Shortly (eight days) after a series of transactions under which Imasco Inc.’s Shoppers Drug Mart business was transferred to Shoppers Drug Mart Inc. (Shoppers) and then sold (share sale) to institutional investors, Mr. Boys’ employment with Shoppers was terminated. As part of the transactions, Boys’ retained his accrued seventeen year pension under the Imasco pension plan and joined a new successor pension plan established in 2000 for executive employees by Shoppers (the Shoppers Plan). The Shoppers Plan was designed under a “wrap around” arrangement to provide substantially comparable benefits to those provided under the Imasco plan.
Since Mr. Boys had belonged to the Shoppers Plan for such a short period, his basic pension entitlement under that plan qualified as a “small pension”. While Mr. Boys elected a deferred pension under the Imasco plan and wanted to make a similar election under the Shoppers Plan, Shoppers insisted that he commute his small Shoppers Plan pension to a lump sum cash payment.
Subsequently, in settlement of proceedings before the Financial Services Tribunal (FST), Shoppers agreed to a partial wind-up of the Shoppers Plan in connection with a broader post-sale restructuring and Boys became entitled to “grow-in” benefits valued at $89,087. Although this grow-in benefit exceeded the small pension threshold, Shoppers refused Mr. Boys’ request for a deferred pension in respect of the grow-in entitlement, arguing that the grow-in must be commuted and cashed out just like the previous cash out of his small basic benefit. As an added complication the FST was advised of the Canada Revenue Agency (the CRA) position that the “Income Tax Act and Regulations do not permit the additional growing-in benefits to be paid as additional lifetime retirement benefits from a registered pension plan (RPP) where the individual has already commuted and transferred the full amount of his or her initial benefits out of the particular RPP.”
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