2014 Federal Budget: Underfunded Pension Plans in Canada - A greater opportunity!

The 2014 Federal Budget was announced this week with no new surprises… But the one that has us very interested is in changes to the Pension Transfer Limits coming from Underfunded Pension Plans! Under the Income Tax Act, the pension transfer limit formula determines the portion of a lump-sum commutation payment from a defined benefit Registered Pension Plan (RPP), received by a plan member who is leaving the plan (I.e. Retirement), that may be transferred to a RRSP on a tax-free basis. The amount in excess is taxable in the year it is received. In 2011, the government introduced a special rule that provides relief to members leaving a pension that is underfunded. Essentially the transferable amount is calculated in certain circumstances to allow a member leaving an RPP whose estimated pension benefit has been reduced due to plan underfunding. This allows for a greater amount to be transferred to an RRSP. (Budget 2014 proposes to allow this rule to apply in additional situations, including the windup of individual pension plans.) Why should you care? A quick look at the DBRS website will give you a list of the "worst-funded defined-benefit pension plans" in the country: Some quick examples: Ontario Power, Air Canada, Hydro-Quebec, Bombardier, Imperial Oil, BCE, Hydro One, Telus, Suncor Energy, Sask Power, Bank of Nova Scotia, CP Rail, CN Rail, Manulife Financial, ATCO, RBC. ----We have developed a unique team of experts who specialize in stress-testing underfunded pension plans for clients across the country. We run multiple opportunity-cost analyses to provide you with the best information possible to answer the question: Do I take the pension or take the commuted value?---- The more information you have, the better off you will be. Best Regards and Safe Investing! Eric