Historically, private business owners have experienced pension discrimination against their peers in public corporations and government. Their “Pension Gap” was often filled through the use of Deferred Compensation Arrangements.
Up to 1981, insurance companies sold Single Premium Deferred Annuities (SPDAs) similar to GICs (Guaranteed Investment Certificates) sold by Banks and Trust Companies but, with the advantage that they were not subject to accrual tax. As such, a private business owner could invest corporate funds not needed personally (or to expand the business) in these SPDAs and compound the interest earnings tax free.
At retirement, the SPDAs were cashed in and the accumulated earnings were subject to corporate tax. However, this could be avoided by the payment to the owner of a retiring allowance. The owner could then spread out the personal tax through the purchase of an Income Averaging Annuity.
In 1981, government regulation divided contracts issued by insurance companies into “Exempt” and “Non-exempt” categories. “Non-exempt” contracts were now subject to accrual tax thus placing the Insurance Companies' SPDAs on the same footing as Banks and Trust Company GICs. As well, retiring allowances were restricted and, the sale of Income Averaging Annuities ended.
Fortunately for the private business owner, the new class of “Exempt” insurance policies could be corporate owned and provide the owner with an additional income stream at retirement, much the same as the previous Deferred Compensation Arrangements utilising SPDAs and Income Averaging Annuities.
This ended for the private business owner in 1986 with the introduction of Retirement Compensation Arrangements (RCAs) which under Section 207.6(2) of the Income Tax Act deemed a corporate owned insurance policy used to fund retirement benefits an RCA. Private business owners had no options other than RRSPs until 1996. Although public corporations could set up RCAs to fund the difference between a pension entitlement under “Generally Accepted Guidelines” and what could be funded by the company’s pension plan, Revenue Canada could view RCAs for private owners as Salary Deferral Arrangements (SDAs) which were subject to immediate tax.
Retirement Compensation Funding (RcF) was in the forefront of the RCA business for public corporations and designed the first tax sheltered RCA funding product in Canada and the PENSIONPlus™ Insurance Funded RCA was born. The initial underlying insurance policy was Canada Life (Public Corporation RCAs). Subsequently PENSIONPlus™ illustration systems were developed for ITT Hartford Life, Canada Life (CCPC RCAs)and Standard Life.
In 1998, the CRA at the CALU meeting discussed RCAs for Private Business Owners providing they followed the pension guidelines for public corporations and the life insurance industry became aware of the use of RCAs for private corporations. RcF having designed a Participating Whole Life PENSIONPlus™ illustrations system with ITT Hartford Life in 1995, established the first RCA for a private corporation using PENSIONPlus™ in January 1996. In 2000, RcF entered into an exclusive arrangement with Canada Life to bring a new version of PENSIONPlus™ (utilizing a Universal Life policy) to the small business market through their distribution system which continued until Canada Life's sale in 2004 to Great West Life.
In 2004, Retirement Compensation Funding Inc again became independent. Free from the exclusive arrangement with Canada Life, RcF quickly redesigned PENSIONPlus™ to work with other insurance companies policies to provide Financial Advisors with a wide choice of options.
Today, PENSIONPlus™ (using a Universal Life policy) can be illustrated using AIG Life, Canada Life, Equitable Life, Empire Life, Industrial Alliance, Manulife, RBC Life, Desjardins Financial Security, Standard Life and Sun Life. PENSIONPlus PAR™ (using a Participating Whole Life policy) is also available from select carriers and PENSIONPlus GIF™ (Guaranteed Investment Funding) is currently only available with RBC Life.
PENSIONPlus™ Insurance Funding for RCAs is designed to provide unreduced survivor benefits at the same cost of funding Primary Benefits but requires at least 10 years to retirement.
PENSIONPlus GIF™ – Guaranteed Investment Funding for RCAs is for Plan Members with 10 years or less to retirement. It provides guaranteed survivor benefit funding and, a 4% threshold for Primary Benefits from the Variable Pool of invested assets.
The PENSIONPlus™ software platform is owned by RcF Administrative Services Inc is licensed to Retirement Compensation Funding Inc.