are available on RPD’s web site 2009 Annual Meeting Assemblée annuelle Annual Meeting Assemblée annuelle 2009

RPD – Contact Information Our Web site RPD General Enquiries Phone Lines (613) (English) (613) (French) (E) (F) Jeff Boxer(613) Annual Meeting Assemblée annuelle Annual Meeting Assemblée annuelle 2009