Defined Benefit Pension Plan
Pension plans generally fall into one of two categories - defined benefit plans (which PSPP is) and defined contribution plans. Defined benefit plans pay a monthly pension based on your salary and your pensionable service. The pension plan's obligation is to pay a stated benefit based on the formula of salary and pensionable service for the rest of your life. In a defined contribution plan, a member's contributions are usually based on a percentage of his/her annual salary (which is often matched by the employer). The member's retirement benefit is not fixed like in a defined benefit plan, as it is dependent upon the investment results of those contributions.
Contributions to PSPP
Employers and employees contribute equally to PSPP, at rates when combined with investment income are expected to provide for the benefits payable. The PSP Board conducts actuarial valuations and reviews contribution rates for employers and employees at least once every three years.
As a PSPP member, you are eligible for an annual pension at retirement, payable in the normal form of 1.4 per cent of the highest five consecutive years' average salary up to the YMPE and 2.0 per cent of the excess for each year of pensionable service. The maximum pensionable service is 35 years. Unreduced pensions are payable to members who retire and are vested and have either reached age 65 or age 55, and the sum of their age and years of service equals 85. Reduced pensions are payable by age 55 to members who retire early and are vested.
With two years of service you become vested. This means you are eligible to receive a pension at retirement or, if you leave PSPP, you are eligible to receive the value of the pension you have earned on your service. This value is called the commuted value. If you have fewer than two years of service you are not eligible to receive a pension.
In addition to retirement and termination benefits, PSPP also provides disability and death benefits.
Cost-of-Living Adjustments (COLA)
Pensions payable are increased each year by an amount equal to 60 per cent of the increase in the Alberta Consumer Price Index.