Department of National Defence

1
Modernization of theCanadian Forces Pension
PlanReserve Force members under Part I.1

• Department of National Defence

February 2007
2
Outline

• Eligibility, contributions, and definitions
• Benefits
• Pension formula
• Counting past earnings/service
• RFRG
• Coming into force

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For more information

• Presentation focuses on pension policies
• Consult the CFPMP website www.forces.gc.ca/hr/dgcb
  /cfpmp
• Beginning 1 March 07, contact DAPPP/Pension
  services for eligibility, benefit and election
  questions

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About CFSA Part I.1

• Provides a benefit based on set formulas (defined
  benefit)
• Takes into account updated career earnings
  (part-time)

• For Reserve Force members who are
• Class A
• Short-term Class B
• Short-term Class C

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Eligibility

• Participation begins after earnings are at least
  10 of YMPE for two consecutive 12-month periods
• Earnings in months from April 1999 can be used to
  become a participant at Coming into Force (CIF)
• Deemed earnings are used for authorized periods
  of maternity and parental leaves
• Former members of the Regular Force who are
  annuitants will not be able to contribute to
  Part I.1

YMPEYears Maximum Pensionable EarningsCanada
Pension Plan earnings ceiling(2007 43,700)
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Eligibility
Example

• YMPE for
• 2005 41,100
• 2006 42,100
• 2007 43,700

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Contributions

• Reduces to 1 of pensionable earnings when member
  has 35 years of pensionable service
• Pensionable earnings include basic pay and PILL

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CF service
Definitions

• Days of service in the Regular Force for which
  pay was authorized and authorized maternity and
  parental leaves
• Days of service in the Reserve Force for which
  pay was authorized and authorized maternity and
  parental leaves
• Days of training or duty of less than 6 hours
  half-days
• Days of Class A service 1.4 days
• Periods before April 1, 1999 (when duration of
  period is verifiable but not the number of days)
  quarter time
• During maternity and parental leaves, days of CF
  service will be based on service in previous 12
  months

After 25 years of CF service, a member is
entitled to an immediate annuity.
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Pensionable service
Definitions

• Any period during which the member is a
  participant
• Any period for which the member has elected to
  pay
• Authorized periods of maternity and parental
  leaves
• Counted on an elapsed-time basis

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Vesting
Definitions

• Vesting is the right of a plan member to receive
  a benefit from the pension plan other than a
  return of contributions
• An immediate annuity, or
• A deferred annuity that may be converted to an
  annual allowance or transfer value
• Vesting occurs after 2 years of pensionable
  service

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Transfer value
Definitions

• A lump-sum amount, expressed in todays dollars,
  of your future pension benefits payable at age
  60
• Received if...
• Vested,
• Not entitled to an immediate annuity, and
• Younger than age 50
• Must be transferred to...
• Locked-in RRSP,
• New employers plan (if accepted), or
• Insurance company, to buy an annuity

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Benefits at retirement or release
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Benefits at retirement or release
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Ceasing participation

• Members cease participating under Part I.1 when
  they...
• Release from the Reserve Force
• Do not have any earnings for a 12-month period
• Join the Regular Force
• Qualify as a contributor under Part I

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Benefits in case of death

• At death of a vested member or pensioner, his or
  her...
• Spouse receives a survivor lifetime pension
• 1 X updated pensionable earnings X reduced
  annuity factor, if any
• Dependent children receive a child annual
  allowance
• Payable to age 18 or age 25 during periods of
  full-time school attendance

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Benefits in case of disability

• If participants are vested and have not ceased
  participation, they are entitled to...
• An immediate annuity
• If participants have ceased participation and are
  eligible for a deferred pension or annual
  allowance, and become eligible for C/QPP
  disability pension, they are entitled to...
• An immediate annuity, but not bridge benefit

You are considered disabled if you suffer from a
mental or physical impairment that prevents you
from engaging in any employment for which you are
reasonably suited by virtue of education,
training or experience and the disability is
reasonably expected to last for the rest of your
lifetime.
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Other features

