Purchasing service

The cost of buying back a leave will depend on when you choose to purchase the service. If you buy the service within 6 months of your leave, the cost is generally 2 times your contributions. If you wait longer than 6 months, the cost is the “actuarial” cost, which means the true cost of adding that amount of service to your pension. Generally, the longer you wait, the more the leave costs.

Purchasing service is an important way to maximize your retirement income, and possibly retire earlier with an unreduced pension, so it may be worth it for you to consider a buyback as soon as possible.

Nelson will need to think about the impact on his future retirement income, any impact on his early retirement dates, and his ability to afford the purchase now. He wants to retire before age 60 if possible, so he and his spouse can travel while they’re still young.

• Purchasing the service will allow Nelson to retire with an unreduced pension in 2022 at the age of 58. On that date, his estimated annual pension would be $48,319, with an annual bridge benefit (payable until he turns 65) of $11,147.
• On the other hand, if Nelson does not purchase the service, he can still retire in 2022 at age 58, but his pension and bridge benefit would be reduced by 1.5%. His estimated annual reduced pension would be $44,727 with a reduced bridge benefit, (payable till age 65) of $10,319.

The difference this service purchase would make on Nelson’s future income and potential retirement dates is not insignificant. With the extra purchased service, the pension he would receive on his retirement date in 2022 would be higher, and he would have enough service to retire with no reduction.

If he lived to age 85, as CAAT Pension Plan pensioners do, on average, he’d have received payments worth more than 1.3 million dollars.

During the 7 years he’d receive the bridge benefit, the extra pension and bridge benefits he receives will have come close to matching the amount he paid for the purchase way back in 2010.

Does this make it worth it? If Nelson can afford the cost of the buyback now, he might decide that it’s worth it for him to purchase it so that he can retire earlier. Most Canadians are enjoying longer lives than ever before, with the average CAAT Pension Plan member living to close to 85. If Nelson retires at age 58 and lives to age 85 he’ll have received additional pension payments worth $102,780 more than if he did not purchase the service. Only Nelson can decide if the future benefit outweighs the cost now.

Now in her 40s, Fatima is reviewing her finances and working on a retirement plan. She’s curious about what her pension would be if she had joined the Plan as an Other Than Regular Full-Time member when she had the chance.

With the new buyback provisions, she now has the opportunity to purchase all of the time that she was a part-time employee at her CAAT Pension Plan employer, including the time before she was eligible to join as a part-time employee, a total of 4 years (i.e. she worked 50% of the full-time equivalent hours during her 8 years of part-time employment).

By using the ACE tool, Fatima, who is now 45, learned that, based on her age, service in the Plan and current salary, $80,000, it would cost between $51,400 and $55,300 to purchase the service. With this estimate, she can decide if she wants to proceed with the purchase and request a formal quote by approaching the college where she worked part-time and asking them to complete the Service Purchase Application form. Fatima’s CAAT Plan employer, where she worked on a part-time basis, will provide her service and earnings history, including the number of part-time hours worked.

Once she has a formal quote from the CAAT Plan, she can decide then if she wants to go ahead with the purchase.

Fatima may wish to seek independent financial advice, particularly around the tax implications of this purchase.

In most cases, usually after a six-month deadline for choosing to buy service has passed, the cost will be the current actuarial cost. This is the cost of the increased pension relating to the additional service - the value needed today to pay the pension in the future.

However, as your age, earnings and years of membership increase, so will the cost of the buyback. If you don't meet the original payment deadlines, you may also find that the cost that you've been quoted will be recalculated - this is because the combination of your age, earnings and years of membership are increasing all the time. There are some rare cases where the actuarial cost could decrease, depending on interest rates and other market factors which are an important part of the calculation.

How to pay

With a couple of exceptions, you will have to make payment by yourself, with no contribution from your employer. Remember that during your active service, your employer contributes the same amount as you.

In all cases, payment will be in a lump sum with no interest charged. You may have the choice of paying by cash, or by a transfer from your RRSP (there are situations where you could be restricted to one or the other).

You can choose to make the purchase up until you retire or leave your job.

You can buy this service either with cash or through RRSP transfer. If you make the purchase within six months of the leave's end, you'll pay two times your regular contributions (there is no contribution from your employer) based on your salary at the time you choose the purchase.

If you wait until after six months, you'll be paying the full actuarial cost. Once you sign the purchase form, you will have 90 days to make full payment (in cash or through RRSP transfer) at the quoted cost. If longer, the amount owing will be recalculated.

"Pre-enrolment service" is a special category of employment contract (full time Sessional or Appendix D) that you can purchase. Your employer will pay the employer's share of contributions. Your current employer will make the payment, based on current earnings, regardless of which employer you were at when you acquired the service.

