INFORMATION REGARDING ELECTIONS FOR TRANSFER VALUE SERVICE

As a result of new regulations effective December 13, 2002, contributors under the Public Service Superannuation Act (PSSA) can elect to purchase prior transfer value service. This document provides employees with answers to the following questions regarding this type of election:

1. What is an election for transfer value service?
2. Who is eligible to elect for transfer value service?
3. Is there a time limit to make an election?
4. Can I make separate elections, over a period of time, to purchase various portions of my prior transfer value service?
5. If I make an election, will I need to undergo a medical examination?
6. What happens if I fail the medical examination?
7. How is the cost of electing for my prior transfer value service determined?
8. If I elect for my prior transfer value service, when will I know the final cost?
9. What are my payment options?
10. Can I make a payment through a direct transfer from my spouse's registered retirement savings plan (RRSP)?
11. Is there a time limit during which I can make lump sum payments?
12. Can I elect for only a portion of my prior transfer value service?
13. I don't have sufficient funds to purchase my full period of transfer value service. Can I still make an election?
14. I received a transfer value based on periods of full-time and part-time service. Can I purchase both the full-time and the part-time service?
15. I received a first transfer value. I became re-employed in the Public Service as a contributor and upon termination, I received a second transfer value. Can I elect for both periods of service?
16. My transfer value was reduced because of the division of my pension benefits. Can I now purchase this prior service?
17. A portion of my transfer value was diverted due to my obligation to make support payments. Can I now purchase my prior transfer value service?
18. What will be the amount of my pension if I purchase my prior transfer value service?
19. Are there other factors to consider before I make an election?
20. What information or documents must I send to make an election to purchase my prior transfer value service?
21. Can I cancel my election if I determine that it is not to my advantage?
22. I have concerns that need to be addressed before I make a decision. Whom can I contact if I have questions?

APPENDIX A: Impact of the Income Tax Act (ITA) on an Election for Transfer Value Service

APPENDIX B: Retirement Compensation Arrangements (RCA)

1. What is an election for transfer value service?

An election for transfer value service is where a contributor elects to pay for a period of prior service for which a transfer value was paid.

Transfer value service is comprised of current service, including periods of leave without pay for which contributions have been paid, and elective service that is paid for up to the date of the transfer value option.

2. Who is eligible to elect for transfer value service?

Generally, if you are a contributor under the Public Service Superannuation Act (PSSA) and you received a transfer value payment, you are eligible to elect for your prior transfer value service.

3. Is there a time limit to make an election?

Yes. The election must be made, and forwarded to the Superannuation Directorate or to your personnel office, no later than one year after the later of:

1. the date the written notice "Notification of Contributory Status" (PWGSC-TPSGC 2018 (PDF 101k)) is issued informing you that you have become a contributor under the Public Service Superannuation Act (PSSA), or
2. December 13, 2002, the coming into force date of the regulations.

4. Can I make separate elections, over a period of time, to purchase various portions of my prior transfer value service?

No. You can make only one election to pay for a period of transfer value service. If you do not elect for the full period, or you only send sufficient funds to purchase a portion of the full period, you will not be permitted to make another election for the remainder of the service. If your election is declared invalid for any reason, you will also not be able to make another election for the same service.

In addition, you must not have had a previous opportunity to elect for your transfer value service. If, as a contributor, you had a first opportunity to elect but failed to do so within the prescribed time, you will not have a second chance to elect for that service even if you leave the Public Service and later become re-employed as a contributor.

5. If I make an election, will I need to undergo a medical examination?

Yes, apart from a few exceptions, you must undergo a medical examination, and it must be undergone within 90 days prior to or six months after the making of the election. If you pass the medical, you will have met the medical requirements for the purpose of the election.

6. What happens if I fail the medical examination?

If you fail the medical examination, your election will not be declared invalid, however, neither you nor your survivors will become entitled to any benefit in respect of the service elected for other than a return of contributions, unless one of the following occurs:

1. You complete five years of employment in the Public Service immediately following the date of the examination. If five years of employment are not completed, any payments made in connection with the election will be returned.
   
