The employee contribution rates and benefit entitlements of the PSSA are integrated with the Canada/Québec Pension Plans (C/QPP).
Effective January 1, 1966, the C/QPP were introduced by the Federal Government and the Province of Québec to provide virtually all working Canadians and their families with a degree of earnings-replacement protection in the event of the retirement, disability or death of the wage earner. Initially, employees and employers were each required to contribute 1.8% of earnings up to a level reflective of average wages in Canada and benefits were designed to represent 25% of earnings up to this level.
As C/QPP participation was compulsory, pension plans already in existence at the time (such as the PSSA) required a decision as to whether or not their plans would be amended to account for the new mandatory public pension scheme. There were basically two choices available: a private plan could ignore the introduction of the C/QPP and simply “stack” benefit and contributions rates on top of the C/QPP or coordinate the plan provisions to recognize the contributions required and coverage provided under the C/QPP. In general, this decision was, for the most part, determined in accordance with the level of protection afforded by the private plan.
For example, if the private plan in question provided a very basic level of pension protection, or was a defined contribution (money purchase) plan, then the decision was likely not to amend or coordinate with the features of the C/QPP. On the other hand, more generous pension arrangements that already provided a significant level of replacement income were most likely to opt for integration with the C/QPP.
In 1966, the existing Federal Government decided that the terms of the PSSA would be integrated with the provisions of the C/QPP. This decision was based primarily on the fact that the PSSA was providing an appropriate level retirement income for employees earning below the average industrial wage and these individuals were already diverting a significant portion of their income to retirement savings in the form of superannuation contributions. In other words, for Federal Government employees, the retirement income system, composed of Old Age Security (OAS), C/QPP, and employer-sponsored pensions, would replace approximately 85% of the pre-retirement income of a PSSA participant earning at or below the average wage. To require such employees to provide themselves with an even higher replacement rate, by increasing contributions above what was already required under the PSSA, was considered to be too great a diversion of earnings from current consumption needs.
As a result, the Federal Government, in consultation with the Advisory Committee on the PSSA, adopted the following integration method:
- The combined contributions under the superannuation plan and the C/QPP would equal the existing contribution rates under the PSSA.
- The superannuation benefit earned before the inception of the C/QPP would remain the same. In other words, for years prior to 1966, there would be no integration in the benefit calculation. Furthermore, as a result of “full” C/QPP benefits not being payable prior to age 65, there would be no benefit reduction between ages 60 and 65.
- At the time the C/QPP retirement benefit became payable: a) the portion of the superannuation benefit based on the salaries on which “split” contributions applied would be reduced from 2% to effectively 1.3% of average salary for each year of service after C/QPP commenced and; b) The balance of the superannuation pension benefit based on the salaries above the Yearly Maximum Pensionable Earnings (YMPE) on which only the PSSA contributions had been paid would be 2%;
- The reduction described in 3a) above would be applied immediately in the case of a disability retirement, where the disabled employee was entitled to disability benefits both under C/QPP and the PSSA.
- There would be no reduction in survivor and children’s benefits under the PSSA, despite the provision of these benefits under C/QPP. This decision was based both on the recommendation of the Department of Insurance which had advised against integration given the number of very small survivor and children benefits payable under the PSSA, as well as the administrative difficulties which would result because of the various criteria which had to be met to qualify for a survivor’s benefit under the C/QPP and the varying formula that existed to determine the amount of the benefit that would be payable under that plan.
As a federal statute, the PSSA is not subject to “negotiations” with federal public service bargaining agents.
Therefore, the input of the PSAC to the CPP/QPP integration discussions in 1965-66 was restricted to the limited legislated mandate provided to representatives on the Advisory Committee of the PSSA. The current C/QPP integration formula represents the extent of the protections the PSAC was capable of attaining in this forum to protect the interests of the membership and their families.
The entire issue of the coordination of the PSSA with the C/QPP is further complicated by the revisions introduced to the public pension system by the Federal Government in agreement with the majority of the provinces. Since 1987, the required contribution rates to the C/QPP have increased considerably. The resulting implications for the PSSA are illustrated in Table 4. As of January 1, 2003, employee contribution rates to C/QPP have risen to 4.95%. As a result, had a decision been made in 1966 to “stack” the contribution rates and benefit formulae of the C/QPP and the PSSA, as of 2003, 12.45% of salary (below the YMPE) of federal public service employees would be deducted for purposes of pension contributions. C-QPP Reduction Formula At present, upon attaining the age of 65 (or upon entitlement to C/QPP disability benefits), a retiree in receipt of a PSSA benefit will have his/her superannuation benefits reduced by the following pre-determined formula as specified in legislation:
“.007 x number of years of contributory service since January 1, 1966 x average maximum pensionable earnings (AMPE), or average salary, whichever is lower.”
As a result of legislated amendments incorporated in Bill C-13 (Budget Implementation Act) and which received Royal Assent on June 22nd, 2006, the C/QPP offset reduction factor will be revised in accordance with the following schedule:
The AMPE refers to the average of the C/QPP earnings ceilings (YMPE) for the year of retirement (or for the year of entitlement to C/QPP, if this occurs before retirement) and the four preceding years. The C/QPP ceilings for 2004 through to 2008 are $40,500, $41,100, $42,100, $43,700 and $44,900 respectively. The AMPE for 2008, therefore, is $42,460. If an employee’s average salary is lower than the AMPE, the actual average salary would be used in the calculation.
By way of example, an employee with 35 years of service and an average salary in excess of the AMPE who retires on December 30, 2008, would have his/her PSSA benefit reduced at age 65 (or upon receipt of C/QPP disability benefits) by $10,179.79 per annum (.00685 x 35 x $42,460) or $848.32 per month. This amount could vary according to years of contributory service and/or average salary. Please note that in 2008, the maximum C/QPP retirement benefit payable from age 65 is $884.58. Departmental pay and benefits specialists provide terminating employees with a projected estimate of the C/QPP reduction which would apply at either age 65 or the commencement of receipt of C/QPP disability benefits.