Individual pension plan (IPP)

An owner-manager offered an IPP while weighing retirement funding against sale proceeds can check it against these definitions. The CRA’s glossary defines an IPP for a calendar year as a registered pension plan that has a defined benefit provision and, at any time in the year or a preceding year, meets either of two conditions. One looks at the number of members and whether one is related to a participating employer. The other applies to a designated plan where it is reasonable to conclude that members’ rights to benefits exist primarily to avoid the first condition. The CRA’s Newsletter 21-1 says a plan is, in general, a designated plan for a year if specified individuals hold most of its defined benefit pension credits.

What the CRA watches

The CRA says the primary purpose of every registered pension plan must be to provide retirement benefits to individuals for their service as employees, and a plan set up for another reason will not qualify for registration. Newsletter 21-1 also sets out conditions the CRA applies to IPPs, designated plans and similar plans under subsection 147.1(5) of the Income Tax Act.

What to ask

• Does the plan meet the CRA’s IPP definition for each year?
• What do the plan terms say if the sponsoring company is sold or wound up?
• Who values the plan, and who administers it after a sale?