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RPD Shifts Compliance Monitoring Approach For RPPs

By: Marilyn Lurz

On November 1, 2005, Canada Revenue Agency’s Registered Plans Directorate (RPD) sent a letter to its Registered Pension Plan (RPP) clients announcing a change in the way it will do business from now on. Instead of concentrating its efforts on an upfront review of plan documents and amendments, it is changing its focus to a verification of how registered pension plans are being administered.

This makes sense since the volume of new RPPs has decreased in recent years (albeit there has been a growth in Individual Pension Plans – plans for a single individual, usually a high income earner). As well, whatever problems that existed with plan documents when tax reform occurred at the beginning of the previous decade have long since mostly been discovered, if not fixed.

So it’s time to redirect RPD’s resources to other activities. The underlying rationale is likely two-fold – improved compliance and ensuring the right amount of tax is collected from the right people. The letter indicates that RPD will now focus on a review of:

The initial focus will be on the proper reporting of PAs and PSPAs. If a PA/PSPA is not reported, or is incorrectly reported, a pension plan member gains access to RRSP contribution room to which he/she is not entitled. So focusing on this area is one way of ensuring that the right amount of tax is paid. Even during this early stage of RPD focus change, if it becomes aware of, or suspects, a possible issue outside of PAs and PSPAs, it could conduct a more extensive audit, encompassing any or all of the above areas and more. Plan documents may also still be reviewed in conjunction with RPD’s audit work.

Primary Function
Auditing of pension plan administration is not a new thing for RPD. It has had an audit function for many years, both inhouse and in the field. The real change is that many more staff at RPD in Ottawa will have this as their primary function, as opposed to the review of documentation that was the focus in the past.

RPD has posted several ‘Qs & As’ on its website in conjunction with the release of the letter. There, it indicates that the benefits of the new approach for its clients will include shorter response time for plan registration requests, immediate acceptance of ‘low risk’ amendments, and faster approval of actuarial valuation report funding recommendations. The one concern for administrators is the extra work that will inevitably be involved in responding to RPD’s requests for additional data as they conduct their desk audits/reviews.

Usually, the bottom line is that audits are a good thing! If you’re doing everything right, it’s great to get a ‘stamp of approval’ from RPD.

If, on the other hand, some issues are uncovered, this is an opportunity to review your governance structure to determine how the issue could have arisen, and then to take corrective action.

Marilyn Lurz is with Lynmar Associates.

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