February 12, 2020
The Government of Alberta introduced important changes to the governance of PSPP through Bill 22: Reform of Agencies, Boards and Commissions and Government Enterprise Act, 2019 which became law on November 22, 2019. This legislation also changes the way commuted value and excess contributions will be calculated as of April 1, 2020. These changes do not impact your retirement benefit.
Members and employers will continue to contribute equally to the Plan. There are no changes to 2020 contribution rates for either members or employers.
Commuted Value
The PSPP provides a lifetime pension when you retire. If you leave your PSPP employer before you are eligible to retire, you can leave your accrued benefit in the Plan and receive a secure lifetime pension once you are eligible. You also have the option of transferring the commuted value of your pension into a Locked-In Retirement Account.
A commuted value, often referred to as a CV, is the present lump-sum value of your future lifetime pension. It is the amount of money that would need to be invested today in order to pay for your pension in the future. The lump-sum is calculated by estimating the value of your future pension using standard assumptions for unknown factors such as how long you may live, future interest rates and inflation.
The assumptions that are currently required to be used for the calculation of a CV are set by the Canadian Institute of Actuaries and relate to bond yields and interest rates. Pursuant to the legislation passed by the Government of Alberta, beginning April 1, 2020, the funding assumptions used for the valuation and funding of the Plan must be used for the calculation of a CV. This change will align CV calculations with the funding valuation of the Plan.
Excess Contributions
PSPP is a defined benefit pension plan. This means that your pension is based on a set formula for pension payments and not how much you have paid into the Plan. The pension formula takes into account your pensionable salary and years of service, so the longer you contribute to the Plan and the higher your salary, the larger your pension will be.
Although your pension is not based on the amount of contributions you or your employer paid to the Plan, when you retire or terminate from the Plan, your accumulated contributions with interest are compared with the CV of your pension. Currently, if a member’s contributions with interest exceed half of the value of the pension, the excess contributions are refunded as a taxable benefit. As legislated by the Government of Alberta, beginning April 1, 2020, if a member’s contributions with interest exceed the value of the pension, the excess contributions with interest are refunded as a taxable benefit.
Learn more about your options when you Leave the Plan, or are Ready to Retire.