McMASTER PENSION PLAN
The Pension Plan for Salaried Employees of McMaster University is a defined benefit pension plan registered under the Pension Benefits Act of Ontario and the Income Tax Act.Faculty and staff members appointed for more than twelve months are eligible. Those faculty and staff whose initial appointments are for one year or less become eligible on the effective date of a subsequent appointment which would continue their service beyond a one-year period. Eligible faculty and staff members may elect to join the Plan immediately, but are required to join on the July 1 following six months of continuous service. Clinical faculty hired after 1991 are no longer eligible to join the Plan.
Faculty and staff members contribute at the rate of 5.75% (effective July 1, 2012 - 6.5%) of pensionable earnings up to the Years Maximum Pensionable Earnings (YMPE) [$50,100 in 2012] and at the rate of 7.65% (effective July 1, 2012 - 8.75%) on pensionable salary in excess of that level up to the level which would produce the maximum pension payable under Canada Revenue Agency rules. Such contributions are tax deductible.
The monthly pension benefit payable on or after the Normal, Special Normal or Special Retirement Dates is calculated as follows:
a. 1.4% of the best average monthly pensionable salary up to the monthly average of the YMPE;b. plus 2.0% of the best average monthly pensionable salary in excess of the monthly average of the YMPE as calculated above;
c. multiplied by all years of pensionable service.
The annual pension payable at retirement will not exceed the Income Tax Act (“ITA”) maximum limits for a defined benefit pension plan. The ITA maximum of 2012 is $2,646.67 for each year of pensionable service.The monthly average for steps a) and b) above utilizes the same 48 months during which a member's pensionable salary was the highest. Best average pensionable salary is calculated using July 1 salary rates (excluding stipends).
The Normal Retirement date is the July 1 following the date the member attains age 65. The Special Normal Retirement Date is the first of the month in which a member attains age 65. The Special Retirement Date is as follows:
a. Faculty and librarians hired on or after July 1, 2006: the first of any month coincident with or following the date the sum of the employee’s age and years of participation in the Plan equals or exceeds 85. This is referred to as the “Rule of 85".b. Faculty and librarians hired on or before June 30, 2006:
For those members who retire under the Rule of 80/85 and have pensionable service prior to July 1, 1996, a bridge payment equal to $19 per month per year of pensionable service up to June 30, 1996 (up to a maximum pensionable service of 20 years) will be paid on the later of age 60 or your retirement date. Such payment ceases on the month following attainment of age 65 or your death (if it comes earlier).i. those who retire on or before December 1, 2011, the first of any month coincident with or following the date the sum of the employee’s age and years of participation in the Plan equals or exceeds 80. This is the “Rule of 80".ii. Those who retire as of January 1, 2012 or later will require the following to be eligible for an unreduced early retirement:
Retirement Dates Age+Participation =
Jan 1 - Dec 31, 2012 81
Jan 1 - Dec 31, 2013 82
Jan 1 - Dec 31, 2014 83
Jan 1 - Dec 31, 2015 84
January 1, 2016 onwards 85A member may retire on or after the first of the month in which the member attains age 55. The pension payable if such date precedes the Special Retirement Date is the benefit, as calculated by the formula above, reduced by .5% for each month the pension commenced prior to the Special Normal Retirement Date (age 65).
On January 1 of each year, pensions in pay from the Plan have the potential to be increased using the following formula:
The % of increase shall be the lesser of (i) or (ii):
(i) the % by which the Average Annual Rate of Return (AARR) determined by the following formula exceeds 4.5%:For faculty and librarians who begin at McMaster July 1, 2006 or later, vesting becomes “after 2 years”.
AARR = (Sum of the AARR for each of the previous 5 Plan Years)/5(ii) the % annual increase in the average Consumer Price Index during the 12-month period that ended on the immediately preceding June 30.
Termination with less than 2 years of Plan membership
a. those hired on or after July 1, 2006 will be eligible for a refund of his/her required contributions plus Net Interest on the Fund.
b. those hired on or before June 30, 2006 will be eligible for a refund of his/her required contributions plus Net Interest on the Fund or one of the options listed below for terminations after 2 years.
Termination with at least 2 years of Plan membership may elect to receive one of the following:a. a transfer of an amount equal to twice the member’s required contributions plus Net Interest on the Fund to a locked-in retirement savings arrangement or other pension plan as permitted.Other termination options in terms of pension or transfer are based on age and service and will be provided to you shortly after termination.b. a transfer of the commuted value of the member’s deferred pension to a locked-in retirement arrangement or other pension plan as permitted.
c. a deferred pension, payable at the member’s normal retirement date, equal to the pension earned up to the date of termination.
Where a member dies prior to retirement, the member's spouse or named beneficiary, if no spouse exists, receives a refund of pre-1987 contributions and interest plus the commuted value of the post-1987 accrued pension.
Where a member dies after retirement, the normal form of pension is that the member's spouse is eligible to receive a benefit equal to 50% of the member's benefit for the spouse's lifetime. Where no spouse exists, benefits are guaranteed to be paid for seven years from the date of retirement. Other forms of payment are available to members at retirement (e.g., spousal benefits may be increased). The cost associated with improved survivor benefits will reduce the member’s pension.
This statement does not fully describe the McMaster Pension Plan. Details of the Plan are found in the laws and legal documents on which the Plan is based. The information shown herein is subject to these legal documents which will govern in case of difference or error.
INCOME TAX and RRSP CONTRIBUTION ROOM PROVISIONS
With a defined benefit plan such as the McMaster Plan, the Pension Adjustment (PA) for income tax purposes in any year is based on a formula that relates only in a loose way to the value of the pension accrued in that year. It is unrelated to the contrib utions a member or the University makes on the member's behalf in that year. The Pension Adjustment shows on a members Income Tax T4 form and affects his or her ability to contribute to an RRSP.The Income Tax Act sets out a method for determining the value of pension earned each year in a defined benefit plan for PA purposes. The following formula is then applied: the PA equals 9 times the benefit accrued in the year less $600. Again some additional limits may apply.It is important to note that your contributions to the Plan or any University contributions to it do not impact on this calculation in any manner. The value calculated is also not indicative of the value of your pension earned in that year or what you wo uld receive for that year on termination from the Plan. It is an amount created for Income Tax purposes only.
When you terminate or retire from the Plan and all entitlements are paid out from the Plan, a calculation is made to compare the total of all Pension Adjustments to the actual payment with respect to post-1989 benefits (PAs started after 1989). If the t otal of the PAs exceeds the post-1989 payout from the Plan, a Pension Adjustment Reversal (PAR) will be produced which will allow you to contribute an additional amount to your RRSP. Its intent is to restore RRSP contribution room, where the payout from the Plan is less than the reported PAs. This restoration of RRSP room is most likely to affect those with short service and those who are young.
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MUFA - pdk
April 2012