McMaster Proposed Surplus Distribution
Questions and Answers

Amount of Surplus Shares
Payments in Cash
Transfers to RRSPs & RRIFs
Buy-Back of University Service
Refunds of Pre-1991 Contributions


Amount of Surplus Shares

I am an active employee. I know someone else who hasn’t worked for the University for as long as me but who has a larger surplus share.  Why would that be?
There are a few possible reasons.  The most likely ones are that the other person has a higher salary than you or is older than you, either of which would increase the actuarial value of their pension benefits, and hence the surplus share that is based on the value of their pension.
Why is the value (or surplus share) higher for an older employee?
You can think of the value of your pension as the amount of money needed today to provide your pension, starting when you retire and continuing for as long as you live, and continuing to a surviving spouse after your death.  This assumes that you and your spouse live the average length of time after you retire.  Since an older person has fewer years to go until retirement, a larger amount of money is required now to provide a given amount of pension, as it can’t earn investment income for as long.
How long is a pensioner expected to live?
Based on the mortality table used in the calculations, a male who retires at age 65 can expect on average to live about another 17 years and a female can expect to live about 21 years.
Is the surplus share proportionate to your salary, other things being equal?
Not quite, for two reasons.  One is that the pension formula per year of service is higher (2.0%) on earnings above the CPP earnings ceiling than on earnings below the ceiling (1.4%).  The other reason is that the Income Tax Act places a dollar limit on the pension amount per year of service, corresponding to a salary level of about $98,000, so the surplus share stops increasing once the salary reaches about $98,000.
 Is the surplus share the same for male and female members, other things being equal?
Not quite.  The actuarial calculations were based on the assumptions used in the most recent actuarial valuation of the pension plan, which recognize the greater longevity of women than men.  Having said that, the calculations take account of the survivor pensions paid by the plan, and that tends to make the surplus shares for males and females closer than they otherwise would be.  The net result is that the surplus shares for females are marginally higher than for males.
The plan allows us to retire early on a full pension at the “rule of 80”.  Is that taken into account in calculating the surplus shares?
Yes it is.  The calculations assume that a portion of members (13%) will retire once they reach the rule of 80, and that another portion will retire at age 65.  This is based on past experience.
You said that the surplus share for pensioners depends on whether they have a spouse and on the age of the spouse.  Isn't that true for active members as well?
No, and there is a reason for this.  The plan pays a survivor pension only if you have a spouse when you retire.  Even if you don’t have a spouse now, you may have one when you retire, and vice-versa.  Accordingly the calculations for active members assume that a certain percentage of members (85%) will have a spouse when they retire, and don’t depend on their current marital status.
I was an active member on July 1, 2000 but have since retired/will retire before the surplus is paid out.  Am I considered an active member or a retired member, for purposes of calculating my surplus share?
The amount of your surplus share is based on your status as of July 1, 2000.
By how much have the surplus shares of other members been reduced to provide the minimum amounts?

Based on the data we have so far, surplus shares of members who receive more than the minimum will be reduced by only about 1%.

What is the maximum amount of surplus any member is getting?

We can’t provide that information, for reasons of confidentiality.  However because the Income Tax Act places a maximum on pensions, the highest paid members do not receive any more than a person earning about $98,000.

What is the formula used to calculate the actuarial value of a member’s pension, and/or their surplus share?

Unfortunately there is no simple formula that a member can use to check their calculation.  This is because the actuarial values are based on mortality rates and other factors that vary by age, so special actuarial techniques are used that cannot be reduced to a conventional mathematical formula.  However we have checked the calculations made by the University’s actuaries and are satisfied that they are correct, assuming that the underlying data is correct.

What is being done to check that the data on which the calculations are based is correct?

