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Normandin Beaudry

The re-engineering of the Canada Revenue Agency Registered Plans Directorate

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There, in black and white

NB Bulletin Vol. 8 N. 14, November 2005

You may have recently received correspondence from the Registered Plans Directorate (RPD) of the Canada Revenue Agency informing you about its re-engineering. This bulletin summarizes the main changes in the RPD and informs you about the objectives and consequences of this re-engineering.

The RPD is the entity responsible for registering and monitoring pension plans, and it ensures compliance with the Income Tax Act (ITA) and Regulations. On November 7, a new internal structure was put in place at the RPD. This re-engineering followed consultations with various registered plan stakeholders. Its main objective is to improve how the Registered Plans program is delivered and regulated.

Since 1989, the RPD has done an "all-encompassing review" of pension plan documents to ensure compliance with the ITA and Regulations. Since the RPD found that the large majority of the documents it received followed the rules, it will now perform a "selective review" of plan documents, focusing on auditing on-going plan operations rather than the content of plan documents.

The RPD will focus particularly on auditing pension adjustments (PAs), past service pension adjustments (PSPAs), transfers in and out of plans, contributions, pension benefits and proper reporting on returns, slips and summaries. Under this auditing process, the RPD may request additional information from plan administrators.

Consequences of the re-engineering

The new internal structure of the RPD will have no impact on some plans, such as deferred profit sharing plans (DPSPs) and registered retirement savings plans (RRSPs).

Also, some administrators of defined benefit (DB) and defined contribution (DC) plans may get faster service from the RPD, such as acceptance of plan amendments and approval of actuarial valuation report funding recommendations.

We must bear in mind, however, that although the RPD will no longer review some documents, it could perform audits at a later time, even for low risk plans. Therefore, plan administrators must ensure the compliance of all documents submitted to the Canada Revenue Agency.

With this new approach that focuses on selective reviews and audits based on risk criteria, additional audits will be performed for plans that have a higher level of risk.

The notion of "risk" as used by the RPD refers to the risk of non-compliance with the ITA and Regulations. Some examples of plans that the RPD considers high risk are combination DB/DC plans, plans where the costs are shared between the sponsor and members, individual pension plans, designated plans and plans with persons connected to the employer. Although the RPD does not specify all risk indicators that will be considered or the probability that high risk plans will be reviewed or audited, we believe that the majority of plans will not be considered high risk.

A parallel can be made between this new approach adopted by the RPD and the Régie des rentes du Québec’s approach to regulating plans. As at the provincial level, this re-engineering will increase the responsibility of plan administrators, i.e. pension committees in Quebec, with regards to compliance with all applicable laws. This new element once again confirms the importance of sound governance practices for plan administrators.

 

Please feel free to contact us for additional information.

514.285.1122
 
630, René-Lévesque Blvd. West, 30th floor
Montreal, Quebec, H3B 1S6