You have a number of options to consider when you retire. Although the value of your pension will be the same in all cases, the option you select could affect the amount of the monthly benefit you receive. You should bear this important point in mind when considering your options.
The normal form of pension payable under the Plan is what is known as a Life Refunding pension. If you do not have a spouse when you retire, you will receive a regular monthly pension payable for the remainder of your lifetime.
Payments will cease when you die. In no case, however, will the pension payments you received from the Plan during your lifetime be less than the amount you contributed to the Plan, plus interest. The refund, if any, will be paid to your beneficiary.
If you have a legal spouse when you retire, things get a little more interesting. Under current legislation, your surviving spouse is entitled to a pension that continues at least 66.67% of the monthly payments you received from the Plan. This benefit is payable for the remainder of your spouse’s life.
In addition, the pension your surviving spouse receives will be adjusted each year by 2/3 of the cost of living increase you would have received through the Plan.
You should note that this survivor option will provide you with a lower monthly pension than the normal form outlined above. This reduction simply accounts for the longer anticipated payment period. The spousal pension, after all, will now be paid out for the remainder of two lifetimes, not just one.
If you and your spouse do not want this option (or you wish to reduce the size of the benefit to be continued to your spouse), both of you must sign an official waiver form. Once payments begin, this waiver cannot be reversed. As such, we recommend that both you and your spouse seek independent financial advice before making your decision.
Instead of the life refunding pension provided under the normal form, you can elect a form of pension that provides a guaranteed payment period of 10 years (120 monthly payments). In other words, if you die before receiving all 120 payments guaranteed under this option, the remaining monthly installments will be made to your beneficiary or estate.
If you retire prior to age 60, you may elect to integrate your MTS Pension with the Canada Pension Plan (CPP) and/or the Old Age Security Plan (OASP).
The purpose of the integration is to provide relatively uniform income throughout retirement. Integration provides an amount, or advance in addition to your MTS Pension, until you reach age 65 (when OAS is currently payable), or at age 60 (when CPP may become payable). At this time we reduce your pension to recover the advances given. This reduction continues for the rest of your life. Due to potential program changes in the Federal Benefits, caution should be taken when considering integration with OAS.
These options will be described to you in detail prior to your retirement. Keep in mind that you can’t change your selection after your retirement date.
The MTS Pension Plan is what is known in the industry as a Defined Benefit Plan – so called because the benefit you earn during your working years is defined by a predetermined or set pension formula. In other words, you will receive a guaranteed pension at retirement based on your age and earnings history. No guess work. No investment risk.
Your pension benefit is calculated using the average of your best five years of earnings (“Best Average Earnings”), a defined benefit formula and the number of years you have contributed to the Plan (referred to as “Credited Service”). The formula is as follows:
In no case can the benefit exceed 70% of your Best Average Earnings.
Best Average Earnings refers to the average of your earnings during the five years of employment during which your earnings are highest. This important Plan provision ensures that your pension is based on your highest earnings. The higher your earnings, the larger your pension will be.
Average YMPE means the average of the YMPEs over the five-year period used to determine your Best Average Earnings. Remember, the YMPE is a level set by the federal government each year to determine maximum Canada Pension Plan contributions and benefits.
Credited Service refers to the years, months and days you have participated in the Plan. As the formula illustrates, the more Credited Service you have, the larger your pension will be.
Let’s consider an employee who retires from the Plan at age 55 with 30 years of Credited Service and Best Average Earnings of $60,000. If we assume an Average YMPE of $48,600, it’s just a matter of plugging in the numbers.
The actual benefit you receive will be affected by a number of factors, including your earnings, your age at retirement, your years of Plan membership, and the survivor benefit option that you choose. To help you with your retirement planning, the Company will provide you with an annual pension statement. This statement outlines, among other things, the value of the pension you have earned to date and the projected pension you can expect to receive from the Plan at retirement.
You can retire as early as age 45 in some cases… or as late as the end of the year in which you turn 71. You decide. But bear in mind, your actual retirement age can have a significant impact on the MTS pension you receive.
