PENSION LAWS

Revised January 2002

The main objective of the Pension Benefits Act is to safeguard employees' rights to benefits promised under private pension plans. Over the years, the rights of employees to obtain information have increased. There is now more protection for the spouse or common-law partner of a contributing member. In addition, employees who leave their jobs now have new options regarding transfers of their pension credits.

MINIMUM VESTING AND LOCKING-IN REQUIREMENTS

Under the Act "vesting" means you are entitled to the full value of your accrued pension, meaning the value of your employer contributions made on your behalf are included with the value of your contributions.

The term "locking-in" means that benefits cannot be cashed out, but must instead be used to provide a pension at retirement.

Pension benefits earned since January 1, 1985 are vested and locked-in once you have completed two years of continuous service or employment.

What if I have less than two years of service?

Depending on your pension plan, you may only be entitled to a refund of your own contributions with interest.

How will this affect any benefits earned by me prior to 1985?

Since July 1, 1976, pension plans have been required to provide vesting upon the completion of 10 years of continuous service.

Vesting and locking-in of benefits must occur once the plan member has attained age 45 and completed 10 years of continuous service.

On termination of employment, if you have not attained age 45 you may be entitled to receive a cash payment of benefits earned prior to 1985 subject to the terms of your plan. Before your termination date, you should review your benefit options. In some cases, you may forfeit the employer's contributions if you withdraw your own.

What if my pension plan terminates?

If your plan is terminated, all pension benefits earned since July 1, 1976 are fully vested for all members regardless of age or length of employment.

50% EMPLOYER COST RULE

If you are a member of a defined benefit pension plan (ie. your monthly pension is described by a formula, usually related to salary and service), the employer must pay at least 50% of the cost of your pension benefit earned after January 1, 1985. This rule applies in all pension calculations.

When your pension is calculated, any employee contributions above 50% of the cost of your pension may be refunded to you in cash, or be used to increase the amount of your pension.

This example illustrates how the pension benefit is calculated:

Pension Cost.....................$4,700

Employee Contribution

(from Jan. 1/85 to termination)

with interest.....................$4,000

Excess Contribution:

...$4,000 - ($4,700 x 50%) = $1,650

The member is entitled to a locked-in pension with a cost of $4,700 consisting of equal contributions from the employee and employer (ie. $2,350 each), plus the excess employee contribution. The excess contribution of $1,650 may be taken as a cash refund or used to increase the member's pension benefit.

INTEREST

All pension plans are required to pay a reasonable rate of interest on contributions at least once a year.

When you become entitled to a benefit settlement from the plan, interest must be credited up to the end of the month preceding the settlement.

SEX DISCRIMINATION PROHIBITED

All pension plans must provide equal benefits for males and females. A pension plan cannot exclude one sex from participation, or have different benefits based on the sex of the member.

RETIREMENT AGE

Pension plans must specify an age at which pensions will normally commence (the "normal retirement age"). The most common age for normal retirement is age 65.

Can I retire early?

Yes.  A "reasonable" early retirement requirement under a pension plan is considered to be the 10-year period preceding the normal retirement age, ie. age 55. The plan may provide for a reduced benefit to compensate for the earlier start of the pension payments.

What if I remain employed beyond normal retirement age?

If you continue to be employed after the normal retirement age, you must have the right to continue as a member of the plan and earn further pension benefits.

PRE-RETIREMENT DEATH BENEFITS

The Act requires that the death benefit be paid to the member's spouse (which includes a common-law partner as defined by the Act) should a member die before retiring. If the plan member does not have a spouse or common-law partner at the time of death, this payment will be given to the member's named beneficiary or their estate.

What kind of benefits will my spouse or common-law partner receive?

If the member had at least two years of service, the full value of the pension benefit earned after January 1, 1985 (meaning all vested employee and employer contributions made after that time), must be paid to the member's spouse or common-law partner. Payment would be in the form of a life-time pension beginning immediately or upon a date chosen by the surviving spouse or partner. The spouse or partner can transfer the pension credits to a Locked-In Retirement Account ("LIRA"), a Life Income Fund ("LIF"), Locked-In Retirement Income Fund ("LRIF"), or other registered pension plan.

The death benefits for any pension earned prior to 1985 will be determined by the member's pension plan. The value of this benefit can not be less than the plan member's own contributions.

ARE THERE ANY EXCEPTIONS TO THIS RULE?

Yes. If the plan member had less than two years of service, they may not have earned a vested pension benefit. However, the member's contributions, if any, with interest would be refunded to the member's named beneficiary or their estate as a cash settlement.