Department of National Defence Modernization of the Canadian Forces Pension Plan Reserve Force members under Part I.1 February 2007

Modernization of the Canadian Forces Pension Plan—Reserve Force members under Part I.1 2 Outline Eligibility, contributions, and definitions Benefits Pension formula Counting past earnings/service RFRG Coming into force

Modernization of the Canadian Forces Pension Plan—Reserve Force members under Part I.1 3 For more information Toll-free On-line  Presentation focuses on pension policies Consult the CFPMP website  Beginning 1 March 07, contact DAPPP/Pension services for eligibility, benefit and election questions

Modernization of the Canadian Forces Pension Plan—Reserve Force members under Part I.1 4 About CFSA Part I.1  Provides a benefit based on set formulas (defined benefit)  Takes into account updated career earnings (part-time)  For Reserve Force members who are: Class A Short-term Class B Short-term Class C

Modernization of the Canadian Forces Pension Plan—Reserve Force members under Part I.1 5 Eligibility  Participation begins after earnings are at least 10% of YMPE for two consecutive 12-month periods Earnings in months from April 1999 can be used to become a participant at Coming into Force (CIF) Deemed earnings are used for authorized periods of maternity and parental leaves  Former members of the Regular Force who are annuitants will not be able to contribute to Part I.1 YMPE—Year’s Maximum Pensionable Earnings Canada Pension Plan earnings ceiling (2007 = $43,700)

Modernization of the Canadian Forces Pension Plan—Reserve Force members under Part I.1 6 Eligibility YMPE for: 2005 = $41, = $42, = $43,700 Example

Modernization of the Canadian Forces Pension Plan—Reserve Force members under Part I.1 7 Contributions  Reduces to 1% of pensionable earnings when member has 35 years of pensionable service  Pensionable earnings include basic pay and PILL

Modernization of the Canadian Forces Pension Plan—Reserve Force members under Part I.1 8 CF service  Days of service in the Regular Force for which pay was authorized and authorized maternity and parental leaves  Days of service in the Reserve Force for which pay was authorized and authorized maternity and parental leaves Days of training or duty of less than 6 hours = half-days Days of Class “A” service = 1.4 days Periods before April 1, 1999 (when duration of period is verifiable but not the number of days) = quarter time During maternity and parental leaves, days of CF service will be based on service in previous 12 months Definitions After 25 years of CF service, a member is entitled to an immediate annuity.

Modernization of the Canadian Forces Pension Plan—Reserve Force members under Part I.1 9 Pensionable service  Any period during which the member is a participant  Any period for which the member has elected to pay  Authorized periods of maternity and parental leaves  Counted on an elapsed-time basis Definitions

Modernization of the Canadian Forces Pension Plan—Reserve Force members under Part I.1 10 Vesting  Vesting is the right of a plan member to receive a benefit from the pension plan other than a return of contributions An immediate annuity, or A deferred annuity that may be converted to an annual allowance or transfer value  Vesting occurs after 2 years of pensionable service Definitions

Modernization of the Canadian Forces Pension Plan—Reserve Force members under Part I.1 11 Transfer value  A lump-sum amount, expressed in today’s dollars, of your future pension benefits payable at age 60 Received if... Vested, Not entitled to an immediate annuity, and Younger than age 50 Must be transferred to... Locked-in RRSP, New employer’s plan (if accepted), or Insurance company, to buy an annuity Definitions

Modernization of the Canadian Forces Pension Plan—Reserve Force members under Part I.1 12 Benefits at retirement or release

Modernization of the Canadian Forces Pension Plan—Reserve Force members under Part I.1 13 Benefits at retirement or release

Modernization of the Canadian Forces Pension Plan—Reserve Force members under Part I.1 14 Ceasing participation  Members cease participating under Part I.1 when they... Release from the Reserve Force Do not have any earnings for a 12-month period Join the Regular Force Qualify as a contributor under Part I

Modernization of the Canadian Forces Pension Plan—Reserve Force members under Part I.1 15 Benefits in case of death  At death of a vested member or pensioner, his or her... Spouse receives a survivor lifetime pension 1% X updated pensionable earnings X reduced annuity factor, if any Dependent children receive a child annual allowance Payable to age 18 or age 25 during periods of full-time school attendance

Modernization of the Canadian Forces Pension Plan—Reserve Force members under Part I.1 16 Benefits in case of disability  If participants are vested and have not ceased participation, they are entitled to... An immediate annuity  If participants have ceased participation and are eligible for a deferred pension or annual allowance, and become eligible for C/QPP disability pension, they are entitled to... An immediate annuity, but not bridge benefit You are considered disabled if you suffer from a mental or physical impairment that prevents you from engaging in any employment for which you are reasonably suited by virtue of education, training or experience and the disability is reasonably expected to last for the rest of your lifetime.

