What is a Pension Adjustment Reversal (PAR)?

This question comes up from time-to-time.

Here’s an easy way to explain the Pension Adjustment Reversal or PAR to your clients.

Consider an employee who is a member of a Group RRSP at work. Under the terms of their group plan, they are contributing 2% of their salary and the company is matching. 

Each year the group RRSP administrator will report to CRA the amount in total contributions to the employee’s group RRSP.

Let’s also suppose the employer’s contributions vest after two years.

For example:

•    Employee earns $50,000 per year

•    Employee contributions are $1,000

•    Employer contributions are $1,000

•    Each year a $2,000 RRSP contribution is reported to CRA

Now, after 5 years, the employee decides to resign.

•    Over the 5 years, $10,000 has been reported to CRA in total RRSP contributions

•    The employer’s contributions in years 4 and 5 have not vested

•    But the employer’s contributions for those years ($2,000) have been reported to CRA

This $2,000 (of un-vested employer contributions) will be added back to the employee’s total RRSP contribution room. And this is the Pension Adjustment Reversal or PAR.

The math gets a bit more complicated when it’s an RPP, DPSP or defined benefit pension plan, but the principle is the same.

So, if you have clients who are moving jobs, make sure to inquire about some additional RRSP room that may have been created for them via the PAR.

P.S. Remember all the great resources in the QFS Investment Toolbox. These can be found at qfscanada.com under the Advisor Portal, within the Advisor Toolbox.