Human Resource Manual. Section: PS Phased-In Retirement Guidelines for Out-of-Scope Employees

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1 Section: PS 1204 Phased-In Retirement Guidelines for Out-of-Scope Employees Date issued: Revision date: Purpose To provide management with a framework for the use of existing employment/retirement mechanisms to: 1) Enhance retention of selected out-of-scope employees nearing retirement who desire a period of time to adjust their work patterns, finances and lifestyle, in circumstances where: a) an occupation is in short supply; b) it is in the employer s interest to delay full time retirement to retain corporate memory and/or provide greater time for development of replacement expertise; c) it is deemed, for other reasons, to be in the employer s interest to do so. 2) Use post-retirement employment in similar circumstances. Definition Phased-in retirement involves some form of less than full-time employment with or without partial or full income from pension. Guidelines The employer will give consideration and may, at its discretion, provide approval for the use of existing employment/retirement mechanisms [eg., definite leave of absence, reduced hours of work, less than full-time employment, public sector pension plans (PSSP and PEPP)] as follows: a) on a pre-retirement basis: reduction of hours worked on a daily, weekly, monthly or annual basis; after age 50 and within five years of the anticipated date of retirement; and b) rehiring on a post-retirement basis (excluding those individuals who had accepted an early retirement benefit). 1/3

2 Section: PS 1204 Approvals would be subject to operational requirements and restricted to the following circumstances: the position is out-of-scope; where the occupation is in short supply; or where it is in the employer s interest to delay full time retirement to retain corporate memory and/or provide greater time for development of replacement expertise; or where for other reasons, subject to the approval of the Chair, Public Service Commission, it is determined to be in the employer s interest. The employer cannot commit, in advance of retirement, to postretirement employment, nor provide financial counsel to employees. Where a retired individual who is in receipt of pension benefits under The Public Service Superannuation Act (old plan) is appointed post retirement, the ministry appointing that individual must advise the Public Service Superannuation Board, in writing, on the date of that appointment. Out-of-scope participation in PEPP is mandatory. As federal pension legislation prohibits contribution to a pension plan beyond age 69, pension contributions by both the employer and the employee shall cease when the employee turns 69. Authorities Definite Leaves of Absence: Public Service Regulations, Section 67(1) Reduced Hours of Work: Human Resource Manual, Policy 709 (Out-of-scope) Staffing Provisions: Public Service Regulations, Part III, Division 3 2/3

3 Pension Provisions: The Public Employees Pension Plan Act The Public Service Superannuation Act The Superannuation (Supplementary Provisions) Act Public Service Regulations, Section 92 Human Resource Manual Other: The Freedom of Information and Protection of Privacy Act Section: PS 1204 Appendices Appendix A: Options and Primary Pension Implications Appendix B: Summary of Benefit Implications - Selected Benefits O/S Appendix C: Summary of Specific Employment and Pension Plan Information Relating to Phased-In Retirement 3/3

4 Section: PS 1204-A Options and Primary Pension Implications Appendix A Date issued: Revision date: There are two potential circumstances under which one might consider phased-in retirement. Note: Employees should seek independent financial counsel to ensure they understand the full implications of how any of the following options relate to their personal circumstances. OPTION A: Pre-retirement employee wishes to reduce their full-time commitment to work but does not wish, or is not eligible, to access funds from their pension plan. An employee would apply, under one of the following mechanisms, to work full-time for intermittent periods or less than full-time and delay receipt of pension while accruing further pension credits: 1. Reduced hours (which can include leave with income averaging such as work nine months take three months off average salary over 12 months) Old plan pension implication pension credit is at full-time salary for a shortened service credit (e.g., an employee with a $60,000 annual salary working reduced hours of 75% for a year, would receive nine months service credit at a salary of $60,000 instead of 12 months service credit at a salary of $45,000. This has the effect of extending the period of time required to accumulate service for purposes of pension eligibility and the 2% per year of service calculation. There is no increased cost to the employer (no increase to the unfunded liability). New plan pension implication employer and employee contributions are made at the current contribution rate based on lower income earned. 2. Definite leave of absence from a permanent position to work less than full-time (i.e., nonpermanent out-of-scope). See Note a) below. Old plan pension implication contributions are based on full-time salary prior to leave pension credit at that salary for full period of leave (i.e. at prescribed contribution rates). Employees may choose to purchase the period of leave for pensionable service. Employees typically make double contributions on return from leave, for a period of time equal to the leave of absence. As there is no employer contribution, the unfunded liability, borne by the employer, is increased. New plan pension implication employer and employee contributions are made at the current contribution rates based on the lower income earned in the less than full-time job. 1/5

