ARCHIVED SACCO 1995-014

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SPECIAL ADVICE TO CROWN CORPORATIONS NOT SERVICED BY THE REGIONAL PAY SYSTEM: 1995-014

APPENDIX"A"

November 17, 1995

SUBJECT: Canada Pension Plan, Québec Pension Plan (CPP/QPP) Contribution Rate; Public Service Superannuation Act (PSSA) Pension Increase; PSSA Thresholds/Employer Rate; Pension Adjustment (PA) Calculation

1. PURPOSE

1.1. The purpose of this Advice is to provide Crown Corporations with information regarding

1. the change in Canada/Québec Pension Plan (CPP/QPP) rate of contribution for 1996;
2. the rate of pension indexation for 1996;
3. the Employer contribution rate to the Retirement Compensation Arrangement (RCA) and the PSSA salary thresholds for 1996, and
4. to provide examples of how to calculate the PA for 1995.

2. POLICY

2.1. CPP/QPP

2.1.1. Effective January 1, 1996, the CPP/QPP contribution rate will increase from 2.7 % to 2.8 %.

2.1.2. As a result of the increased CPP/QPP contribution rate, the contributions required to the Superannuation Account effective January 1, 1996, will be 7.5 % minus 2.8 % required on CPP/QPP earnings. That is, contributions required under the (PSSA) on that portion of salary for which CPP/QPP contributions are required will be 4.7 %.

2.1.3. This change will affect PSSA contributions on service occurring on or after January 1, 1996.

2.1.4. The 1996 changes related to CPP/QPP are:

• MAXIMUM PENSIONABLE EARNINGS $35,400
• BASIC EXEMPTION $3,500
• MAXIMUM CONTRIBUTORY EARNINGS $31,900
• MAXIMUM CONTRIBUTION $893.20

2.1.5. The Average Maximum Pensionable Earnings (AMPE) for 1996 is $34,900.00. The annual CPP/QPP reduction in the benefit payable under the PSSA for individuals who retire in 1996 will be based on the lesser of the six-year average salary or the AMPE for 1996.

2.2. Pension Increase under the Supplementary Benefits Provision of the PSSA

2.2.1. Part III of the PSSA provides for annual pension increases depending on the cost of living index, for all pensions payable to former public servants or their survivors.

2.2.2. The pension increase authorized under Part III of the PSSA is 1.6 % effective January 1, 1996.

2.3. PSSA Salary Thresholds and RCA Contributions

2.3.1. For 1996, employees whose annual salary rate is in excess of $98,600.00 will contribute to the PSSA in respect of salary below this limit and to the RCA in respect of the portion of their salary above the limit.

2.3.2. The Employer contribution for the RCA has been established effective from January 1, 1996 as follows:

For current contributions, "single rate" Leave Without Pay (LWOP) and "single rate" past service, the Employer rate is 7 TIMES the employee contributions.

For "double rate" LWOP and "double rate" past service, the Employer rate is 3 TIMES the contributions made by the employee.

2.3.3. There has been no change to the Employer rate required for matching PSSA contributions. For Crown Corporations, the EMPLOYER contribution rate continues to be equal to the "single rate" contributions paid by employees for current service, single rate types of LWOP and single rate past service elections. Crown Corporations do not match PSSA contributions where the employee is paying LWOP deficiencies or past service arrears at the "double rate".

2.4. PA Calculations

The following are the various maximums related to the PA for 1995:

• The maximum PA for 1995 is $14,500
• The maximum Registered Retirement Savings Plan (RRSP) contributions for 1996 as specified in the last Federal Budget is $13,500. Consequently, employees whose 1995 PA is $13,500 or over could have no RRSP room in 1996.
• The 1995 Yearly Maximum Pensionable Earnings (YMPE) for CPP/QPP is $34,900
• There are no excluded earnings for the calculation of the 1995 PA and the maximum Benefit Entitlement Accrued is $1,722.22

You will find in Appendix "A" of this bulletin, three examples of how to calculate the PA for 1995.

3. INQUIRIES

3.1. Any request for information regarding the foregoing should be addressed to your Public Works and Government Services Canada (PWGSC) Client Services Centre as per Compensation Directive 1994-039 dated October 6, 1994.

