CD 2005-024

• Information Notice to Employees - Pension Plan Contribution Rate Increase

December 13, 2005 (Revised July 27, 2009)

SUBJECT: Increase in contribution rates for members of the public service pension plan

1. PURPOSE

1.1 The purpose of this directive is to provide compensation advisors with information regarding the upcoming increase in contribution rates for members of the public service pension plan and to remind them that these instructions continue to be in effect for all years subsequent to 2005.

1.2 A notice of information to employees concerning these increases has been included with this directive and will be posted in the "Who are you? - Public Service Employee" page of the Compensation Sector Web site.

2. BACKGROUND

2.1 In an attempt to achieve a more balanced cost-sharing ratio between plan members and the government, the Treasury Board ministers approved phased-in increases to the plan member contribution rates under the Public Service Superannuation Act (PSSA) and the retirement compensation arrangement (RCA) beginning in calendar year 2006.

3. POLICY

3.1 In 2005, members were contributing at the following rates:

• 4% on pensionable earnings up to and including the yearly maximum pensionable earnings (YMPE) under the Canada Pension Plan (CPP) and the Quebec Pension Plan (QPP);
• 7.5% on pensionable earnings in excess of the YMPE under the CPP / QPP, including pensionable earnings in excess of the RCA threshold; and
• 1% on pensionable earnings for employees with 35 years of service.

3.2 Commencing in January 2006, the rates for plan member contributions will increase each year by 0.3%. Contributions based on pensionable earnings up to the YMPE will increase until 2013 while contributions on those pensionable earnings over the YMPE will increase until 2008.

3.3 The following table sets out the contribution rates that will apply.

	Current	2006	2007	2008	2009	2010	2011	2012	2013
Pensionable earnings up to the YMPE	4.0%	4.3%	4.6%	4.9%	5.2%	5.5%	5.8%	6.1%	6.4%
Pensionable earnings over the YMPE, including pensionable earnings above the RCA threshold	7.5%	7.8%	8.1%	8.4%	8.4%	8.4%	8.4%	8.4%	8.4%

Note: Plan members with 35 years of pensionable service will continue to contribute at a rate of 1%.

3.4 Operational Service - Correctional Service Canada (CSC)

Plan members engaged in Operational Service with CSC pay the new contribution rate and also continued to pay the additional 1.25% premium until May 29, 2006 . Since May 30, 2006, due to changes to early retirement provisions for CSC employees:

• The employees with "actual operational service" no longer pay the 1.25% additional premium, and;
• The employees with "deemed operational service" have seen a reduction of the additional premium to 0.62%.

4. PROCEDURES/INSTRUCTIONS

4.1 The increase in the contribution rates will be effective January 1 of each affected year. In order to implement these increases, the following procedures apply. For ease of reference, the 2006 calendar year is being used for the purpose of illustrating the ensuing changes.

4.2 Payroll deductions

4.2.1 As the increase in the contribution rates is tied to January 1, this change will not always correspond to the beginning of a pay period or to the effective date of the new year's YMPE. Since the YMPE calculation starts accumulating as of the first pay period of the new year, it is necessary to apply the rates of contributions in effect when the service occurred, not when the salary was actually paid. For example, we used the 2005 rates of contributions (PSSA low rate and RCA rate) for services rendered in December 2005 that were included in the first regular pay period of 2006. This process will need to be repeated yearly over the eight forthcoming years.

4.3 Regional Pay System (RPS) and on-line input

4.3.1 For regular pays and any automatic revisions, the RPS has been modified to impose the split in order to ensure that the proper contribution rate is applied based on the effective date of January 1 of each year and not the pay period start date. However, it should be noted that, since January 2006, the users are required to split the service when processing a pay transaction where the dates overlap a calendar year; otherwise, a reject message PD/PB 650 "OVERLAPPING CALENDAR YEAR END" will be produced.

4.3.2 Regular pay - 7C accounts

For the first pay period of the 2006 calendar year, the pension contributions were calculated and deducted as follows:

PSSA - Regular pay - 7C accounts

• December 29 to 31, 2005: 4% on pensionable earnings up to the 2006  YMPE.
• January 1 to 11, 2006: 4.3% on pensionable earnings up to the 2006  YMPE.

RCA - Regular pay - 7C accounts

• December 29 to 31, 2005: 7.5% on pensionable earnings exceeding the 2006 threshold.
• January 1 to 11, 2006: 7.8% on pensionable earnings exceeding the 2006 threshold.

