ARCHIVED SAM - Special Bulletin 2004-001

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APPENDIX "A"

January 6, 2004

SUBJECT: Canada Pension Plan (CPP)/Quebec Pension Plan (QPP) Contribution Rate, Public Service Superannuation Act (PSSA) Indexation, Public Service Superannuation Act (PSSA) Thresholds/Employer Rate, Pension Adjustment (PA) Calculations

1. PURPOSE

1.1. The purpose of this bulletin is to provide the following information:

1. the change in the CPP and QPP employee contribution rates and the average maximum pensionable earnings (AMPE) for 2004;
2. the Public Service Pension Fund (PSPF) employee contribution rate for 2004;
3. the rate of pension indexing for 2004;
4. the Public Service Superannuation Act (PSSA) salary thresholds for 2004;
5. to provide examples of how to calculate the PA for 2003;
6. the employer contribution rates for public service corporations.

1.2. In this text, use of the masculine is generic and applies to both men and women.

2. POLICY

2.1. CPP/QPP

Effective January 1, 2004, the CPP/QPP employee contribution rate will increase to 4.95 %.

The 2004 changes related to CPP/QPP are:

MAXIMUM PENSIONABLE EARNINGS	$40,500.00
BASIC EXEMPTION	$ 3,500.00
MAXIMUM CONTRIBUTORY EARNINGS	$37,000.00
MAXIMUM CONTRIBUTIONS	$ 1,831.50

The 5 year average maximum pensionable earnings (AMPE) for 2004 is $39,080.00. The AMPE is calculated based on the average of the yearly maximum pensionable earnings (YMPE) for the current year plus the four previous years. The annual CPP/QPP reduction in the benefit payable under the PSSA for individuals who retire in 2004 will be based on the lesser of the 5-year average salary and the AMPE at the earlier of the termination date or the date the employee reaches age 65 and is in receipt of CPP or QPP retirement benefits or the date the employee becomes entitled to receive CPP/QPP disability benefits (refer to SAM 4-7-2).

2.2. PSPF Employee Contribution Rate

Effective January 1, 2004, the employee contribution rate is:

• 4.0% on salaries up to the YMPE ($40,500.00);
• 7.5% on salaries in excess of the YMPE ($40,500.00).

2.3. Pension Increase under the Supplementary Retirement Benefits Provision of the PSSA

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.

The pension increase authorized under Part III of the PSSA is 3.3 % effective January 1, 2004.

2.4. PSSA Salary Threshold and RCA Contributions

For 2004, employees whose annual salary rate is in excess of $105,900 will contribute to the PSPF in respect of salary below this limit and to the Retirement Compensation Arrangement Account (RCA) in respect of those salaries above the limit.

2.5. Crown Corporations -- Employer Contribution Rate

• PSPF

  • The employer contribution rate for the PSPF has been established effective January 1, 2004, as follows:
    • For current contributions, single rate leave without pay (LWOP) and single rate past service, the employer rate is 2.14 times the employee's single rate contributions.
    • For double rate LWOP and double rate past service, the employer rate is 0.56 times the employee's double rate contributions.

• RCA

  • The employer contribution rate for the RCA has been established effective January 1, 2004, as follows:
    • For current contributions, single rate LWOP and single rate past service, the employer rate has decreased to 7.9 times the employee's single rate contributions.
    • For double rate LWOP and double rate past service, the employer rate is 3.45 times the employee's double rate contributions.

• Supplementary Death Benefit (SDB)

  • The employer's monthly contribution rate for SDB premiums continues to be $0.01 per $250.00 of the basic benefit of each employee.

2.6. PA Calculations

The following are the various maximums related to the PA for 2003 and 2004:

• The maximum PA for 2003 is $14,900.00.
• The maximum PA for 2004 is $15,900.00.
• The maximum registered retirement savings plan (RRSP) contribution for 2004 as specified in Bill C-28 (2003 federal budget) is $15,500.00. Consequently, employees whose PA for 2003 is $15,500.00 or over could have no RRSP room in 2004.
• The 2003 YMPE is $39,900.00.
• The 2004 YMPE is $40,500.00
• The maximum salary used in the PA calculation for 2003 is $100,100.00.
• The maximum salary used in the PA calculation for 2004 is $105,900.00.
• The maximum benefit entitlement accrued for 2003 is $1,722.22. As per Bill C-28, the maximum benefit entitlement accrued for 2004 is $1,833.33.
• The PA calculation will be based on the benefit entitlement multiplied by the factor 9, less $600.00 prorated, if necessary, by the number of pensionable pay periods.

You will find in Appendix A of this bulletin examples of PA calculations for 2003 and a worksheet that has been developed as an aid to calculate the PA figure. Please note that in cases where rehabilitation leave and dual employment have occurred, adjustments are required prior to the calculation (refer to Subsection 2.6.4 of this bulletin).

