ARCHIVED CD 1995-005
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February 1, 1995
SUBJECT : Pension Reform and the Retirement Compensation Arrangements
1.1 The purpose of this directive is to provide Personnel Offices with information on recent changes to the Public Service Superannuation Regulations regarding the introduction of the Retirement Compensation Arrangement (RCA).
1.2 These changes became effective December 15, 1994.
2.1 The income Tax Act places certain restrictions on the terms and conditions of pension plans that are registered under the Income Tax Act. One of these restrictions is a limiting of the pension benefits to a maximum of $1722.22 per year of service. The Public Service Superannuation Act (PSSA) has been amended to specify that contributions and benefits under that Act will be based on a maximum salary rate to be determined each year. In order that PSSA members can continue to receive the same pension benefits that would have been payable had these Income Tax changes not been imposed, a Retirement Compensation Arrangement has been established to accumulate and pay those benefits above the limits allowed under the Income Tax Act.
2.2 Effective from December 15, 1994 employees whose annual salary rate is in excess of $98,200.00 for 1994, and $98,400 for 1995, per year will contribute to the PSSA in respect of that salary below this limit and to the RCA in respect of those salaries above the limit.
2.3 The contribution rate payable by and benefits payable to employees who contribute to the RCA on the portion of salary above $98,200.00 will be the same as if those contributions and benefits were payable under the PSSA.
2.4 Attached is an Appendix with a list of questions and answers to help Personnel in providing their employees with information regarding the Retirement Compensation Arrangement.
3.1. Current contributions
3.1.1 RCA contributions will commence from December 15, 1994. The contributions will commence immediately where the annual salary rate is above the maximum contributory salary established for the PSSA. A member will contribute to the RCA where his salary rate exceeds the threshold, even though, in cases of partial years, the salary received may be less than the maximum salary.
3.1.2 Because the RCA salary threshold is already in excess of the Canada Pension Plan (CPP)/Quebec Pension Plan (QPP) salary limits, the contributions will be deducted at 7.5% (with no integration).
3.1.3 RCA salaries are not included in the Pension Adjustment (PA) calculation. The PA formula for 1994 is already based on this assumption so there will be no changes to the way PA is reported for this group.
3.2. Elective Service
3.2.1 There are no changes to the elective service process. Elections will continue to be based on the full election salaries.
3.2.2 The RCA thresholds will affect elective service only if it occurred after December 14, 1994.
3.2.3 Where an election includes post December 14, 1994 service, and is costed on a salary in excess of the RCA threshold, the elective service arrears will be identified as PSSA arrears and RCA arrears.
3.3. Supplementary Death Benefit
3.3.1 Supplementary Death Benefit (SDB) coverage continues to be based on the employee's full pensionable salary, including the salaries in excess of the PSSA maximum. There are no changes to the SDB procedures.
3.4. Canadian Forces Superannuation Act (CFSA)/Royal Canadian Mounted Police Superannuation Act (RCMPSA) Pension Surrenders
3.4.1 Normally, funds cannot be transferred between various RCA Accounts. However, the RCA established for PSSA members is the same RCA that has been established for CFSA and RCMPSA members. This means that surrenders of pension benefits between the CFSA, the RCMPSA and the PSSA will continue under the same conditions as they do today.
3.5. Pension Benefits
3.5.1 Pension Benefits will continue to be based on the employee's full pensionable salary, including salaries above the PSSA maximum. The RCA will pay any benefits that cannot be paid out of the PSSA because of the maximum salary limit. This distinction is for Accounting purposes only and does not impact the pensioner.
3.5.2 Again, the division between PSSA and RCA benefits is in respect of post December 14, 1994 service only.
3.6.1 Benefits payable to a spouse or child also continue to be based on the employee's full pensionable salary. Survivor benefits are paid in full from the PSSA Account.
3.7. Return of Pension Contributions
3.7.1 Where a Return of Contributions (ROC) includes both PSSA and RCA funds, the RCA portion of the return cannot be transferred to a Registered Retirement Savings Plan (RRSP). The RCA contributions must be paid directly to the member and taxed accordingly. A T4A RCA will be issued to the member for this portion of the ROC.
3.7.2 The interest payable on a refund of RCA contributions will be calculated in the same manner and under the same conditions applicable to a refund of PSSA contributions.
3.8. For Employees On the Regional Pay System (RPS)
3.8.1 The RPS will automatically deduct pension contributions and direct them to the PSSA and RCA accounts based on the employee's annual salary rate. There is no special action required of either the Personnel or the Pay Office.
3.8.2 RCA contributions will be identified on the employee's cheque stub, (or direct deposit statement) separately from PSSA contributions, as a footnote.
3.8.3 At year end, RCA contributions will be added to regular PSSA contributions and the total reported on the employee's T4 (or Relevé 2), in the same box as "registered pension contributions". RCA contributions are treated the same as regular PSSA contributions for tax deduction purposes. The contributions are fully deductible.
