9. Pension Adjustments

Transcription

1 9. Pension Adjustments Page Table of Contents New for 2015 What s New Reminders General Glossary Background Summary General Procedure Special Situations Limits RRSP Deduction Room Responsibilities Employer Pension Board Canada Revenue Agency (CRA) Calculating the PA Summary Contributions for a Prior Year (Made During the Current Year) Formulas Components of the BE calculation Maximum Value of BE Calculating the BE (Part-time and Occasional Members) Member Works for Two Employers Examples 1 Full-time teacher Full-time and BE over maximum Part-time teacher Part-time and BE over maximum Occasional teacher November Pension Adjustments

2 9. Pension Adjustments Page Reporting the PA Summary Information Due by March 4, Amended PAs File Specifications for PA Reporting Contact Special Situations Service in Excess of Total Days (TD) Summary Pensionable Earnings (PE) Retro-Payments Summary Service in Year of Payment Terminated Employment Deferred Salary Leaves Summary Cancellations Example CPP Exempt Summary CPP Exempt Teachers Example 1 Full-time teacher Example 2 Occasional/supply teacher earning less than YBE Strikes Summary Example 1 Full-time teacher Example 2 Part-time teacher Example 3 Principal with extra days due to a strike Prescribed Earnings Summary Reporting Procedure PA Calculation PA Tracking Determining Amount of Credit Summary Credit Lost During the Year Switch Between Calendars Excess Service Credit November Pension Adjustments

3 9. Pension Adjustments Page LTIP Background Summary Pensionable Earnings (PE) Employer Reporting Pension Board s Role PE Calculation Calculating the PA Plan Amendments Length of Time on LTIP LTIP and Sick-leave Bank Integrated Rehabilitative Employment LTIP Starts and Stops PA Examples Summary Example 1 Member on LTIP for full year Example 2 Member on LTIP part of year Example 3 Administrator on LTIP part of year Example 4 Integrated LTIP plan Example 5 LTIP employee returns to rehabilitative employment Historical Reference Information RRSP Dollar Limits YMPE BE PA Formula November Pension Adjustments

4 Pension Adjustments New for 2015 What s New Year s Maximum Pensionable Earnings (YMPE) Increased to $53,600 RRSP Dollar Limit Increased to $24,930 Maximum Pension Adjustment (PA) Increased to $24,770 Maximum Benefit Entitlement (BE) Increased to $2, Increases to the RRSP dollar limit, maximum PA and maximum BE are in accordance with the federal Income Tax Act (ITA). Reminders PA Offset The offset used in the calculation continues to be $600. CPP Offset The benefit entitlement (BE) calculation effective 2001 is: BE = [(.0155 x lesser of PE or YMPE) +.02 x (greater of (PE or YMPE) - YMPE)] x SC/TD Excess Service Credit A member s pensionable salary cannot include earnings for service in excess of full-time employment. If members have excess credit in a school year, don t include any portion of the earnings for service credit in excess of the total days as pensionable earnings. Please see example on page LTIP Plan Amendments Under plan amendments made in 2001, there are no contributions required for members who begin to receive LTIP benefits on or after September 1, However, you still need to issue pension adjustments (PAs) for these members. Please refer to page 9-37 for details. Strikes When calculating the PA for members who have been on strike, please refer to the instructions on page November Pension Adjustments

5 Pension Adjustments New for 2015 Reminders, cont d. Important Secondments Beginning with the 2004/2005 school year, the lending employer for seconded employees is solely responsible for pension reporting the borrowing employer no longer reports any service, contributions or PAs. PA Reporting We require PAs to be reported through the annual reporting process for the purpose of reporting PARs. We also require information on any amended PAs you issue. Refer to pages 9-18 and Pensionable Earnings (PE) for Members on LTIP We will provide you with the PE to be used in the PA calculation for members on LTIP. The PE is the pre-ltip salary adjusted for the Consumer Price Index (CPI) your LTIP employees PE amount for a calendar year is available from the Teacher Information Management (TIM) system, our secure website (employers1.otpp.com). Please refer to pages 9-35 and Online PA Calculator If your payroll provider does not report PA information directly to us, you can download an Excel spreadsheet to help you calculate PAs. Go to the Resources section of the TIM to download the spreadsheet. Employees Receiving WSIB benefits If you have employees receiving Workplace Safety and Insurance Board (WSIB) benefits, you are required to calculate a PA and report the amount on the employee s T4. If you have any questions, contact us. ESA Leaves (pregnancy, parental and emergency leaves) Beginning with the 2010/11 school year, Teachers began managing the cost and contributions for all leaves that fall under the Employment Standards Act (ESA). For purchases made through us since the effective date, we will issue PAs. November Pension Adjustments

