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The President of the Treasury Board, the Honourable Marcel Massé, recently announced changes the government is
proposing to make to the Public Service Superannuation Act (PSSA). This notice will give you a basic
understanding of why the Plan is being amended and the actual changes being proposed.
The current financial arrangements for the PSSA are not sustainable. Increasing contribution rates under the Canada
and Quebec Pension Plans, have resulted in employee contributions to the PSSA decreasing substantially. This means that
plan members are not paying their fair share of their pension plan costs. In addition, it is anticipated that pension
plan costs will be increasing in the near future. Without legislative changes, the Government of Canada, and hence the
taxpayers, would have to pay too large a share of the cost of the PSSA. The Government of Canada will be introducing,
in the near future, legislative proposals that will address this situation and ensure that the plans are restored to a
more sustainable, sound financial basis. Other proposals would improve the benefits available to PSSA contributors and
pensioners.
The details of these changes follow. Similar changes are being proposed to the pension plans for members of the
Canadian Forces and the RCMP.
Please remember that these changes will only come into effect if the necessary legislation is passed. More details
will be provided at that time.
BENEFIT IMPROVEMENTS
1. Improvement of the Basic Benefit Formula
Currently, the basic formula for calculating pension benefits is based on the average salary for the six consecutive
years of highest-paid service. It is proposed that this six year average salary basis be changed to five. This
amendment would result in higher benefits for most future retirees and would bring the PSSA more in line with public
sector pension plans in other jurisdictions.
2. Integration with the Canada Pension Plan
Under the PSSA, benefits and contributions are integrated with the Canada/Quebec Pension Plans. This means that at
age 65 (or earlier if a plan member becomes disabled) benefits are reduced to take into account the benefit payable
under the CPP or QPP.
A recent amendment to the Canada and Quebec Pension Plans has resulted in a modest reduction in the benefits
becoming payable under those Plans beginning in 1998. It is proposed to amend the PSSA to reflect the change that was
made to the CPP and QPP. This will ensure that the reduction in the PSSA benefits that occurs at age 65 is more in line
with the amount of the CPP\QPP benefit that the plan member actually receives.
3. Supplementary Death Benefit (SDB)
It is proposed that there be a number of benefit improvements to the Supplementary Death Benefit, the term life
insurance plan set out in Part II of the PSSA.
Currently, at age 65 no employee/pensioner premium is required on the first $5,000 of coverage; it is proposed to
increase this "paid-up" benefit to $10,000. This benefit will also be available to SDB participants who retired after
April 1, 1995, with entitlement to an annual allowance within 30 days after retirement.
As well, coverage is currently reduced by 10 percent each year beginning at age 61. If the changes are approved, the
reduction will not begin until age 66. However, coverage will never be less than the "paid-up" $10,000.
In addition the regular premium will be reduced from the current $.20 to $.15 per month for each $1000 of
coverage.
4. Dental Plan for Pensioners
It is proposed to establish a dental plan for current and future pensioners, their survivors and dependants. The
dental plan would be similar to the current dental plan for federal government employees, with costs shared on a 60/40
basis between employer and pensioner respectively.
More consultation is required with stakeholders, including with pensioners, on the development of this plan before
it can be established. Once consultation has been completed the Treasury Board will bring the dental plan into
force.
IMPROVEMENTS TO THE FINANCIAL STRUCTURE
1. Changes to the Employee Contribution Rate
Under these proposals, employee contributions to the PSSA will be de-linked from CPP contributions beginning in the
year 2000. Employees will therefore see a modest increase in pension contributions as this "de-linking" process takes
effect, as their PSSA contributions will not be reduced when the CPP contribution rate increases in the years 2000 to
2003.
If necessary, beginning in the year 2004, there may be modest increases in employee contribution rates under the
PSSA. The new rate will be set by the Treasury Board. Annual increases will be limited to no more than 0.4 percent per
year. Under these proposals there will be a cap under the legislation to ensure that employees' contributions cannot be
greater than 40 percent of current service costs. The government will continue to contribute the remainder of the
costs.
2. Market Investment and the Pension Investment Board
It is proposed that future contributions from plan members and the Government as employer will, like many other
pension plans, be invested in the external financial markets. Increasing investment returns will significantly lower
pension costs. In the long term it is estimated that future market investments will produce higher returns than what is
currently attributed to the pension funds. This is expected to reduce plan costs by some 15-20 percent over the long
term.
Investments would be managed by a new Pension Investment Board, which would be structured similar to the Canada
Pension Plan Investment Board. The Board would operate at arm's length from government and plan members.
3. Management of the Surplus
The current legislation imposes an obligation on the government to fund any financial shortfalls in the pension
plans, yet it is silent on the management of any surpluses that may accrue.
Without changes, the current surplus in the Superannuation Account would likely continue to grow and it is already
far in excess of what is allowed for other pension plans under the Income Tax Act.
It is proposed to correct this situation by retiring the current surplus over a period of up to 15 years, and
amending the legislation to provide a means of properly managing future surpluses. The legislative provisions for
future surplus could include temporary reductions in the contributions of the employees, the employer or both, or
withdrawals from the fund.
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