Small Benefit Rule Under a Pension Plan  Subsection 39(1) of the Act provides that a pension plan may make a lump sum payment in lieu of a pension where the amounts involved are too small to warrant being administered as a pension.  Those amounts are established under subsection 35(2) of the Regulations:   “35(2)  For the purposes of subsection 39(1) of the Act: (a)  the maximum amount of the commuted value is 20% of the Year’s Maximum Pensionable Earnings in effect in the year in which the payment occurs; or (b)  the maximum amount of the annual pension is 4% of the Year’s Maximum Pensionable Earnings in effect in the year in which the payment occurs.” A plan is not required to have the small benefit rule.  However, if the plan has the provision, the prescribed maximum amounts must be used.  The plan administrator is responsible for ensuring the rule is applied properly. The Year's Maximum Pensionable Earnings (YMPE) is a figure determined under the Canada Pension Plan on an annual basis.  The YMPE for 2009 is $46,300.  Therefore, if a plan member terminates employment or retires the administrator could make a payment in lieu of a pension where the commuted value of the member’s pension under a defined benefit provision or the total value of a member's defined contribution account does not exceed $9,260.  If the member is eligible to commence a pension, then the administrator could make a lump sum payment if the member’s annual pension is less than $1,852.  The YMPE in effect in the year that the payment occurs is used for purposes of the small benefit rule.

Small Benefit Rule Under a LIRA

Subsection 29(8.1) and (8.2) of the Regulations permit the issuer of a LIRA to make a lump sum payment where the total value of an individual’s locked-in money is too small to warrant being administered as a pension:

 “29(8.1)  Notwithstanding subsection (4), but subject to subsection (8.2), the contract may provide for the withdrawal of the locked-in money as a lump sum if the amount of locked-in money in the contract does not exceed 20% of the Year’s Maximum Pensionable Earnings in effect in the year in which the withdrawal occurs.

            (8.2)  The issuer shall not permit a withdrawal pursuant to subsection (8.1) unless the issuer is satisfied that the owner has no other locked-in money.”

Subsection 29(8.1) is permissive, not mandatory.  The issuer of the LIRA contract is responsible for the administration of the small benefit rule and must ensure that the terms of the contract provide for the release of locked-in money pursuant to the small benefit rule.

Subsection 29(8.2) requires the issuer to be satisfied that the owner has declared all other locked-in money for purposes of applying the small benefit rule under subsection 29(8.1).  This includes locked-in money that may be subject to the pension legislation of other jurisdictions.  A signed written statement from the owner, for instance, should be sufficient to release the money.

The Year's Maximum Pensionable Earnings (YMPE) is a figure determined under the Canada Pension Plan on an annual basis.  The YMPE for 2009 is $46,300.  Therefore, a LIRA contract could provide for the withdrawal of the locked-in money that is subject to Saskatchewan pension legislation as a lump sum if the total amount of an individual’s locked-in money from all sources does not exceed $9,260.

The annual pension limit under subsection 39(1) of the Act can no longer be applied to a LIRA contract.

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