6 General Glossary Benefit Entitlement (BE) Under ITA rules, the BE is a measure of a member s pension earned in a calendar year. It is used for PA calculation purposes. CPP Offset Under the Teachers Pension Plan, the pension benefit at age 65 is reduced by an amount related to the CPP benefit. This offset is taken into account in the BE calculation. Exempt PSPA The plan administrator must issue an exempt PSPA when a benefit improvement is introduced which will increase the member s eventual entitlement (e.g. reduction in the CPP offset). The ITA was amended so that an exempt PSPA will reduce the member s RRSP room in the year following the year it was issued. Income Tax Act (ITA) The Federal income tax legislation and regulations which prescribe the rules governing taxation of retirement savings. Long-term Income Protection (LTIP) A member on LTIP is off work because of a disability, but retains active status in the Teachers Pension Plan. The PA calculation for members on LTIP requires special considerations. Past Service Pension Adjustment (PSPA) A PSPA is Canada Revenue Agency s measure of the benefit increase accruing to the member for a prior year often as the result of a purchase of credit for that year. It represents the sum of the additional pension credits that would have been included in the member's pension credit if the upgraded benefit had actually been provided, or the additional service actually credited. PSPAs do not apply to periods before Pension Adjustment (PA) The PA represents Canada Revenue Agency s measure of the value of pension earned by the member in a pension plan in a calendar year. A PA only applies to taxpayers who are members of a Registered Pension Plan or Deferred Profit Sharing Plan. Pension Registration Number The Teachers Pension Plan registration number under the ITA is This number should appear in box 50 of the 2015 T4 supplementary form issued to employees who contributed to the Teachers Pension Plan. November Pension Adjustments

7 General Glossary Pension Adjustment Reversal (PAR) The pension board reports a PAR for members who terminate membership in the plan and receive a lump-sum termination benefit from the plan. The PAR recognizes that PAs tend to be overstated for members who terminate at younger ages. The PAR was introduced in the February 1997 budget. Pensionable Earnings (PE) RRSP Contribution Room Earnings for the year from which pension contributions are required. RRSP contribution room is established each year, based on the lesser of 18% of the previous year s earned income and the RRSP dollar limit, less the amount of the PA for the previous year. The Canada Revenue Agency calculates this amount. Service Credit (SC) SC is the actual credit earned under the Teachers Pension Plan in the calendar year. In other words, SC is the number of days of pensionable credit the employer reports the member earned. It is a component of the BE and PA calculations. Teachers Pension Act (TPA) Total Days (TD) Important! TD must be based on a calendar year vs. a school year. Unused Contribution Room The Ontario legislation governing the pension plan for teachers. TD is the abbreviation for full-time equivalent credited service in a calendar year. The TD is the number of teaching days in the calendar year based on your school year calendars (January 1 to August 31 plus September 1 to December 31 of the next school year). TD is a component of the BE and PA offset calculations. The amount which a taxpayer may contribute to an RRSP and deduct for income tax purposes for the year. It is determined under ITA rules based on earned income and the PA. Canada Revenue Agency calculates this amount. Year s Basic Exemption (YBE) The amount established annually as a minimum amount of earnings on which CPP contributions are not made. Year s Maximum Pensionable Earnings (YMPE) The amount established annually as the maximum amount of earnings on which CPP contributions are made. November Pension Adjustments

8 General Background Summary PARs are only issued to members who terminate membership in the plan (i.e., they have no active service). RCA The maximum deductible RRSP contribution is established each year based on the previous year s earned income, less an amount called a Pension Adjustment (PA) for the previous year. The PA only applies when the taxpayer is a member of a Registered Pension Plan (RPP) or a Deferred Profit Sharing Plan. The Teachers Pension Plan is an RPP. The percentage allowed for tax deductible RRSP contributions is 18% of earned income in the previous year up to a maximum limit. This amount is then reduced by the previous year s PA plus any PSPA s issued during the current year, resulting in the amount which may be contributed in the year to an RRSP and deducted for income tax purposes. Any unused RRSP contribution room may be carried forward and used in future years. Any exempt PSPAs issued as a result of a retroactive benefit improvements will reduce RRSP room in the following year. We, the plan administrator, issue exempt PSPA s resulting from benefit improvements, not the employer. Starting in 1998, any PAR issued to an individual will increase the amount of RRSP room available in that year by the amount of the PAR. If a member contributes to the Retirement Compensation Arrangement (RCA), the PA calculation does not change. General Procedure Determining a PA generally involves two steps: Step 1 Calculating the Benefit Entitlement (BE); then, Step 2 Calculating and reporting the PA. November Pension Adjustments

9 General Background Special Situations Different PA rules must be applied in the following special situations: service in excess of the Total Days (TD) retroactive payments CPP exempt service earnings below the Year s Basic Exemption (YBE) when a member opts out of a self-funded leave legal strike or lockout LTIP Limits Overall Limit (before PA deduction) Each year, new RRSP contribution room is determined. The overall limit is the lesser of: 18% of the previous year s earned income RRSP Dollar Limit for current year Year RRSP dollar limit 2004 $15, $16, $18, $19, $20, $21, $22, $22, $22, $23, $24, $24,930 November Pension Adjustments

