Your Defined Benefit (DB) Pension Plan A resource for Members of Local 967 of the Canadian Union of Public Employees February 2007
Table of contents How does it work?... 3 When you join the plan... 3 Who makes contributions?... 4 If you have excess contributions... 4 Your RRSP contribution room... 5 Your pension formula... 6 Payment options...7 Normal form of pension... 7 Other forms of payment... 7 When you can retire... 8 Normal retirement... 8 Postponed retirement... 8 Unreduced early retirement... 8 Reduced early retirement... 9 Disability retirement... 9 If you leave CSA Group... 10 If you re vested... 10 If you re not vested... 10 Pension Adjustment Reversals (PARs)... 10 If you re receiving Long Term Disability benefits... 11 If you re on a leave of absence... 11 If you die before retirement... 11 If you have a spouse... 11 If you don t have a spouse... 12 If you die after retirement... 12 If your marriage breaks down... 12 Your government pension plans... 12 The Fine Print... 13 2
How does it work? Your Canadian Standards Association (CSA) Pension Plan is a defined benefit (DB) pension plan. The plan provides you with a promised benefit at retirement based on a calculation that takes into account your earnings and years of credited service. All contributions made by you and the company to the CSA Pension Plan are held in a strictly regulated fund. According to regulations, a qualified third-party must complete a certified report at least every three years on the pension fund s ability to meet its financial obligations. This report details the funding status of the plan. At the date this booklet was published, your plan was adequately funded, as certified by Mercer Human Resource Consulting Limited, the plan actuary. This means that the pension fund can pay its obligations to existing retirees and provide a pension for you at retirement based on your earned benefit. When you join the plan If you re a full-time employee You re eligible to join the plan on the first day of the pay period following or coincident with one year of continuous service. If at this time you re age 25 or older, you must join the plan. If you re a part-time employee The YMPE is an amount set by the federal government each year to determine maximum Canada Pension Plan contributions and benefits. In 2007, when this booklet was issued, the YMPE was $43,700. The YMPE typically increases each year. You may join the plan on the first day of the pay period following or coincident with 24 months of continuous service, provided you have: worked at least 700 hours in each of the last two calendar years, or earned at least 35% of the Yearly Maximum Pensionable Earnings (YMPE) in each of the last two calendar years. Once you meet eligibility requirements, Human Resources will send you an enrolment form to complete. On the form you must designate a beneficiary for your earned benefit should you die before retirement. You must also authorize the contributions that you will make to the plan by payroll deduction. 3
Who makes contributions? Both you and CSA Group make contributions to the plan. The amount of your contribution in a plan year will depend on your earnings. Each plan year (January 1 to December 31), you will contribute 5% of your earnings by payroll deduction. Your yearly contributions to the plan will not exceed 250% of the Year s Maximum Benefit Accrual ($5,556 for 2007). You may not make additional voluntary contributions. The Year s Maximum Benefit Accrual is determined by the federal government. It limits your pension benefit payable under a registered pension plan. In 2007, when this booklet was issued, the maximum was $2,222.22 for each year of pensionable service. CSA Group contributes whatever additional funds are required to fund the pension promised under the plan. An example of contributions to the plan Let s look at an example to see how the contribution formula works. We ll assume that you earn $50,000 over the plan year. Your contribution is calculated as follows: 5% x $50,000 = $2,500 Your total contribution for the plan year is $2,500. Remember that your contribution cannot exceed 250% of the Year s Maximum Benefit Accrual ($5,556 for 2007). If you have excess contributions When you retire or leave the company, a calculation will be made to determine the portion of your benefit earned through your contributions. If the calculation determines that your contributions with interest from January 1, 1987 exceed 50% of the commuted value of your earned benefit from this date, you ll receive the excess portion as a lump sum payment minus withholding taxes. Your spouse, beneficiary or estate will be paid the excess portion if you die before you retire. The commuted value is the single sum that represents the present worth of future benefits payable. The calculation to determine excess contributions doesn t apply to contributions (plus interest) made to December 31, 1986. There is a test, however, to ensure that when you retire or leave the company, your contributions (plus interest) made before January 1, 1987, will not exceed the commuted value of your earned benefit for service during the same period. 4
