The Plan Equity Review Task Force, a specially established subcommittee of the Board of Trustees and Sponsors’ Committee, has recommended two Plan changes, which have been approved by the Plan Governors, and will take effect on July 1, 2016.
The changes affect
- Pension accrual for members on disability leave (either the employer’s long-term disability, or WSIB total disability benefits) on or after July 1, 2016, and
- The commuted value transfer option, available to members at the end of the extension of membership period, who are not yet eligible to retire.
1. Disability accrual
One of the Plan’s many valuable provisions ensures that members who qualify for disability benefits through either their employer’s LTD benefits, or receive WSIB total disability benefits, continue to accrue a pension for the period they receive such benefits, with a waiver of contributions. Under current Plan rules, Plan members accrue a pension at the tiered rate of 1.3% and 2% when their disability begins, and, at the start of their first calendar year on disability, they begin to accrue at a rate of 2% of earnings.
Starting July 1, 2016, any member who qualifies for disability on or after that date will continue to accrue pension benefits at the tiered rate of 1.3% and 2%, and will continue to accrue at that rate for the entire disability period consistent with the benefits being earned by all active contributing members.
Members on disability will continue to accrue a pension based on their deemed earnings, which are the earnings they were making at the date disability started, increased each year by the inflation protection amount applied to pensions in payment. Their contributions will continue to be waived.
Members who are on either LTD or WSIB total disability benefits at the time the provision takes effect (July 1, 2016) will not be affected by this change. They will continue to accrue a pension under the rules in effect when their disability benefit started, until it ends, or they retire.
2. Commuted Value option at the end of the extension of membership period
Under current Plan rules, members who terminate and have reached the end of their Extension of Membership (EOM) period have until they become eligible to retire (that is, they reach age 55, or age 50 if they have 20 years of service) to choose to transfer their commuted value (CV) out of the Plan, rather than defer and collect their pension once they ultimately retire.
Effective July 1, 2016, for all members who terminate, the option for a CV payout will be available for a period of 6 months from the end of the EOM period. Members who will become eligible to retire during that 6 month period (because they reach age 55, or they reach age 50 and have 20 or more years of service) would have to take the CV before they become eligible to retire if they wanted that option. After the 6 month period, if the member has not opted for the CV transfer, they will receive their pension in the form of a deferred pension (and maintain the option to transfer their pension to another employer’s pension plan at any time prior to retirement).
The Commuted Value is a lump-sum payment of the ‘present value’ of a member’s earned pension. In other words, it is the amount of money that would have to be invested today, based on current interest rates, to be equivalent in today’s dollars to the member’s future pension stream. Commuted Value assumptions and calculation methodology are prescribed by legislation.
Deferred members retain a secure, lifetime pension, available from age 65 (or a reduced lifetime pension starting at age 55, or as early as age 50 if the member has 20 or more years of service).
For terminated members who prefer a secure, lifetime pension, no action is required. Your pension remains in the CAAT Pension Plan, available for you to start at age 65, or as early as age 55, with a reduction. Note that members who have 20 or more years of service can start their pensions as early as age 50, with a reduction.
Members who have reached the end of the EOM period before July 1, 2016 may opt to transfer the value of their pension into a locked-in vehicle until December 31, 2016, as long as they are still under age 55 at that time (or age 50, if they have 20 or more years of service).
The commuted value option is a limited right, required by the Ontario Pension Benefits Act to be available for 60 days from the end of membership. The Plan’s change still exceeds the legislative requirements, and reinforces the Plan’s primary purpose of providing secure lifetime pensions while managing Plan risks.
History of the Plan Equity Review Task Force
The Plan Equity Review Task Force was an ad hoc subcommittee of the Board of Trustees and the Sponsors’ Committee, made up of an equal number of employer and member representatives. Its focus is on Plan provisions which may be applied inequitably, or which may result in inequities between members. Guided by the Plan’s key principles of benefit security, stable contribution rates, and intergenerational equity, the Task Force made recommendations based on the intent of the Plan: to provide lifetime, secure retirement income to members at an appropriate cost.
In 2012, the Plan held its first Plan Equity review. This review identified a number of equity issues, and made several Plan changes as a result of its recommendations. At the same time, the 2012 Task Force identified a number of issues for further study. In 2014, the Plan’s governors appointed a new Task Force to conduct a review in 2015 of the previously identified issues.
After thorough study, including detailed analysis of demographic data, the 2015 Task Force made its report and recommendations to the Board and Sponsors’ Committee. The Board accepted the Task Force conclusions and recommended two Plan amendments to the Sponsors’ Committee. The Sponsors’ Committee has made the two Plan amendments, which will take effect July 1, 2016.