During your membership, you’ll make contributions based on a percentage of your salary. Your employer contributes toward your future retirement income as well, by matching your contributions in the Plan. Your contributions are tax deductible to you, meaning they lower your income for tax purposes. In addition, you pay no income tax on the matching contributions made by your employer.
Contributing to your future
The CAAT Pension Plan makes it easy to save for retirement and build a stable, predictable retirement income. You contribute a percentage of your earnings into the Plan each pay and your employer matches your contributions dollar for dollar.
Your contributions, and those of your employer, are prudently invested in the Plan fund from which your pension is paid when you retire. Contributions are used to fund your benefit, but your benefit is worth so much more than just the contributions you made.
Contributions and benefit security - Video series
[Click here for transcripts]
To fulfil the pension promise, contributions and investments work together to equal your defined benefit pension, and keep the plan sustainable.
Picture the funding equation as a scale that needs to be balanced.
On the right, the value of all benefits earned by members, plus the expenses of running the Plan.
On the left, member and employer contributions, plus the income earned from investing them.
The Plan must maintain balance to be sustainable in the long run. How do we do this?
In a Defined Benefit plan, we regularly project how much money is needed to pay the current and future pension benefits of members based on their age, service and earnings.
The Plan is cost-effective, meaning more goes to benefits and less to expenses.
Current and future pension payments come from the pension fund.
Contributions and investments work together to pay for the benefits.
It’s the investment income that funds the majority of the benefits, leading to stable and affordable member and employer contributions.
The Plan works hard on your behalf to maintain the balance of these key factors ensuring the long-term security of your benefit and the pension plan.
The CAAT Plan’s number one goal is to provide members with secure, lifetime retirement benefits at an appropriate cost.
For members, a lifetime pension means peace of mind and financial security in retirement.
Contribution rates work with investment returns to pre-fund member benefits.
During their working years, members and their employers contribute equally to the Plan.
These contributions are used exclusively for member benefits.
Contributions are made in two parts: basic and stability.
Basic contributions fund the expected cost of pensions that members will be paid throughout their retirement.
In this plan, members and employers pay a stability contribution rate to help build reserves.
The reserves improve overall benefit security by providing a cushion to withstand economic and demographic shocks,providing greater stability for members and strengthening the overall security of member benefits.
When does the stability rate go down?
The Plan governors review the funding each year. Using the Funding Policy, they determine the appropriate time to reduce stability contribution rates.
In 2015, The Plan is in Funding Level 3.
As the Plan moves along the funding levels, into funding level 4, the Plan can begin to reduce the stability rate.
Everybody benefits from stable, predictable contribution rates. They keep the Plan secure, and your future on a sustainable course.
Contribute as long as you work (until you turn 71)
If you decide to work past the normal retirement age of 65, you can keep contributing and earning more retirement income until you stop working. However once you turn 71, you must stop contributing to the fund and start collecting your pension, even if you continue working.
Contributions for breaks in service
If, during your membership, you have any breaks in service during which you stop making contributions to the Plan (such as a leave of absence), you can consider restoring the lost contributions and build a bigger pension by purchasing service.
Tax free contributions
One of the most cost effective aspects of belonging to a defined benefit pension plan is often one of the most overlooked. Under the Income Tax Act, the federal government provides several forms of tax relief to Canadians who make contributions to registered pension plans like ours.
- You receive immediate tax savings when you contribute to the Plan. Your pension contributions are deducted from your gross income, which reduces your taxable income – the amount on which your taxes are deducted. By the end of the year, the income on which you pay taxes has been reduced by the amount of your pension contributions. This has the same effect as an RRSP contribution – but your employer reduces your tax right away, so that you don't have to wait until you file your tax return.
- Your contributions are 100% matched, or doubled, by your employer. These contributions are not a taxable benefit to you – you do not count this as income.
- Like your RRSP savings, the contributions you and your employer make are allowed to accumulate in the pension fund tax-free. Once you retire and begin collecting your pension from the Plan, income tax will be applied to your payments. However, in most cases, it will be at a lower marginal tax rate than when you were employed.
Contribution Rates in 2017
Contribution rates are 11.2% on earnings below the YMPE and 14.8% on earnings above the YMPE.
The earnings on which you pay pension contributions are based on your contributory earnings, which include basic salary and other payments such as shift premiums and coordinator allowances. They do not include overtime pay, most lump sum termination payments, and certain other types of payments.
The contributions collected as a result of recent increases are being invested to provide increased lifetime benefits due to longer life expectancy.
If you were an active member of the ROM Pension Plan on December 31, 2015, and are still an active member, the provisions that apply to your pension may be different than those outlined on this page. Visit Active members – formerly ROM Pension Plan members for details.
How your contributions are deducted
The method used to determine your pension contributions each pay uses annual pensionable earnings. This method took effect at the start of 2013 for members who work full time and was introduced for Other Than Regular Full-time (OTRFT) members in 2014.
Contribution rates are applied to your earnings in a manner consistent with how you are credited with benefits in the Plan. If your annual earnings or salary rate exceeds the year’s maximum pensionable earnings (YMPE) you will make contributions at the low and high contribution rates each pay, just as you earn benefits at the low and high benefit rates each pay. Your deductions will be consistent throughout the year.
This helps ensure that the Plan collects the correct amount of contributions from each member (and matching contributions from their employer) needed to adequately fund the future benefit. It also helps achieve equity across the membership, with all members paying the same contributions for a given amount of benefit. This change to improve equity is one of many the Plan has introduced over the past few years.
This deduction method prorates your contributions according to the actual amount of pensionable service you accrue during the pay period. So, if you work less than the full period, you pay proportionately less than a member who earns the same rate of pay but works the full period.
Calculating service and contributions for part-time and contract members
In 2014, changes to update the calculation methodology for pensionable service and contributions for Other Than Regular Full-Time (OTRFT) members came into effect.Pensionable Service is not the same as the length of your employment or your membership in the Plan. For example, if you work 50% of full-time hours for 20 years, you will have 10 years of pensionable service, not 20 years.
To calculate pensionable service for OTRFT members, your employer compares your hours worked to the Full Time Equivalent (FTE) hours for your position(s). The FTE is the number of hours in a calendar year for which a full-time employee in the same position would be paid. Your total hours worked in a calendar year are divided by the FTE to determine the pensionable service for that year, and your total pensionable service over your time in the pension plan is used to calculate your pension. FTE can vary depending on the position and is determined by your employer.
While this is the same way pensionable service has always been calculated, there is a change in the FTE being used. For instance, prior to 2014, the FTE for OTRFT faculty members was 648 hours per year. This FTE did not take into account that faculty have both Teaching Contact Hours (TCH) and non-TCH hours. For TCH hours, a factor of 2.17 is applied to all hours. The FTE used for OTRFT members who are faculty is now 1,892, effective in 2014. This reflects the actual hours worked by full-time faculty. The updated FTE may result in less service for some OTRFT faculty members, but is a more effective assessment of the actual hours worked relative to full-time faculty members, and pensionable service will accrue in line with the actual contributions made.
Contributions: Your contributions are calculated using an annualization methodology. To calculate contributions we convert your actual earnings to the equivalent earnings of a full-time member in a comparable position. We then prorate the contributions based on the percentage of full-time hours you work. For example, if you work 50% of full-time hours, you will contribute 50% of the contributions a full-time member earning the same annual rate of pay would make. Your contributions may be different than in previous years, but the updated calculation methodology better reflects the pension you are earning.