The maximum RRSP limit is $19,000 in 2007, and will increase to $20,000 in 2008. Further increases are scheduled after 2008. Your RRSP contribution room If you contribute to a personal RRSP, your account is fully tax-sheltered up to the Canada Revenue Agency (CRA) limits. You pay no tax on your contributions or related investment earnings, as long as the money remains in the account. The maximum amount you may contribute to your RRSP in any given year is 18% of your last year s earnings (up to a specified limit) minus a pension adjustment (PA). For 2007, when this booklet was issued, the specified limit was $19,000. Your PA under the CSA Pension Plan is equal to the deemed value of the benefit you earned in the pension plan the previous year. Let s look at how it all works. Assume Chris earned $45,000 last year. His maximum tax-sheltered RRSP contribution this year would be $8,100 ($45,000 x 18%). His CSA Group PA from last year is $7,500. This year, Chris can contribute $600 ($8,100 minus $7,500) to his RRSP. Your PA is calculated by using the pension formula to determine your earned benefit for the year. Your PA amount represents the projected value of your earned benefit at retirement. Your earned benefit is multiplied by 9 and then $600 is subtracted: (Earned benefit times 9) minus $600 = PA By earning $45,000, Chris earned benefit for the year is equal to $900 (using the pension formula calculation on page 6). Chris PA would be calculated as follows: ($900 times 9) minus $600 = $7,500 The federal government chose the factor of 9 as an average value for employees of all ages in all types of defined benefit pension plans. You don t have to worry about doing any calculations yourself. Your PA is reported on your T4 each year. To make life even simpler, your income tax assessment tells you exactly how much RRSP contribution room you have. 5
Your pension formula Your CSA Pension Plan provides you with a lifetime monthly retirement income. You will receive an annual benefit under the plan based on 2% of your average earnings. An example Let s say Chris highest average earnings in his last 10 years of employment is $45,000. He has 32 years and 2 months of credited service at CSA Group. He would receive an annual pension benefit of 2% x 45,000 x credited service 2% x $45,000 x 32.1667 = $28,950 per year In Chris case, he receives his full annual pension amount from CSA Group. His pension benefit falls within CRA limits. Your average earnings refers to the average over the 36 consecutive month period within the last 10 years of your employment with CSA Group for which the highest average is attained. Your credited service is your years and months of membership in the pension plan. Are you a high-income earner? The Canada Revenue Agency (CRA) limits the amount of pension payable under the plan to the lesser of: a specified limit that depends on the year your pension commences, or 2% per year of credited service multiplied by the average of your three highest years of indexed earnings. The specified limit is $2,222.22 per year of credited service for 2007 retirements, increasing to $2,333.33 per year of credited service for 2008 retirements. Your pension may be limited if you earn more than $111,000. Cost-of-living adjustment Inflation can seriously erode the purchasing power of a fixed retirement income. To help you meet your financial obligations in retirement, your CSA Group pension will be adjusted up to 3% each year to reflect changes in the Consumer Price Index (CPI). The actual adjustment will be the percentage increase in CPI minus 2%. Your first adjustment will be on the April 1 following the first anniversary of your retirement, and April 1 of each year thereafter. Here s an example: You retire December 1, 2008. Your first cost-of-living adjustment will be April 1, 2010. Your second adjustment will be April 1, 2011, with adjustments on April 1 of each subsequent year. If you are not entitled to or do not elect to receive an immediate pension from the CSA Pension Plan, you are not eligible for the adjustment. 6
Payment options An eligible spouse Your spouse is defined as a person of the same* or opposite sex who is: Your legally married spouse. A person with whom you have cohabited for three years and publicly represent as your spouse. A person with whom you cohabitate and are jointly the natural or adoptive parents of a child, as defined in the Family Law Act, 1986 (Ontario). * As per recent changes in applicable legislation. A few months before you retire, you ll be asked to choose a payment option that best suits your personal situation. The value of your pension will be the same in all cases. However, the amount that you actually receive each month will vary depending on the option you choose. Normal form of pension The normal form of pension provides you with a lifetime monthly income, guaranteed for five years (60 months). If you die before receiving all 60 payments, your beneficiary or estate will be paid the balance of your monthly instalments. If you have a spouse when you retire, you must select a payment option that continues 60% of an adjusted pension to your spouse if you die. This is called a Joint and Survivor (J&S) option. The J&S option provides you with some peace of mind. You know that a level of your pension will continue to your spouse for his or her lifetime. The J&S option will reduce your initial monthly pension payment. This reduction simply accounts for an anticipated longer payment period your pension being paid over two lifetimes, yours and your spouse s. If you have a spouse and you don t want the J&S option (or you want to reduce it below 60%), both you and your spouse must sign a waiver when you retire. Other forms of payment If you don t have a spouse when you retire, or you and your spouse waive the J&S option, you may elect another form of payment. You may, for example, increase the guaranteed payment period to 10 or 15 years. If you die before the end of the guarantee period, your beneficiary or estate will receive the balance of your monthly instalments. If you do elect to increase the guaranteed period, your pension will be reduced to reflect the cost of the additional guaranteed payments. You may also choose to waive the guaranteed period and elect a life-only pension. Your pension payments stop when you die if you choose to waive the guaranteed payment period entirely. This option will generally result in a slight increase in your pension. 7
