Pension Portability is Coming September 1, 2012

Transcription

1 Pension Portability is Coming September 1, 2012 The amended Royal Canadian Mounted Police Superannuation Regulations (RCMPSR) will come into force effective September 1, 2012 to introduce expanded service buyback provisions known as pension portability. Pension portability means that members will have additional opportunities to purchase eligible prior service for pension purposes. Concurrently, other regulatory amendments affecting members of the RCMP are also being introduced. Service Buyback The following new types of service are eligible for buyback: Pensionable employment (PE) is eligible service acquired under any Canadian Registered Pension Plan; and Service for which the member has previously received a Transfer Value (TV) or Commuted Value (CV) from the RCMP, Canadian Forces or Public Service Pension Plans. The cost of these new types of service eligible for buyback will be determined based on an actuarial value. The member will be responsible for funding the entire cost of the service, either by a transfer of funds from a previous plan or from an RRSP, cash payment by lump sum or monthly instalments. In certain situations when a member wishes to purchase prior service, a medical examination may be required to validate the buyback. As well, any requirements set out in the Income Tax Act (ITA) must be met, making the new types of service buyback subject to certain legislative restrictions. The following are some examples of these restrictions: There is an existing tax rule when purchasing PE service that requires pre-1992 service to be purchased by means of a direct transfer from the member's previous pension plan. If the member's funds have already been moved out of the plan, then the pre-1992 service cannot be purchased. Where the member received a CV or a TV, the pre-1992 service must be purchased by a transfer from registered funds. If you purchase prior service which occurred on or after January 1, 1990, the Canada Revenue Agency must certify that you have enough available RRSP room to buy that service. Rules related to the tax deductibility for instalment payments differ when purchasing post-1989 service and pre-1990 service. Furthermore, it is important to note that if you are currently receiving a benefit from your former employer s pension plan you must surrender the benefit before you can purchase that service under the RCMP Pension Plan. Instalments The amended Regulations also change the instalment options as follows: The maximum instalment period over which a service buyback may be repaid is a period equal to the greater of age 65 or a period of 20 years. For example, a member who purchases prior service at age 50 will have a maximum of 20 years to complete his/her instalments, while a member who purchases prior service at age 30 will have a maximum of 35 years to pay his/her instalments. A member will

2 still have the option of increasing the instalment amount, thereby decreasing the repayment period or making a lump sum payment at any time, in cash or by RRSP as subject to the ITA; The instalment payment may be no less than five dollars ($5.00) per instalment; The actuarial assumptions (mortality and interest rates) used to determine the instalments will be updated; and If you request an estimate as of the coming into force date, the lifetime instalment payment option will no longer be available. This change will not affect members who are currently paying instalments by the lifetime option. If you recently received an estimate of the cost to purchase your prior service, you should be aware that the amount of the monthly instalments will change if you decide to purchase your prior service after the coming into force date. At that time, and upon request, the RCMP Benefits Administration Centre will send you a new estimate. Surrendered Service from the Public Service Pension Plan Pensionable service acquired under the Public Service Pension Plan is eligible for surrender to the RCMP Pension Plan. Currently, service with an outside employer that was elected under the Public Service Pension Plan, cannot form part of the surrender and must remain under the Public Service Pension Plan. Once the amended Regulations are in force, any member who has surrendered a Public Service benefit entitlement, and who has a benefit remaining under the Public Service Pension Plan in respect of service with an outside employer, will be eligible to surrender that benefit and to count it as pensionable service under the RCMP Pension Plan. Pension Transfer Agreement (PTA) A PTA is an agreement between the RCMP and an eligible employer that allows a pension plan member to increase pensionable service by transferring the actuarial value of benefits earned under a former pension plan directly into or out of the RCMP Pension Plan. In order to enter into a PTA with an outside employer, that employer s pension plan must meet the minimum requirements set out by the terms of a PTA. A member can benefit from a PTA only if the funds are still in the outside employer s pension plan. In order for the RCMP to be as proactive and strategic as possible, we request that you contact us at Pension_Portability-Transferabilite_des_pensions@rcmp-grc.gc.ca if you are interested in a PTA between an outside employer and the RCMP. In this , please indicate: Your name; Your regimental number; The name and address of the outside employer and any contact information; and The name of the pension plan and any contact information. This request is solely for information gathering purposes. If you wish to transfer service under the terms of a PTA, a formal request must be made once the amended Regulations come into force. Further communications will be sent as of the coming into force date, including information about processes and forms.

