Leaves and Buybacks

As of July 1, 2012, the cost of certain buybacks that is normally based on the actuarial value (e.g. after the 6-month deadline has passed) will now be based on the greater of the actuarial cost or the contribution cost. This change applies to the following types of buybacks:

• Pre-enrolment service
• Pre-enrolment part-time service (open buybacks)
• Pregnancy/Parental, Emergency leaves
• Unpaid leave of absence/layoff
• Prior non-vested service

The method used to cost past service purchases, or ‘buybacks’, is being updated to ensure equity among active members contributing on an ongoing basis to the Plan and those members purchasing pre-enrolment service and certain types of leaves.

The original costing method when the Plan introduced buybacks provided that, if the service was purchased within 6 months of the member’s enrolment or the end of a leave, the cost of the buyback would be the member contributions for the period, whereas if the purchase was made later, the cost was the actuarial value of the service. The original method was intended to treat members purchasing service equitably and encourage them to exercise their buyback options at the earliest opportunity. However, increases in contribution rates over the years have led to these types of purchases costing more on a contribution basis than they do when the cost is determined on an actuarial value basis. Hence, active members contributing on an ongoing basis may end up paying more for their service than members who purchase comparable service on an actuarial value basis and, as a result, the method no longer treats members equitably and consistently.

As of July 1, 2012, the cost of a purchase which is currently determined on an actuarial value basis (for example, pre-enrolment purchases after 6 months of enrolment) will be: the higher of the actuarial value OR the current rate of contributions at the date the purchase request is made. The new costing method ensures that members purchasing service from a leave or buyback are paying at least as much for that period of service as active members contributing to the Plan through active employment.

• In response to a question, the presenter clarified that the change only applies to buyback costs calculated on an actuarial basis. For example, it does not apply to buybacks completed within 6 months of enrolment. The cost of those will still be contributions only.

Before this improvement, members could only purchase service in the registered pension plan (RPP) and not grow into the retirement compensation arrangement (RCA) if their earnings later exceeded the Income Tax Act limit for RPPs. Actuarial costing for RCA purchases is being introduced.

These purchases are totally paid for by the member; no employer contributions are required.

The implementation of the Actuarial Cost Estimator (ACE) Tool on our website was meant to provide members with a “do it yourself” way to get a general cost estimate BEFORE approaching their employer for their records of service and earnings.

For part-time members who express an interest in a service purchase quote: please direct them to the ACE Tool firstto obtain an estimate of the cost of the purchase.

If they are unsure of the exact amount of service available for purchase, they should get an estimate for one year of service only. This will give them a general idea of the cost.

• If they find the cost reasonable and are interested in purchasing the service they can download the required form and proceed.
• Those members who find that the cost of purchasing one year of service is prohibitive should not request a formal quote.

If a member has received an estimate using the ACE tool and approaches you with a Service Purchase Application form to request information on their prior employment, please provide it to them if you are able to obtain it.

We understand that there will be cases when records for part-time employees are unavailable or incomplete. We are currently exploring a variety of options to potentially address this issue (for instance T4s, prior contracts) and are conferring with CRA to ensure that our solutions satisfy them while easing your workload.

The Actuarial Cost Estimator (“ACE” tool) was developed for members to calculate the approximate cost of purchasing past service with a Canadian Registered Pension Plan, or a previous CAAT Plan employer.

This will allow members to get a rough idea of the cost, before deciding whether or not to request a formal quote from the CAAT Pension Plan. Members will be able to access the appropriate forms and instructions once they’ve completed an estimate.

Please direct interested members to our “Open buyback” resources and our online ACE tool, and let them know that they should contact us if they have any questions or technical problems.

Open buybacks enable members to increase their service in the CAAT Pension Plan by consolidating pension monies from previous employers, and by purchasing any time they worked at a CAAT Pension Plan participating employer.

In addition to the current buyback provisions under the Plan, starting November 1, 2010:

1. Members will be able to transfer funds from any other Canadian registered pension plan, including Defined Contribution or Money Purchase plans, to purchase service in the CAAT Pension Plan. The Income Tax Act requires that funds to purchase pre-1992 service come directly from the previous plan. However, the member may purchase post-1991 service even if the money from the previous plan has already been transferred to a LIRA (a locked-in RRSP).
2. Anytime a member was employed with a CAAT Pension Plan employer before joining the Plan, including part time service, can now be purchased. In addition, part time members are now eligible to purchase their eligibility service.

Costs

In all cases, the cost of the service associated with these types of purchases will be the actuarial cost. This is to ensure that the enhancements remain cost-neutral to the Plan. Members will pay the full cost of the purchase.

Note that these changes do notaffect the existing buyback provisions for pre-enrolment service whereby full-time members are eligible to purchase periods of full-time employment prior to the date they became a member. The cost of purchasing that service will continue to be shared 50/50 with the employer.