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Preparing for CPP Expansion

Chris RobertsCanadian Labour Congress

Simon DeschênesEckler Ltd.

Manitoba Pension Forum

Winnipeg, Manitoba

December 6th, 2016

A brief overview of the CPP

• The goal of the CPP at first was: to replace 25% of earnings up to average industrial wage at retirement.

• Contributions of 1.8% (total 3.6%) to be shared equally between employer and employee.

• Over time, benefits and contributions increased. Today, the CPP benefits look like this at a high level:• Replaces 25% of earnings up to average industrial wage at age 65 (YMPE $55,300 for 2017)• Contribution rate of 4.95% (total 9.90%) for covered earnings (between $3,500 and $55,300

in 2017)• Full annual cost of living indexation for benefits• Early retirement as early as age 60 and as late as age 70 with adjustments (increase or

decrease respectively)• Surviving benefit for spouses, common-law partners and dependants • Disability benefit, death benefit• Benefit can be divided on marriage dissolution and shared with spouse during retirement

Increase in CPP Benefits

Additional Annual CPP Benefit

Increase in CPP Contributions

CPP Integration with Registered Pension Plans

• RPP integration a major issue at the inception of the Canada Pension Plan in 1965

• CPP (and OAS to a lesser extent) were factored into the benefit formulas of many public and private sector RPPs

• Other miscellaneous effects of CPP on RPP benefits:• Maximum bridging benefits

• Maximum enhanced disability benefits

• Integrated optional form of pension upon retirement

• Small benefit unlocking and force-out rules (minor)

Types of CPP Integration – DB Plans

• Step Rate:• RPP benefit has two different levels, for earnings above and below the YMPE• e.g. RPP formula = 1.4% FAE below FAYMPE, 2.0% above

• FAE = final average earnings• FAYMPE = final average YMPE

• common in private-sector DB plans

• Offset:• RPP benefit formula is reduced by CPP benefit• e.g. RPP formula = 2.0% FAE – CPP benefit

• Bridge: • some design provide a “bridge” benefit from early retirement to age 65 that can be

tied to the CPP benefit• The maximum bridge payable under CRA is set in reference to the CPP benefit

No Integration

• Flat benefit plans• e.g. $50/month per year of service

• Common in many multi-employer pension plans

• Some private-sector DB plans• e.g. 2% x FAE x Years of Service

• Some provide a bridge benefit on top, if retirement occurs prior to 65

• DC / RRSP plans• e.g. 5% employee contribution subject to match by employer

Preparing for CPP Expansion

• If currently integrated:• Review intention of integration & examine options to address.

• If not currently integrated:• Sponsors may reconsider in light of higher CPP contributions

• Keep in mind / Consider for your plan:• Original purpose to integrate• What does the plan aim to deliver• Decide whether need to look at retirement benefit holistically or in isolation• “YMPE” and “YAMPE” appear to be separate metrics, “CPP Benefit” does not appear to

distinguish between pre/post expansion (at least currently) implications depending on existing plan design

• Other:• Actuarial costings likely necessary• Consider 7-year phase-in of CPP enhancement in any integration changes• Consider the various pension laws restrictions on benefits reductions and member notice• Remember the small stuff (e.g. unlocking)