4.3.3 Regular pay - 7A and 7B accounts

Since the first pay period of 2006 covered the period of December 15 to 28, 2005, the rate of contributions was calculated as follows:

PSSA - Regular pay - 7A and 7B accounts

• 4% on pensionable earnings up to the 2006  YMPE for the full pay period.

RCA - Regular pay - 7A and 7B accounts

• 7.5% on pensionable earnings exceeding the 2006 threshold for the full pay period.

Since the second pay period of 2006 covered the period of December 29, 2005 to January 11, 2006, the rate of contributions was calculated and deducted as follows:

PSSA

• December 29 to 31, 2005: 4% on pensionable earnings up to the 2006  YMPE.
• January 1 to 11, 2006: 4.3% on pensionable earnings up to the 2006  YMPE.

RCA

• December 29 to 31, 2005: 7.5% on pensionable earnings exceeding the 2006 threshold.
• January 1 to 11, 2006: 7.8% on pensionable earnings exceeding the 2006 threshold.

4.3.4 Please note that for 7A accounts, which are paid via Time Summary (TIM) transactions, there is no change in terms of input for the users. When processing the regular pay, the RPS will automatically impose the split in order to properly calculate and deduct the correct amount of pension contributions.

4.4 Part-time employees

4.4.1 As the RPS does not recognize the actual days worked for part-time employees, the contributions are calculated by prorating the assigned work week (AWW) based on the scheduled work week (SWW). The formula used by the RPS is as follows:

• AWW ÷ 5 = number of hours per day for the 5 days of the week.

Therefore, the number of hours per day determined by the above mentioned formula is used when determining the split in contribution rate at calendar year end.

Example:

7C account

AWW : 15.00 hours per week

Ratio: 15.00 ÷ 5 = 3 hours per day

First pay period: December 29, 2005 to January 11, 2006

PSSA Contributions

• December 29 to 31, 2005: 2 days (6 hours) x 4% of pensionable earnings up to the 2006  YMPE.
• January 1 to 11, 2006: 8 days (24 hours) x 4.3% of pensionable earnings up to the 2006  YMPE.

RCA Contributions

• December 29 to 31, 2005: 2 days (6 hours) x 7.5% of pensionable earnings exceeding the 2006 threshold.
• January 1 to 11, 2006: 8 days (24 hours) x 7.8% of pensionable earnings exceeding the 2006 threshold.

4.5 Retroactive payments - on-line input

|   4.5.1 Since January 1, 2006, two separate transactions are required when the retroactive period overlaps a calendar year within the first pay period for 7C accounts and for the second pay period for 7A and 7B accounts. The first transaction is for a closed period covering the days of December of the previous calendar year that are being paid in the new year. Please note that this procedure must also be used when reporting allowances which form part of salary for pension purposes. However, as of April 2009, separate transactions are no longer required for those entitlement codes subject to the 10 day rule, such as 006, 022, 042, 093, 141, 169, 234, 235 and 489.

Example 1

An employee is taken on strength (TOS) with an effective date of December 30, 2005. The TOS transaction has been actioned after the first pay period of 2006 has been processed. Therefore, the payment of the first pay period must be done via an entitlement adjustment (EAJ) transaction. Since the first day owed is December 30, 2005, and forms part of a pay period in 2006, the following transactions are required:

• EAJ code 189 (closed period) for 30-12-05 1 to 31-12-05 2;
• EAJ code 189 (closed period) for 01-01-06 1 to 11-01-06 2.

Please note that for both transactions, the pay period field must indicate "01" as the payment pertains to the first pay period for the year 2006. This is required in order to ensure that the correct contribution rates are used and to apply the proper CPP exemption.

Example 2

Three separate transactions will be required when the retroactive period overlaps a calendar year and is prior to the first pay period for 7C accounts and for the second pay period for 7A and 7B accounts.

On February 1, 2006, an employee is promoted with a retroactive date of December 1, 2005. The promotion must be reported as follows:

• PRO (closed period) 01-12-05 1 to 28-12-05 2;
• PRO (closed period) 29-12-05 1 to 31-12-05 2;
• PRO (open end date) 01-01-06 1.

| 4.5.2 Lump sum payments

Lump sum payments that overlap two calendar years, such as Performance Awards, require further calculation to ensure the proper contribution rate is applied. The lump sum amount is to be prorated based on the number of days in the periods covered. The first transaction will be for a closed period covering the days of the previous calendar year until the end of pay period 26 of the previous year. The second transaction will be for a closed period covering the remaining days in December of the previous calendar year. The third transaction will be for a closed period starting January 1st of the current calendar year.

