Purchase of service for authorized unpaid leave (e.g., maternity leave)
We encourage all employers to inform plan members of the impact an unpaid leave of absence could have on their eligibility to retire and their annual pension benefits.
You are encouraged to notify plan members that for them to be eligible to purchase the service from a leave of absence at a preferred rate, Provident10 must receive the request within 90 days of the date the plan member returns to work. We recommend that employers notify plan members of this requirement when they take any unpaid leave. The preferred rate is the rate at which the member would have contributed to the Public Service Pension Plan during their period of unpaid leave, had they been working. In situations where a member is eligible to purchase service at the preferred rate, the employer is required to pay a matching contribution.
If a request to purchase service is not received by Provident10 within 90 days of a plan member returning to work, their cost to purchase the leave will be calculated based on the actuarial cost of the service. The actuarial cost is based on the predicted cost of crediting the service to the plan member during the predicted life expectancy of the member when retired. Factors influencing the actuarial costs include age, years of service, and interest rates. The employer is not responsible for any contributions if the request is received by Provident10 after 90 days.
Long Term Disability
Plan members who have been approved for long term disability (LTD) benefits should be encouraged to consult with their employer to determine what impact, if any, their pension benefits might have on the amount that they are entitled to receive under their LTD program.
Employers with LTD benefits are encouraged to engage with your employees so they are familiar with their LTD program and how it impacts their pension benefits.
Participating employers are responsible for familiarizing themselves with legislation governing WorkplaceNL as it relates to pension benefits. You can visit their website here.
Canada Revenue Agency and the PSPP
Are contributions tax-deductible?
Regular contributions you make to the PSPP are tax sheltered. When plan members complete their income tax returns, they may claim their PSPP contributions as a deduction from their income. Within certain limits, their contributions to purchase prior service may also be tax deductible.
How do my pension contributions affect contributions to my RRSP?
Under the current tax system, contributions to the PSPP do not directly affect contributions to RRSPs. It is the value of the pension entitlement earned in the tax year that will be used by CRA to determine how much you can contribute to your RRSP in respect of the next tax year. The value of pension earned in the year is reported on your T4, in box 52, and is called the pension adjustment (PA).
CRA will notify plan members, in writing, of the RRSP contribution room that they have for the tax year. The amount they can contribute to their RRSP in a given year is 18% of the previous year’s earned income (to an annual dollar maximum) minus the PA for the previous year.
If upon termination their benefit is less than their total PA for years since 1989, Provident10 will calculate a pension adjustment reversal (PAR). This will reinstate RRSP contribution room for the years after 1989.
Employers must submit to Provident10 within a predetermined timeframe information for adjustments to salary and contributions that would affect member year-to-date totals. We will then provide participating employers with pension adjustments within a predetermined timeframe. Provident10 will communicate with employers regarding these timeframes.