Sidebar header

Everyone makes (DC contribution) mistakes. Soon it will be easier to fix them.

March 10, 2022

Subscribe to e-mail updates

This Sidebar has now been updated by our January 4, 2024 Sidebar: “Everyone makes (DC contribution) mistakes. So, what is the process for fixing them? (Update)” which addresses the amendments to the Income Tax Act (Canada) and Income Tax Regulations (Canada), and outlines the regime for the correction of defined contribution registered pension plan contribution errors.

The federal government is preparing to inject a welcome dose of flexibility into the administration of defined contribution (DC) registered pension plans.

DC pension plans are becoming the predominant plan design among private sector employers. And, although employers are just as fallible as the rest of us, Canadian pension and tax laws governing DC pension plans do not make it easy to fix mistakes. Indeed, in some instances, the cost to fix the mistake is more than the mistake itself.

Recently published draft amendments to the Income Tax Act (Canada) and regulations (ITA) will change this, by making it easier for employers to correct under- and over-contributions to DC pension plans, assuming the currently draft changes become law.

Common DC pension plan contribution mistakes

Whether they are caused by software problems, system issues or simple inadvertence, DC plan contribution errors happen.

They may happen, for example, when calculating the percentage of DC contributions based on a definition of earnings that is inconsistent with the plan text (e.g., the plan text provides that earnings include bonuses but in practice, bonuses were excluded from the contribution calculation). They may also happen at plan enrolment, when one or more employees were not enrolled in the plan on the date they are eligible. Depending on the nature of the error, the error may impact a single employee or an entire group of employees. These errors can also result in significant missed contributions to DC plans.

Whatever the reason, employers are regularly faced with an issue where either too much – or too little – has been contributed to a DC pension plan. To date, the ability to fix any historical errors has not been a straightforward process. These draft ITA amendments are intended to fix that on the tax law front. 


The draft amendments will permit what is referred to as a “permitted corrective contribution”, which allows employers and employees to make up for under-contributions to eligible DC pension plans in any of the immediately preceding five tax years. That additional contribution may include a “reasonable” amount of interest.

Under the proposed rules, the additional contribution will be subject to a lifetime dollar limit, which is equal to 125% of the “money purchase limit” for the calendar year in which the corrective contribution is made, less the total of all “permitted corrective contributions” previously made for the employee. For example, for 2022, the MP limit is $30,780, so the dollar limit for “permitted corrective contributions” made in 2022 is $38,475 (minus the total “permitted corrective contributions” previously made for the employee).

The additional contribution will reduce the employee’s Registered Retirement Savings Plan (RRSP) contribution room for the next tax year. If this results in negative RRSP contribution room, the employee is prohibited from making any RRSP contributions until the employee earns sufficient future RRSP contribution room to eliminate the negative balance.

In terms of reporting, employers will have to file a prescribed information form with the Canada Revenue Agency (CRA) within 120 days of its corrective contribution, rather than amended T4 slips for the employee’s previous tax years.  

The draft ITA amendments also include a number of features aimed at protecting against abuses, such as limiting the DC pension plans that qualify to receive under-contributions to those plans with at least ten members (with certain exceptions).


The existing process to refund over-contributions to a DC pension plan under existing tax and pension laws is cumbersome. These proposed amendments are intended to simplify that process under tax laws by allowing corrective refunds to either the employer or employees under a DC pension plan.

Mirroring the proposals for under-contributions, relief for over-contributions would be limited to the five years immediately preceding the year of the refund. A reasonable rate of interest may be added to the refund amount. Employees would see their RRSP contribution room restored for the tax year in which the refund is made.

Finally, employers will be required to file prescribed information forms with the CRA for each affected employee, rather than amended T4 slips for prior years.

Note that the employers will still need to ensure that they comply with applicable pension laws when fixing these types of contribution errors.

Future steps

The ITA amendments are scheduled to take effect retroactively to January 1, 2021, but it’s important to keep in mind that they have only been issued in draft form so far. Stakeholder comments to these draft rules – which just concluded last week – may result in some changes. We will be closely following the development of these ITA changes.

* * * * *

If you have any questions regarding this update please do not hesitate to call a sidebar with any of us – we’re here to help.

This Sidebar client update provides general information and should not be relied upon as legal advice. This publication is copyrighted by Brown Mills Klinck Prezioso LLP and may not be reproduced in whole or in part in any form without the express written consent of Brown Mills Klinck Prezioso LLP. ©

Print this Page icon