The normal retirement age under the terms of the Plan is the first day of the month immediately following (or coinciding with) your 65th birthday. At this time, you will begin to receive a monthly retirement income from the Plan based on the pension formula.
You can retire as early as age 55, provided you have completed at least two years of Plan membership (this includes your membership in the CSSF).
Under a special provision, you may retire from the Plan 10 years before you qualify for an unreduced early retirement benefit – as early as age 45 in some cases. If you do retire under this special provision, however, you can expect fairly low pension payments.
You qualify for an unreduced early retirement benefit:
- At age 60, provided you have at least 10 years of Continuous Service.
- At age 55, provided your age plus Continuous Service totals 80 years.
- You could retire with an unreduced pension at age 58, for example, provided you had at least 22 years of Continuous Service at that time (58 years + 22 years = 80 years).
Continuous Service refers to how long you have worked with MTS or a Participating Employer on a continuous basis. This shouldn’t be confused with Credited Service which refers to the years and months you are a member of the Pension Plan making contributions.
If you retire before you qualify for an unreduced benefit, your pension will be reduced to account for the longer anticipated payment period. The size of that reduction will depend on your age and Continuous Service as of your retirement date. Here’s how it works:
If you retire early with less than 10 years of Continuous Service, your pension will be reduced on an actuarial basis. Using a basic rule of thumb, the actuarial reduction will be about 6% for each year you retire prior to age 65. However, the actual number will vary depending on the form of pension you select, interest assumptions and other factors.
If you retire early with 10 or more years of Continuous Service, MTS will subsidize the benefit you receive. Instead of the actuarial reduction outlined above, your pension will be reduced by 0.0625% for each full month between your actual retirement date and the date you would have first qualified for an unreduced early retirement benefit based on your years of Continuous Service at your actual retirement date. Because of tax rules, this is a complicated calculation that will be explained to you fully when you retire.
You may postpone your retirement up until the first day of December in the calendar year in which your turn 71. You will continue to earn Credited Service during your postponed retirement period.
No amount of money will ever replace you. That said, your pension can provide your survivors with an important source of financial security. The size of the benefit your survivors receive will depend on your service and the nature of your relationship. Here’s how it works…
If you die before completing two full years of Continuous Service, your beneficiary will receive a lump-sum refund of your Plan contributions, plus interest.
If you die after completing two full years of Continuous Service but less than 10 years, your survivor(s) will receive a survivor pension from the Plan.
If you have a spouse at the time of your death, he or she will receive a lifetime pension benefit equal to the value of the pension you earned. If your spouse, in turn, dies before receiving 120 monthly payments, the remaining installments will be paid in equal amounts to your other eligible survivors.
If you don’t have a spouse at the time of your death, your eligible survivor(s) will receive regular monthly incomes that equal, in total, the value of the pension you earned. In those cases where the resulting pension payments are relatively small, your survivors may receive a lump-sum cash settlement instead of a regular monthly benefit.
If you die after completing 10 full years of Continuous Service, your surviving spouse will receive a lifetime pension equal to 60% of the pension benefit you would have been entitled to if you had retired on the day you died (and we assumed you were at least 65 at the time). Again, this benefit is guaranteed for 120 months. If your spouse dies before receiving 120 monthly payments, the remaining installments will be paid in equal amounts to your other eligible survivors.
If you don’t have a spouse at the time of your death, your eligible survivor(s) will receive regular monthly incomes that equal, in total, a minimum of 60% of the pension benefit you would have been entitled to if you had retired on the day you died (and we assumed you were at least 65 at the time). Depending on the size of the pension payments, your survivors may receive a lump-sum cash settlement instead of a regular monthly benefit.
Survivor pensions will be adjusted each year by 2/3 of the cost of living increase you would have received through the Plan.
Following your second full year of retirement, your pension will be increased each year by an amount equal to at least 2/3 of the Consumer Price Index (CPI) to a maximum CPI increase of 4.0%.