10 General Background RRSP Deduction Room To calculate a member s RRSP deduction room for each year, Canada Revenue Agency uses this formula: Unused RRSP ( Overall limit PA * PARs NET PSPA deduction for for issued reported RRSP room from current previous in in deduction previous year year current current limit for year year (starting year year in 1998) ( This amount can be contributed to an RRSP and be tax-deductible for the year. If members do not contribute the whole amount, the unused balance is carried forward. * Overall limit minus PA cannot result in a negative number; in other words, a PA, on its own, cannot result in negative RRSP deduction room. November Pension Adjustments

11 General Responsibilities Employer Calculates and reports PAs on T4 slips (including LTIP) for each year by February 28 th for all employees who have a benefit accumulating as a result of membership and credited service in an RPP. This responsibility is conferred upon employers under the ITA. Reports PA to OTPP (please refer to page 9-18). Amends PAs, files with CRA and reports to OTPP. Pension Board Provides PA formula to employers. PA reporting for purchases of credit completed by April 30 th of the year following the year in which the leave ended. PA reporting for ongoing purchases paid directly to the pension board. Calculates and reports PSPAs for purchases of credit. Calculates and reports exempt PSPAs for plan improvements. Calculates and reports any PARs for terminations of plan membership where lump-sum benefits have been paid to the member. Provides employers with the PE to be used in the PA calculation for all members with LTIP service. Notifies employers when a PA amendment is required due to an excess credit refund. Canada Revenue Agency (CRA) Determines and informs taxpayers of unused RRSP deduction limit or room on the annual notice of assessment. Updates members on their RRSP contribution room through the TIPS line which is listed in the TI general guide available from CRA. November Pension Adjustments

12 Pension Adjustments Calculating the PA Summary Important The PA represents Canada Revenue Agency s measure of the value of pension earned in the pension plan in the year. Canada Revenue Agency requires all employers to calculate and report a PA for all members who have benefits accumulating as a result of membership and earned service in an RPP. Round the PA to the nearest dollar (report rounded amount). Report the PA as nil for the year of death. Contributions for a Prior Year (Made During the Current Year) Important When you make an adjustment to the credit or salary for a prior calendar year, you must issue an amended PA. Inform us of the amended PA amount so we can update the member s record. For example, if you remit contributions for a prior year (e.g., employer contribution discrepancy for post-1989 salary adjustments), you must recalculate the PA for that year. Issue an amended T4 for that year indicating the correct PA amount. To calculate the prior year s PA, use the pensionable earnings (PE) and YMPE from the prior year. Please refer to page Don t confuse contributions made for a prior year with retroactive salary payments which affect the current year s PA calculations only. Formulas Maximum PA $24,770 PA The annual PA is based on a measure of the pension earned for the year, called the Benefit Entitlement (BE). PA = 9 x BE - $600 x SC/TD * The $600 is referred to as the PA offset. If the member has less than a full year s credited service with an employer in a year, the PA offset is prorated based on credited service earned with the employer. BE The BE must be determined to calculate the PA. The BE, for PA calculation purposes, is the amount of lifetime pension earned in the year and payable from age 65. November Pension Adjustments

13 Pension Adjustments Calculating the PA Formulas, cont d. Maximum BE $2, BE calculation [(.0155 x lesser of PE or YMPE) +.02 x (greater of (PE or YMPE) - YMPE)] x SC/TD Use the above formula to calculate the BE for all members who have worked full-time with the same employer for the calendar year. CPP Offset The 1.55% in the BE formula takes into account the CPP offset which is applied at age 65. The first part of the BE calculation = 2% (Benefit Accrual Rate) % (CPP offset) = 1.55% = on earnings up to the YMPE. Year s Maximum Pensionable Earnings (YMPE) 2011 YMPE = $48, YMPE = $50, YMPE = $51, YMPE = $52, YMPE = $53,600 If the member does not contribute to CPP, the YMPE in the formula is zero. Please refer to the CPP Exempt section on page 9-26 for examples. Components of the BE Calculation Important SC cannot exceed TD. Pensionable Earnings (PE) For full-time members, the year s Pensionable Earnings (PE) are used, not the actual or averaged earnings. For example, night or summer school earnings for full-time teachers are not included in pensionable earnings. For teachers who work less than full-time, use annualized pensionable earnings (PE) to calculate the BE. Please see the explanation on the next page. Service Credit (SC) SC is the credited service earned in the year. For full-time members, the total credit earned in a calendar year is the same as the Total Days (TD). For full-time members, SC cannot exceed TD. For part-time members, please see the explanation on the next page. November Pension Adjustments