Modernization of the Canadian Forces Pension Plan—Reserve Force members under Part I.1 17 Other features  Annual increases for inflation – indexing for CPI For annuity and annual allowance, indexing begins at... Age 60, or Age 55 or older, if age plus full years of pensionable service total 85 or more For survivor and child annual allowance and disability pension, indexing is... Immediate  At death, minimum guarantee of 5 years of annuity payments

Modernization of the Canadian Forces Pension Plan—Reserve Force members under Part I.1 18 Pension formula  Yearly amount is 1.5% of total pensionable earnings updated for wage growth  0.5% of total updated pensionable earnings, up to the CPP 5-year Average YMPE (ends at age 65 or start of C/QPP disability payments) AnnuityBridge benefit Note: Updating reflects growth in military wage levels as measured by an index based on wage increases at the Corporal Rank— most populous in the Canadian Forces (5-year average).

Modernization of the Canadian Forces Pension Plan—Reserve Force members under Part I.1 19 Pension calculation Example

Modernization of the Canadian Forces Pension Plan—Reserve Force members under Part I.1 20 Pension calculation Typical Reserve Force pension  A member with typical earnings and service would be entitled to... Annual lifetime annuity of $4,200 + annual bridge benefit (to age 65) of $1,400 If at CIF, age 55 with 30 years pensionable service (elected to count all service)

Modernization of the Canadian Forces Pension Plan—Reserve Force members under Part I.1 21 Counting past earnings/service  Only past earnings from CF service are eligible Prior Reserve Force periods (no retroactivity restriction) Service becomes pensionable service Election includes all past earnings Regular Force periods with return of contributions

Modernization of the Canadian Forces Pension Plan—Reserve Force members under Part I.1 22 Counting past earnings/service  Waiting period required before electing Need 2 years of participation Service before CIF can count – if 24 months/10% YMPE test met  Limited time to make election Later of 1 year after notice of opportunity and 3 years after CIF No “late” elections  Paid by lump sum or life-insured instalments by the later of 20 years or age 65

Modernization of the Canadian Forces Pension Plan—Reserve Force members under Part I.1 23 Election calculation  Cost of electing pensionable earnings for any calendar year Pensionable earnings of the calendar year updated to year of election X Current contribution rate in year of election + 7% interest compounded annually from the middle of the year bought back to the date of the election

Modernization of the Canadian Forces Pension Plan—Reserve Force members under Part I.1 24 Election calculation  The member’s total cost equals the costs for all the years of past service  The member can elect to pay part of the full cost Service counts in full but pensionable earnings will be prorated (thereby affecting benefits) The member cannot revisit the partial-payment decision later

Modernization of the Canadian Forces Pension Plan—Reserve Force members under Part I.1 25 Election calculation Example

Modernization of the Canadian Forces Pension Plan—Reserve Force members under Part I.1 26 Election calculation  The member’s cost to buy back 1999 pensionable earnings Example

Modernization of the Canadian Forces Pension Plan—Reserve Force members under Part I.1 27 Election calculation Note: The transfer value is based on a 35-year-old male and based on CIA Standard of Practice for Determining Pension Commuted Values, using the interest rates applicable in March Example

Modernization of the Canadian Forces Pension Plan—Reserve Force members under Part I.1 28 New rules for RFRG  The Reserve Force Retirement Gratuity has been amended RFRG is now similar to a severance pay plan Benefits will be calculated on actual periods of paid service rather than elapsed time These changes will be effective when the Reserve Force Pension Plan is implemented—March 1, 2007 Calculation for periods before March 1, 2007 will be unchanged

Modernization of the Canadian Forces Pension Plan—Reserve Force members under Part I.1 29 New rules for RFRG With service prior to and after CIF Under old rules for RFRG Under new rules for RFRG A CWO, age 43, with 25 years of service at CIF, and releases 5 years from now with 30 years of service. The member has always served 60 days per year. $50,400$43,900 A CWO, age 43, with 25 years of service at CIF, and releases 5 years from now with 30 years of service. At CIF, the member has served 60 days per year for 16 years and worked full-time for 9 years. The member will work full-time for the next 5 years. $50,400 Examples

Modernization of the Canadian Forces Pension Plan—Reserve Force members under Part I.1 30 New rules for RFRG With service after CIF only Under old rules for RFRG Under new rules for RFRG A CWO, age 48, with 30 years of service after CIF when he releases. The member has served 60 days per year for 16 years and worked full-time for 14 years. N/A$25,200 A CWO, age 48, with 30 years of service after CIF when he releases. The member has always served 60 days per year. N/A$8,900 Examples

Modernization of the Canadian Forces Pension Plan—Reserve Force members under Part I.1 31 Coming into force

Modernization of the Canadian Forces Pension Plan—Reserve Force members under Part I.1 32 Questions? This presentation provides an overview of the some of the provisions under the Canadian Forces Superannuation Act. If there is a discrepancy between this presentation and the Act, the Act prevails.