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January 31, 2003, Number 11
In this issue
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 OPTrust 2003 Pension Escalation Factor:
1.6%
The OPSEU Pension Trust's pension escalation factor for 2003 is 1.6%. The
pension escalation factor is the annual inflation-related increase applied
to OPTrust pensions. The 2003 increase will be reflected in pensioners’
January 2003 pension payment.
The escalation factor is also used to calculate employer-paid contributions
for members who qualify for Long Term Income Protection (LTIP) or who are
on leaves of absence without pay that extend beyond the end of the calendar
year. In these cases, the escalated salary amount is also used to calculate
the members’ annual Pension Adjustment for the periods concerned.
All OPTrust pensions affected
Under the OPSEU Pension Plan, all OPTrust pensions are adjusted annually
for inflation. This adjustment is made each January, beginning the year
after a former member’s pension commences. The pension escalation is
applied both to former members’ pensions and to survivors’ pensions.
The increase for the first year after retirement is pro-rated. The first
annual increase is based on the number of complete months for which a
pension was paid in the preceding calendar year.
The pension escalation is also applied to deferred pensions and to divested
members’ “special deferred” pensions. In these cases, the member’s deferred
pension entitlement is calculated as of the date of termination or, in the
case of a divested member, the divestment date. The cost of living
adjustments are accumulated starting from the next month and applied up to
the date the pension begins.
How the OPTrust pension escalation factor is calculated
OPTrust’s pension escalation factor reflects the increase in the cost of
living in Canada, as measured by the Consumer Price Index. It is calculated
using the average of the Consumer Price Index for the two 12 month periods
ending the preceding September. For example, the 2003 escalation factor was
calculated as follows:
|
Average CPI
for October 2001 to September 2002 |
= |
117.9 |
= |
1.6% |
| Average
CPI for October 2000 to September 2001 |
116.1 |
The maximum increase in any one year is 8%. Any increase above 8% is
carried forward, to be applied in the next year when the adjustment is less
than 8%.
Long Term Income Protection (LTIP) contributions
In the case of members who qualify for LTIP benefits, the escalation factor
is used to calculate the annual salary on which contributions are based
during the period of disability.
The employer pays both the member’s and the employer’s pension
contributions for periods when members qualify for LTIP. These
contributions are based on the member’s regular salary rate on the date of
disability. If a member’s disability extends beyond the end of the calendar
year, this base salary is increased by the OPTrust escalation factor
annually on January 1.
At the end of the first year of the member’s leave of absence, the annual
salary escalation applied on January 1 is pro-rated according to the number
of full months in the previous calendar year since the effective date of
the member’s last salary revision on or before the date of disability. In
subsequent years, the full escalation increase is applied.
Contributions for leaves of absence without pay
Members who take an unpaid leave of absence may choose to continue paying
pension contributions to OPTrust during their leave. If the leave spans
more than one calendar year, the annual OPTrust escalation factor is used
to adjust the salary rate on which both the member’s contributions and the
employer’s contributions (as required) are based.
At the end of the first year of the member’s leave of absence, the annual
salary escalation applied on January 1 is prorated according to the number
of full months in the previous calendar year that the member was on leave.
In subsequent years, the full escalation increase is applied.
For pregnancy, parental and adoption leaves where contributions are
deducted from the SUB allowance, both the member and employer contributions
are paid to OPTrust through the regular payroll contribution process. When
such leaves extend beyond the calendar year end, the employer is required
to adjust base salary rate, for pension purposes, by the prorated annual
escalation factor as of January 1.
For leaves where the member chooses to pay contributions directly to
OPTrust, we calculate the total member and employer contributions for the
period of the projected leave. If the leave is expected to extend beyond
the calendar year, OPTrust uses a projected escalation factor to calculate
contributions for the second calendar year. The projected total
contributions are used to set the amount of the member’s and employer’s
monthly payments during the leave. At the end of the member’s leave,
OPTrust recalculates the total contributions required based on the actual
escalation factor and makes any adjustments as required.
Salary escalation and Pension Adjustments
The inflation-adjusted salary amount in effect for a given calendar year
should also be used when calculating the Pension Adjustment for members who
are eligible to receive LTIP benefits or are contributing while on a leave
of absence without pay.
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Income Tax Receipts for Buyback Payments
In mid February, OPTrust will mail official income tax receipts to more
than 25,000 members who purchased credit in the OPSEU Pension Plan during
2002. The 2002 Buyback Tax Receipt details the member’s total annual
buyback contributions for 2002, including buyback payments related to the
2002 OPS strike. The receipt, consistent with Canada Customs Revenue Agency
(CCRA) T4A standards, includes a tear off portion for income tax filing
purposes. Since buyback payments are tax deductible, members should report
their buyback contributions with their 2002 tax return.
In the past, employers included buyback payments made through payroll
deductions in the pension contributions reported on members’ T4s. However,
OPTrust revised its reporting systems and in addition to providing tax
receipts for members’ lump sum and quarterly payments, for the first time
we will now provide receipts for buyback payments made by payroll
deductions.
Note: This change applies to all members who are paid through the Ontario
Public Service’s CORPAY system. Employers who are not part of the CORPAY
system should continue to include buyback payments made through payroll
deductions in the pension contributions they report on members’ annual T4
form.
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OPTrust to mail gains-related PSPA notices
The change in OPTrust’s CPP offset due to the gains-related improvements to
the Plan increases the value of OPTrust pensions for all Plan members and
pensioners. As a result, OPTrust must calculate a Past Service Pension
Adjustment (PSPA) to reflect this additional benefit. OPTrust will
therefore be issuing PSPA notices to all active members and current and
deferred pensioners in late February.
Members are not required to report the PSPAs on their income tax return;
the statements are for information only. OPTrust will report individual
PSPAs directly to the Canada Customs and Revenue Agency. Therefore, no
further action is required on the part of employers or members. CCRA will
take the PSPA into account when calculating RRSP contribution limits for
2003, which will be listed on the 2002 Notice of Assessment sent to all
member from CCRA.
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Calculating Pension Adjustments (PAs)
In late January, OPTrust will also provide Employers with data on pension
credit for 2002 that individual members have bought back. Employers must
take this credit into account when calculating members’ 2002 Pension
Adjustments (PAs). The process is unchanged from previous years.
However, in previous years, OPTrust provided employers with credit
information for current year buybacks only when the member paid OPTrust
directly through lump sum or quarterly payments. For the 2002 tax year,
OPTrust will also be providing credit information for all members in the
Ontario Public Service who made buyback payments made through payroll
deductions. As a result of the OPS strike, OPTrust will be providing
buyback credit information for more than 19,000 members, to be incorporated
in the calculation of their 2002 pension adjustments.
Note: This change does not affect employers who are not part of the CORPAY
system. In these cases, employers should continue to use their own credit
data to generate PAs for their employees.
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