You can make your portion of the payment either with cash or through RRSP transfer. If you buy the service within 6 months of joining the Plan full time, you'll pay regular contributions based on your salary at the time you choose the purchase. If six months have passed, you'll be paying 50% of the actuarial cost, with your employer paying an equal amount.

Once you sign the purchase form, you'll have 90 days to make full payment at the quoted actuarial cost. If longer, the amount owing will be recalculated.

This new category of "pre-enrolment, full cost" service allows you to purchase any and all time that you worked for a CAAT Plan employer before you joined the Plan as a member. This includes any other than regular full-time employment. You pay 100% of the actuarial cost of the purchase.

You can buy this service through regular deductions by your employer from Supplementary Unemployment Benefit (SUB) Plan payments you receive during the leave period.

Or, buy it once you return to work, with cash or through RRSP transfer.

If you buy it within 6 months of returning to work, the cost will be regular contributions on your salary when you choose the purchase. Your employer will match these contributions.

If six months have passed, you'll pay the full actuarial cost, with no employer contribution.

Once you sign the purchase form, you'll have 90 days to make full payment at the quoted actuarial cost. If longer, the amount owing will be recalculated.

Pregnancy and parental leaves under the ESA

The provincial Employment Standards Act (ESA) includes provisions designed to protect the jobs and certain benefits of employees who take leaves of absence for certain family reasons.

Employers are not required to pay employees during periods of pregnancy/adoption or parental leave. However the ESA states that employers must continue to pay their share of premiums to benefit plans, such as medical insurance. Employers must also continue contributing to pension plans, unless the employee states in writing that she or he does not intend to make contributions during the period of the leave.

Pregnancy Leave

Pregnancy Leave allows new mothers to take up to 17 consecutive weeks off work to remain with their newborn. To be eligible for a Pregnancy Leave, an employee must have been hired at least 13 weeks before the baby's due date.

Parental Leave

Parental Leave provides up to 37 consecutive weeks of leave to both mothers and fathers of newborn or newly adopted children. To be eligible, an employee must have been hired at least 13 weeks before the start of the leave. Birth mothers who take Pregnancy Leave are permitted to take 35 weeks of Parental Leave, giving a combined total of 52 consecutive weeks of absence.

Pregnancy and parental benefits under the EI Act

The Employment Insurance (EI) Act is the federal legislation that provides maternity and parental benefits to employees who take unpaid leaves under the ESA. These payments give employees the opportunity to receive a stream of income while they remain at home to care for their families. Currently, employees on pregnancy and parental leaves can receive an EI benefit of 55% of average insured earnings, up to a maximum weekly amount. To start receiving EI benefits, employees must apply to Human Resources and Skills Development Canada and complete a two week waiting period.

Some employers may "top up" federal EI payments as part of a collective agreement or Human Resource policy. As a college employee, you may be eligible to receive Supplementary Unemployment Benefit (SUB) Plan payments from your employer during your pregnancy/adoption or parental leave. For information on SUB Plan payments, contact your College's Human Resources department.

How to arrange your purchase

Your employer will provide you with a Pregnancy/Adoption or Parental Leave form that you will have to complete and sign. It is normally to your advantage to purchase these leaves, however if you decide against it, you must complete the waiver section of the form and return it to your employer.

If you are entitled to receive SUB Plan payments from your employer, your contributions may be deducted directly from these payments. You can continue to accumulate pensionable service and benefit from the matching contributions your employer makes during your leave.

If you are not entitled to SUB Plan payments, or you do not wish to have contributions deducted from your payments, you can make a "buyback" - a lump sum payment of the entire amount of your contributions - upon your return to work. For buybacks made within six months of your return to work, your employer matches your contributions. However if the payment is not made within six months, the cost will be recalculated and you have to pay the full actuarial value of the service with no contributions from your employer.

To process your purchase, you must provide a cheque, payable to your employer, for the full amount within the deadline. You can also make the purchase through an RRSP transfer, in which case you will also have to complete a Canada Revenue Agency form T2033, available from your financial institution.

If you return to work with an employer, you can purchase the service from your previous membership. If you buy this service within six months of rejoining the Plan, you'll pay regular contributions based on your salary at the time you choose the purchase, with no employer contribution.

If you wait until six months pass, you'll be paying the full actuarial cost. See tax considerations for information about PSPAs.

Once you sign the purchase form, you will have 90 days to make full payment (with cash or through RRSP transfer) at the quoted actuarial cost. If longer, the amount owing will be recalculated.

If you return to work with an employer, you can purchase the service from your previous period of membership after you rejoin the Plan. The cost to you is the full actuarial cost, and there is no employer contribution.