5 Section: PS 1204-A 3. Continue working in permanent position and take periodic definite leaves of absence (e.g., work the winter and take June, July, August and September off). Employee saves and plans for a fourmonth period without income. Old plan pension implication contributions are based on full-time salary prior to leave pension credit at that salary for the period of leave. Employees may choose to purchase the period of leave for pensionable service (i.e. at prescribed contribution rates). Employees typically make double contributions on return from leave, for a period of time equal to the leave of absence. As there is no employer contribution, the unfunded liability, borne by the employer, is increased. New plan pension implication can make contributions based on full-time salary immediately prior to the leave for the period of leave. Employees may choose to purchase the period of leave for pensionable service (i.e. at prescribed contribution rates). Employees typically make double contributions (other options such as a lump sum contribution are possible) on return from leave, for a period of time equal to the leave of absence. The employer makes pension contributions at the current employer contribution rate. 4. Deferred Salary Leave Plan, provided the employee returns from DSLP for a period of time equivalent to the period of leave (failure to do so might result in the Canada Customs and Revenue Agency reassessing the employee s income tax for the entire period of DSLP including the contribution time). Old plan pension implication can make contributions based on: (i) full-time salary during the deferral period; and (ii) the full-time salary immediately prior to the leave during the leave period service credit at these salary levels for the period of both deferral and leave periods. Employees may choose to purchase the period of leave for pensionable service (i.e. at prescribed contribution rates). Employees typically make double contributions on return from leave, for a period of time equal to the leave of absence. As there is no employer contribution, the unfunded liability, borne by the employer, is increased. New plan pension implication can make contributions at full-time salary for deferral period and can make contributions based on the full time salary immediately prior to the leave for the period of leave. Employees may choose to purchase the period of leave for pensionable service (i.e. at prescribed contribution rates). Employees typically make double contributions (other options such as a lump sum contribution are possible) on return from leave, for a period of time equal to the leave of absence. The employer makes pension contributions, for the leave period at the same time as the employer contribution, at the current employer contribution rate. 2/5

6 Section: PS 1204-A Notes: a) Federal legislation/regulations limit the ability to get full pension credit during periods of leave of absence to a career maximum of five years of leave (i.e., 1991 to date) with exceptions. The exceptions are: additional three years for maternity/paternity/adoption leaves; leave due to illness (i.e., all time on Long Term Disability); and union leave. b) Leaves of absence of 30 days or less will normally not be approved because employees earn full vacation and sick leave credits for the first 30 days of a leave. c) If the percentage of salary contributed to the pension plan changes during the period of the leave of absence, the change will be applied on the effective date of the change. OPTION B: Post-retirement employee wishes to access full or partial pension funds and top up earnings through post-retirement employment. With respect to post-retirement options, the following legal/policy restrictions apply: Federal Law prevents re-employment by the same employer, of any person who previously took early retirement on the "75" formula. For the purpose of the law as it applies to us, the "same employer" is defined as executive government. The Government of Saskatchewan has a double dipping policy that disallows rehire of retirees in receipt of an enhanced early retirement benefit from within executive government or crown corporations. Anyone rehired after retirement is required to commence pension contributions to the new plan. If employed beyond age 65, employment income in conjunction with retirement income may result in a clawback of Old Age Security benefits. Federal Law prevents continued contribution to a pension plan beyond age 69. Under Canada Pension Plan legislation, an employee age 60 plus could retire, work up to the minimum amount prescribed by CPP for a period of two months and then access their Canada Pension Plan pension. Once the CPP pension has been started, the employee could then work as much as they want without impacting the CPP pension. While possible for old plan employees, because the PSSP pension is integrated with CPP, old plan employees are cautioned to seek financial advice on overall pension impact if considering this option. 3/5

