Vol. 150, No. 13 — June 29, 2016

Registration

SOR/2016-156 June 17, 2016

SPECIAL RETIREMENT ARRANGEMENTS ACT

Regulations Amending the Retirement Compensation Arrangements Regulations, No. 1

P.C. 2016-573 June 17, 2016

His Excellency the Governor General in Council, on the recommendation of the President of the Treasury Board, pursuant to sections 11 (see footnote a), 13 and 28 (see footnote b) of the Special Retirement Arrangements Act (see footnote c), makes the annexed Regulations Amending the Retirement Compensation Arrangements Regulations, No. 1, of which section 5, subsection 6(2) and sections 7 and 10 are deemed, pursuant to subsections 13(2) and 28(2) of that Act, to have come into force on January 1, 2013.

Regulations Amending the Retirement Compensation Arrangements Regulations, No. 1

Amendments

1 The long title of the Retirement Compensation Arrangements Regulations, No. 1 (see footnote 1) is replaced by the following:

Retirement Compensation Arrangements Regulations, No. 1

2 Section 1 of the Regulations and the heading before it are repealed.

3 The definition misconduct in section 2 of the Regulations is repealed.

4 Paragraph 4(d) of the Regulations is replaced by the following:

5 Subsections 8(1) and (2) of the Regulations are replaced by the following:

8 (1) Subject to subsection (2), a participant who is referred to in paragraph 4(d) shall contribute to the Retirement Compensation Arrangements Account at a rate equal to twice the applicable rate referred to in subsection 5(2) of the Public Service Superannuation Act, read without reference to subsection 5(6) of that Act.

(2) If the aggregate of the period of pensionable service of a participant — consisting of the period of pensionable service under the Public Service Superannuation Act and other pensionable service as defined in subsection 5(5) of that Act as well as the period specified in paragraph 7(d) by the participant in an election made under paragraph 11(1)(d) of the Act — exceeds 35 years, the participant shall contribute to the Retirement Compensation Arrangements Account, in respect of the portion of the aggregate period that exceeds 35 years, at a rate equal to twice the applicable rate referred to in subsection 5(3) of the Public Service Superannuation Act, read without reference to subsection 5(6) of that Act.

6 (1) The portion of subsection 13(3) of the French version of the Regulations before paragraph (a) is replaced by the following:

(3) Le participant cotise au compte des régimes compensatoires jusqu’au jour précédant celle des dates ci-après qui est antérieure aux autres :

(2) Paragraph 13(3)(a) of the Regulations is replaced by the following:

7 Subsection 15(1) of the Regulations is replaced by the following:

15 (1) Subject to section 15.1, a participant who ceases to be required to contribute to the Retirement Compensation Arrangements Account under this Part may opt to receive a benefit of the type that the participant would otherwise be entitled to receive under section 13 or 13.001 of the Public Service Superannuation Act, based on the participant’s age on ceasing to be required to contribute under this Part and on the aggregate of the pensionable service to the credit of the participant under that Act and the period of service in respect of which the participant was required to contribute under this Part.

8 Subsection 20(6) of the Regulations is replaced by the following:

(6) If the monthly deduction referred to in subsection (2) would cause financial hardship to the person to whom the benefit is payable, a lesser monthly deduction shall be made in an amount equal to the greater of $10 and 5% of the gross monthly amount of the benefit.

9 Section 31 of the Regulations is replaced by the following:

31 A participant who makes an election under section 12.2 or 57 of the Public Service Superannuation Regulations or under paragraph 6(1)(b), other than under clause 6(1)(b)(iii)(M) or (N), or section 20 of the Public Service Superannuation Act, shall pay to the Retirement Compensation Arrangements Account, in respect of any portion of the participant’s annual rate of salary that exceeds the annual rate of salary determined under section 5.1 of those Regulations, the amount that the participant would be required to contribute in respect of that portion under sections 12.4 and 57 of those Regulations or under section 7 or paragraph 20(1)(b) of that Act in the same manner and subject to the same conditions as are set out in subsection 57(3) of those Regulations or in section 8 or subsection 20(3) of that Act, respectively.

10 Section 38.3 of the Regulations is replaced by the following:

38.3 (1) Subject to subsections (2) and (3), a person who elects to pay for a period of service under clause 6(1)(b)(iii)(M) or (N) of the Public Service Superannuation Act shall pay to the Retirement Compensation Arrangements Account a lump sum amount that is equal to the aggregate of

(2) If an adjustment is made under subsection 102(2) or (3) or 104(3) of the Public Service Superannuation Regulations to the period of pensionable service that is counted by the person under the election, the ratio that was used under that subsection of those Regulations to determine the period to be counted shall be applied to reduce the amount that is determined under subsection (1).

(3) A person who had opted to receive or was deemed to have opted to receive a deferred annuity under paragraph 38.1(1)(b) or subsection 38.2(2), as those provisions read immediately before December 13, 2002, is not required to make a payment under subsection (1), and ceases to be entitled to that annuity.

11 The English version of the Regulations is amended by replacing “Public Service” with “public service”, except in the expressions “Public Service Superannuation Act”, “Public Service Superannuation Regulations” and “Public Service Pension Fund”, in the following provisions:

Coming into Force

12 (1) These Regulations, except section 5, subsection 6(2) and sections 7 and 10, come into force on the day on which they are registered.

(2) Section 5, subsection 6(2) and sections 7 and 10 came into force on the day specified in the Order making these Regulations.

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:

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

  1. 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;
  2. 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;
  3. 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,
  4. 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