Personal Finance

Pension adjustment overcontribution?

  • Last Updated:
  • Feb 21st, 2021 2:18 pm
[OP]
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Dec 31, 2018
196 posts
259 upvotes

Pension adjustment overcontribution?

This is an odd situation. My wife was on maternity leave all of 2019, but her employer said she can still contribute to her RPP (with cheques), and they will do their normal match. I though this was great since she had a large RRSP deduction limit/contribution room (they were equal) for 2019 as per her NOA for 2018.

So, her NOA for 2019 looks something like this (made up numbers but proportional to real):
  • RRSP deduction limit for 2019 .........$100,000
  • Minus: Allowable RRSP contributions deducted for 2019 .........$20,000 (this is from the RRSP contributions we made throughout 2019)
  • Plus: 18% of 2019 earned income, up to a maximum of $27,230 ......... $2,000 (this was 18% of her mat leave top-up that she received through 2019)
  • Minus: 2019 pension adjustment ..... $5,000 (this was the value of the cheques we wrote for the RPP contribution + match by her employer)
  • RRSP deduction limit for 2020..... $80,000
So it seems like they calculated the RRSP deduction limit by subtracting the 2019 deduction from the 2019 deduction limit (i.e. $100,000-$20,000). Because the pension adjustment was greater than the 18% of the earned income, they did not factor this in the equation (i.e. I would of thought it'd be $100,000-$20,000+$2,000-$5,000=$77,000).

Furthermore, on the CRA website, under Calculation of 2020 RRSP deduction limit, Step 2: Calculation of additional deduction limit based on 2019, it says something like:
  • 18% of 2019 earned income .... $2,000
  • Minus 2019 pension adjustment ....$5000
  • Equals Additional deduction limit based on 2019.... $0 (cannot be less than zero)
So, what gives? There are no statements in the NOA that an over-contribution was made, such as if your available contribution room is a negative amount. She works for a large company so I'm surprised they would be allowing mat leave RPP contributions via cheque at all (as you will always exceed the 18% earned income for the year).

Any help would be appreciated.
5 replies
Newbie
Jul 8, 2018
47 posts
31 upvotes
GTA
Edit: Did she get EI benefits for the maternity leave?
[OP]
Jr. Member
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Dec 31, 2018
196 posts
259 upvotes
KyleTO wrote: Edit: Did she get EI benefits for the maternity leave?
Yes, she did earn a little from EI but it was not even factored in the 18% of 2019 earned income (only her mat leave top up from the employer was). Therefore, the EI did not have any effect on the calculation at all.
Newbie
Jul 8, 2018
47 posts
31 upvotes
GTA
If EI maternity benefits don't generate earned income for the purposes of the calculation then this situation doesn't appear to be allowed to happen, at least according to KPMG:

https://home.kpmg/content/dam/kpmg/ca/p ... limits.pdf

Note 2 says employee and employer contributions can't exceed 18% of the employees pensionable earnings in the year. Based on what you've said, they exceeded that.
[OP]
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Dec 31, 2018
196 posts
259 upvotes
Nukey wrote: There is, I believe, the concept of prescribed compensation during periods of temporary absence or reduced pay.

This is not my area of expertise, but take a look at the link below, paragraph 16:
https://www.canada.ca/en/revenue-agency ... plans.html
Thank you. Her RPP administrator may have fit her contributions under the Prescribed Compensation rules. Like I said, it's a very big company so I'm sure she's not the first one to continue the RPP contributions during mat leave (due to generous match by employer).

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