The PSSA includes a Supplementary Death Benefit (SDB) which provides decreasing term life insurance protection payable to a designated beneficiary. SDB coverage is applicable to the majority of employees who participate in the PSSA and can continue into retirement.
The SDB plan provides a benefit equal to twice an employee’s annual salary. If this amount is not a multiple of $1,000, the benefit coverage is adjusted to the next highest multiple of $1,000. The amount of the SDB benefit and coverage adjusts automatically for increases in salary. The SDB benefit declines by 10 per cent for each year beyond the age of 65. For example, if the employee has coverage for $90,000 at 65 (i.e. $45,000 annual salary X 2) and the salary does not change, coverage would decline to $81,000 at age 66, $72,000 at 67, and so on. The yearly reduction will take effect on April 1 or October 1, whichever date comes first after the employee’s birthday.
With the reduction rate described above, benefits would ordinarily decline Some Useful Tips – Fifth Edition 2008 38 Retiring from the Public Service of Canada to zero as of age 75 except for the following two relevant provisions :
- Participants still employed, or those who cease to be employed and are entitled to an immediate annuity or an annual allowance payable within 30 days after they cease to be employed, are entitled to a paid-up coverage of $10,000 when they reach age 65. This means that the participant, whatever his or her actual coverage at 65, has $10,000 of that coverage without contribution. This paid-up benefit is retained for life at no cost.
If a participant dies after reaching age 65 while still employed in the Public Service, the minimum coverage is the greater of $10,000 or one third of the person's annual salary. If one third of the salary is not a multiple of $1,000, it will be adjusted to the next higher multiple of $1,000 in order to determine this benefit.
- The contributions required for SDB coverage are 15 cents per month for every $1,000 of coverage. In other words, an employee earning $45,000 per annum with $90,000 of SDB coverage would be required to contribute $13.50 per month or $162.00 per year. After age 66, the contributions required decline in accordance with the automatic annual 10 per cent reduction in SDB coverage.
An employee who retires with an entitlement to an immediate annuity, an immediate annual allowance payable within 30 days after termination of employment or with a disability annuity at any age, is deemed to have elected to continue participation in the SDB Plan. In other words, no further action is required of the employee and the required SDB contributions will be deducted automatically from the monthly superannuation cheque. In accordance with the foregoing retirement scenarios, there is no change in the required SDB contribution rate (i.e. remains at 15 cents per month for every $1,000 of coverage). Alternatively, a retiring employee can choose to cancel or reduce SDB coverage to $10,000. The required documentation to proceed in this manner should be provided by the departmental Pay and Benefit Specialist. Such an option is irrevocable and there are no provisions in the PSSA to provide for reinstatement of coverage. Participants eligible for $10,000 paid up SDB coverage at age 65 should seriously consider reducing coverage to $10,000 as an alternative to complete cancellation of coverage.
Employees who terminate employment with a superannuation benefit other than an immediate annuity, an immediate annual allowance payable within 30 days after termination of employment or with a disability annuity are required to make a formal election to continue SDB coverage. The required documentation should be provided by the departmental Pay and Benefit Specialist. Terminating employees are required to remit the full contribution for the first year of coverage when submitting the documentation to continue participation in the SDB Plan. The required payment can be made by cheque, money order or bank draft payable to the Receiver General for Canada and must be received by the Superannuation, Pension Transition and Client Services Sector within 30 days of the date of termination. Elective SDB participants will be provided with instructions by the Superannuation, Pension Transition and Client Services Sector on how to remit future required SDB contributions within prescribed time limits. Cancellation of elective SDB coverage can result if the Superannuation, Pension Transition and Client Services Sector is not in receipt of the required SDB contributions within 30 days of the due date prescribed by the PSSA.
In these circumstances, a higher contribution rate is also required to retain SDB coverage. For example, a retiring employee at age 50 with SDB coverage of $90,000 (having a final annual salary of $45,000) would be required to pay $1,084.95 per year to retain SDB coverage beyond termination. Furthermore, no paid-up coverage is available in these circumstances. Consequently, SDB coverage ceases completely as of age 75.
Employees have the right to designate and substitute the beneficiary to whom the SDB will be payable. SDB participants are advised to inform their departmental Pay and Benefit Specialist, while employed, and the Superannuation, Pension Transition and Client Services Sector, when retired, of the address and contact coordinates of their designated beneficiary and of any subsequent changes.