   
2. You undergo a subsequent examination which will, if passed, override the initial examination and you will be deemed to have met the medical requirements for the purpose of the election.

If you feel that your decision to make an election will be influenced by the results of your medical examination, you may wish toconsider undergoing the examination as early as possible during the time period set out in question 5 (within 90 days prior to or 6 months after the making of the election).

7. How is the cost of electing for my prior transfer value service determined?

The cost of electing for your full period of transfer value service is the amount of your original transfer value payment, including any adjustment payments made at a later date, plus interest. If you elect for only a portion of the full period of service, the cost is adjusted proportionally.

The MERCER Median quarterly interest rates for Canadian pension funds, published by Mercer Investment Consulting Inc., are used to calculate the interest for the purpose of the election. The interest is calculated for the period from the transfer value payment date or dates, to the last day of the month prior to the month in which the election is received by the Superannuation Directorate or your personneloffice, and is compounded quarterly. If the election is received in the second or third month of a quarter, the full interest rate applicable for that quarter is prorated.

The MERCER Median interest table contains positive and negative quarterly rates. As both positive and negative rates must be used in the calculation of the compound interest, the total amount of cumulative interest may be positive or negative. If the amount of cumulative interest is negative, then it is deemed to be zero, and the cost is fixed at the transfer value payment amount.

The Superannuation Directorate is responsible for providing, upon request, the cost estimates for eligible contributors. The enclosed estimate represents the cost for the full period of transfer value service, and shows the date up to which interest has been calculated. The final cost will only be determined when an election is made and could vary from this estimate, particularly if you elect for less than the full period of service, or if the amount of cumulative interest has changed.

8. If I elect for my prior transfer value service, when will I know the final cost?

Once your election form is received, the Superannuation Directorate will advise you of the final cost, based on the information you have provided on the form, and updated cumulative interest. In order to comply with Income Tax Act (ITA) requirements, the total cost will also be broken down to identify the source from which certain payments must originate. Refer to the Appendix A for important information regarding the tax implications surrounding your election payments.

9. What are my payment options?

The amount required to pay for an election to purchase prior transfer value service must be paid in one or more lump sum payments, as described below. You cannot pay for this type of election in monthly installments.

Service which occurred prior to 1992. The Income Tax Act (ITA) requires that any service which occurred prior to 1992 must be purchased via direct transfers from registered funds, such as a registered retirement savings plan (RRSP), and/or another registered pension plan (RPP). There is no other way to pay for this service.

Service which occurred after 1991. The above restriction does not apply to service which occurred after 1991, which can be purchased with cash payments (i.e. by personal cheque or money order), with funds transferred from an RRSP and/or another RPP, or with a combination of cash and registered funds.

Retirement Compensation Arrangements (RCA) portion. The ITA also requires that any RCA portion of the cost must be paid by cash payments. There is no other way to pay for this portion. Please refer to Appendix B for an explanation of the RCA.

Any cost in relation to the above ITA restrictions is identified on the enclosed estimate of cost. Pleaserefer to Appendix A for information on tax deductibility of amounts paid toward the election, and on the calculation of the Past Service Pension Adjustment (PSPA).

10. Can I make a payment through a direct transfer from my spouse's registered retirement savings plan (RRSP)?

No, you cannot make a payment via another person's retirement vehicle, such as a spousal RRSP.

11. Is there a time limit during which I can make lump sum payments?

Yes. Any lump sum payments must be received at the Superannuation Directorate within 90 days following the date of receipt of your election form. There is no provision by which this deadline can be extended. Your election will only be processed for the funds received within the prescribed time, and if no payment is received, your election will be declared invalid. You will not be able to make a second election to purchase the same period of service or to purchase the remainder of the service under any circumstances.

It is strongly recommended that your election payments be made as early as possible during the 90 day time period. Any funds not received within the prescribed time will be returned.

12. Can I elect for only a portion of my prior transfer value service?

Yes, you may elect for less than your full period of transfer value service. For example, you may want to elect for only enough service to enable you to retire, or to complete 35 years of service on a particular date. Provided you pay the required amount, while remaining compliant with Income Tax Act (ITA) requirements, you will be credited with the service elected for. Also, the period of service credited will be the period occurring most recently in time.