14 Pension Adjustments Calculating the PA 2015 Maximum Value of BE The maximum BE for PA reporting purposes is $2,818.89, even if the member earns pension in excess of this amount. A BE of $2, results in a maximum PA of $24,770 when using the $600 offset. Calculating the BE (Part-time and Occasional Members) Calculate the annualized earnings Annualized earnings = PE X TD/SC PE = pensionable earnings actually paid TD = available pensionable service for the calendar year (the total number of pensionable teaching days in the calendar year based on your school-year calendars) SC = the number of days of pensionable credit the member earned TD is the total number of teaching days in the calendar year based on your school-year calendars. Example member worked and employer paid member for 97 days of pensionable service PE = $30,000 TD for employer = 194 Calculate the BE by using the annual salary rate as if the member had a full year of credited service, then prorate the BE back to less than a full year: $30,000 x 194/97 = $60, BE = [.0155 x $53, x ($60, $53,600.00)] x 97/194 = ($ $128.00) x 97/194 = $ For members who work less than full-time and whose annualized earnings are high, there is another possible limiting factor which we ve demonstrated in example 4 on page Member Works for Two Employers If a member works for two employers, each employer calculates the PA separately. Therefore, if you have an employee who has worked somewhere else during the year, calculate the PA based only on the employment at your school board. You don t have to co-ordinate the calculation with the other employer. November Pension Adjustments

15 Calculating the PA Examples Example 1 Full-time teacher Remember! Round the PA to the nearest dollar. -Assume: full-time member who earns a full year of credit TD = 197 days 2015 PE = $65,000 BE = [.0155 x $53, x ($65, $53,600.00)] x 197/197 = ($ $223.00) x 197/197 = $1, PA = 9 x $1, ($ x 197/197) = $9, $ = $8, = $8,929 Example 2 Full-time and BE over maximum TD is the total number of teaching days in the calendar year based on your school-year calendars. Assume: full-time member who earns a full year of credited service TD = 197 days 2015 PE = $156,000 BE = [.0155 x $53, x ($156, $53,600.00)] x 197/197 = ($ $2,048.00) x 197/197 = $2, Maximum BE = $2, for 2015 PA = 9 x $2, ($ x 197/197) = $25, $ = $24,770 November Pension Adjustments

16 Calculating the PA Examples Example 3 Part-time teacher Assume: member works part-time TD = 196 days SC = 98 (number of days employer paid member for pensionable service) 2015 PE = $45,000 Annualized salary = $45,000 x 196/98 = $90,000 BE = [.0155 x $53, x ($90, $53,600.00)] x 98/196 = ($ $728.00) x 98/196 = $ PA = 9 x $ ($ x 98/196) = $7, $ = $6,715 Example 4 Part-time and BE over maximum TD is the total number of teaching days in the calendar year based on your school-year calendars. Assume: member works part-time 2015 PE = $79,000 TD = 196 SC = 98 (number of days employer paid member for pensionable service) Annualized salary = $79,000 x 196/98 = $158,000 BE = [.0155 x $53, x ($158, $53,600.00)] x 98/196 = ($ $2,088.00) x 98/196 = $1, The maximum BE for a part-time teacher is $2, x SC/TD Therefore, for this example, the maximum BE = $2, x 98/196 = $1, PA = 9 x $1, ($ x 98/196) = $12, $ = $12,385 November Pension Adjustments

17 Calculating the PA Examples Example 5 Occasional teacher Assume: member is an occasional teacher TD = 198 days 2015 PE = $18,000 SC = 50 (number of days employer paid member for pensionable service) Annualized salary = $18,000 x 198/50 = $71,280 BE = [.0155 x $53, x ($71, $53,600.00)] x 50/198 = ($ $353.60) x 50/198 = $ PA = 9 x $ ($ x 50/198) = $2, $ = $2,540 November Pension Adjustments

18 Pension Adjustments Reporting the PA Summary We need PA amounts to calculate PARs. Important In accordance with Pension Adjustment Reversal (PAR) legislation, we must collect PA information each calendar year for all members who have contributed to our plan. The PAR, which is intended to ensure a terminating plan member does not lose too much RRSP room, will be calculated for members who terminate their membership in the plan and receive the lump-sum value of their benefit in 1997 or later. We also require information on any amended PAs you issue for 1997 or later. Information Due by March 4, 2016 Online PA calculator Payroll-based reporting (PBR) and Web-based reporting (WBR) Ceridian and ADP report PA information directly to us. If you don t use one of these payroll providers, you must run the PA program and provide this information to us by March 4, The information we will require includes: SIN Employer number Calendar year PA amount If you are providing us with your own spreadsheet, please organize the information in the same order as listed above. To help you calculate PA amounts for the current or previous years, go to the Resources section of TIM and use the PA calculator. The downloadable Excel spreadsheet contains all the required formulas and will be updated annually. Annual-based reporting (ABR) If you wish to report your PA figures through the regular annual reporting process, please contact us for more information. If you re unable to make the change to include the PA amount, you can report the PA information in a separate file from your salary, service credit and contribution information. See the next page for the file layout. Amended PAs When you make an adjustment to credit or salary for a prior calendar year, you must also issue an amended pension adjustment (PA) to CRA. This only applies to those years we ve collected (i.e., only amendments for the 1997 reporting year and after). November Pension Adjustments