Original Signed by
P. Charko

P. Charko
Director General
Compensation Sector
Government Operational Service Branch

Reference: CJA 9006-12
9006-24
9007-10-8
9007-7-8

APPENDIX "A"

PENSION ADJUSTMENT CALCULATION FOR 1995

Example 1: Annual pensionable salary: $45,000.00

Step 1: Determine the annual benefit entitlement:

• (1.3 % x $34,900.00) + (2 % x $45,000.00 - $34,900.00),
• $453.70 + $ 202.00
• $655.70 (benefit entitlement).

Step 2: If the annual benefit entitlement is greater than $1,722.22, IMPOSE $1,722.22.
(In this case benefit entitlement does not exceed $1,722.22.)

Step 3: Pro-rate the benefit entitlement by the number of pensionable pay periods.

1. Full year $655.70 x 26/26 = $655.70
2. Partial year $655.70 x 13/26 = $327.85

Step 4: Multiply the result of step 3 by a factor of 9.

1. Full year 9 x $655.70 = $5,901.30
2. Partial year 9 x $327.85 = $2,950.65

Step 5: Pro-rate $1,000.00 by the number of pensionable pay periods.

1. Full year $1,000.00 x 26/26 =$1,000.00
2. Partial year $1,000.00 x 13/26 = $500.00

Step 6: Subtract the result of step 5 from the result of step 4; this result is the PA for 1995.

1. Full year $5,901.30 less $1,000.00 = $4,901.00
2. Partial year $2,950.65 less $500 = $2,451.00

Step 7: If the result is greater than $14,500.00, IMPOSE $14,500.00.

Example 2: Annual pensionable salary: $95,000.00

Step 1: Determine the annual benefit entitlement:

• (1.3 % x $34,900.00) + (2 % x $95,000.00 - $34,900.00)
• $453.70 + $ 1,202.00
• $1,655.70 (benefit entitlement)

Step 2: If the annual benefit entitlement is greater than $1,722.22.00, IMPOSE $1,722.22.
(In this case benefit entitlement does not exceed $1,722.22)

Step 3: Pro-rate the benefit entitlement by the number of pensionable pay periods.

1. Full year $1,655.70 x 26/26 =$1,655.70
2. Partial year $1,655.70 x 22/26 = $1,400.98

Step 4: Multiply the result of step 3 by a factor of 9.

1. Full year 9 x $1,655.70= $14,901.30
2. Partial year 9 x $1,400.98 = $12,608.79

Step 5: Pro-rate $1,000.00 by the number of pensionable pay periods.

1. Full year $1,000.00 x 26/26 =$1,000.00
2. Partial year $1,000.00 x 22/26 = $846.15

Step 6: Subtract the result of step 5 from the result of step 4; this result is the PA for 1995.

1. Full year $14,901.30 less $1,000.00= $13,901.00
2. Partial year $12,608.79 less $846.00 = $11,763.00

Step 7: If the result is greater than $14,500.00, IMPOSE $14,500.00.

Example 3: Annual pensionable salary: $120,000.00

Step 1: Determine the annual benefit entitlement:

• (1.3 % x $34,900.00) + (2 % x [$98,400.00 - $34,900.00])
• $453.70 + $1,270.00
• $1,723.40 (benefit entitlement)

Step 2: If the annual benefit entitlement is greater than $1,722.22, IMPOSE $1,722.22.

Step 3: Pro-rate the benefit entitlement by the number of pensionable pay periods.

1. Full year $1,722.22 x 26/26 = $1,722.22
2. Partial year $1,722.22 x 25/26 = $1,655.98
3. Partial year $1,722.22 x 22/26 = $1,457.26

Step 4: Multiply the result of step 3 by 9.

1. Full year 9 x $1,722.22 = $15,500
2. Partial year 9 x $1,655.98 = $14,903.82
3. Partial year 9 x $1,457.26 = $13,115.34

Step 5: Prorate $1,000.00 by the number of pensionable pay periods.

1. Full year $1,000.00 x 26/26 = $1,000.00
2. Partial year $1,000.00 x 25/26 = $961.54
3. Partial year $1,000.00 x 22/26 = $846.15

Step 6: Subtract the result of step 5 from the result of step 4; this result is the PA for 1997.

1. Full year $15,500.00 - $1,000.00= $14,500.00
2. Partial year $14,903.82 - $961.54 = $13,942.00
3. Partial year $13,115.34 - $846.15 =$12,269.00

Step 7: If the result is greater than $14,500.00, IMPOSE $14,500.00.

NOTE: FOR THE 1995 TAX YEAR, THE MAXIMUM SALARY USED IN THE PA CALCULATION WILL BE $98,400.