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November 20, 2003, Number 14
In this issue
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OPTrust 2004 Pension Escalation Factor: 3.3%
The OPSEU Pension Trust's pension escalation factor for 2004 is 3.3%. The
pension escalation factor is the annual inflation-related increase applied
to all OPTrust pensions. The 2004 increase will be reflected in pensioners’
January 2004 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 after the first year of 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. The attached
table shows the accumulated adjustment ratios for 2002 calculated from
the first month after the former member terminated from the Plan.
How the
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 Consumer Price Index for the two 12 month periods ending
the preceding September. For example, the 2004 escalation factor was
calculated as follows:
Average CPI for October 2002 to
September 2003
Average CPI for October 2001 to September 2002 |
=
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121.8
117.9
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=
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3.3% |
The maximum increase in any single year is 8%. Any increase above this level
is carried forward, to be applied in the next year when the adjustment is
less than 8%.
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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, the
employer is required to adjust this base salary rate on January
1 each year, using that OPTrust escalation factor. 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. |
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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.
| i) |
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.
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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. |
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| ii) |
For other unpaid 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. |
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Salary
Escalation and Pension Adjustments
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Employers should also use the inflation-adjusted salary amount for each
calendar year when calculating the Pension Adjustment for members who are
eligible to receive LTIP benefits. |
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OPTrust will provide more information on PA reporting and buybacks for 2003
in a future issue of Employer Update.
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Reminder: Member Contribution Rates to Rise by 1% in
December
The OPSEU Pension Plan’s member contribution rate will increase by 1%,
starting in December. The new contribution rate is 6% of earnings,
integrated with the Canada Pension Plan.
As a result, member contributions will be:
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6% of earnings up the Year’s Basic Exemption (YBE)
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4.2% between the YBE and the Year’s Maximum Pensionable Earnings (YMPE),
and
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6% above the YMPE.
The contribution increase takes effect for the pay period that includes
December 1, 2003. With the increase, OPTrust members will still be
contributing at a reduced rate. The Plan’s normal member contribution rate
is 8%, integrated with CPP.
Employer contributions remain unchanged at the Plan’s normal contribution
rate of 8%, 6.2% and 8%.
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CCRA Announces YBE & YMPE for 2004
The Canadian Customs and Revenue Agency (CCRA) has announced the Year’s
Basic Exemption (YBE) and Year’s Maximum Pensionable Earnings (YMPE) for
2004 under the Canada Pension Plan (CPP).
These figures are used to determine earnings on which CPP contributions are
payable for 2004.
The YBE and YMPE are also used to determine the level of employee and
employer contributions that are payable to the OPSEU Pension Plan. (Please
see above for more information on OPSEU Pension Plan contribution rates.)
CCRA has also announced the CPP contribution rate for 2004.
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The YBE will remain unchanged at $3,500.
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The YMPE for 2004 under CPP will be $40,500. This is up from the 2003 rate
of $39,900.
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The CPP contribution rates for 2004 will remain unchanged at 4.95% for
both employees and employers.
For more information see the CCRA Web site at:
www.ccra-adrc.gc.ca.
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