Example

Performance Award for prior fiscal year for the total lump sum amount of $6,000.00.

• ENC code 171 (closed period covering 193 days) for 01-04-06 1 to 27-12-06 2 for lump sum $4,453.85;
• ENC code 171 (closed period covering 2 days) for 28-12-06 1 to 31-12-06 2 for lump sum $46.15;
• ENC code 171 (closed period covering 65 days) for 01-01-07 1 to 31-03-07 2 for lump sum $1,500.00.

In this case, to calculate the prorated amount, divide the lump sum payment by the total number of working days in that year (e.g., 260) and multiply by number of days to equal lump sum payment for each particular closed period.

*Note that the number of working days may vary depending on the year and the periods involved.

| 4.5.3 New Element - Previous Year Low Rate

When issuing adjustments or retroactive payments, it will be important to apply the rates of contributions in effect when the service occurred, not when the payment was made. As of January 2009, the RPS will store the applicable contribution rate for four previous calendar years (instead of only three previous calendar years). When processing retroactive payments, the RPS will verify the following elements in order to determine if the previous year(s) maximum low rate was reached and apply the applicable low or high rate in effect for that year.

• 930 (Previous Year PSSA 1 or 2 Low Rate);
• 931 (Previous Year Minus 1 PSSA 1 or 2 Low Rate);
• 932 (Previous Year Minus 2 PSSA 1 or 2 Low Rate);
• 957 (Previous Year Minus 3 PSSA 1 or 2 Low Rate).

Prior to January 2006, the current year rate was applied to any retroactive payment that spanned beyond a 3-year period. From January 2006 to 2008 this practice changed and the RPS applied the same rate of contributions as of the third previous year on any portion of the adjustment which fell outside the 3-year period. As of January 2009, the RPS will apply the same rate of contributions as of the fourth previous year on any portion of the adjustment which falls outside this 4-year period . For example, if working in current year 2009, we would apply the 2005 contribution rate for any funds earned prior to 2005.

4.6 Leave without pay (LWOP) - non-payable payments

4.6.1 The split described earlier also applies to non-payable LWOP transactions for entitlement codes 202 (single rate PSSA) and 270 (double rate PSSA). For situations where the automated retroactivity program is used and where non-payable transactions are automatically generated, the RPS will impose a split between the calendar years in order to properly calculate the PSSA / RCA percentage rate. If the non-payable transactions are entered manually, the split will be required; otherwise, a reject message PD/PB 650 "OVERLAPPING CALENDAR YEAR END" will be produced.

4.7 RE-TOS Calculation System

4.7.1 The RE-TOS (retaken on strength) application has been modified to reflect the increase in contribution rates. In addition, modifications have been made to correctly calculate the "split" in the contribution rate as the increase applies to January 1 of the new year and not the effective date of the first pay period for 7C accounts and the second pay period for 7A and 7B accounts. The deficiencies will be calculated using the correct percentage rate for each affected calendar year.

4.8 Estimate of cost for elections

There will be no change in procedures. When utilizing one of the estimate of cost calculation programs, users are not required to separate the period for estimation purposes. These applications have been programmed to automatically apply the correct rate of contributions for each calendar year.

4.9 Finalization of Payments (SOS / TSOS) - 7C accounts

Accounts that are SOS / TSOS for pay period 01/2008 and contain LWOP for December 27 to 31, 2007, should not have the automated processes used. Compensation advisors are required to INSERT an "X" in Field 67 to override the automatic generation of a payment/overpayment and default the transaction to the pay office for finalization. They are also required to input the recovery of any previously unreported LWOP. The department must then calculate and communicate to the pay office the total number of entitlement hours or days (reducing for LWOP) to be paid to the employee for the final pay period.

5. INQUIRIES

5.1 Any request for information regarding the content of this document should be addressed to your Public Works and Government Services Canada (PWGSC) compensation services office.

Original Signed by
B. Fortin

Brigitte Fortin
Director General
Compensation Sector
Accounting, Banking and Compensation

Reference(s): 9006-24-1, 9007-7-8, 9203-7(1)