Before you elect, you should be well informed as to how much service you wish to purchase. You will not be permitted to make another election to purchase additional service.

13. I don't have sufficient funds to purchase my full period of transfer value service. Can I still make an election?

Yes, you may elect to purchase the portion of your transfer value service corresponding to the amount of your payment. If the amount actually paid is less than the amount required to be paid for the entire transfer value service, you will be credited with the lesser period of service covered by the amount paid. Also, the period of service credited will be the period occurring most recently in time.

14. I received a transfer value based on periods of full-time and part-time service. Can I purchase both the full-time and the part-time service?

Yes. The enclosed estimate of cost is for the full period of service for which you received a transfer value, including full-time and part-time service, and you may purchase all or a portion of the full period of service. However, when part-time service is present and only a portion of the full period of transfer value service is purchased, the service must be credited in a specific manner. For comparison purposes, take the following two scenarios:

1. Full-time service only. You receive a transfer value based on 14 years of full-time service, from January 1, 1984 to December 31, 1997. You later become re-employed and a contributor and elect to purchase your prior transfer value service, but you do not send sufficient funds to purchase all of the service. Your payment amount is first applied to the portion of the cost in respect of the service which occurred after 1991* and, in this case, it pays for that entire portion. The remaining payment amount, which must be a direct transfer from registered funds, pays for one half of the cost in respect of the service which occurred prior to 1992. You will be credited with the most recent half of the service prior to 1992, and all of the service after 1991.
   
   
2. Full-time and part-time service. You receive a transfer value based on periods of full-time and part-time service totaling 14 years, from January 1, 1984 to December 31, 1997. Your hours of work during this period are as follows:

   Period of service Assigned work week (AWW) hours

   Jan. 1, 1984, to June 30, 1990 (6 years, 6 months) 18.75

   July 1, 1990, to Dec. 31, 1991 (1 year, 6 months) 37.50

   Jan. 1, 1992, to Dec. 31, 1994 (3 years) 37.50

   Jan. 1, 1995, to Dec. 31, 1996 (2 years) 15.00

   Jan. 1, 1997, to Dec. 31, 1997 (1 year) 22.50

   14 years

You later become re-employed and a contributor and elect to purchase your prior transfer value service, but you do not send sufficient funds to purchase all of the service. Your payment amount is first applied to the portion of the cost in respect of the service which occurred after 1991* and, in this case, it pays for that entire portion. The remaining payment amount, which must be a direct transfer from registered funds, pays for one half of the cost in respect of the service which occurred prior to 1992. Because there are periods of service with a different AWW, the same proportion (50%) is applied to each different AWW period or group of periods. You will be credited with the most recent half of the service prior to 1992 at 18.75 hours per week, the most recent half of the service prior to 1992 at 37.50 hours per week, and all of the service after 1991.

* In view of the Income Tax Act (ITA) restrictions regarding election payments, the total cost for the election is broken down into portions in respect of service prior to 1992 and service after 1991. The service which occurred after 1991 must be purchased first, that being the most recent.

15. I received a first transfer value. I became re-employed in the Public Service as a contributor and upon termination, I received a second transfer value. Can I elect for both periods of service?

Yes, if it is your first opportunity to elect for both periods of service. However, if the amount actually paid is less than the amount required to be paid for all of the service, the most recent period must be purchased in its entirety before any subsequent period can be purchased.

16. My transfer value was reduced because of the division of my pension benefits. Can I now purchase this prior service?

Yes, you may purchase prior transfer value service that was subject to an adjustment or reduction under the Pension Benefits Division Act (PBDA). In this case, the adjustment is taken into consideration on the enclosed estimate of cost. Please note that if you elect for this service, your future benefits will be subject to a corresponding reduction.

17. A portion of my transfer value was diverted due to my obligation to make support payments. Can I now purchase my prior transfer value service?