Several things are being done.  The critical data is shown on members’ individual surplus statements, so they have the opportunity to advise the University of any errors.  If there are any people who should have received a surplus estimate but have not, hopefully they will come forward and they will be included in the final calculations.  Also, lists of members excluding the more confidential data such as salaries will be provided to the relevant employee groups and the retiree association, who will be able to compare the information with their records.  Finally we will be verifying the confidential data items for a sample of members who have agreed to this review.  All of the data verification is subject to a confidentiality agreement to be signed by the parties who are given access to the data.

 How will a salary settlement for MUSA members affect their surplus shares?

If a salary increase retroactive to July 1, 2000 is agreed to prior to the application to the Financial Services Commission of Ontario for approval of the distribution, it will be recognized in the surplus share calculations.  MUSA members who are not at the minimum, and other employees whose salaries will be adjusted to reflect such a settlement, will in that case receive an increased share.  We do not expect that it will be necessary to reduce the surplus shares of other members, as a small portion of the surplus was “held back” in the initial calculations to provide for this, if required.

I am a pensioner and I receive a supplementary pension from the University, as well as my regular pension from the pension plan.  How will this affect my surplus share?

Your surplus share is based only on the amount of pension you are receiving from the pension plan, and is not affected by any supplementary pension paid by the University.

Will interest be added to the surplus shares for the period from July 1, 2000 to the date of distribution?

Yes, subject to approval by the Financial Services Commission of Ontario.  The rate of interest has not yet been determined.

Payments in Cash

You said that income tax will be deducted from amounts paid in cash.  How much will be deducted?

The percentage deducted at source depends on the amount of the payment, and ranges from 10% to 30%, depending on the amount of the payment.  However it may be the case that the withholding tax is too little, in which case more tax will be payable when the person completes their income tax return.

Transfers to RRSPs and RRIFs

 Can I transfer my surplus share to a spousal RRSP?

You can do this only if you have sufficient unused RRSP contribution room to contribute it to an RRSP.  If you are taking some of your surplus share as a refund of pre-1991 contributions, that portion can be transferred only to your own RRSP.

How do I know if I have sufficient RRSP room?

You can tell from your most recent Income Tax Notice of Assessment.  Remember, though, to allow for any other RRSP contributions you have made.

If I transfer my surplus share to an RRSP or RRIF, is it “locked in”?

No.  You can withdraw it at any time - but will then have to pay income tax on the amount you withdraw.

I understand it is possible to “over-contribute” up to $2,000 to an RRSP even if you have no contribution room.  Can I do that with my surplus share?

Yes you may, but that amount would be included in your taxable income but would not be tax-deductible as an RRSP contribution, so we do not recommend this.

Buy-Back of University Service

The special report states that I can buy-back a maximum of 18 months, but according to my statement I was employed by the University for more than 18 months before I joined the plan.  Can I buy-back the full period before I joined the plan?

It may be the case that when you were first employed by the University, you were in a category of employment in which you were not permitted to join the plan - perhaps a part-time or temporary contract position.  If that is the case, you cannot buy back that period.  On the other hand it is possible that you were enrolled late due to administrative error, in which case you may be able to buy back the full period.  It would be best to contact the University at 1-905-525-9140 ext. 24272 if you are in this situation.

Can I buy back service with the university/employer I worked for before I joined McMaster?

No.  The Income Tax Act does not allow that.

Can I buy-back service if I retire before the surplus is distributed?

No.  Once your pension has started, you cannot buy-back service.

If I use my surplus share to buy-back service, then later terminate my employment and take a refund of 2 times contributions with interest, will I lose the benefit of the buy-back?

No.  In addition to the refund of 2 x contributions, you would receive a refund of the amount of surplus used to buy-back service plus interest.

I will have the option of taking my surplus share in cash, transferring it to an RRSP or buying back service.  Which would be most advantageous to me?

Sorry, but we are not authorized or qualified to provide individual financial advice, and the answer could depend on many factors which vary from one member to another.  If you need assistance in making a decision, we strongly suggest that you contact a qualified independent financial advisor.