3.8.4 The RCA contribution rate is the same rate as would have been paid under the PSSA, i.e., 7.5% of pensionable salary less contributions required under the CPP/QPP. Since the RCA salary is already in excess of the CPP/QPP salary limits, the actual contribution rate is 7.5%.
3.9. For Employees Not On the Regional Pay System (RPS)
3.9.1 RCA contributions must be remitted to the Accounting Section of the Superannuation Directorate (along with PSSA contributions) and identified separately.
3.9.2 RCA contributions continue to be matched by the Crown Corporation in the same manner as PSSA contributions.
4.1 Any request for information regarding the foregoing should be addressed to your PWGSC Client Services Centre as per Compensation Directive 1994-039 dated October 6, 1994.
Original Signed by
Government Operational Service Branch
Reference: CJA 9006-24
QUESTIONS AND ANSWERS .... RETIREMENT COMPENSATION ARRANGEMENTS
- WHY HAS A RETIREMENT COMPENSATION ARRANGEMENT (RCA) BEEN ESTABLISHED FOR CERTAIN PSSA MEMBERS
The Income Tax Act specifies the maximum pension that may be paid under that plan in order for the plan to remain registered under the Income Tax Act. A Retirement Compensation Arrangement (RCA) has been established in order to accumulate and pay the pension benefits that are above the allowable amount and that may no longer be paid under the PSSA.
- WHICH PSSA MEMBERS ARE SUBJECT TO THE RCA
PSSA members whose salary is in excess of approximately $98,000 will be subject to the RCA. The members will contribute to the PSSA on the portion of salary below the annual limit, and to the RCA in respect of the excess salaries. Also, former Deputy Heads who opt, on termination, to remain members of the pension plan will be subject to the RCA.
- HOW DOES THE RCA DIFFER FROM THE PSSA
From the plan member's point of view, the RCA is essentially the same as the PSSA. The provisions of the PSSA, for the most part, apply exactly the same way to the RCA as they do to the PSSA. However, RCA contributions are not transferable to either an RRSP, or another Registered Pension Plan under a Reciprocal Transfer Agreement.
- WHAT IS THE RCA CONTRIBUTION RATE
The RCA contribution rate is the same as the PSSA rate, i.e., 7.5% less the contributions required under CPP/QPP.
- WHAT IS THE RCA BENEFIT RATE
The RCA benefit rate is the same as the PSSA rate 2% X average salary X pensionable service. Members who contribute to the RCA are entitled to exactly the same type of pension benefits as are members who are subject to the PSSA only.
- ARE RCA CONTRIBUTIONS TAX DEDUCTIBLE
RCA contributions, like regular PSSA contributions are fully tax deductible at source. They are included with registered pension contributions when the employee files his/her Tax return.
- HOW ARE RCA CONTRIBUTIONS REPORTED
RCA contributions will be combined with regular PSSA contributions and reported on the T4 in the same box as regular PSSA contributions.
- HOW ARE PENSION BENEFITS TAXED
Pension benefits are taxed at the same rate as regular PSSA pension benefits.
- HOW ARE THE PENSION BENEFITS REPORTED WHEN PAID
The pension benefits are reported on a special T4A-RCA. A pensioner who had been subject to the RCA would receive both a T4A (or Relevé 2) for regular PSSA benefits and a T4A-RCA (or Relevé 1) for the RCA portion of benefits.
- ARE RCA CONTRIBUTIONS RECOVERED FOR PERIODS OF Leave Without Pay (LWOP)
When calculating and collecting LWOP contributions, RCA contributions are recovered in the same way as regular PSSA contributions.
- HOW ARE PAST SERVICE ELECTIONS TREATED
There are no changes in the elective service process. Elective service will continue to be based on the salary at date of becoming a contributor or at date of election, as appropriate. Where an election for past service which occurred after December 14, 1994, is based on salaries in excess of the RCA salary limit, a portion of the contributions will be directed to the PSSA and a portion to the RCA Account.
- ARE RCA CONTRIBUTIONS ALWAYS TREATED EXACTLY THE SAME AS PSSA CONTRIBUTIONS
No. The one difference between RCA and PSSA contributions for the employee is that RCA contributions cannot be transferred tax free to an RRSP, or to another registered pension plan. The interest payable on a return of contributions is the same whether the funds are PSSA or RCA funds.
- IS THERE ANY SPECIAL ACTION REQUIRED WHERE AN EMPLOYEE RECEIVES A REFUND OF PENSION CONTRIBUTIONS
Yes. Where an employee wishes to transfer a return of contributions to an RRSP, only the PSSA contributions can be transferred directly. Any refund of RCA contributions must be paid directly to the employee and taxed accordingly.
- DOES THE PERSONNEL OFFICE HAVE TO TAKE ANY SPECIAL ACTION WITH REGARD TO THE RCA CONTRIBUTIONS
No. The Regional Pay System will automatically adjust the total pension contributions to ensure that contributions are properly directed to the PSSA or RCA Accounts.
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