Canadian registered mode

ProVal can automatically apply the service-related dollar limit under the Income Tax Act (ITA) to a pension, including early retirement reductions to that maximum pension limit. ProVal applies the ITA maximum pension separately to each Benefit Definition contained in the Plan Definition.

Clicking the Adjustments button of the Benefit Definition dialog box leads to the ITA Maximum Pension dialog box, which provides parameters to adjust the maximum pension for that particular benefit’s payment form. It is not the appropriate place to enter specifications, applicable to all Benefit Definitions within a Plan Definition, for defining benefit accrual service (including indication of whether to split service based on a reform date) or early retirement reduction factors. See the Regulatory Data topic of Valuation Assumptions for those parameters.

Note that the Normal form parameter of the Benefit Definition determines the assumed payment commencement age that ProVal will use, together with the specifications under the Regulatory Data topic of Valuation Assumptions, for adjusting the limit for early commencement. (If an Optional form is defined, the benefit amount after application of the ITA maximum is converted to the optional payment form.) Therefore, for example, if the Normal form is a deferred annuity, ProVal assumes that the commencement age is the deferral age (at which the annuity payments start) and reduces the limit accordingly. Similarly, for example, if the Normal form is a lump sum type without deferral, ProVal assumes that the commencement age is the decrement age and reduces the limit accordingly. In the latter example, if the lump sum represents the present value at decrement of an annuity starting at, for example, age 60, then, if you wish to reduce the limit for commencement at age 60 instead of at decrement age, uncheck the Apply ITA maximum pension box and use #CANMAX in the Benefit formula of your Benefit Definition.

ProVal computes the maximum pension limit without regard to whether you have defined the Normal form of the Benefit Definition as the ITA maximum form (life annuity with 15-year guarantee or joint and survivor 66 2/3% life annuity with 5-year guarantee). If your valuation assumes that the benefit will be paid on a generous payment form that requires adjustment of the ITA maximum pension, then you need to tell ProVal how to convert the limit it calculates to the appropriate limit amount for the Normal form specified for this Benefit Definition. For technical guidance on how to convert the limit, refer to the relevant statute(s) and/or regulatory pronouncements. You may tell ProVal to multiply the limit by the value in a benefit component Table, by a Constant value to apply at all decrement dates for all active records, or by both. For example, if the Normal form parameter indicates a lump sum, the referenced table should contain present values at each decrement age of the underlying annuity form. (See Table Interface for details about constructing tables and entering their values.)

Alternatively, it may be preferable to use #CANMAX and not check the Apply ITA maximum pension box if a registered pension plan offers a generous payment form that requires the ITA maximum pension to be adjusted. For example, in lieu of applying the ITA maximum pension to the Benefit Definition, you may want to compare the normal retirement benefit to the ITA maximum pension before reducing for early retirement. Probably, the simpler alternative is to use #MIN in the Benefit formula, so that the normal retirement benefit can be limited to the unreduced maximum pension, the latter coded as #CANMAX. For example, the Benefit formula could be expressed as:

(NRB #MIN (#CANMAX 60)) * ERF

To choose a table to convert the limit, select from the list of tables contained in the current Project or click the button to access the Benefit Component Table library and create new tables or modify existing ones. Specify if the table values should be determined using a Table look up based on age at commencement or decrement.