7 Section: PS 1204-A 1. Old Plan The current Public Service Superannuation Plan restricts employees in the old plan to a maximum of six months of employment (full or part-time) in a calendar year or their pension will cease. The pension restarts when they quit work or on January 1 of the next calendar year whichever occurs first. The pension income beyond six months of work is simply lost. There is no adjustment to the pension benefit as a result of working after retirement. There will however be contributions made to PEPP for the period of post retirement employment. Currently employees in the old pension plan cannot retire without reduction in pension unless they meet the eligibility thresholds which are: 35 years of service age 65 age 60 with 20 years service As retirement in the old plan triggers either deferred pension or full pension, there is no ability to take partial pension. 2. New Plan a) If an employee retires from the new plan and takes full or partial pension, he can return to work in any hours of work pattern or employment arrangement. b) Once retired the employee chooses a retirement income vehicle or combination of vehicles: If they take an annuity, it is a contract for life (you can't get out of it). If they choose a Prescribed Registered Retirement Income Fund (RRIF), an employee can transfer a portion or all of their pension assets to the Prescribed RRIF. The Prescribed RRIF operates the same as a RRIF (i.e., used for RRSP funds) in that there is a required minimum amount that must be withdrawn each year but there is no maximum limit on how much is withdrawn each year. The differences between a Prescribed RRIF and a RRIF used for RRSP funds include: Assets are protected from creditors (except for enforcement of a maintenance order and division upon breakdown of a spousal relationship). 4/5

8 Your spouse must sign a consent form allowing the transfer to a Prescribed RRIF. Human Resource Manual Section: PS 1204-A You must name your spouse as a beneficiary unless your spouse signs a Spouses Waiver of Designated Beneficiary Status form which your spouse can revoke at any time. If an employee transfers only a portion of their pension funds to a Prescribed RRIF, the lack of a maximum withdrawal limit would allow creation of a reasonable retirement income for a specified period (e.g., use a partial transfer to top-up income from part-time work which commences after the transfer of funds). If an employee transferred funds to a Prescribed RRIF and later decided to return to full time employment, the Prescribed RRIF (or a portion of it) can be transferred to a Locked In Retirement Account (LIRA) until such time as a pension income (or larger pension income) is again desired. 5/5

9 Section: PS 1204-B Summary of Benefit Implications Selected Benefits Out-of-Scope Appendix B Date issued: Revision date: Benefit Variable Hours * Definite Leave of Absence Vacation Leave Pro-rated (earned and paid out) Granted for first 30 days of leave on return Sick Leave Pro-rated Granted for first 90 days on return Seniority N/A N/A Increments Performance pay eligible for normal percentage increase Subject to performance pay if worked in performance review period. Change applicable on return from leave Designated Holidays Paid in regular salary at N/A SDOs/EDOs (Hours of Work) Overtime Pension PESP (Old Plan) Pension PEPP (New Plan) appropriate rate SDOs prorated. EDOs for MSG N/A but hours worked can be scheduled to provide full days off corresponding to EDO As set out in overtime provisions for hours in excess of full time hours Pro-rated Contribution credit at full time salary for shortened service credit Contributions relative to time worked; matched by employer N/A N/A Mandatory contribution for period of leave; no reduction in benefit Employee choice. If employee contributes then employer matches. If working during the leave, contributions based on income earned Option to continue for up to three years; employee/employer cost-share Group Life Employee choice of full or prorated coverage Dental 100% coverage 100% coverage for up to 12 months Extended Health 100% coverage 100% coverage for up to 12 months Long Term Disability Employees covered at full-time salary level for maximum of 3 years thereafter prorated Covered for one year * Deferred Salary Leave Plan: - During the salary deferral period there are no changes to employee benefits except that Income Tax and Canada pension deductions are based on the earnings less the deferral amount. - During the leave period, benefits are the same as for any Definite Leave of Absence except that continuation of Group Life coverage is mandatory rather than optional. 1/1