Yes, you may purchase prior transfer value service that was subject to a diversion under Part II of the Garnishment, Attachment and Pension Diversion Act (GAPDA) to satisfy the requirements of a financial support order. Please note, however, that the amount that was diverted from your benefit will be included in the cost for your election. In order to purchase the full period of transfer value service, you will be required to pay the entire transfer value payment amount, including the diverted amount, plus interest. The cost will be adjusted proportionally if you elect for only a portion of the full period of service.

18. What will be the amount of my pension if I purchase my prior transfer value service?

If you purchase your transfer value service, you will increase your total service credit, which normally increases the amount of pension to which you and your survivors would be entitled. We are enclosing an estimate of the deferred annuity payable to you at age 60 if all of your transfer value service is purchased. Keep in mind that this is only an estimate, and that your actual pension benefit entitlement will only be determined at cessation of employment, when your total service credit, age and average salary are known.

19. Are there other factors to consider before I make an election?

We must emphasize that an election to purchase prior transfer value service is a one-time opportunity. You can neither elect beyond the time period allowed, nor can you make a second election under any circumstances. It is important that you have a clear understanding of all the conditions before making an election. Otherwise, if you do not meet all the requirements, your election may be declared invalid, or the service elected for may not be credited in its entirety.

Your ability to purchase prior transfer value service is impacted in large part by the provisions of the Income Tax Act (ITA). Please refer to Appendix A. Before you make an election, it is important to consider the significant tax implications surrounding the payment of this type of election. Once you have reviewed any estimates that were provided and have an approximation of the registered funds and/or cash amounts you wish to apply to the cost for your election, we strongly suggest that you contact the Superannuation Directorate for further counselling. Based on the amount and type of payments you wish to make, the Superannuation Directorate will provide you with the approximate amount of the Past Service Pension Adjustment (PSPA) associated with your election. With this information, you may then contact the Canada Customs and Revenue Agency (CCRA) to determine if you have sufficient registered retirement savings plan (RRSP) room to allow the PSPA. You will then be able to make the decision that is best considering your own circumstances.

Should you decide to proceed with an election, payments should be made as early as possible during the prescribed 90 day time period. Since it may take a considerable amount of time for certain payments to be completed, particularly a direct transfer from registered funds, you may wish to begin the payment process as soon as possible. There is no provision by which the deadline for completing payments can be extended.

20. What information or documents must I send to make an election to purchase my prior transfer value service?

To make an election for a period of transfer value service, the following information is required:

• You must complete the form "Election Form for Transfer Value Service" (PWGSC-TPSGC 2005 (PDF 552k)). You must ensure that the information entered on the form is complete and accurate, since you have only one opportunity to elect, and under most circumstances an election is a binding, irrevocable agreement. The completed form must be forwarded to the Superannuation Directorate or to your personnel office no later than the one year time limit mentioned previously. To avoid any undue delays, it is recommended that you forward your election early enough so that it is received within the one year time limit.
• For medical examination purposes, the form "Occupational Health Assessment Report" (HC/SC 3312E) must be completed by your physician and forwarded to your regional Health Canada office for interpretation, at the address indicated on the form. Health Canada will then forward the interpretation of your medical examination to the Superannuation Directorate.
• To make a cash payment, you may send a cheque or money order, payable to the Receiver General for Canada, to the Superannuation Directorate. Refer to Appendix A for tax deductibility of election
• Form T2033, or an equivalent form, is used to record a direct transfer from registered funds and is available from your financial institution. To transfer funds directly from your registered retirement savings plan (RRSP) or your registered pension plan (RPP), you must complete and sign the form, and forward it to the Superannuation Directorate. Once the applicable section of the form is completed, it will be returned to the financial institution so thatthe transfer can proceed. Refer to Appendix A for tax deductibility of election payments.

21. Can I cancel my election if I determine that it is not to my advantage?

An election to pay for transfer value service is irrevocable, except if you received erroneous or misleading information as to the amount required to be paid under the Act for that service. Before making an election, you should ensure that you have all of the information necessary to make an informed decision. It is important that you carefully review any estimates that were provided and that you contact the Superannuation Directorate for any clarifications regarding this type of election.

