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Payment of a Small Amount under Section 50(1) of the Pension Benefits Act

Effective July 1, 2012, a new section 50(1) of the Pension Benefits Act (PBA) comes into force and the old section 50(1) is repealed.
 
The new section 50(1) allows small amount unlocking to be extended to more people by making the maximum “small amount” higher and adding a new way to calculate a “small amount.” However, small amount unlocking continues to be available only if the pension plan provides for it.
 
Under the old section 50(1), small amount unlocking was only available to a former member of a pension plan whose annual benefit payable at normal retirement was not more than 2 percent of the Canada Pension Plan Year’s Maximum Pensionable Earnings (YMPE) in the year he or she terminated employment. 
 
The new section 50(1) provides that if either:
 

(a) the annual benefit payable at a former member’s or retired member’s normal retirement date is not more than 4 percent of the YMPE in the year that he or she terminated employment; or

 

(b) the commuted value of the former member’s or retired member’s benefit is less than 20 percent of the YMPE in the year that he or she terminated employment;

then the former member or retired member is entitled to receive a lump sum payment equivalent to the commuted value of the benefit (small amount), instead of a pension under the pension plan.
 
Note that under a multi-employer pension plan or jointly sponsored pension plan, a member is deemed to have terminated employment upon termination of plan membership, in accordance with section 38(2) of the PBA.
 
 

Transfers to an RRSP or RRIF

 
Effective July 1, 2012, former members and retired members entitled to payment of a small amount may request that it be paid into an RRSP or RRIF. See Transfers to a Registered Retirement Savings Plan (RRSP) or to a Registered Retirement Income Fund (RRIF).
 
 

Questions and answers regarding the new PBA section 50(1):

 
Q1. Can a member who is still working take a small amount out of the pension plan?
 
A1. No.  Section 50(1) only applies when a member has terminated employment, which includes retirement or death. -06/12
 
Q2. If the plan terms do not provide for the payment of small amounts, can the plan administrator still make a payment?
 
A2. No. The plan terms must explicitly provide for the lump sum payment. Otherwise, the former member’s or retired member’s benefit must be paid as a pension from the pension plan. -06/12
 
Q2.1: Can the plan terms use generic wording to allow the payment of small amounts, instead of referring to the exact percentages that are set out in section 50(1) of the PBA?
 
A2.1: Yes, the plan terms may use generic wording that refers to the limits that are allowed under the PBA. - 10/12
 
Q3. Does the former member’s or retired member’s benefit have to satisfy both criteria (a) and (b) of section 50(1) of the PBA to be eligible to be paid as a lump sum payment?
 
A3. No, the benefit has to satisfy only one of (a) or (b). -06/12
 
Q4. As of July 1, 2012, can a pension plan make a lump sum payment to a former member or retired member based on the new small amount criteria? 
 
A4. A pension plan can make a lump sum payment only if the plan terms have been amended to permit payment based on the new criteria. -06/12
 
Q4.1: If the plan terms provide for the payment of small amounts based on the old criteria, can the plan administrator automatically apply the new criteria for the payment of small amounts as of July 1, 2012?
 
A4.1: No, the new criteria cannot be automatically applied. The use of the small amounts provisions of the PBA is discretionary and must be set out in the plan terms. The plan administrator must continue to apply the old criteria for the payment of small amounts, until the plan terms are amended to reflect the new criteria.  The plan terms should correspond to the requirements of the amended section 50(1) of the PBA, or use generic wording.  - 10/12
 
Q5. Can the plan terms be amended to require a former member or retired member to receive his or her benefit as a lump sum payment if the benefit qualifies as a small amount under the new PBA section 50(1)?
 
A5. Yes, the plan terms can be amended to require that a lump sum payment be made to a former member or retired member if the criteria for a small amount has been satisfied. -06/12
 
Q6. What is the “commuted value of the benefit” under criteria (b) of section 50(1) of the PBA for a defined contribution benefit?
 
A6. For a defined contribution benefit, the “commuted value of the benefit” is the defined contribution account balance. -06/12
 
Q7. How is the small amount to be determined under section 50(1) of the PBA for a pension plan that provides a combination of a defined benefit and a defined contribution benefit?
 
A7. For a pension plan that provides a combination of a defined benefit and defined contribution benefit, the benefits must  be added together before applying criteria (a) and/or (b). For example, the commuted value of the defined benefit can be added to the defined contribution account balance and the total compared to criteria (b) which is 20% of the YMPE in the year in which he or she terminates employment. -06/12
 
Q8. Is the payment of a benefit that qualifies as a small amount under section 50(1) of the PBA subject to any of the transfer restrictions that apply under section 19 of Regulation 909, i.e., in cases where the pension plan making the payment has a funding deficiency at the time payment is made?
 
A8. No. The payment of a benefit that qualifies as a small amount under section 50(1) of the PBA is not subject to Regulation 909’s section 19 transfer restrictions. -06/12
 
Q9: Can we apply the new criteria for payment of small amounts to a former member who has a deferred pension under the plan, if he/she terminated employment prior to July 1, 2012?
 
A9: Yes. However, you must use the Year’s Maximum Pensionable Earnings (YMPE) for the year in which the former member terminated his/her employment. -10/12
 
Q10: What Year’s Maximum Pensionable Earnings (YMPE) should I use for determining the payment of small amounts under section 50(1) of the PBA?
 
A10: You must use the YMPE for the year in which the member terminated his/her employment.  The YMPE for any other year, such as the year payment of the benefit is actually made, is irrelevant to section 50(1) of the PBA. -10/12


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