Delays in the commencement of pension benefit payments to a member or his/her survivor sometimes inadvertently occur. In these circumstances, the obvious remedy is for a lump sum catch-up payment to be made out of the pension plan on account of the missed pension benefits. Such a payment in lieu of regular benefits, however, is problematic under the income tax rules. Among other things, it results in the plan not being administered in accordance with its terms as registered and also breaches the rule that pension benefits be paid in “equal periodic amounts”. It has been the longstanding administrative position of Canada Revenue Agency’s Registered Plans Directorate (“RPD”) that in appropriate circumstances it will provide administrative relief for lump sum payments of this nature but on a case-by-case basis only. The process to date has required plan administrators to submit a written request to RPD in each instance that a plan member is owed missed pension benefits and to await RPD written approval prior to making the lump sum catch-up payment. While RPD has generally provided the necessary administrative relief where the delay was beyond the control of the particular member, the need to apply for administrative relief in every instance is cumbersome and time-consuming.
RPD has recently announced that it is considering a significant change to the administrative relief process for lump sum payments representing missed pension benefits. In particular, RPD is considering allowing lump sum catch-up payments to be made without its prior approval, provided that the particular registered pension plan provides RPD with a report setting out certain specified details regarding the catch-up payments made from the pension plan during a calendar year. The report must be submitted to RPD not less than annually. In cases where there has been a delay in commencing payment for plan members beyond age 69 or 71 (depending on the terms of the plan, and the years in question), RPD will continue to require a written request for its approval.
This announcement by RPD is welcome news for the pension industry. The new process, once implemented, will reduce the administrative burden for pension plan administrators and eliminate the delay in making the catch-up payment to the member. RPD has indicated that it welcomes any comments from the pension industry on the proposed new approach. Comments should be sent to RPD prior to May 29, 2009 by email to firstname.lastname@example.org.