Let’s look at an example. If the CPI increase is 4.0% in a year, your pension will increase by at least 2.67% (2/3 of 4.0%). If we use the same example as we used earlier, your actual increase totals $472.59 (2.67% x $17,700).
Note: If the Plan can afford it, you may receive increases of up to 100% of the CPI in a given year.
The actual size of the increase will depend on:
- the amount of your pension (including previous increases),
- the actual increase in the CPI for the year,
- the Plan’s funded status, and
- how long you have been retired.
- If you retire after May in a given year, for example, you will not receive any increase for that year. If you retire in May or earlier, you will receive a portion of that year’s increase.
In your second year of retirement, you will receive a larger portion of that year’s increase – again, depending on the month in which you retired.
After your second year of retirement, you’ll get the full increase payable each year.
The Plan provides for a guaranteed cost of living increase to pensions in payment each year. The guaranteed COLA is equal to two-thirds of the increase in CPI to a maximum CPI increase of 4%. COLA increases are granted each July.
The Plan maintains a notional COLA account to determine if additional increases to pensions can be made. Each month, 10.2% of employee contributions, plus a matching amount, is credited to this notional account. The portion of benefit payments that related to past COLA increases is deducted from this account. Each year, an actuarial valuation is performed on this account to see if additional COLA increases can be granted.
In 2003, the balance in the COLA account was not sufficient to grant an additional increase, so retirees received a COLA increase of 2.56%, which was two-thirds of the CPI increase of 3.84%.
Past COLA increases account for approximately 18% of the pension benefits paid to retirees in 2003.
For many of us, the only thing more painful than a severe disability is the thought of the financial hardship one might cause. With that in mind, your MTS Pension Plan provides you with some important disability provisions.
You will continue to earn Credited Service while on a disability leave, provided you are receiving Long Term Disability benefits from MTS or a participating employer. You will receive a pension based on your:
- total Credited Service, including your disability leave; and
- Best average earnings.
If you become totally and permanently disabled after completing 10 years of continuous service, you can elect to retire immediately and receive an unreduced disability pension under the Plan. The pension will be calculated using the benefit formula, and based on your Best Average Earnings and Credited Service as of your disability date.
If you become partially but permanently disabled, you may retire immediately with a reduced pension. Before receiving any payments in either case, you will have to file a certified medical report with the Plan administrator.
Disability, whether total or partial, refers to any impairment certified by a qualified medical doctor that prevents you from performing the duties of the job you were doing prior to the illness or injury. In some cases, the Plan will even provide disability pensions to former employees. If you leave MTS for any reason other than retirement, and you subsequently become disabled, you qualify for a disability pension provided you:
- completed at least 10 years of Continuous Service while at MTS,
- elected to leave your benefit in the Plan and to receive a deferred pension, and
- file a certified medical report with the Plan administrator.
In this case, the actual benefit you receive will be based on your Best Average Earnings and Credited Service as of your termination date.
Effective January 1, 2015, pension benefits for the Plan will be calculated under a new methodology. The new methodology will use the YMPE for each partial year included in the pension benefit calculation based on a proration of credited service for that same year. The new YMPE methodology will be applied on a prospective (go-forward) basis for all retirement, termination or death benefits starting January 1, 2015.
The new YMPE methodology will also apply on a prospective basis, effective January 1, 2015, to all retirees currently in receipt of a monthly pension and who commenced receiving a monthly pension after December 31, 2006. Similarly, beneficiaries who are in receipt of a monthly pension on January 1, 2015 will also have the new methodology applied to their monthly pension as of January 1, 2015 if the original plan member retired after December 31, 2006 or if the original plan member was an employee who died after December 31, 2006. Any incremental change in pension benefits that may occur as a result of the application of the new YMPE methodology will be further increased by the cost of living adjustment percentages received by the retiree or beneficiary.
There will be no retroactive payments made for any period of time prior to January 1, 2015 and the new YMPE methodology will only apply to those who commenced receiving a monthly pension after December 31, 2006.
