(Message from Les Robb, April 15, 2002)
Hi all,
The article below was copied to those individuals who run into the situation where they are capped in the amount of pension they might receive for pre 1990 buyback. As it explains below, if your salary at July 1, 2000 exceeded $68,780 and you wish to buy back service for a part of the year when you were not a member of a pension plan, then you are capped. This note is to try to explain further what is going on.
Typically, a faculty member in this circumstance joined McMaster from graduate school or a post-doc on July 1 of some year. Frequently such individuals did not then join the McMaster Plan until the following July. In such a case, here is how the limits work.
If the person (in the $69,000+ salary range) was not a member of a pension plan in the first 6 months of the year and did not join the McMaster Plan immediately on hire, the limit is triggered. The most one can get for a year of service is 2/3 of the $1722 which is the limit under normal circumstances. For this first 6 months of pensionable service to be bought back, the limit applies. For the next 6 months, however, the 2/3 limit does not apply. This is because in the second half of the year the person was a member of the McMaster Plan. Hence the member has 6 months at the 2/3 limit and 6 months at the normal $1722 limit.
On the cost side, there is a parallel treatment. Six months can be bought at a reduced cost (reflecting the reduced benefit) and 6 months at the cost that was in the original table.
This can get more complicated in other circumstances. Suppose you start on September 1 and don't join the Plan. Now September to December will have the 2/3 cap, but January to June will not. Suppose you are buying back 12 months when you were employed at another university and got your contributions returned when you moved to McMaster (no employer contributions). Since you were a member elsewhere, you would not be hit with the 2/3 limit. As you can see, it will be an individual calculation.
An important point to add here is that if you were a member of a pension plan just before coming to McMaster and you are thinking about buy back, you really are not subject to the 2/3 limit and you need to inform the University (and probably should be getting your documentation in order). Why the University has not asked for this information by now, I am not sure.
Hope this clarifies
the situation somewhat.
Les
Pension Surplus Buyback Update
We have been recently advised that for certain periods of past service, the buyback table you were previously provided with has been revised. As a result the cost to buyback one year of such service has been changed to a lower amount.The service subject to the revised table is pre 1990 service in respect of a period during a calendar year when the individual did not participate in a registered pension plan. Those affected are members whose salary at July 1, 2000 exceeded $68,780. Please note that the extent of the revision is that the rows applicable to pensionable earnings rates of over $70,000 have been cut off and replaced with a maximum cost line. Below is the table indicating these changes.
July 1, 2000
Pensionable Earnings
RateThe Figures below Indicate the Cost of Buying Back One Year of Service in the Plan (for Service Limited to Two-Thirds of the Maximum
Maximum Cost $1,821 $2,269 $$2,828 $3,524 $4,391 $5,472 $6,820 $8,498 $10,591 $13,198 $11,482 Age as of July 1, 2000 20 25 30 35 40 45 50 55 60 65 70 Please note that even though, for these periods of service, the cost per year of service may be lower, the cost per $1 of benefit remains the same. The reason why the cost to buy back 1 year of service is smaller, is because the benefit is smaller, limited by the Maximum pension limit applied to pre 1990 service by the Canada Customs and Revenue Agency. For a more complete explanation of the maximum pension, please refer to page 10 of your Surplus Share Payment Option Guidebook.
If you wish to change your Surplus Options or require a further explanation, please contact the Pension Surplus Hotline at 905-525-9140, ext. 24272, or e-mail surplus@mcmaster.ca.
This and any further updates will be posted on the MUFA web site at: