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How will your plan adapt to CPP Expansion?
2017 BC Pension Forum
Vancouver, BC
February 24th, 2017
Chris Roberts
Canadian Labour Congress
Dayna Schweizer
PBI Actuarial Consultants Ltd.
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An Overview of the Canada Pension Plan• Replaces 25% of earnings up to average industrial wage at age 65 (YMPE $55,300 for
2017)
• Contribution rate of 4.95% (total 9.9%) for covered earnings (between $3,500 and
$55,300 in 2017)
• Full annual cost of living indexation for benefits
• Early retirement as early as age 60 and as late as age 70 with adjustments (increase or
decrease respectively)
• Survivor’s benefit for spouses, common-law partners and dependants
• Disability benefit, death benefit
• Benefit can be divided on marriage dissolution and shared with spouse
during retirement
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Young workers and middle-income earners
will see the greatest benefit
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Additional Annual CPP Benefit
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Increase in CPP Contributions
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CPP Integration with Registered Pension Plans
• Bill C-26 leaves adjustment to plan sponsors and administrators
• RPP integration was a major issue at the inception of the Canada Pension Plan
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• Step Rate:
RPP benefit has two different levels, for earnings above and below the YMPE
e.g. RPP formula = 1.7% HAE below prior year YMPE, 2.0% above (College Pension
Plan before January 1, 2016)
HAE = highest average earnings
For plans where employees contribute, typically paired with an integrated contribution
formula
Common in private-sector DB plans
• Offset:
RPP benefit formula is reduced by CPP benefit
e.g. RPP formula = 2.0% HAE – 0.65% x prior year YMPE (BC PSPP)
Types of CPP Integration – DB Plans
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No Integration
• DC plans
e.g. 5% employee contribution subject to match by employer
• Flat benefit plans
e.g. $50/month per year of service
Common in many multi-employer pension plans
• Some private-sector DB plans
e.g. 2% x FAE x Years of Service
FAE = final average earnings
Some provide a bridge benefit on top, if retirement occurs prior to 65
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How Might CPP Expansion Affect Plans? What Steps Are Plans Taking?
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RPPs will need time to prepare for CPP expansion
• Actuarial costings likely necessary
• Consider 7-year phase-in of CPP enhancement in any integration
changes
• Consider pension law, restrictions on benefit reductions, and member
notice requirements
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Preparation limited and uneven thus far
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Considerations for Plans
• If plan currently integrated
• What was the intention of integration
• Consider options to address the CPP expansion
• To target a ‘net zero’ objective the accrual rate and the earnings threshold will need to be adjusted
• If plan not currently integrated
• Plans offering relatively low benefit levels may want to stack CPP enhancement
• Partial or full integration an option for non-integrated plans
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Factors influencing interaction of CPP expansion and collective bargaining
• Delayed implementation and gradual phase-in of CPP enhancement
• Private-sector employers’ continuing shift away from DB Potential improvements in funded status of DB plans
• Ongoing federal and provincial pension reform
• Quebec Pension Plan enhancement
• Downward pressure on compensation
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• Impact of CPP enhancement designed to be modest
• An opportunity to consider members’ desired benefit level and employees’ retirement needs
• Negotiation, pension education, and clear communication will be vital
Summary