Department of National DefenceDepartment of National Defence

Modernization of theCanadian Forces Pension Plan

Reserve Force members under Part I.1

Modernization of theCanadian Forces Pension Plan

Reserve Force members under Part I.1

February 2007

2Modernization of the Canadian Forces Pension Plan—Reserve Force members under Part I.1

OutlineOutline

• Eligibility, contributions, and definitions

• Benefits

• Pension formula

• Counting past earnings/service

• RFRG

• Coming into force

3Modernization of the Canadian Forces Pension Plan—Reserve Force members under Part I.1

For more informationFor more information

1-800-267-0325Toll-free

www.admfincs.forces.gc.ca/pension/intro_e.aspOn-line

pensioninquiries@forces.gc.ca

PriorPensionableServiceArrears@forces.gc.ca

EligibilityCC@forces.gc.ca

Email

Presentation focuses on pension policiesConsult the CFPMP website www.forces.gc.ca/hr/dgcb/cfpmp

Beginning 1 March 07, contact DAPPP/Pension services for eligibility, benefit and election questions

4Modernization of the Canadian Forces Pension Plan—Reserve Force members under Part I.1

About CFSA Part I.1About 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

5Modernization of the Canadian Forces Pension Plan—Reserve Force members under Part I.1

EligibilityEligibility

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

YMPE—Year’s Maximum Pensionable EarningsCanada Pension Plan earnings ceiling

(2007 = $43,700)

6Modernization of the Canadian Forces Pension Plan—Reserve Force members under Part I.1

EligibilityEligibility

YMPE for:2005 = $41,1002006 = $42,1002007 = $43,700

Date joined Force 30/06/05

Earnings to 29/06/06 $4,200 Blended 05/06 10% threshold = $4,160

Earnings 30/06/06 to 29/06/07 $4,400 Blended 06/07 10% threshold = $4,290

Date joined plan 01/07/07

ExampleExample

7Modernization of the Canadian Forces Pension Plan—Reserve Force members under Part I.1

ContributionsContributions

Reduces to 1% of pensionable earnings when member has 35 years of pensionable service

Pensionable earnings include basic pay and PILL

Year

Fixed percentage of pensionable

earnings

2007 4.3%

2008 4.6%

2009 4.9%

From 2010 on 5.2%

8Modernization of the Canadian Forces Pension Plan—Reserve Force members under Part I.1

CF serviceCF service

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

DefinitionsDefinitions

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

9Modernization of the Canadian Forces Pension Plan—Reserve Force members under Part I.1

Pensionable servicePensionable service

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

DefinitionsDefinitions

10Modernization of the Canadian Forces Pension Plan—Reserve Force members under Part I.1

VestingVesting

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

DefinitionsDefinitions

11Modernization of the Canadian Forces Pension Plan—Reserve Force members under Part I.1

Transfer valueTransfer value

A lump-sum amount, expressed in today’s 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 employer’s plan (if accepted), or• Insurance company, to buy an annuity

DefinitionsDefinitions

12Modernization of the Canadian Forces Pension Plan—Reserve Force members under Part I.1

Benefits at retirement or releaseBenefits at retirement or release

With 2 or more years of pensionable service

Immediate annuity + bridge benefit if…

• 25 years of CF service (9,131 days) • Age 60 • Age 55 with 30 years of pensionable service, or • Released for workforce reduction (20 years of pensionable service or

age 55 or older with 10 years)

13Modernization of the Canadian Forces Pension Plan—Reserve Force members under Part I.1

Benefits at retirement or releaseBenefits at retirement or release

With 2 or more years of pensionable service and no immediate annuity

If age 50 or older, a reduced annuity (annual allowance) + reduced bridge benefit

If younger than age 50, a deferred annuity starting at age 60 + bridge benefit, or option of:

• Transfer value • Reduced annuity (annual allowance) starting at or after age 50 +

reduced bridge benefit

With less than 2 years of pensionable service (not vested)

• Return of contributions with interest

14Modernization of the Canadian Forces Pension Plan—Reserve Force members under Part I.1

Ceasing participationCeasing 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

15Modernization of the Canadian Forces Pension Plan—Reserve Force members under Part I.1

Benefits in case of deathBenefits 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

16Modernization of the Canadian Forces Pension Plan—Reserve Force members under Part I.1

Benefits in case of disabilityBenefits 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.

17Modernization of the Canadian Forces Pension Plan—Reserve Force members under Part I.1

Other featuresOther 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

18Modernization of the Canadian Forces Pension Plan—Reserve Force members under Part I.1

Pension formulaPension formula

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)

Annuity Bridge benefit

Note: Updating reflects growth in military wage levels as measured by an index based on wage increases at the Corporal Rank—most populous in the Canadian Forces (5-year average).