Whatever pension payment option you elect, you must make the decision within a three-month period before your actual retirement date. In all cases, the following conditions will apply: The option must be elected before your actual retirement and cannot be changed after you retire. The elected option becomes effective on the first day of your retirement. Someone from Human Resources will review your options with you well before your retirement date and answer any questions you may have. When you can retire Normal retirement Normal retirement under the CSA Pension Plan is the first day of the month coincident with or following age 65. Postponed retirement You may postpone the commencement of your CSA pension until the first day of the month coincident with or following age 69. You will continue to contribute to the pension plan until your pension commencement date. Unreduced early retirement You may retire early from the plan with an unreduced pension if your age plus service with CSA Group (excluding periods of lay-off) equal 85. Keep in mind that you forfeit future years of credited service with CSA Group (excluding periods of lay-off) up to your normal retirement. Your unreduced pension will be based on your average earnings and years and months of credited service at the date you retire. On page 6, we showed you how we calculated Chris annual pension at normal retirement. Let s compare 1 this example with Chris pension had he retired at age 60 (with 27 years and two months of credited service): Chris retires with 27 years Chris retires with 32 years and two months of credited and two months of service: credited service (see page 6 for the calculation): $24,450 $28,950 Let s look at the value of Chris pension options at retirement To help you better understand what your pension options mean in actual dollars, let s look at Chris situation in retirement. Using the same pension as we did on page 5, here s how Chris different pension options would pay out each year: Pension option If Chris has no spouse If Chris spouse is exactly three years younger If Chris spouse is exactly three years older Normal form (5-year guarantee) $28,950 $28,950 $28,950 10-year guarantee $27,851 $27,851 $27,851 15-year guarantee $26,273 $26,273 $26,273 No guarantee $29,343 $29,343 $29,343 J&S (100 %) J&S (60%) J&S (50%) Not an option $23,145 $24,710 Not an option $25,281 $26,376 Not an option $25,878 $26,828 The adjustments to the pensions are completed on an actuarial equivalent basis. We have used an interest rate of 6%, assumed cost-of-living adjustments of 1% per annum and the 1994 GAM Mortality Table (blend of 80% male/20% female). Although Chris is eligible to retire with an unreduced pension, he has fewer years of credited service. As you can see, there is a slight impact on his annual pension entitlement. 1 For this comparison, we ve used the same earnings levels for both scenarios. 8
Reduced early retirement For example, if you retire on the month following your 60th birthday and you have at least 10 years of service, your pension will be reduced by 0.25% multiplied by 60 months, or 15% (0.25% x 60 months = 15%). If the sum of your age and years of service equals 70, and you have at least 10 years of service, you may retire under the plan as early as age 55. Your pension will be reduced by: 1/4 of 1% (0.25%) for each month between age 60 and your normal retirement date, and 1/2 of 1% (0.50%) for each month you retire before age 60. This reduction isn t a penalty. By retiring early, your pension is expected to cover a longer payment period. The reduction helps to fund the additional pension payments. If your age and years of service don t equal 70, you may still retire as early as age 55 as long as you have completed two years of membership in the plan. Your pension will be calculated as the actuarial equivalent of a deferred pension payable from age 65. Here s an example. Let s assume you retire on the first of the month following your 57th birthday and you have 20 years of service. Your age plus years of service equal 77. You re eligible to retire with a reduced pension. We ll assume your annual pension benefit is $32,000 before the reduction is applied. To figure out your reduction, we have to do a two-step calculation. Step 1 0.25% reduction for each month you retire between age 60 and your normal retirement date 0.25% x 60 months x $32,000 = $4,800 Step 2 0.50% reduction for each month you retire before age 60 0.50% x 36 months x $32,000 = $5,760 The result Your total reduction is $10,560 ($5,760 plus $4,800). So your annual lifetime retirement income will be $21,440 ($32,000 minus $10,560). You re eligible for cost-of-living adjustments if you retire early. Disability retirement If you become totally and permanently disabled, you may be eligible for reduced early retirement benefits. You must be at least age 55 and have two or more years of service. 9