19 Pension Adjustments Reporting the PA Amended PAs, cont d. Inform us of the amended PA so we can update our records as well. We need to have the amended PA on file in the event we need to issue a pension adjustment reversal (PAR) or past service pension adjustment (PSPA). You can send us a correspondence in TIM with the amended PA for an individual employee. Please provide us with the: member s SIN employer number calendar year original PA amended PA If you amend a significant number of PAs (system errors, etc.), please contact us for the file specifications to report the amended PAs electronically. File Specifications for PA Reporting If you report the PA information separately from your annual report, refer to the layout below. Header Layout Description Type Length Digits Decimals Position Value Sample Provider Alpha ADP Date Generated Num Total Detail Num Filler Blank Detail Layout (one per member) Description Type Length Digits Decimals Position Value Sample SIN Num Employer Num Calendar Year Num PA Amount Num Filler Blank Note: The header is for control total purposes only. Therefore, it s only required when you re submitting for multiple employers. Contact For general information related to the reporting requirements for PAs, please contact us. We will also answer any technical questions related to file specifications and transmissions. November Pension Adjustments

20 Special Situations Service in Excess of Total Days (TD) Summary A member s pensionable salary cannot include earnings for service in excess of full-time employment. The most common situations for excess to occur is where a member holds multiple concurrent positions or when they have a full year of credit in regular employment and also teach night or summer school. It s best that you avoid reporting service in excess of full-time employment whenever possible. For example, as the per diem earnings for night or summer school are usually less than for full-time contract earnings, you do not need to deduct contributions on those earnings. However, if the opposite is the case, the member may request these deductions. Pensionable Earnings (PE) Service Credit cannot be greater than Total Days. Legal strike or lockout Less than Full Year If the member has less than a full year of credited service (for example, part-time or on a leave of absence), consider summer, night school or any other earnings as Pensionable Earnings (PE) up to the Total Days at your board, requiring contributions to be deducted and a PA reported. Full Year If a member has a full year of credited service from regular employment, only consider the salary for the regular full-time employment as the PE in the PA calculation. If a member participated in a legal strike or lockout, use full salary (including salary lost during the strike) and full credit to calculate the PA. Please refer to page More than Full Year There are times when a member may fall under two different calendars during a school year. For example, a member may work full-time at an adult day school and also work occasionally teaching night school. To ensure the member doesn t lose any RRSP contribution room, do not include any portion of the earnings for the service credit in excess of the TD for their full-time employment as PE. Please see example on page If excess service was reported and used in the PA calculation, you may have to amend the PA to exclude the excess service. We ll inform you if this scenario occurs, and work with you to amend the PA. November Pension Adjustments

21 Special Situations Retro-Payments Summary When a retroactive salary payment is made to a member, it may include an amount for service in a previous year. The retroactive payment, the related deductions and the PA are reported on the member s T4 for the year in which the payment is made. Service in Year of Payment If the member has credited service in the year in which the retroactive payment is made, include the full amount of the retroactive payment in the year of payment as Pensionable Earnings (PE) when calculating the PA for the year. Example 1 Assume: full-time member who earns a full year of credited service 2015 PE = $56,500 member also receives a retro-payment of $12,000 relating to a previous year TD = 193 days PE = $56,500 + $12,000 = $68,500 BE = [.0155 x $53, x ($68, $53,600.00)] x 193/193 = ($ $298.00) x 193/193 = $1, PA = 9 x $1, ($ x 193/193) = $10, $ = $9,559 November Pension Adjustments

22 Special Situations Retro-Payments Service in Year of Payment, cont d. Do not annualize the retro-payment, only annualize the regular pensionable earnings. Example 2 Assume: member works part-time for the year TD = 194 days member receives a $10,000 retro-payment relating to a previous year SC = 116 (number of days employer paid member for pensionable service) 2015 PE = $35,000 Annualized salary = $35,000 x 194/116 = $58, PE for PA calculation = $58, $10,000 = $68, BE = [.0155 x $53, x ($68, $53,600.00)] x 116/194 = ($ $298.69) x 116/194 = $ PA = 9 x $ ($ x 116/194) = $6, $ = $5,720 Terminated Employment Exception If the member terminated employment or retired in a previous year and as a result has no credited service in the current year, and the retro-payment is for that previous year(s), add the amount to the remuneration of the previous years as an increase in PE. The procedure is: re-calculate the PA for each of the affected previous year(s) deduct original PA reported from re-calculated PA for each year report the total difference as a PA on the T4 for the year that the payment is made inform us of the new PA amount If the difference is less than $250, it s not necessary to report the PA unless requested by the member. November Pension Adjustments

23 Special Situations Retro-Payments Terminated Employment, cont d. Example 3 full-time member PE = $50,000 original 2014 PA = $6,375 member terminated employment at the end of retro-payment for 2014 = $10, PE now equals $50,000 + $10,000 = $60,000 TD 2014 = 193 days Recalculate the PA for 2014: BE = [.0155 x $52, x ($60, $52,500.00] x 193/193 = ($ $150.00) x 193/193 = $ PA = 9 x $ ($ x 193/193) = $8, $ = $8,074 Recalculated PA for 2014 = $8,074 Original PA for 2014 = $6,375 PA reported on the 2015 T4 = $1,699 November Pension Adjustments