2.6.1. Terminated Employees Who Receive a Lump Sum Benefit Payment

Until further notice, the form Public Works and Government Services Canada (PWGSC)-Travaux publics et Services gouvernementaux Canada (TPSGC) 2386 (Certification Notice -- Pension Support System) must continue to be used to indicate PA figures from 1990 to the year of termination for terminated employees who received a lump sum benefit (i.e., transfer value or transfer of funds to another pension plan under a reciprocal transfer agreement [RTA] or a pension transfer agreement [PTA]). In cases where the employee received a return of contributions, the PA figures are to be reported on the form PWGSC-TPSGC 2577, Request for Return of Superannuation Contributions. For additional information, refer to Superannuation Administration Manual (SAM) Special Bulletin 1998-14 dated December 17, 1998.

2.6.2. LWOP

It is important that an employee proceeding on LWOP be informed of the effect of PA reporting when he elects not to count the LWOP as pensionable service.

Where the employee elects not to count a period of LWOP as pensionable before the end of a calendar year, the period of non-pensionable LWOP for that year will not be included in the PA calculation. The PA for any subsequent years will not be reported until the employee returns to duty and recommences accumulating pension credits.

When an election is made not to count a period of LWOP as pensionable, a PA reported for any calendar year previous to this period cannot be cancelled. This rule applies even if the employee terminated immediately following the LWOP and received a return of superannuation contributions.

Please refer to Compensation Directive 1995-010 dated March 6, 1995, which provides additional details on situations where an employee opts not to count a period of LWOP as pensionable.

In cases where an employee terminates employment immediately following a LWOP period, it is important to remember that for pension purposes, the termination date is the day following the date on which the Superannuation Directorate is notified in writing that the employee has ceased to be employed (refer to Section 2.2.3 of the Superannuation Administration Manual [SAM]). There are instances where the employee is terminated for pay purposes, but because the Superannuation Directorate is not notified in time, the termination date is extended for pension purposes. In this case, when the additional pension contributions are calculated, the PA must also be amended to reflect the additional pensionable service.

2.6.3. Employees on LWOP to Serve as Full-time Paid Officials of Bargaining Agents

In cases where a contributor, who is on LWOP to serve as a full-time paid official of a bargaining agent (union), provides written confirmation that the union has reported a PA for the pensionable LWOP under the PSSA, that period must not be included in the PA reported by the former employer. This confirmation should be in the form of a letter from the union advising that the benefit accrual under the PSSA has been included in the PA reported by the union. Please refer to SAM Special Bulletin 1999-03 dated February 15, 1999, for additional details.

2.6.4. Clients serviced by the Regional Pay System (RPS)

It is the responsibility of departmental personnel to advise the pay office of the required information concerning specific situations such as dual employment (employee on pensionable LWOP and occupying a term position where he contributes to PSSA, for example relocation of spouse) and situations where the employee is on pensionable LWOP for educational leave. Please refer to Compensation Directive 1994-012 dated March 23, 1994, for additional information.

In addition, any employee who was on rehabilitation leave with a pension type code 62 in Field 39 at any time during the calendar year, will not have a PA reported automatically for this period. In order to have a PA calculated for the rehabilitation leave period, departments must report to the pay office, by memorandum, the employee's number of pensionable pay periods and the amount of pensionable earnings for the period reflected under code 62 in the RPS. Please note that this period will be from the date on which the code 62 was input into the system and not from the effective date of the rehabilitation leave.

On receipt of the department's written notice for any employee on rehabilitation leave with pension type code 62 in Field 39, the pay office will credit Master Employee Record (MER) Element 734 by the amount of pensionable earnings and adjust MER Element 118 by the proper number of pensionable pay periods.

3. INQUIRIES

3.1. Any request for information regarding the content of this bulletin should be addressed to your PWGSC Compensation Services Office.

Original Signed by
R. Jolicoeur

R. Jolicoeur
Director General
Compensation Sector
Accounting, Banking and Compensation

Reference(s): CJA 9006-12, 9006-24
9007-7-8, 9007-10-8
9207-2-37

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APPENDIX "A"

PENSION ADJUSTMENT CALCULATION FOR 2003

Example 1 -- Annual pensionable salary: $42,000.00

Step 1: Determine the annual benefit :

• (1.3% x $39,900.00) + [2.0% x ($42,000.00 - $39,900.00)]
• =$518.70 + $42.00
• =$560.70 (annual benefit entitlement)

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

• IMPOSE $1,722.22
  (In this case, the benefit entitlement does not exceed $1,722.22)

Step 3: Prorate the benefit entitlement by the number of pensionable pay periods.

1. Full year $560.70 x 26/26 = $560.70
2. Partial year $560.70 x 13/26 = $280.35

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

1. Full year $560.70 x 9 = $5,046.30
2. Partial year $280.35 x 9 = $2,523.15

Step 5: Prorate $600.00 by the number of pensionable pay periods.

1. Full year $600.00 x 26/26 = $600.00
2. Partial year $600.00 x 13/26 = $300.00

Step 6: Subtract the result of step 5 from the result of step 4; this result, rounded to the nearest dollar, is the PA for 2003.

