Changes affecting active members

One of our goals is to make sure all Plan members – active and retired – are kept up to date and informed. Please take note that the following Plan changes affect active members only and do not have an impact on current pensions.

Contribution rates increased on January 1, 2012

As we reported in our March 2011 newsletter, contributions increased by 0.8% on January 1, 2012 for members and employers. Further contribution increases of 0.4% will take place in 2013 and 2014 for a total increase of 1.6% over 3 years.

These contribution increases are necessary to help fund the increased cost of paying lifetime pensions due to the increased life expectancy of our members. The average CAAT Plan member retiring today is expected to live to age 88, which is substantially longer than the average Canadian. It’s great news for members and makes the lifetime guaranteed pension more valuable. It also means the Plan needs to set aside more funds to secure these additional monthly pension payments to members.

Also new this year is a change to the way contributions are calculated. Prior to the change, contributions made on the first $3,500 of earnings (and on earnings above the YMPE) were at the higher contribution rate. As of January 1, 2012, members (and employers) contribute at the lower rate of 11.1% on all pensionable earnings up to the YMPE. Contributions on earnings above the YMPE continue to be at the higher rate. (The YMPE is set by the Canada Revenue Agency and increases each year. The 2012 YMPE is $50,100).This change improves fairness for members at different earnings levels, and simplifies the calculation of contributions. 

Pension deductions to become consistent throughout year – goal is equity

A new procedure to be introduced by 2013 will spread contribution deductions equally across all pay periods. The new ”annualized” method will mean contributions are calculated based on salary rates, and deducted in equal amounts from each pay period throughout the year. This new method does not affect contribution rates; it simply divides contributions evenly throughout the year, eliminates fluctuations and provides a predictable deduction each pay. This method is consistent with pension industry standards and removes inequity among members who join and leave the Plan at different points in the year. Employers will begin to apply this smoother calculation method to contributions by 2013.

Change to 50/20 provision in 2013

This change, originally announced in 2008, affects members with 20 or more years of pensionable service who are under age 55 and may be leaving the college system.

The Plan’s 50/20 provision allows members with 20 or more years of pensionable service and who are 50 or over to retire and start an immediate lifetime pension prior to age 55. Because these members are under age 55, they also have the option of a payout of the commuted value (CV) of their pensions, instead of collecting a lifetime pension. Choosing a CV means giving up the right to a guaranteed lifetime pension from the Plan. It also means managing their own investments and other risks. The 50/20 provision exists to facilitate early retirement for members who have accrued a lot of pensionable service. .

Starting January 1, 2013, the CV payout option will be eliminated for members who qualify for the 50/20 provision. Eligible members will continue to benefit from an immediate or deferred pension that starts early and is paid for life.No other members who are eligible for an immediate pension have eligibility for a commuted value transfer.

Members who terminate before age 55 with less than 20 years of pensionable service, who are not, therefore, eligible for an immediate pension, can still choose the CV option up to age 55.

Elimination of vesting rules

Currently, members are “vested” after 2 years of Plan membership. Being vested means being entitled to a pension benefit from the Plan either in the form of a pension at retirement, or one of our termination options, if they leave the Plan before retirement.

Prior to vesting, if a member leaves their job before retirement age, they receive a refund of contributions (plus interest) only. However if they leave their job after vesting, they are entitled to the value of their lifetime pension – either to transfer out of the Plan, or to collect as a deferred or immediate lifetime pension.

Starting July 1, 2012, all members will vest immediately.

With the passing of Bill 236 last year, changes have been made to the Pension Benefits Act which will eliminate the 2-year “waiting period for vesting for pension plans in Ontario.

Regardless of how much service they have, all current Plan members will automatically vest, and all future members will vest as soon as they join the Plan. All members will therefore be entitled to a pension benefit when they leave the Plan. For current non-vested members, this change means the value of their benefit will increase immediately, since a lifetime pension is usually worth more than the amount of contributions plus interest.

This change has no impact on current pensions or former members of the Plan.