24 Special Situations Deferred Salary Leaves Summary Note For our purposes, a deferred salary leave is a leave which meets the requirements of a prescribed plan as defined in regulation 6801 of the ITA. Periods of reduced pay include X/Y plans or salary deferral arrangements during which the member receives a reduced salary, but do not include self-funded leaves. Pension plan contributions are now required on the total contract salary and members records should reflect full service credit every year, including the year on leave. As a result, the corresponding PA should be based on the total contract salary for the year and not the amount paid to the member. This includes the year of the leave. Do not remit contributions or report full salary unless the reduced salary arrangement meets these requirements. Interest paid on the holdback is not considered to be PE for PA calculating and reporting purposes. Cancellations Important The only time these reduced pay situations require special PA consideration is in the event of a cancellation. When a cancellation occurs, the hold-back and interest is not considered Pensionable Earnings (PE) for PA calculating and reporting purposes. If the arrangement is cancelled before the leave is taken in the final year, the holdback is paid to the member. Do not report a PA on the hold-back because the PA was already reported on the full contract amount during the deferral period. Example Member on X/Y plan Member is on a 4/5 leave Full contract grid salary = $60,000 Member is paid $48,000 Member defers $12,000 (20%) each year to fund leave year TD = 198 SC = 198 (actual credit earned by member) November Pension Adjustments

25 Special Situations Deferred Salary Leaves Example, cont d. PA in year 1 (2015) BE = [.0155 x $53, x ($60, $53,600.00)] x 198/198 = ($ $128.00) x 198/198 = $ PA = 9 x $ ($ x 198/198) = $8, $ = $8,029 PA for subsequent years Use the full contract salary before deferral to calculate the PA instead of the amount paid to the member (the full contract salary amount may change for various reasons). In the year of the leave Assume the member s full contract grid salary is now increased to $60,250. Therefore, use a PE of $60,250 in the PA calculation as contributions are deducted from this amount. November Pension Adjustments

26 Special Situations CPP Exempt Summary Certain individuals are exempt from paying CPP contributions and receiving CPP benefits and this affects their PA calculation. CPP Exempt Teachers Teachers are exempt if they are any of the following: over 65 years old (but under 70) and have received a CPP Notice of Entitlement from the government or are receiving a disability pension over 70 years of age (for CPP purposes, this means the month following 70 th birthday) members of a religious order who have taken a vow of perpetual poverty receiving LTIP benefits an Indian (as defined in the Indian Act) who are exempt from taxation earning less than the YBE ($3,500 in 2015) for the year from a particular employer Example 1 Full-time teacher (CPP exempt employee) Assume: teacher is a member of a religious order and has taken a vow of perpetual poverty 2015 PE = $54,000 TD = 194 days Due to CPP exempt status, the full 2% benefit formula applies to all earnings for PA purposes. BE = (.02 x $54,000.00) x 194/194 = $1,080 PA = 9 x $1, ($ x 194/194) = $9, $ = $9,120 If this teacher was not a member of the religious order, the PA would be: BE = [.0155 x $53, x ($54, $53,600.00)] x 194/194 = $ x 194/194 = $ PA = 9 x $ ($ x 194/194) = $7, $ = $6,949 Note: The CPP offset caused this difference. November Pension Adjustments

27 Special Situations CPP Exempt Example 2 Occasional/supply teacher earning less than YBE Treat part-time teachers earning less than YBE the same. Assume: teacher works on an occasional/supply teaching basis only TD = 195 days 2015 PE = $3,020 [which is less than the 2015 Year s Basic Exemption (YBE) of $3,500] SC = 12 (number of days employer paid member for pensionable service) Annualized salary = $3,020 x 195/12 = $49,075 BE = (.02 x $49,075.00) x 12/195 = $ x 12/195 = $60.40 PA = (9 x $60.40) - ($ x 12/195) = $ $36.92 = $507 Important Always use the CPP exempt formula when the salary you pay a teacher is below the YBE ($3,500), even if the person contributes to CPP. November Pension Adjustments

28 Special Situations Strikes Summary Walkout or political protest If the members participate in a legal strike or lockout, use the salary and credit the member would have earned, had there not been a strike, in the PA calculation. If a member participates in a labour dispute other than a legal strike or lockout (e.g., walkout or political protest), they do not receive credit in our plan for the lost service. Therefore, do not include the credit lost and ensure the salary used in the PA calculation reflects the salary paid. Example 1 Full-time teacher Remember Use the full salary the member earned Assume: member works full-time with a grid salary of $60,000 SC = 197 (number of days employer paid member for pensionable service) due to a legal strike of 10 days, their salary paid is reduced to $56, TD = 197 days The PA is calculated on 197 days with pensionable salary of $60,000. If the strike had not occurred, the teacher would have earned $60,000 of salary. This is the salary which corresponds to the full service credit of 197 days. BE = [.0155 x $53, x ($60, $53,600.00)] x 197/197 = ($ $128.00) x 197/197 = $ Note that the BE calculation is not pro-rated because no credit is lost due to the strike. PA = 9 x $ ($600 x 197/197) = $8, $ = $8,029 November Pension Adjustments