19Modernization of the Canadian Forces Pension Plan—Reserve Force members under Part I.1

Pension calculationPension calculationExampleExample

Year

Actual pensionable

earnings YMPE Wage Index

Updated earnings to 2007

Updated earnings

to AYMPE 1978 $2,055.74 $10,400 24.5 $9,069 $9,068.75 1979 $3,052.00 $11,700 25.75 $12,810 $12,810.10 1980 $2,466.40 $13,100 25.75 $10,352 $10,352.16 1981 $2,520.63 $14,700 29.25 $9,314 $9,313.82 1982 $2,902.13 $16,500 33.25 $9,433 $9,433.43 1983 $3,016.30 $18,500 36.25 $8,993 $8,993.16

1984-2002* 2003 $8,921.52 $39,900 101.64 $9,487 $9,486.79 2004 $9,525.38 $40,500 104.18 $9,882 $9,881.96 2005 $9,944.94 $41,100 104.18 $10,317 $10,317.23 2006 $10,301.42 $42,100 113.7 $9,792 $9,792.23 2007 $2,493.31 $43,700 116.7 $2,309 $2,309.14

Bridge benefit $1,394

Pension $4,181

* Earnings from 1983 to 2003 are not shown here. Actual pensionable earnings continued to increase at a typical rate.

20Modernization of the Canadian Forces Pension Plan—Reserve Force members under Part I.1

Pension calculationTypical Reserve Force pensionPension 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)

21Modernization of the Canadian Forces Pension Plan—Reserve Force members under Part I.1

Counting past earnings/serviceCounting 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

22Modernization of the Canadian Forces Pension Plan—Reserve Force members under Part I.1

Counting past earnings/serviceCounting 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

23Modernization of the Canadian Forces Pension Plan—Reserve Force members under Part I.1

Election calculationElection 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

24Modernization of the Canadian Forces Pension Plan—Reserve Force members under Part I.1

Election calculationElection calculation

The member’s 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

25Modernization of the Canadian Forces Pension Plan—Reserve Force members under Part I.1

Election calculationElection calculation

Year

Actual pensionable

earnings YMPE Wage Index

Updated earnings

to CIF

Cost of election by year

1993 $4,709 $33,400 60.36 $8,211 $910

1994 $5,394 $34,400 60.36 $9,406 $975

1995 $5,751 $34,900 60.36 $10,027 $971

1996 $5,939 $35,400 60.36 $10,356 $937

1997 $6,609 $35,800 61.68 $11,277 $954

1998 $7,291 $36,900 80.82 $9,495 $751

1999 $8,348 $37,400 83.42 $10,532 $778

2000 $9,119 $37,600 89.52 $10,721 $740

2001 $9,662 $38,300 89.52 $11,360 $733

2002 $10,248 $39,100 97.72 $11,037 $666

2003 $10,729 $39,900 101.64 $11,110 $626

2004 $12,502 $40,500 104.18 $12,630 $665

2005 $13,292 $41,100 104.18 $13,428 $661

2006 $13,621 $42,100 106.78 $13,425 $618

2007 109.45

Total $123,213 $153,014 $10,985

ExampleExample

26Modernization of the Canadian Forces Pension Plan—Reserve Force members under Part I.1

Election calculation Election calculation

The member’s cost to buy back 1999 pensionable earnings

Pensionable earnings in 1999 $8,348

Updated pensionable earnings from 1999 to 2007

10,532

Rate of contribution in 2007 4.3%

Interest to be added (1.07)8

Cost $10,532 X 0.43 X 1.7182 = $778

ExampleExample

27Modernization of the Canadian Forces Pension Plan—Reserve Force members under Part I.1

Election calculationElection calculation

Member’s cost to buy back all pensionable earnings $10,985

Estimated transfer value if releases in 2007 $32,500

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.

ExampleExample

28Modernization of the Canadian Forces Pension Plan—Reserve Force members under Part I.1

New rules for RFRGNew 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 implemented—March 1, 2007 Calculation for periods before March 1, 2007 will be

unchanged

29Modernization of the Canadian Forces Pension Plan—Reserve Force members under Part I.1

New rules for RFRG New rules for RFRG

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

ExamplesExamples

30Modernization of the Canadian Forces Pension Plan—Reserve Force members under Part I.1

New rules for RFRG New rules for RFRG

With service after CIF only

Underold rules

for 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

ExamplesExamples

31Modernization of the Canadian Forces Pension Plan—Reserve Force members under Part I.1

Coming into forceComing into force

32Modernization of the Canadian Forces Pension Plan—Reserve Force members under Part I.1

Questions?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.