1. Full year $5,046.30 - $600.00 = $4,446.30
2. Partial year $2,523.15 - $300.00 = $2,223.15

Step 7: If the result is greater than $14,900.00,

• IMPOSE $14,900.00 (In this case, the result is less than $14,900.00)

Example 2 -- Annual pensionable salary: $95,000.00

Step 1: Determine the annual benefit :

• (1.3% x $39,900.00) + [2.0% x ($95,000.00 - $39,900.00)]
• =$518.70 + $1,102.00
• =$1,620.70 (annual benefit entitlement)

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

• IMPOSE $1,722.22
  (In this case, the benefit entitlement does not exceed $1,722.22)

Step 3: Prorate the benefit entitlement by the number of pensionable pay periods.

1. Full year $1,620.70 x 26/26 = $1,620.70
2. Partial year $1,620.70 x 22/26 = $1,371.36

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

1. Full year $1,620.70 x 9 = $14,586.30
2. Partial year $1,371.36 x 9 = $12,342.24

Step 5: Prorate $600.00 by the number of pensionable pay periods.

1. Full year $600.00 x 26/26 = $600.00
2. Partial year $600.00 x 22/26 = $507.69

Step 6: Subtract the result of step 5 from the result of step 4; this result, rounded to the nearest dollar, is the PA for 2003.

1. Full year $14,586.30 - $600.00 = $13,986.30
2. Partial year $12,342.24 - $507.69 = $11,834.55

Step 7: If the result is greater than $14,900.00,

• IMPOSE $14,900.00 (In this case, the result is less than $14,900.00)

Example 3 -- Annual pensionable salary: $120,000.00

Step 1: Determine the annual benefit :

• (1.3% x $39,900.00) + [2.0% x ($100,100.00 ¹ - $39,900.00)]
• =$518.70 + $1,204.00
• =$1,722.70 (annual benefit entitlement)

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

• IMPOSE $1,722.22 (In this case, the benefit entitlement does exceed $1,722.22)

Step 3: Prorate 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 13/26 = $861.11
3. Partial year $1,722.22 x 22/26 = $1,457.26

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

1. Full year $1,722.22 x 9 = $15,499.98
2. Partial year $861.11 x 9 = $7,750.00
3. Partial year $1,457.26 x 9 = $13,115.34

Step 5: Prorate $600.00 by the number of pensionable pay periods.

1. Full year $600.00 x 26/26 = $600.00
2. Partial year $600.00 x 13/26 = $300.00
3. Partial year $600.00 x 22/26 = $507.69

Step 6: Subtract the result of step 5 from the result of step 4; this result, rounded to the nearest dollar, is the PA for 2003.

1. Full year $15,499.98 - $600.00 = $14,899.98
2. Partial year $7,750.00 - $300.00 = $7,450.00
3. Partial year $13,115.34 - $507.69 = $12,607.65

Step 7: If the result is greater than $14,900.00,

• IMPOSE $14,900.00 (In this case, the result is less than $14,900.00)

¹ FOR THE 2003 TAXATION YEAR, THE MAXIMUM SALARY USED IN THE PA CALCULATION WILL BE $100,100.00.

PENSION ADJUSTMENT WORKSHEET

EMPLOYEE IDENTIFICATION

• Name:
• Personal Record Identifier (PRI):
• PA Calculation for (year):

INFORMATION REQUIRED TO CALCULATE THE PA

1. Yearly Maximum Pensionable Earnings (YMPE) for this year $
2. Pensionable earnings (element 734 ²) $
3. Number of pensionable pay periods (element 118 ²)
4. Total number of pay periods in the year (biweekly)
5. Annualized pensionable earnings: (B ÷ C) x D $

² For clients serviced by the Regional Pay System

CALCULATION

Step 1: Annual benefit entitlement (maximum $1,722.22 for 2003 and $1,833.33 for 2004):

If E is equal to or lesser than the YMPE

0.013 x E

0.013 x (______________) = $

If E is greater than the YMPE

(0.013 x YMPE) + [0.02 x (E - YMPE)]

(0.013 x ______  ) + [0.02 x ( _______   -   ________   )] = $_________ ³

³ For taxation year 2003 if greater than $1,722.22, impose $1,722.22
For taxation year 2004 if greater than $1,833.33, impose $1,833.33

Step 2: Benefit entitlement accrued:

(Annual benefit entitlement ÷ D) x C

( ___Step 1___ ÷ ___(D)_____) x ___(C)_____) = $

Step 3: Pension adjustment (maximum $14,900.00 for 2003 and $15,900.00 for 2004):

(9 x benefit entitlement accrued) - ($600.00 ÷ D x C)

(9 x ____Step 2___ ) - ($600.00 ÷ ___(D)_____ x ___(C)_____) = $ _______ ⁴

⁴ For taxation year 2003, if greater than $14,900.00, impose $14,900.00
For taxation year 2004, if greater than $15,900.00, impose $15,900.00