29 Special Situations Strikes Example 2 Part-time teacher Assume: member works half-time (@50%) with a grid salary of $60,000 (@100%) over the year SC = 97 (number of days employer paid member for pensionable service) due to a legal strike of 10 days (@100%) the salary is reduced to $26, TD = 194 days If the strike had not occurred, the teacher would have earned $30,000. This is the salary which corresponds to the full service credit of 97 days. Annualized salary = $30,000 x 194/97 = $60,000 BE = [.0155 x $53, x ($60, $53,600.00)] x 97/194 = ($ $128.00) x 97/194 = $ PA = 9 x $ ($ x 97/194) = $4, $ = $4,015 Example 3 Principal with extra days due to a strike Assume: school board added 5 instructional days to their calendar in the 2015 Y1 period because they had a 15-day strike in the fall of 2014 Principal did not participate in the strike (i.e., full credit) annual salary of $118,000 based on 194 days of teaching worked another 5 days as a result of a modified school calendar earned an additional $6, for the extra 5 days 2015 PE = $118,000 + $6, = $124, TD = = 199 days BE = [.0155 x $53, x ($124, $53,600.00)] x 199/199 = ($ $1,409.65) x 199/199 = $2, PA = 9 x $2, ($ x 199/199) = $20, $ = $19,564 November Pension Adjustments

30 Special Situations Prescribed Earnings Summary The ITA regulations permit temporary periods of absences or reduction of pay as notional amounts that may be included in compensation. These earnings are called prescribed earnings and must be tracked against the mandatory purchase limits. Prescribed earnings are considered a purchase made through the employer. The employee is absent from work and not being paid. Since the lost salary is pensionable, it becomes prescribed earnings. Examples of prescribed earnings include short absences (absences that span five or fewer consecutive days) or short-term disability top-ups (i.e., the 10% on top of the short term rate). Reporting Procedure Report credited service and remit contributions for contractual employees based on pensionable salary the employee would have earned during the absence or the shortterm disability. See section 10, Absences from Employment, page 10-5 for specific reporting instructions for various employment situations. PA Calculation Use the full salary and credit reported to calculate the PA, including service for short absences and other prescribed earnings. PA Tracking Under the ITA, short absences that are unpaid must be included in the five-year maximum for which members are entitled to buy back credit over their career. See section 10, Absences from Employment, page for reporting instructions. November Pension Adjustments

31 Special Situations Determining Amount of Credit Summary The service used in the PA calculation depends on the credit established in the plan. The SC/TD part of the BE formula is the number of days you paid the teacher for pensionable service over the total number of employment days in the calendar year for that position at your board. You may encounter particular difficulties in determining credit if a member changes calendars during the year. Credit Lost During the Year For employees who lose credit during the year, the SC/TD part of the BE calculation is number of days you paid the employee for pensionable service over the total employment days in the calendar year for that position at your board. Please see examples 1 to 5 on pages 9-15 to Example 1 Assume: Employee works less than a full year TD = 261 days 2015 PE = $75,000 SC = 257 (number of days employer paid member for pensionable service) Annualized salary = $75,000 x 261/257 = $76, BE = [.0155 x $53, x ($76, $53,600.00)] x 257/261 = ($ $451.35) x 257/261 = $1, PA = 9 x $1, ($ x 257/261) = $11, $ = $10,772 November Pension Adjustments

32 Special Situations Determining Amount of Credit Credit Lost During the Year, cont d. Example 2 Assume: Employee works less than a full year TD = 215 days 2015 PE = $70,000 SC = 209 (number of days employer paid member for pensionable service) Annualized salary = $70,000 x 215/209 = $72, BE = [.0155 x $53, x ($72, $53,600.00)] x 209/215 = ($ $368.19) x 209/215 = $1, PA = 9 x $1, ($ x 209/215) = $10, $ = $9,907 November Pension Adjustments

33 Special Situations Determining Amount of Credit Switch Between Calendars Occasionally a member switches employment calendars. In the year that a member switches from one type of employment to another, consider this as two separate periods. Calculate a PA for the pensionable earnings under each calendar. When completing the employee s T4, add the two separate PAs and report one total PA. For more details on how to calculate part-time PAs, please see examples 3 and 4 on page Example Assume: member switches calendars due to a promotion member is a teacher from January 1, 2015 to June 30, 2015 switches to an administrative position effective September 1, 2015 pensionable earnings to June 30 = $54,000 pensionable earnings from September 1 = $51, SC from January 1 to June 30 = 120 days SC from September 1 to December 31 = 86 days TD for teaching calendar = 196 days TD for administrative calendar = 260 days PA while a teacher Annualized salary is $54,000 x 196/120 = $88,200 BE = [.0155 x $53, x ($88, $53,600.00)] x 120/196 = ($ $692.00) x 120/196 = $ PA = 9 x $ $ x 120/196 = $8, $ = $8,024 November Pension Adjustments