10 Section: PS 1204-C Summary of Specific Employment and Pension Plan Information Relating to Phased-In Retirement Appendix C Date issued: Revision date: Pension plans are governed by Federal Income Tax Legislation, as well as by provincial legislation and policy. In most cases, the earlier the pension is accessed, the lower the long-term pension income. Under Definite Leave of Absence/Deferred Salary Leave Plan provisions, the employer incurs a cost of the pension top-up for time not worked. In the new plan this constitutes a cash flow cost of 5% of salary for the period involved. In the old plan it results in an increase in the unfunded liability of the plan. The legislation interacts with the two different types of pension plans in different ways: In the old plan earlier access causes a reduction in pension income through imposition of penalties. In the new plan each employee has funds and growth is dependent upon investments managed through The Public Employees Benefits Agency (PEBA). When retirement income is required, the fund is accessed. In most cases it is in the employee s interest to not access their pension until such time as the individual employee s fund has grown sufficiently to provide adequate retirement income. The PEPP Act, The PSSP Act and The Superannuation (Supplementary Provisions) Act do not currently allow for advance commitment to post-retirement employment, knowing the incumbent will retire and access pension. The PSSP Act (old plan) currently limits post-retirement employment with the employer to a maximum of six months of full-time or less than full-time employment in a calendar year. In summary, legislation and policy pertaining to pensions has the following impact: 1. Employees: a) Federal income tax legislation/regulations limit an employee s ability to get full pension credit during periods of leave of absence to a career maximum of five years of leave (i.e., 1991 to date) with exceptions. The exceptions are: additional three years for maternity/paternity/adoption leaves; leave due to illness (i.e., all time on Long Term Disability); and union leave. b) in the New Plan can be employed on a less than full time basis and receive employer pension contributions as if a full time employee (PEPP Act). 1/2

11 Section: PS 1204-C can take periodic leave from full time employment and make/obtain full pension contributions through definite leave of absence provisions to a career maximum of five years with exceptions as above (Income Tax Act). can be rehired after retirement in any hours of work combination and be in receipt of full or partial pension while continuing to contribute to a pension plan up to age 69. c) in the Old Plan cannot access partial pension and work (Income Tax Act). can work less than full time or take periodic leave and obtain/make full pension contributions through definite leave of absence provisions to a career maximum of five years with exceptions as above. can work up to six months in a calendar year post-retirement before pension ceases (PSSP Act). 2. The Employer: a) cannot re-employ employee in receipt of an enhanced early retirement benefit. Federal Income Tax Laws prohibits re-employment, by the same employer, of any person who previously took early retirement on the 75 formula. For the purpose of the law as it applies to us, the same employer is the executive government of Saskatchewan. The Saskatchewan government has a double-dipping policy that prohibits rehiring of retirees receiving an enhanced benefit from an early retirement program within executive government or Crown Corporations. Due to public perception that it is inappropriate to reemploy people who have received an enhanced benefit to leave employment early, a change to this policy is not recommended. b) cannot provide financial advice to employees without potential liability for the advice provided. However, individuals considering phased-in retirement will need to know the financial implications of their options and are encouraged to seek independent financial advice. c) has no simple means for converting employees from permanent full-time status to less than permanent full-time employment in the current staffing process. d) Employees that are members of PEPP can make additional voluntary contributions at any time, provided that the total of all registered contributions (pension, RRSPs) cannot exceed 18% of earned income in that calendar year. 2/2