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1 |
PURPOSE |
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1.1 |
The purpose of this directive is to provide compensation advisors with information regarding the upcoming increase in contribution rates for members of the Public Service Pension Plan (PSPP). |
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1.2 |
A notice of information to employees concerning these increases has been included with this directive and will be posted in the "Who are you? - Public Service Employee" page of the Compensation Sector Web site.
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2 |
BACKGROUND |
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2.1 |
In an attempt to achieve a more balanced cost-sharing ratio between plan members and the government, the Treasury Board ministers have recently approved phased-in increases to the plan member contribution rates under the Public Service Superannuation Act (PSSA) and the retirement compensation arrangement (RCA), beginning in calendar year 2006.
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3 |
POLICY |
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3.1 |
Members currently contribute at the following rates:
- 4% on pensionable earnings up to and including the yearly maximum pensionable earnings (YMPE) under the Canada Pension Plan (CPP) and the Quebec Pension Plan (QPP);
- 7.5% on pensionable earnings in excess of the YMPE under the CPP/QPP, including pensionable earnings in excess of the RCA threshold; and
- 1% on pensionable earnings for employees with 35 years of service.
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3.2 |
Commencing in January 2006, the rates for plan member contributions will increase each year by 0.3%. Contributions based on pensionable earnings up to the YMPE will increase until 2013 while contributions on those pensionable earnings over the YMPE will increase until 2008. |
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3.3 |
The following table sets out the contribution rates that will apply. |
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Current |
2006 |
2007 |
2008 |
2009 |
2010 |
2011 |
2012 |
2013 |
| Pensionable earnings up to the YMPE |
4.0% |
4.3% |
4.6% |
4.9% |
5.2% |
5.5% |
5.8% |
6.1% |
6.4% |
| Pensionable earnings over the YMPE, including
pensionable earnings above the RCA threshold |
7.5% |
7.8% |
8.1% |
8.4% |
8.4% |
8.4% |
8.4% |
8.4% |
8.4% |
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Note: Plan members with 35 years of pensionable service will continue to contribute at a rate of 1%. |
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3.4 |
Operational Service - Correctional Service Canada (CSC) |
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Plan members engaged in Operational Service with CSC will pay the new contribution rate and will also continue to pay the additional 1.25% premium.
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4 |
PROCEDURES/INSTRUCTIONS |
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4.1 |
The increase in the contribution rates will be effective January 1 of each affected year. In order to implement these increases, the following procedures will apply. For ease of reference, the calendar year 2006 will be used for the purpose of illustrating the ensuing changes. |
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4.2 |
Payroll deductions |
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4.2.1 |
As the increase in the contribution rates is tied to January 1, this change will not always correspond to the beginning of a pay period or to the effective date of the new year's YMPE. Since the YMPE calculation starts accumulating as of the first pay period of the new year, it will be necessary to apply the rates of contributions in effect when the service occurred, not when the salary was actually paid. For example, we would use the 2005 rates of contributions (PSSA low rate and RCA rate) for services rendered in December 2005 that will be included in the first regular pay period of 2006. This process will need to be repeated yearly over the eight forthcoming years. |
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4.3 |
Regional Pay System (RPS) and on-line input |
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4.3.1 |
For regular pays and any automatic revisions, the RPS has been modified to impose the split in order to ensure that the proper contribution rate is applied based on the effective date of January 1 of each year and not the pay period start date. However, it should be noted that effective January 2006, the users will be required to split the service when processing a pay transaction where the dates overlap a calendar year; otherwise, a reject message PD/PB 650 "OVERLAPPING CALENDAR YEAR END" will be produced. |
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4.3.2 |
Regular pay - 7C accounts |
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For the first pay period of the 2006 calendar year, the pension contributions will be calculated and deducted as follows: |
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PSSA
- December 29, 2005 to December 31, 2005: 4% on pensionable earnings up to the YMPE of 2006.
- January 1, 2006 to January 11, 2006: 4.3% on pensionable earnings up to the YMPE of 2006.
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RCA
- December 29, 2005 to December 31, 2005: 7.5% on pensionable earnings exceeding the threshold for 2006.
- January 1, 2006 to January 11, 2006: 7.8% on pensionable earnings exceeding the threshold for 2006.
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4.3.3 |
Regular pay - 7A and 7B accounts |
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Since the first pay period of 2006 covers the period of December 15, 2005 to December 28, 2005, the rate of contributions will be calculated as follows: |
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PSSA
- 4% on pensionable earnings up to the YMPE of 2006 for the full pay period.
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RCA
- 7.5% on pensionable earnings exceeding the 2006 threshold for the full pay period.
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Since the second pay period of 2006 covers the period of December 29, 2005 to January 11, 2006, the rate of contributions will be calculated and deducted as follows: |
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PSSA
- December 29, 2005 to December 31, 2005: 4% on pensionable earnings up to the YMPE of 2006.
- January 1, 2006 to January 11, 2006: 4.3% on pensionable earnings up to the YMPE of 2006.
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RCA
- December 29, 2005 to December 31, 2005: 7.5% on pensionable earnings exceeding the threshold for 2006.