Once you sign the purchase form, you will have 90 days to make full payment at the quoted cost. If longer, the amount owing will be recalculated.

If you are buying a commuted value amount relating to service before 1992, payment for it must come from a transfer from an RRSP or Deferred Profit Sharing Plan. If the amount relates to service after 1991, payment can generally be with cash or through RRSP transfer.

If before your grievance was resolved, you had your contributions refunded or the commuted value of your pension benefit was transferred out of the Plan, you can buy back the value of the service by repaying any amounts you received or transferred out when you return to work. The Plan will calculate the cost, which will include interest charges. If this cost is more than the current worth of the amount you received, due to investment fees or losses, you are responsible for the difference.

You will have the choice of paying with cash or through RRSP transfer, unless you are buying back a commuted value amount for service before 1992. In this case, payment must come from an RRSP or another Registered Pension Plan. See tax considerations for information about PSPAs.

While waiting to be recalled, if you did not have your contributions refunded or transfer the commuted value of your pension benefit out of the plan, you can buy the layoff period as an unpaid leave of absence when you return to work. You can use either cash or an RRSP transfer.

If you make the purchase within six months of the end of the layoff period, you'll pay two times your regular contributions based on your salary at the time you choose the purchase. If you wait until after six months, you'll be paying the whole actuarial cost. See tax considerations for information about PSPAs.

Once you sign the purchase form, you will have 90 days to make full payment at the quoted actuarial cost, after which the amount owing will be recalculated.

To buy this service, you would pay two times your regular contributions based on the salary you had at the beginning of the work stoppage. You can choose to make this purchase in a lump sum, with cash or through RRSP transfer, any time up until you retire or leave your job.

The work stoppage involving OPSEU Academic members started on March 7 and ended on March 24, 2006 – a period of 14 work days. Members could still have questions about any impact on their Plan membership and future pension.

Employees involved in a work stoppage remain Plan members during the period of the work stoppage, providing they have not terminated employment during the strike period and they return to work when it ends. Any strike payments received during the work stoppage are not considered pensionable earnings, and no contributions to the Plan can be made on those earnings.

Because Plan members made pension contributions for at least one day during March, they will receive credit for pensionable service for all of March. This treatment is referred to in the Plan as the "one day rule." However, the pensionable earnings credited to the member during March will only reflect the actual earnings during the month. Therefore, members who expect to be retiring and March 2006 earnings will be part of the “best 5” may want to consider buying back the earnings lost during the strike period, in order to enhance their earnings calculation and their resulting pension benefit.

This type of service purchase, or buyback, can take place at any time after the return to work, up to the date the member terminates from the Plan or retires. The cost of this service purchase is two times regular contributions based on the member's earnings at the beginning of the work stoppage. Plan members should be aware that if contribution rates change prior to the date they choose to make the payment, the contribution rate in effect at the time of the payment will be used for the calculation. The payment must be made as a lump sum, and the College will not make any contributions on the member's behalf for the purchase of earnings relating to the strike period.

In 2011, the contributions to be made for this purchase of earnings will be calculated as follows:

Salary is the regular annual rate of earnings in effect as of March 6, 2006

• 12.1% is the current contribution rate
• 2 reflects two times the contributions
• 14 is the number of days of the strike
• 261 is the number of working days in the year.

The pensionable earnings for the period will be calculated as follows:

Any retroactive pay relating to the work stoppage will have regular contributions made at the time it is paid, and it will qualify for inclusion in pensionable earnings. Members who receive this retroactive pay after the date they retire will have the pay treated the same way, and will have their pensions recalculated.

A PSPA is the deemed value of the additional benefit created by the purchase - it reduces your RRSP contribution room. To create room for the purchase within your RRSP, you may need to withdraw some funds from it, which will be considered taxable income in the year they are withdrawn, or you may need to transfer funds from your RRSP to purchase the leave.

At the same time, keep in mind that a buyback may affect your PA amount. If you pay for a leave of absence before April 30 of the year after the year the leave ends, it will be included in the PA reported for the period.

If you choose to buy the leave after April 30 of the following year, we will have to calculate a Past Service Pension Adjustment (PSPA) and report it for approval to the Canada Revenue Agency before the purchase can be completed.

Note that Pension Adjustments have been used since 1990. These calculations are not required for service periods before that year. However, there are some other tax issues, such as the pre-1990 deductibility limit of $3,500, which you would need to consider.

Federal law places a maximum on the amount of post-1990 unpaid leaves of absence you can purchase. The total amount is 5 years, plus up to 12 months for each pregnancy or parental leave to a maximum of 3 additional years.

Your decision to purchase service will be affected by the issues of tax deductibility, PAs and the possibility of PSPAs. You'll need to consult with your employer and perhaps your financial advisor.