2025 Pension Adjustment Reversal (PAR) Explained: Meaning, Eligibility & Calculation Guide
Discover how Pension Adjustment Reversal (PAR) helps Canadian employees adjust their retirement savings when leaving a DPSP or RPP early. Learn eligibility criteria, calculation methods, and how PAR impacts your RRSP limits in 2025.
What Is Pension Adjustment Reversal (PAR)?
Pension Adjustment Reversal (PAR) is a valuable option available to Canadian employees who leave their employer's Deferred Profit Sharing Plan (DPSP) or Registered Pension Plan (RPP) before becoming fully vested. It allows these individuals to increase their Registered Retirement Savings Plan (RRSP) or Pooled Registered Pension Plan (PRPP) contribution room by reversing pension adjustments related to unvested employer contributions.
Key Highlights
- PAR enables employees to adjust their pension benefits when leaving early from DPSPs or RPPs.
- It increases RRSP deduction limits by reducing pension adjustments for unvested amounts.
- Applicable when employees depart before receiving employer contributions or full vesting.
- Helps optimize retirement savings by transferring unvested benefits to RRSP or PRPP accounts.
How Does Pension Adjustment Reversal Work?
When an employee exits a DPSP or RPP prematurely, the pension adjustment initially reported may overstate their pension credits because it includes employer contributions they are not entitled to. PAR corrects this by reversing the pension adjustment amount related to unvested contributions, thereby increasing the employee's RRSP contribution room for that year.
This mechanism ensures employees are not penalized for leaving a pension plan early and can maximize their retirement savings through RRSP or PRPP contributions.
Who Qualifies for Pension Adjustment Reversal?
Employees who terminate membership in a DPSP or RPP before becoming vested are eligible for PAR. Eligibility does not require ending employment with the company, but it does require leaving the pension plan and transferring benefits to an RRSP or PRPP.
Once an employee is vested or has received employer matching funds, they lose eligibility for PAR. Also, maintaining membership in the pension plan after leaving the company disqualifies an employee from claiming PAR.
Calculating PAR for Deferred Profit Sharing Plans (DPSP)
DPSPs allow employers to share profits with employees, usually as a percentage of earnings or profits, without employee contributions. For individuals who terminated DPSP membership after 1996 (excluding death) and received no payments, PAR is calculated by summing all pension credits not vested at termination, excluding earnings on these amounts.
It’s important to include any unvested pension credits and forfeitures allocated in the termination year to accurately compute the PAR.
Calculating PAR for Registered Pension Plans (RPP)
RPPs provide retirement income through employer-sponsored plans regulated federally and provincially. For members who terminated after 1996 without receiving retirement benefits, PAR is calculated similarly to DPSPs, considering unvested amounts only.
Amounts allocated after termination will be reflected in pension credits later but do not affect the already calculated PAR.
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