New Public Service Pension Plan contribution rates for 2018
November 30, 2017
The Public Service Pension Board is responsible for ensuring the Plan is funded in accordance with legislation, which includes setting contribution rates. The 2016 actuarial results demonstrated that the Plan's funded position is improving-meaning that contribution rates can be reduced for the upcoming year.
The Board announced employee and employer contribution rates for 2018 earlier this year. However, after further consultation with the Government, the Board approved revised contribution rates effective January 1, 2018. The following contribution rates are the newly approved rates for 2018 for both employees and employers:
- 10.47% on pensionable salary below YMPE*
- 14.95% on pensionable salary above YMPE
*The YMPE stands for Year's Maximum Pensionable Earnings. It is set by the federal government each year, and reflects the maximum level of salary on which Canada Pension Plan contributions can be made. In 2018, the YMPE is $55,900.
The 2018 contribution rates represent a reduction from the rates of 11.70% on pensionable salary below YMPE and 16.72% on pensionable salary above YMPE that were in place between 2013 to 2017.
Why did the Board change the previously approved contribution rates for 2018?
The Board had initially approved and announced contribution rates that were slightly higher for Combined Pensionable Service (CPS) employers to cover the cost of their employees having the opportunity to benefit from the CPS provision. This meant that, although contribution rate reductions were announced for all employees and employers, CPS employers would have received a slightly smaller reduction in rates compared to employees and non-CPS employers.
Conflicting legal interpretations regarding the Board's authority to unilaterally approve and process contribution rate reductions and complexities associated with implementing different contribution rates for CPS employers resulted in delays. These delays meant that the previously approved contribution rates could not be implemented in time for January 1, 2018. The Board agreed to revised contribution rates that maintain the historical 50/50 cost sharing between employees and employers to ensure rate reductions could be implemented by January 1, 2018 and they would benefit from the improved funded status of the Plan.
The total funding required for the Plan was not impacted by the revised contribution rates. Contributions related to the funding of the CPS provision, which were initially allocated solely to CPS employers, are now shared among all employers and employees. That's why employee and non-CPS employer contribution rates are slightly higher than originally communicated - yet lower than 2017 rates.
What is the CPS provision and why did the Board initially charge the cost to CPS employers?
The CPS provision is a unique Plan feature that benefits employees who, under the same employer and with no break in service, move from the PSPP to either the Management Employees Pension Plan (MEPP) or the Universities Academic Pension Plan (UAPP) as a result of a promotion. When this happens, an employee no longer earns service or makes contributions under the PSPP.
The CPS provision comes into play at retirement. Although employees who transferred to either the MEPP or the UAPP no longer contribute to the PSPP, their PSPP pension benefit is calculated based on their highest average salary at retirement (highest average salary over five consecutive years under either plan). Eligibility for early retirement with an unreduced pension is also determined using combined service from both plans.
A promotion to a position that results in a transfer to the MEPP or the UAPP typically results in a salary increase. The CPS provision increases PSPP's costs because employees who transfer to MEPP or UAPP no longer contribute to the PSPP. However, the PSPP must pay out benefits based on a significantly higher salary at retirement. The CPS provision also applies to individuals who transfer from the MEPP or the UAPP to the PSPP (although the majority of transfers are in the opposite direction).
The Board has identified the inequity related to CPS provision funding and has been advocating for a solution for several years. The CPS provision benefits employers since it supports succession planning by providing an additional incentive for employees to accept positions eligible for participation in the MEPP or UAPP. Therefore, the Board had initially allocated the cost related to the CPS provision to CPS employers through a higher contribution rate.
After further consultation with the Government, it became apparent that this funding alternative could not be implemented for 2018. To ensure both employees and employers would benefit from rate reductions, the Board agreed to revised contribution rates for 2018 that maintain the historical 50/50 cost sharing between employees and employers.
The Board and the Government have agreed to work together in 2018 to identify alternative solutions to resolve the funding inequity resulting from the CPS provision in the future. The Board will provide periodic updates on the progress of the working group.