Your earned pension benefit will be reduced by: 1/8 of 1% (0.125%) for each month you retire between age 60 and your normal retirement date, and 1/4 of 1% (0.25%) for each month you retire before age 60. You don t qualify for reduced early retirement if you re eligible for Long Term Disability benefits. You do qualify for cost-of-living adjustments. If you leave CSA Group If you re vested Vested means that you own the commuted value that you ve earned as a member of the CSA Pension Plan. You re vested if you have two or more years of credited service in the plan. You may leave your CSA Group pension benefit in the plan until you retire. Your deferred pension is not eligible for the cost-of-living adjustment. If you choose to take the commuted value of your pension benefit out of the plan, you have three options to consider: Purchase an immediate (if eligible) or a deferred annuity. A deferred pension is a life annuity payable at a future date to an employee whose membership in a pension plan has ended. These lifelong payments usually begin when the former employee reaches normal retirement age. Transfer the amount to a Locked-In Retirement Account (LIRA). Transfer the amount to your new employer s pension plan on a locked-in basis, provided that your new employer s plan permits transfers. If you choose one of these three options, you must provide CSA Group with at least 90 days notice. If you re not vested If you re not vested, the plan will refund your personal contributions with interest only. Pension Adjustment Reversals (PARs) Pension Adjustment Reversals (PARs) restore lost RRSP contribution room to members who terminate (and withdraw the commuted value of their benefit) from a defined benefit plan. For example, if you leave CSA Group and you elect to take the commuted value of your benefit out of the plan, you may be eligible for a PAR. A PAR will increase the amount of RRSP contribution room you earned for the years from 1990 until your termination from the pension plan. You can carry forward this RRSP contribution room until the end of the year in which you turn age 69. 10
If you re receiving Long Term Disability benefits Your membership in the CSA Pension Plan will continue while you re receiving Long Term Disability (LTD) benefits. You will continue to accumulate credited service. When you reach age 65, your pension will be based on your pre-disability earnings. Any changes implemented to the CSA Pension Plan during your LTD leave will be included in your benefit calculation. If you re on a leave of absence If you re on a paid leave of absence, you will continue to accumulate service as though you were actively at work. If you re on an unpaid absence, your membership will be suspended until you actively return to work. If you die before retirement If you die while you re a vested member of the plan, your designated beneficiary or estate will receive the commuted value of your earned benefit, including excess contributions. If you aren t a vested member, your beneficiary or estate will receive your contributions with interest only. If you have a spouse Your spouse is your automatic beneficiary if you die, unless he or she has signed a waiver. If you re vested, your spouse may choose to: Use the lump-sum commuted value of your earned benefit to purchase an immediate or deferred annuity. Transfer the commuted value of your earned benefit to a Registered Retirement Savings Plan (RRSP). Take the lump-sum commuted value of your earned benefit as cash. 11
Any excess contributions will be payable as a lump sum and a withholding tax will apply. If you don t have a spouse If you don t have a spouse when you die, the commuted value of your earned benefit will be paid as a lump sum to your designated beneficiary or estate. If you die after retirement If you die after retirement, your pension payments will either stop or continue paying depending on the form of pension you elect. See page 6 for more information on forms of payment. If your marriage breaks down As a vested member of the plan, you own the benefit you earn under the pension plan. The sole purpose of your earned benefit is to provide you with a retirement income. In the case of a marriage breakdown, however, a legal notice may order the pension plan to provide payment to your dependents or former dependents for support and maintenance. You may also voluntarily assign a portion (e.g., up to 50% in Ontario) of your earned benefits to your spouse or former spouse. Your government pension plans In addition to your CSA Pension Plan and your personal savings, you have access to government pension plans that can help you build your savings. Your actual government pension will depend on a number of factors. For more information on how to apply for benefits, contact your nearest Human Resources Development Canada office in the blue pages of your local telephone directory. You must apply to the appropriate government agency at least six months prior to retirement to receive these benefits in good time. 12
The fine print This booklet provides a summary of the Canadian Standards Association (CSA) Pension Plan. It does not confer any contractual rights or obligations. The provisions of the CSA Pension Plan are contained in the official plan documents governing the arrangement. If there are any discrepancies between the contents of this booklet and the official plan documents, the official plan documents will apply in all cases. CSA Group intends to continue the CSA Pension Plan indefinitely, but reserves the right to change or discontinue the plan at any time and for any reason. If the plan is terminated, you will automatically be entitled to the full value of the benefits you have earned as a member of the plan to the termination date (provided the plan is fully funded). 13
February 2007 Human Resources 15