22. I have concerns that need to be addressed before I make a decision. Whom can I contact if I have questions?

If you have any questions or concerns regarding your particular case, or elections for transfer value service in general, please do not hesitate to contact the Superannuation Directorate, toll-free at 1 800 883-1411.

APPENDIX A

IMPACT OF THE INCOME TAX ACT (ITA) ON AN ELECTION FOR
TRANSFER VALUE SERVICE

TAX DEDUCTIBILITY

Retirement Compensation Arrangements (RCA) amount (refer to Appendix B)

Any RCA amount, which must be paid by cash payments, is not tax deductible.

Post-1991 contributions under the Public Service Superannuation Act (PSSA)

Post-1991 contributions paid by cash payments are fully tax deductible.

Post-1991 contributions paid by direct transfers from registered funds, such as a registered retirement savings plan (RRSP) or another registered pension plan (RPP), are transferred on a tax sheltered basis. The ITA provides that the amount of such a transfer is not included in calculating an individual's income, nor can that individual claim any deduction for the amount of the transfer.

Pre-1992 contributions under the Public Service Superannuation Act (PSSA)

Pre-1992 contributions, which must be paid by direct transfers from registered funds (RRSP/RPP), are transferred on a tax sheltered basis. The ITA provides that the amount of such a transfer is not included in calculating an individual's income, nor can that individual claim any deduction for the amount of the transfer.

Past Service Pension Adjustment (PSPA) calculation

In order to comply with the provisions of the ITA, when an employee elects to purchase service which occurred after December 31, 1989, a Past Service Pension Adjustment (PSPA) calculation must be performed, and any PSPA amount must be reported to the Canada Customs and Revenue Agency (CCRA). CCRA uses the PSPA to reduce the amount an employee can contribute to an RRSP, either for the current year or for future years.

Normally, a direct transfer from registered funds such as an RRSP, a money purchase RPP, or a deferred profit sharing plan reduces the PSPA amount reported to CCRA.

If you do not have sufficient RRSP room, CCRA might not approve the PSPA associated with your election to purchase prior transfer value service. If the PSPA is denied, the entire election must be declared invalid.

APPENDIX B

RETIREMENT COMPENSATION ARRANGEMENTS (RCA)

Since December 15, 1994, Public Service Superannuation Act (PSSA) members in receipt of salary in excess of a specified annual threshold contribute under the PSSA in respect of salaries below the threshold, and under the RCA in respect of salaries above the threshold.

Many factors are involved in the calculation of a transfer value, including the average salary. If, at termination, your average salary was above the threshold for the year of termination, a transfer value in respect of both your PSSA and RCA benefits was calculated.

Transfer value for RCA benefits. If you received a transfer value for both your PSSA and RCA benefits, the RCA portion was paid directly to you and taxed accordingly. As indicated previously, the RCA portion of the cost for the election must be paid by cash payments. The PSSA and RCA portions of your transfer value payment must be purchased in the same proportion. That is, you cannot purchase one portion without the other. The actual service purchased is determined by the amount paid toward the PSSA portion of the cost. Depending on the service purchased under the PSSA, a proportionate amount must be paid to the RCA Account. If you do not make any of the required payment to the RCA Account, the entire election must be declared invalid. Take the following example:

The cost to purchase 20 years of transfer value service is $400,000 (PSSA portion: $350,000, RCA portion: $50,000). The contributor pays $262,500 toward the PSSA portion of the cost, which is equal to 75 percent of the cost for that portion. This means that 75 percent of the total transfer value service, or 15 years of service, is purchased under the PSSA. Therefore, the contributor is also required to pay 75 percent of the RCA portion of the cost, or $37,500.

Deferred annuity for RCA benefits. If you received a transfer value in respect of your PSSA benefits, and are entitled to a deferred annuity in respect of your RCA benefits, you retain your entitlement to that deferred annuity. However, should you decide to elect to purchase your transfer value service, your entitlement to the deferred annuity will automatically be surrendered on the day you make the election. Since the transfer value you received was in respect of your PSSA benefits only, you will not be required to pay any RCA portion of the cost as no RCA amount was paid out as a transfer value.