- January 1, 2006 to January 11, 2006: 7.8% on pensionable earnings exceeding the threshold for 2006.
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4.3.4 |
Please note that for 7A accounts, which are paid via Time Summary (TIM) transactions, there will be no change in terms of input for the users. When processing the regular pay, the RPS will automatically impose the split in order to properly calculate and deduct the correct amount of pension contributions.
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4.4 |
Part-time employees |
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4.4.1 |
As the RPS does not recognize the actual days worked for part-time employees, the contributions are calculated by prorating the assigned work week (AWW) based on the scheduled work week (SWW). The formula used by the RPS is as follows: |
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- AWW ÷ 5 = number of hours per day for the 5 days of the week.
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Therefore, the number of hours per day determined by the above mentioned formula will be used when determining the split in contribution rate at calendar year end. |
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Example: |
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7C account |
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AWW: 15.00 hours per week |
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Ratio: 15.00 ÷ 5 = 3 hours per day |
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First pay period: December 29, 2005 to January 11, 2006 |
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PSSA Contributions
- December 29, 2005 to December 31, 2005: 2 days (6 hours) x 4% of pensionable earnings up to the YMPE of 2006.
- January 1, 2006 to January 11, 2006: 8 days (24 hours) x 4.3% of pensionable earnings up to the YMPE of 2006.
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RCA Contributions
- December 29, 2005 to December 31, 2005: 2 days (6 hours) x 7.5% of pensionable earnings exceeding the threshold for 2006.
- January 1, 2006 to January 11, 2006: 8 days (24 hours) x 7.8% of pensionable earnings exceeding the threshold for 2006.
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4.5 |
Retroactive payments - on-line input |
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4.5.1 |
Commencing January 1, 2006, two separate transactions will be required when the retroactive period overlaps a calendar year within the first pay period for 7C accounts and for the second pay period for 7A and 7B accounts. The first transaction will be for a closed period covering the days of December of the previous calendar year that are being paid in the new year. Please note that this procedure must also be used when reporting allowances which form part of salary for pension purposes. |
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Example 1 |
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An employee is taken on strength (TOS) with an effective date of December 30, 2005. The TOS transaction has been actioned after the first pay period of 2006 has been processed. Therefore, the payment of the first pay period must be done via an entitlement adjustment (EAJ) transaction. Since the first day owed is December 30, 2005, and forms part of a pay period in 2006, the following transactions will be required: |
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- EAJ code 189 (closed period) for 30-12-05 1 to 31-12-05 2;
- EAJ code 189 (closed period) for 01-01-06 1 to 11-01-06 2.
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Please note that for both transactions, the pay period field must indicate "01" as the payment pertains to the first pay period for the year 2006. This is required in order to ensure that the correct contribution rates are used and to apply the proper CPP exemption. |
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Example 2 |
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On February 1, 2006, an employee is promoted with a retroactive date of December 1, 2005. The promotion must be reported as follows: |
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- PRO (closed period) 01-12-05 1 to 31-12-05 2;
- PRO (open end date) 01-01-06 1.
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4.5.2 |
When issuing adjustments or retroactive payments, it will be important to apply the rates of contributions in effect when the service occurred, not when the payment was made. Please note that when processing retroactive payments, the RPS will continue to verify elements 930, 931, and 932 to determine if the previous year(s) maximum low rate was reached. However, due to system limitations, the RPS only stores the applicable contribution rate for the three previous calendar years. Currently, for any retroactive payment that spans beyond this 3-year period, the current year rate is applied. Commencing in January 2006, this practice will change. Because of the increase in the rate of contributions, the RPS will apply the same rate of contributions as of the third previous year on any portion of the adjustment which falls outside this 3-year period. For example, if working in current year 2006, we would apply the 2003 contribution rate for any funds earned prior to 2003. |
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4.6 |
Leave without pay (LWOP) - non-payable payments |
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4.6.1 |
The split described earlier also applies to non-payable LWOP transactions for entitlement codes 202 (single rate PSSA) and 270 (double rate PSSA). For situations where the automated retroactivity program is used and where non-payable transactions are automatically generated, the RPS will impose a split between the calendar years in order to properly calculate the PSSA/RCA percentage rate. If the non-payable transactions are entered manually, the split will be required; otherwise, a reject message PD/PB 650 "OVERLAPPING CALENDAR YEAR END" will be produced. |
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4.7 |
RE-TOS Calculation System |
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4.7.1 |
The RE-TOS (retaken on strength) application will be modified to reflect the increase in contribution rates. In addition, modifications will be made to correctly calculate the "split" in the contribution rate as the increase applies to January 1 of the new year and not the effective date of the first pay period for 7C accounts and the second pay period for 7A and 7B accounts. The deficiencies will be calculated using the correct percentage rate for each affected calendar year. |
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4.8 |
Estimate of cost for elections |
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There will be no change in procedures. When utilizing one of the estimate of cost calculation programs, users will not be required to separate the period for estimation purposes. These applications have been programmed to automatically apply the correct rate of contributions for each calendar year.
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5 |
INQUIRIES |
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5.1 |
Any request for information regarding the content of this document should be addressed to your Public Works and Government Services Canada (PWGSC) Compensation Services Office.
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