Modernization of the Canadian Forces Pension Plan Reserve Force members under Part I

1. Department of National Defence Modernization of theCanadian Forces Pension PlanReserve Force members under Part I February 2007

2. Outline • Eligibility, contributions, and definitions • Benefits • Pension formula • Counting past earnings/service • CF employment after annuity starts • RFRG • Coming into force

3. On-line www.admfincs.forces.gc.ca/pension/intro_e.asp pensioninquiries@forces.gc.ca PriorPensionableServiceArrears@forces.gc.ca EligibilityCC@forces.gc.ca Email Toll-free 1-800-267-0325 For more information • Presentation focuses on pension policies • Consult the CFPMP website www.forces.gc.ca/hr/dgcb/cfpmp • Beginning 1 March 07, contact DAPPP/Pension services for eligibility, benefit and election questions

4. About CFSA Part I • Provides a benefit based on set formulas (defined benefit) • Uses best 5-year average (full-time) • For Reserve Force members who are: • Long-term Class B • Long-term Class C

5. Eligibility • Reserve Force members join Part I after working 1,674 days (55 months) out of 60 continuous calendar months • Service from April 1999 can be used towards eligibility • Credits from the part-time plan must be transferred • “Once in, always in” rule • Contributions to Part I will continue until retirement

6. Contributions • A fixed percentage of pensionable earnings • Reduces to 1% of pensionable earnings when member has 35 years of pensionable service • Pensionable earnings include basic pay and pensionable allowance YMPE—Year’s Maximum Pensionable EarningsCanada Pension Plan earnings ceiling(2007 = $43,700)

7. CF service Definitions • 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 After 25 years of CF service, a member is entitled to an immediate annuity.

8. Pensionable service Definitions • Any period during which the member is a contributor • Any period for which the member has elected to pay • Authorized periods of maternity and parental leaves • Counted on elapsed time basis

9. Vesting Definitions • 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

10. Transfer value Definitions • 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

11. Benefits at retirement or release

12. Benefits at retirement or release

13. Ceasing participation • Members cease participation when they… • Release from the Reserve Force • Do not have any earnings for a 12-month period

14. Benefits in case of death • At death of vested member or pensioner, his or her… • Spouse receives a survivor lifetime pension • 1% X pensionable service X best average earnings • Dependent children receive a child annual allowance • Payable to age 18 or age 25 during periods of full-time school attendance

15. Benefits in case of disability • With 10 or more years of pensionable service and becomes disabled while a contributor, member is entitled to… • An immediate annuity • If no longer a contributor and eligible for a deferred pension or annual allowance and becomes eligible for C/QPP disability pension, member is entitled to… • An immediate annuity • Offset begins immediately You are considered disabled if you suffer from a mental or physical impairment that prevents you from performing your duties.

16. 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

17. 2 % X pensionable service X best average earnings X adjustment factors Pension formula Temporary bridge pension payable to age 65, included in the annuity Annuity 0.7 %1 X pensionable service2 X best average earnings, up to the average YMPE X adjustment factors 1Reduction will gradually decrease from 0.7% in 2007 to 0.625% in 2013 2Includes CF service only

18. Pension formulaAdjustment factors • A pro-rata adjustment is applied to the pension formula to take into account… • All calendar years during which member worked part-time • If member opted to pay for less than the full cost when election was made to count past service

19. Counting past earnings/service • Eligible periods of service • Prior Reserve Force periods (no retroactivity restriction) • Service becomes pensionable service • Election includes all past earnings • Regular Force periods • Other eligible periods of service (same as Regular Force members)

20. Counting past earnings/service • 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

21. Election calculation • Cost of electing pensionable earnings for any calendar year Pensionable earnings of the calendar year updated to year of election X Current RF contribution ratein year of election + 7% interest compounded annuallyfrom the middle of the year bought back to the date of the election + Difference between contributionsfrom Part I.1 and Part I, if any

22. Election calculation • The member’s total cost is sum of 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

23. Election calculation Example

24. Election calculation Example • Member’s cost to buy back 2003 pensionable earnings

25. Election calculation Example 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 February 2007.

26. CF employment after annuity starts • Once you have earnings in the Reserve Force, your annuity stops and you begin contributing to the pension plan again

27. 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

28. New rules for RFRG Examples

29. New rules for RFRG Examples

30. Coming into force

31. 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.