• Annual increases for inflation indexing for CPI
• For annuity and annual allowance, indexing begins
  at...
• Age 60, or
• Age 55 or older, if age plus full years of
  pensionable service total 85 or more
• For survivor and child annual allowance and
  disability pension, indexing is...
• Immediate
• At death, minimum guarantee of 5 years of annuity
  payments

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Pension formula
Annuity
Bridge benefit

• Yearly amount is 1.5 of total pensionable
  earnings updated for wage growth

• 0.5 of total updated pensionable earnings, up to
  the CPP 5-year Average YMPE(ends at age 65 or
  start of C/QPP disability payments)

Note Updating reflects growth in military wage
levels as measured by an index based on wage
increases at the Corporal Rankmost populous in
the Canadian Forces (5-year average).
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Pension calculation
Example
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Pension calculationTypical Reserve Force pension

• A member with typical earnings and service would
  be entitled to...
• Annual lifetime annuity of 4,200 annual bridge
  benefit(to age 65) of 1,400
• If at CIF, age 55 with 30 years pensionable
  service (elected to count all service)

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Counting past earnings/service

• Only past earnings from CF service are eligible
• Prior Reserve Force periods (no retroactivity
  restriction)
• Service becomes pensionable service
• Election includes all past earnings
• Regular Force periods with return of
  contributions

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Counting past earnings/service

• Waiting period required before electing
• Need 2 years of participation
• Service before CIF can count if 24 months/10
  YMPE test met
• Limited time to make election
• Later of 1 year after notice of opportunity and 3
  years after CIF
• No late elections
• Paid by lump sum or life-insured instalments by
  the later of20 years or age 65

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Election calculation

• Cost of electing pensionable earnings for any
  calendar year

Pensionable earnings of the calendar year updated
to year of election X Current contribution rate
in year of election 7 interest compounded
annually from the middle of the year bought back
to the date of the election
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Election calculation

• The members total cost equals the costs for all
  the years of past service
• The member can elect to pay part of the full cost
• Service counts in full but pensionable earnings
  will be prorated (thereby affecting benefits)
• The member cannot revisit the partial-payment
  decision later

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Election calculation
Example
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Election calculation
Example

• The members cost to buy back 1999 pensionable
  earnings

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Election calculation
Example
Note The transfer value is based on a
35-year-old male and based on CIA Standard of
Practice for Determining Pension Commuted Values,
using the interest rates applicable in March 2006.
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New rules for RFRG

• The Reserve Force Retirement Gratuity has been
  amended
• RFRG is now similar to a severance pay plan
• Benefits will be calculated on actual periods of
  paid service rather than elapsed time
• These changes will be effective when the Reserve
  Force Pension Plan is implementedMarch 1, 2007
• Calculation for periods before March 1, 2007 will
  be unchanged

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New rules for RFRG
Examples
With service prior to and after CIF Underold rulesfor RFRG Undernew rulesfor RFRG
A CWO, age 43, with 25 years of service at CIF, and releases 5 years from now with 30 years of service. The member has always served 60 days per year. 50,400 43,900
A CWO, age 43, with 25 years of service at CIF, and releases 5 years from now with 30 years of service. At CIF, the member has served 60 days per year for 16 years and worked full-time for 9 years. The member will work full-time for the next 5 years. 50,400 50,400
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New rules for RFRG
Examples
With service after CIF only Underold rulesfor RFRG Undernew rulesfor RFRG
A CWO, age 48, with 30 years of service after CIF when he releases. The member has served 60 days per year for 16 years and worked full-time for 14 years. N/A 25,200
A CWO, age 48, with 30 years of service after CIF when he releases. The member has always served 60 days per year. N/A 8,900
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Coming into force
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Questions?

• This presentation provides an overview of the
  some of the provisions under the Canadian Forces
  Superannuation Act. If there is a discrepancy
  between this presentation and the Act, the Act
  prevails.