34 Special Situations Determining Amount of Credit Switch Between Calendars, cont d. PA while an administrator Annualized salary is $51, x 260/86 = $157, BE = [.0155 x $53, x ($157, $53,600.00)] x 86/260 = ($ $2,068.04) x 86/260 = $ The maximum BE for a part-time teacher is $2, x SC/TD Therefore, for this example, the maximum BE = $2, x 86/260 = $ PA = 9 x $ ($ x 86/260) = $8, $ = $8,193 Total PA = $8,024 + $8,193 = $16,217 Excess Service Credit Occasionally a member holds multiple positions and may accumulate excess service credit. Example Assume: Employee works full-time as an adult day school teacher TD = 194 days 2015 PE = $70,000 SC = 194 (number of days employer paid member for pensionable service) Employee also works as a night school teacher TD = 194 days 2015 PE = $7,216 SC = 20 (number of days employer paid member for pensionable service) Even though the member has 214 days of service credit in the school year, only consider the salary for the full-time employment as the PE in the PA calculation. BE = [.0155 x $53, x ($70, $53,600.00)] x 194/194 = ($ $328.00) x 1 = $1, PA = 9 x $1, ($ x 194/194) = $10, $ = $9,829 November Pension Adjustments

35 LTIP Background Summary To calculate the PA for members receiving LTIP payments, you will need to know: PE to use in the PA calculation (available in the LTIP section on TIM, our secure website, at employers1.otpp.com) when LTIP payments started or stopped Pensionable Earnings (PE) For active members on LTIP, the Canada Revenue Agency (CRA) requires that the PA is calculated as if the member had received the Pensionable Earnings (PE) that would have been earned had he or she continued working in the year for which the PA is being calculated. CRA s reason for basing the PA calculation on the earnings that would have been earned had the member been employed is that there is a possibility the member will return to employment and be paid at the going rate for the last five years before retirement. Employer Reporting You must calculate PAs and issue T4s for all members on LTIP, even if LTIP is non-contributory. To Teachers You must report contributions received from the carrier on the LTIP member s behalf. To Members and Canada Revenue Agency Responsibilities to report the PA, as determined by CRA, include the following: reporting on the T4 contributions received from the carrier and the member which are forwarded to the pension board, for the calendar year it is helpful to indicate somewhere on the T4 that the member is disabled, because the PA and the contributions reported for members on LTIP are not related to earnings reported in box 14 of the T4, if any Although we will provide you with the salary (PE) and credit (SC) information you require for any LTIP PA calculations, please verify the reasonability of the service reported. Pension Board s Role We will provide you with the Pensionable Earnings (PE) to use in the PA calculation. The PE is the pre-ltip salary amount adjusted for the Consumer Price Index (CPI), if applicable. November Pension Adjustments

36 LTIP Background PE Calculation Verify information Replaces paper report Please obtain your LTIP employees PE amount for a calendar year from TIM, our secure website: 1. Sign in to employers1.otpp.com 2. Select LTIP > Pensionable Earnings > applicable year The PE amount is calculated based on the information we have received from you (as displayed in the table). Please review the information to ensure it is correct as reported. Where a start or end date is populated, ensure the credit is accurate for those employees who were not on LTIP for the full calendar year. If any of the data is incorrect, call one of your team members they will make the necessary changes and have the PE values recalculated. You should see the changes online within 24 hours. The online information replaces the Pensionable Earnings Report for LTIP we used to send each January. For more information on how we adjust the pre-ltip salary for CPI, contact us. November Pension Adjustments

37 LTIP Calculating the PA Plan Amendments Under plan amendments made in 2001, there are no contributions required for members who begin to receive LTIP benefits on or after September 1, However, employers still need to issue pension adjustments (PAs) for these members. Length of Time on LTIP When calculating the PA for members on LTIP, determine which category they fall into: Category 1 Category 2 Category 3 Category 4 On LTIP for the full calendar year (not first year on LTIP) and have been on LTIP for a number of years prior to the year being reported (see example 1) Employed for part of the year and started LTIP during the calendar year (see examples 2 and 3) Employed with integrated sick-leave and LTIP during the calendar year (see example 4) On LTIP for part of the year and then returned to employment (see example 5) LTIP and Sick-leave Bank Integrated When members receive a portion of their salary from their integrated or accumulated sick leave plans and the rest from their LTIP benefits, we consider them active members on LTIP once they begin receiving any LTIP benefits from their insurance carrier. In these situations, you do not need to report any sick leave credit. Rehabilitative Employment As long as the member continues to receive full or partial LTIP payments, a return to employment does not affect the PA calculation. Continue to treat the member as an LTIP member for PA purposes, even if CPP contributions are made (see example 5). November Pension Adjustments