Will buying back service affect my future RRSP contribution room?

That depends on whether the service is prior to 1990.  If it was, there will be no effect on your RRSP contribution room.  If the service was in 1990 or later, the University will have to report a “Past Service Pension Adjustment” (PSPA), which will have the effect of reducing or eliminating your RRSP contribution room, but in any event you will not have to withdraw money from your RRSP or be subject to a penalty.  The loss of RRSP contribution room may be more or less than the amount of surplus used for the buy-back, depending on your age.

How can I figure out how much my pension will increase by buying back service?

You pension amount is proportionate to your years of “pensionable service” (as shown on your annual pension statements).  So for example, if you would otherwise be retiring with 20 years of pensionable service, but buy-back one additional year, your pension amount would increase by one twentieth.

If I buy back service, will I be effectively paying both the member and university’s contributions for that service?

In effect, yes.  The cost of the buy-back is more than the contributions you would have paid if you had joined the plan when you were first eligible.

If I buy back service, will this mean I qualify earlier for early retirement at the “rule of 80”?

Yes - the additional pensionable service you buy back counts towards the rule of 80, which means that you may be able to retire earlier with an unreduced pension.  Members are not charged for this in the buy-back cost, which is based on the assumption that members will retire at age 65.

Can I buy-back service during a leave of absence in which I was not credited with service for pension purposes?

No.  The only period which you can buy-back is your initial period of service.

Refunds of Pre-1991 Contributions

Can employee members transfer pre-1991 contributions to an RRSP?

No.  We just received an interpretation from the Canada Customs and Revenue Agency stating that the Income Tax Act would allow that only if the plan were amended to eliminate permanently the requirement for future employee contributions, and the University is not prepared to do that.  Accordingly only retired and terminated members can transfer pre-1991 contributions.

Will members who were active employees on July 1, 2000 but who retire or terminate their employment before the surplus distribution be able to transfer pre-1991 contributions to an RRSP?

We hope this will be possible, but this will require acceptance by the Canada Customs and Revenue Agency.  We will be pursuing this possibility in the near future.  Please note that such members will not be able to buy-back service.

How much of the pre-1991 contributions shown on my statement can I transfer to an RRSP or RRIF?

You can transfer any amount up to the surplus share shown on your statement.  If you wish, you can receive a portion of your surplus share in cash (subject to income tax) and transfer a portion (not exceeding your pre-1991 contributions) to an RRSP or RRIF.

Do I need to have RRSP contribution room before I can transfer pre-1991 contributions to an RRSP?

No.  Transfers of pre-1991 contributions do not require that you have unused RRSP contribution room, and do not affect any unused RRSP contribution room that you may have.

Can I transfer pre-1991 contributions to a spousal RRSP or RRIF?

No.  Unfortunately the Income Tax Act only permits you to transfer such contributions to your own RRSP or RRIF.  However if you are age 69 or under and have unused RRSP contribution room, you can transfer a portion of your surplus share not exceeding the unused contribution room to a spousal RRSP.

If I transfer pre-1991 contributions to a RRIF, when do I have to start withdrawing the funds from the RRIF?

The Income Tax Act requires that you withdraw at least the minimum amounts prescribed by the Act each year commencing with the year following the date the funds are transferred to your RRIF.  The minimum amount is a percentage of the balance in your RRIF, which depends on your age.


How are part-time employees treated for the surplus calculations?

Part-timers are treated in a similar manner to full-time employees.  However the “credited service” as shown on their statements reflects their part-time status.  For example an employee who has worked for the University at 60% of full-time for one year since enrolling in the plan would have 0.6 years of credited service, and the “minimum surplus share” for them would be based on 0.6 years of service.  The rate of pensionable earnings shown on the surplus sharing estimates of part-time employees is the full-time equivalent earnings rate.

Can surplus shares of pensioners be used to increase their monthly pensions?

No - this would be contrary to the Income Tax Regulations.

February 26, 2001