More options for members - open buybacks

Simplifying transfers and expanding service purchases

The Plan is continuing efforts to provide more options for members wherever it makes sense. Portability of pensions – the ability for members to take their pension entitlement with them from one job to another – is a valuable element in a plan as it helps members build retirement savings. To enhance portability, we are making changes to the Plan’s transfer and service purchase provisions.

Open buybacks

Under a new “open buybacks” policy, the Plan will allow purchases of any service previously credited with another Canadian registered pension plan. This would include all defined benefit and defined contribution plans. (It would not, however, apply to funds from personal or group RRSPs, or deferred profit sharing plans.) The change recognizes that new members can come from different types of employment, and the Plan should acknowledge that to the extent possible.

In all cases, members will not be able to purchase more service in the CAAT Plan than they had in their previous plan. However, if the amount of money transferred in does not pay for all the service members are eligible to buy – a likely scenario – members can choose to pay for the extra service using their own non-locked-in savings.

Service with other plans – We have received a few requests to accept transfers from defined contribution plans. Such service can now be converted into pensionable service in the CAAT Plan on an actuarial cost basis. Entitlements that have already been transferred from pension plans into locked-in RRSPs or locked-in retirement accounts (LIRAs) will also qualify.

SVEN worked in the private sector before joining his college. He belonged to his previous employer’s Defined Contribution (DC) plan, and transferred his money into a LIRA when he left his employment. Now that he’s a member of the CAAT Plan, he’d like to consolidate his retirement income into one reliable source. He has 6 years of service in the DC plan that he could purchase and transfer into the CAAT Plan.

Sven is concerned that buying back the service will be costly, so he wants to have an estimate of the cost before making any decisions. From the CAAT Plan website, he can get a general estimate of the cost of purchasing 1 year of service. He now has an idea of the cost. Another 6 years of service would get him 6 years closer to his earliest unreduced retirement date. If he wishes to proceed, he can download the form he needs from the website, and take it to his previous employer.

Part time service in our Plan – One other specific change is with regard to part time “pre-enrolment” service earned by members before they enroll in the Plan. This service, along with any other service accrued before joining the Plan, will now be available for purchase.

FATIMA started working part time at a college in 1997, when her children were small. She did not join the CAAT Plan at that time. In 2002, she became a full time employee and did join the Plan. Now that she’s a little older, she thinks that increasing her future retirement income is a good idea.

With the new buyback provisions, she now has the opportunity to purchase all the time that she was a part-time employee at her CAAT Plan employer, including the time before she was eligible to join as a part-time employee. Since Fatima worked at 50% of full time equivalent hours for all 5 years she was part time, she has 2.5 years of service available for purchase.

Fatima can start the process by getting a general estimate of the cost of the purchase from the CAAT Plan website. In her case, if she chooses to proceed with the purchase, she will take her downloaded form to her CAAT Plan employer.

Costs

The cost of these transfers or service purchases will be equal to the full actuarial cost and will be paid by the employee
(i.e., there won’t be any contribution by the employer). The pension is of course a very valuable benefit, and the costs of purchasing service will reflect that.

With members paying the costs, these changes have no negative cost implications for employers. However, note that the existing rules for sessional employees purchasing pre-enrolment service will not change: this cost will continue to be shared with the employer on an equal basis.

Keeping it simple

In order to keep the process as simple as possible, members will be able to get a general estimate of the costs of purchasing service before proceeding to provide documents and complete the paperwork. Members will use the website to get a general estimate and can download the form they need after they get a sense of the cost. Once the completed forms have been submitted by the member, the Plan will provide a formal quote of the cost and other useful information.
Members who want to purchase service from another plan do not need to contact their current CAAT Plan employer in this process. Members will be responsible for completing the form with their past employer, and for providing the required information and supporting documents.

All of these changes are effective November 1, 2010. Note that there is no deadline, as the service will be purchased at the actuarial cost. However, as people age and their salary increases, costs of a purchase generally increase.

Our goal is to provide better options for portability and consolidation of pension entitlements for both current and future members.