Implementation of the new YMPE methodology will occur in 2 phases, as follows:
1. Retirements, terminations or death effective January 1, 2015, or later
Pension benefits will be estimated and processed based on the old YMPE methodology for retirements, terminations or death with an effective date of January 1, 2015 or later. Once the new YMPE methodology is programmed, pension benefits will be recalculated and adjusted as required. It is expected that programming changes and any corresponding pension benefit changes will be made in summer 2015.
For members who have elected a monthly pension, pension benefits will be recalculated on the basis of the new YMPE methodology and any corresponding increase will be paid accordingly, with any retroactive payments being made as necessary, to the date of retirement in 2015.
Members electing to take the commuted value lump sum payment option will receive an adjustment to their lump sum payments, if applicable, once the commuted value under the new methodology has been calculated.
The difference in YMPE methodologies results in a relatively small difference to pension benefits, and in many cases there is no change to the pension benefit.
2. Calculations and adjustments for retirees and beneficiaries
You may be eligible to receive revised pension benefits resulting from the implementation of the YMPE calculation change if you are a Plan member currently in receipt of monthly pension benefits and began receiving your monthly pension after December 31, 2006.
It is currently anticipated that these programming changes will be implemented by the end of 2015. Corresponding pension benefit changes will be processed at that time and will be paid retroactive to January 1, 2015.
As implementation timelines are finalized, additional information will be communicated.
YMPE, or Year's Maximum Pensionable Earnings, is the limit set by the federal government each year to determine the maximum Canada Pension Plan contributions and benefits.
The YMPE is also used to determine your contributions to the Plan and pension benefits. Your pension benefit is calculated using a defined benefit formula, which includes the average of your best five years of earnings (“Best Average Earnings”), multiplied by the number of years or partial years you have contributed to the Plan (referred to as “Credited Service”), as follows:
2.0% of your Best Average Earnings
Your years of Credited Service
0.6% of the average YMPE (for the same five years of earnings)
Your years of Credited Service
The Pension Committee recommended changing the YMPE average calculation in order to provide a simpler, streamlined, and easier to understand approach versus the previous formula which is complex. The old calculation methodology is not wrong and had been consistently applied by the Civil Service Superannuation Board (CSSB) for the MTS Pension Plan as well as the predecessor plan.
Changes in YMPE methodology were originally reviewed by the Pension Committee in 2006, to be effective for new retirements or terminations starting in 2007. While the decision to implement the change was finalized years later, the Pension Committee recommended the new YMPE methodology be implemented for members who commenced receiving a monthly pension after December 31, 2006, to align with the timing of the initial proposal.
No, if you retire in 2015 before the programming changes are implemented, your monthly pension benefit will be calculated using the old YMPE methodology, based on the pension benefit option you choose. When the programming changes are completed, your pension benefit will be recalculated using the new methodology. Any applicable increase resulting from the new calculation will be processed retroactive to your retirement date.
If you retire after the programming changes have been implemented, your pension benefit will be calculated using the new YMPE methodology.
The difference in YMPE methodologies results in a relatively immaterial difference to pension benefits – from no change to a small improvement.
You do not need to delay making a decision regarding your pension benefit option. If you take a commuted value and request a transfer of your pension benefits to a financial institution, any subsequent top-up improvement resulting from the new YMPE calculation will be processed the same way as the original pension estimate.
No, your monthly pension benefit will be recalculated using the new YMPE methodology when the programming changes are completed. If you are eligible for an increase, any applicable adjustments resulting from the new calculation will be processed automatically, retroactive to January 1, 2015. As noted above, the incremental change in pension benefits as a result of the application of the new YMPE methodology will be further increased by the cost of living adjustment percentages received by the retiree or beneficiary.
It is anticipated the programming changes and recalculation of pension benefits will be implemented by the end of 2015.
If you are a deferred member and commence receiving a monthly pension benefit at a later date, your pension benefit will be calculated using the new YMPE methodology. No action is required on your part.
No. The pension plan surplus settlement and implementation agreement is separate from the YPME methodology change.