3 Contacts Should you have any questions concerning the above or general questions relating to your pension benefits, please do not hesitate to contact the RCMP Benefits Administration Centre from Monday to Friday between 7:30 a.m. and 6:00 p.m. Eastern Time (ET) at Approved by: Chantal Pethick A. Director General, National Compensation Services Pension Portability Frequently Asked Questions What is the coming into force date of the amended Royal Canadian Mounted Police Superannuation Regulations (RCMPSR)? The coming into force date of the amended Regulations will be September 1, What is a commuted value (CV)? A CV, as defined by the Royal Canadian Mounted Police Superannuation Act (RCMPSA), is a lump sum payment representing the present value of the plan member s future pension entitlement payable at age 60. It is an actuarial estimate, determined at the valuation date (CV payment date for funds being removed from the RCMP Pension Plan), of the lump sum amount required today to fund the future pension benefit of a member, including benefits for an eligible survivor, based on assumptions regarding future interest rates and indexing amounts. This option came into effect September 1, Note that the Public Service Pension Plan and the Canadian Forces Pension Plan refer to this as a transfer value (TV). When the amended Regulations take effect, the RCMP will replace the term commuted value with transfer value. What is a service buyback? Service buyback is an eligible period of prior service that you may purchase to increase your pensionable service under the RCMP Pension Plan. What is pensionable employment? Pensionable employment is service that occurred with an outside employer where the member contributed to a pension plan that is registered under the Income Tax Act. What other kinds of service can I purchase? Prior service with the RCMP, Public Service or Canadian Forces is normally eligible for purchase under the RCMPSA unless the member received a transfer value or a commuted value. The amended Regulations will allow members to purchase this type of service. How much will the service cost? The cost of the new types of service will be based on the actuarial value of that service. These calculations take into account your age, salary, service, sex, and the actuarial assumptions (mortality and

4 interest rates) contained in the most recent actuarial valuation report on the RCMP Pension Plan. Note that once the amended Regulations come into force, these calculations will be performed for you when you request an estimate of cost from the RCMP Benefits Administration Centre. What is an actuarial value? An actuarial value is the amount required under the RCMPSA to fund the service being purchased. How can I get an estimate of the cost of prior service? When the amended Regulations come into force on September 1, 2012, you can request an estimate by completing the required form and submitting it to the RCMP Benefits Administration Centre. This form will be found on their website How do I purchase my prior service? Once the required form is received, the RCMP Benefits Administration Centre will provide you with an estimate package which will include all the required forms and instructions necessary to purchase your prior service. What is a Pension Transfer Agreement? A Pension Transfer Agreement (PTA) is an Agreement between the RCMP and an eligible employer. The purpose of the Agreement is to facilitate the transfer of pension entitlements between the RCMP and the eligible employer. How soon can I take advantage of a PTA? Once the amended Regulations come into force, the RCMP will be in a position to negotiate PTAs with an eligible employer if your contributions remain in their plan. A transfer cannot be made until an Agreement is in place. How do I get more information about the PTAs? More information about PTAs will be available as the coming into force date approaches. If you currently have service with an outside employer and are interested in a PTA, please us at Pension_Portability-Transferabilite_des_pensions@rcmp-grc.gc.ca. What happens if my former employer is not interested in a PTA? You may still be able to purchase your past service under the new provisions; however, you would need to surrender your entitlement to benefits under your former employer s pension plan. It is still possible that the pension entitlements from your former employer could be transferred directly to the RCMP to be applied against the purchase of your past service. How would a PTA benefit me if I choose to purchase prior service? Whether you purchase your service buyback period via a PTA or not, the cost of the service under the RCMP would be the same, that is, the cost would be based on the actuarial value of that service under the RCMP Pension Plan. However, where there is a PTA, the amount transferred directly from your former employer could cover a greater portion of the service to be purchased if the available funds from your prior employer do not completely cover the funds required by the RCMP.

5 If I leave the RCMP to go to another employer, can I transfer my RCMP pension to the new employer? Yes, provided a PTA can be negotiated. It is important to note that once the amended Regulations come into force, eligible employers will be in a position to negotiate PTAs with the RCMP if your pension entitlements remain in the RCMP Pension Plan. A transfer cannot be made until an Agreement is in place. More information will be available when the amended Regulations come into force. When my pension is transferred, will I also be credited for annual leave, service pay and severance pay? No. Pension portability refers to the transfer of pensionable service only. This does not count toward other entitlements such as annual leave, service pay and severance pay as these are directly related to pay, not pension. In the case of severance pay, this has often been confused as a retirement allowance or provision, as it is historically paid at retirement. Severance, however, is directly linked to salary, not pension. This is consistent with other such practices in the public and private sector which clearly distinguish between pay and pension. Should you have questions related to annual leave, service pay or severance pay, please contact your local National Compensation Services Pay Operations Office. If I have requested and received an estimate but have yet to purchase my prior Public Service, Canadian Forces, or absorbed police service and I am within one year of becoming a contributor to the RCMP Pension Plan, how will the instalments differ before and after the amended Regulations come into force? If you request an estimate after the coming into force date, the total cost of the estimate will not change, however, the estimated instalments will be calculated based on new interest and mortality rates which may change the cost of the semi-monthly instalments. The following calculations are examples of how much the instalments would be to purchase prior service before and after the coming into force date: Duration Scenario 1 Member, age 30 with a service buyback estimate of $30,000 Pre coming into force 5 years $ $ years $ $ years $ $ years $93.00 $ To age 65 $70.35 $87.75 Post coming into force Life $64.20 You no longer have a lifetime option to repay the instalments.

6 Scenario 2 Member, age 50 with a service buyback estimate of $30,000 Duration Pre coming into force Post coming into force 5 years $ $ years $ $ years $ $ years $ $ To age 65 $ $ Life $86.55 You no longer have a lifetime option to repay the instalments.