FEDERAL REG

SOR/2016-156: Regulations Amending the Retirement Compensation Arrangements Regulations, No. 1

REGISTRATION OF FEDERAL REGULATION - VIA OIC DATABASE, PRIOR TO PART II OF THE GAZETTE

Registered
June 17, 2016


REGULATORY IMPACT ANALYSIS STATEMENT (This statement is not part of the Regulations.) Issues The Public Service Superannuation Act was amended by the Jobs and Growth Act, 2012, to increase contributions rates for all plan members and increase the normal retirement age from 60 to 65 for new public service pension plan members hired on or after January 1, 2013. These new legislative provisions are ... (Click for more)


Published on June 17, 2016

Bill Summary

SOR/2016-156: Regulations Amending the Retirement Compensation Arrangements Regulations, No. 1

REGULATORY IMPACT ANALYSIS STATEMENT (This statement is not part of the Regulations.) Issues The Public Service Superannuation Act was amended by the Jobs and Growth Act, 2012, to increase contributions rates for all plan members and increase the normal retirement age from 60 to 65 for new public service pension plan members hired on or after January 1, 2013. These new legislative provisions are designed to ensure that the public service pension plan continues to provide appropriate benefits to plan members at a fair cost, shared between plan members and Canadian taxpayers. The Retirement Compensation Arrangements Regulations, No.1 (the Regulations), which provide additional retirement benefits for certain members of the public service pension plan, has not been amended to incorporate the 2012 amendments to the Public Service Superannuation Act. As a result, certain pension benefits cannot be administered correctly for plan members hired on or after January 1, 2013. In addition, the method for calculating the cost to reinstate certain types of pensionable service does not account for the difference in the cost of benefits for plan members hired before and after January 1, 2013. The current cost methodology may cause inequitable treatment between plan members. Background In 2012, the Public Service Superannuation Act was amended by the Jobs and Growth Act, 2012, increasing the age of retirement for public service employees who began participating in the public service pension plan as of January 1, 2013. This amendment created a new group of pension plan members: “Group 1” plan members are those plan members who were participating in the pension plan before January 1, 2013, and are eligible for an unreduced pension benefit at age 60, or at age 55 if they have at least 30 years of pensionable service. “Group 2” plan members are those plan members who began participating in the plan as of January 1, 2013, and are eligible for an unreduced pension benefit at age 65, or at age 60 if they have at least 30 years of pensionable service. As a result of the 2012 amendments, certain sections of the Regulations under the Special Retirement Arrangements Act require amendments to allow the Regulations to distinguish between Group 1 and Group 2 plan members. The public service pension plan limits pension benefits to the maximum amount allowed under the Income Tax Act for registered pension plans. The Regulations were established to allow the accumulation and payment of benefits that exceed the limits allowed under the Income Tax Act. The public service retirement compensation arrangement ensures a member receives a pension reflecting their full pensionable earnings. Membership in the public service pension plan’s retirement compensation arrangement is automatic for public service pension plan members whose benefits exceed the Income Tax Act limit. Without the public service pension plan’s retirement compensation arrangement, plan members with pensionable earnings greater than the Income Tax Act limit could not earn pension benefits reflecting their full pensionable earnings. Therefore, their retirement income replacement ratio would be lower than those members with earnings less than the Income Tax Act limit. In 2016, pensionable earnings in excess of $161,700 (the threshold) would result in a benefit entitlement and a pension adjustment that exceeds the maximum allowed by the Income Tax Act, and therefore contributions to the public service pension plan’s retirement compensation arrangement are made above this earnings threshold, which is updated annually. The Regulations have not been amended to incorporate the 2012 changes to the Public Service Superannuation Act. As a result, the Regulations do not permit certain pension benefit entitlements to be applied correctly to Group 2 plan members. Under the public service pension plan, if a member received a transfer value when they left the public service, and became re-employed and resumed their contributions to the pension plan, they may be able to reinstate all or part of the pensionable service for which they received a transfer value. Pensionable service transferred out of the public service pension plan by a pension transfer agreement can also be reinstated if a plan member becomes re-employed in the public service. However, the method of determining the cost to reinstate the pensionable service may result in inequitable treatment between public service pension plan members who choose to reinstate certain types of prior pensionable service and who may be required to pay an additional amount into the Retirement Compensation Arrangements Account. The current regulations for determining the cost to reinstate certain types of pensionable service are based on the amount previously paid out to the plan member, plus interest. However, this costing method does not take into account that the retirement age that applies to the plan member as a Group 2 member when they reinstate the pensionable service may be five years later than the retirement age that applied when the pensionable service was paid out. As a result, the plan member might be overpaying for the pensionable service they are reinstating because Group 2 benefits have an overall lower cost than Group 1 benefits. Objectives The objective of the Regulations Amending the Retirement Compensation Arrangements Regulations No. 1 (the amendments), is to ensure that the Regulations are aligned with the 2012 amendments made to the Public Service Superannuation Act, and consequential amendments to the Public Service Superannuation Regulations. Description The amendments incorporate the distinction between Group 1 (retirement age 60) and Group 2 (retirement age 65) public service pension plan members, as they are defined in the Public Service Superannuation Act; allow for the payment of pension benefits out of the Retirement Compensation Arrangements Account to individuals who are entitled to pension benefits in excess of the limits described in the Income Tax Act; require the payment of prior pensionable service election contributions into the Retirement Compensation Arrangements Account for members of the public service pension plan who choose to purchase a period of prior pensionable service; and, consist of minor housekeeping amendments, which include simplifying the language and correcting references to specific provisions of the Public Service Superannuation Act and its Regulations. “One-for-One” Rule The “One-for-One” Rule does not apply to this proposal, as there is no change in administrative costs to business. This proposal does not apply to business. Small business lens The small business lens does not apply to this proposal, as there is no impact on small business. This proposal does not apply to business. Consultation Consultations took place with the Office of the Chief Actuary, the Department of Public Services and Procurement and the Department of Justice. The Public Service Pension Advisory Committee, whose membership includes representatives of employees, was advised of the 2012 amendments made to the Public Service Superannuation Act and its accompanying Regulations. This committee has a statutory mandate to review matters respecting the administration, design and funding of the Public Service Superannuation Act and makes recommendations to the President of the Treasury Board. The regulatory amendments simply operationalize the amendments to the Public Service Superannuation Act and do not make any policy changes. Since 2012, plan members, stakeholders and Canadians have been informed through newsletters, information notices and Web content posted to the Canada.ca/pension-benefits Web site about the differing retiring ages between Group 1 and Group 2 members, and the annual increases for plan member contribution rates. Rationale The amendments are internal to the operations of government, and are intended to support the full implementation of the legislative amendments made to the Public Service Superannuation Act by the Jobs and Growth Act, 2012. The amendments ensure that the Regulations recognize the distinctions between the two groups of plan members as defined in the Act and take into account the difference between the overall cost of Group 1 and Group 2 benefits and that a member receives a pension reflecting their full pensionable earnings. The Office of the Superintendent of Financial Institutions has confirmed that these amendments do not change the actuarial liability or current service cost of Part II of the Retirement Compensation Arrangements Regulations, No. 1. No additional financial or human resources are required to implement or administer the Regulations. Contact Deborah Elder Director Pensions and Benefits Sector Treasury Board Secretariat Ottawa, Ontario K1A 0R5 Telephone: 613-948-5089 Footnote a S.C. 2012, c. 31, ss. 473, 503, and 513 Footnote b S.C. 2000, c. 12, s. 294 Footnote c S.C. 1992, c. 46, Sch. I Footnote 1 SOR/94-785

This Bill does not amend any statutes.

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