What is the Public Service Pension Plan (PSPP)?

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With Canada’s aging population, more residents will be looking to retire in the coming years. A government benefit designed to help Canadian retirees is the Public Service Pension Plan (PSPP).

The main objective of the Public Service Pension Plan is to supply a retirement income to eligible residents during their lifetime. In addition to retirement payout, the PSPP also supplies financial support in the wake of death, disability, or termination of employment.

Some Canadians might assume that your pension benefits are determined by the status of markets, but that would be incorrect. Pension payouts are calculated based on your salary, years of pensionable service, age, and the reason behind your termination of employment. Whilst the financial status of your plan can affect contribution amounts, it does not affect your overall pension payout.

Employees and their employers make donations to the PSPP through payroll deductions on your paystub. The contributions donated to the pension plan are calculated based on a percentage of your pensionable salary within the annual Yearly Maximum Pensionable Earnings (YMPE) ranges. 

The PSPP’s Definition of an Employee

An employee is an individual who is hired on a full-time basis, with a member employer for a time range of 4 months. Individuals who are working on a seasonal basis and are working full-time hours are employees despite the duration of their employment period.

For school board workers, the minimum criteria for eligibility is 25 hours weekly. The very definition of employee does not consist of students, or a casual, part-time or contractual worker whose employment contract explicitly prevents him or her from engaging in the pension plan.

Who is Eligible for PSPP?

The workers who meet the following eligibility are obligated to participate in the PSPP; any part-time regular employees working 30 or more hours per week. As well as, workers labeled as “auxiliary salaried.”

The rules of their employment contract outline that the employment is to continue for a period greater than one year and the scheduled hours are not to be less than 30 hours weekly. 

In the cases of voluntary participation of the PSPP, workers have the choice to choose to participate if they meet any of the eligibility criteria as of January 1, 2018.

A part-time regular employee who works at an establishment where the hours worked are a minimum of 14, but less than 30, is given a one-time irrevocable choice to participate in the pension plan.

In the case, if they happen to decline to participate, they will be declined entry at another later date unless the employee subscribes to the mandatory membership pension plan.

The same terms can be applied to a part-time auxiliary salaried worker whose employment contract is set to last for a period greater than one year. Their routinely scheduled hours are a minimum of 14, but less than 30, in which they are also permitted to enjoy a one-time irrevocable opportunity to join the PSPP upon onboarding.

If they decline to participate in the pension plan, they will not be eligible to join the plan at a later date unless they move to a mandatory membership position.

When an employee shift from a mandatory participation role to a part-time role, the worker can inform their supervisor, in writing, of their intention to revoke participating in the pension plan.

This decision will be irrevocable until termination of employment occurs or the worker is promoted to a mandatory membership position. Additionally, if a participating worker changes to an “auxiliary salaried” position without an interruption in their service, pension deductions will resume.

What if a plan member employee changes to part-time?

A member, whose employment status changes to part-time, is no longer eligible to participate in the PSPP. According to the law, Section 40 (5) of the Pension Benefits Act, the contributions provided are not subject to refunds.

A part-time employee is legally required to contribute to the Government Money Purchase Pension Plan (GMPP), considering the participation of GMPP donations by the employer. Employees can choose to transfer credits between the GMPP and the PSPP.

Is there interest on the pension plan contributions?

Short answer – yes. During the time frame of 1991 to 1999, interest on employee contributions has been applied by the rate of the banks for one year guaranteed contributions.

Before 1991, interest on required investments was applied at a rate of 5% per annum. From the year 2000 and onwards, interest is calculated and paid off as set by the Pension Benefits Act and Regulations. Generally, this rate is configured to a 5 year fixed term.

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Kareena Maya is a freelance writer focused on the personal finance and travel spaces. He frequently writes about credit cards, banking, student loans, insurance, travel rewards and more. His work has been featured in publications such as Forbes Advisor, Bankrate, Credit Karma, Finance Buzz, The Ascent and Student Loan Planner.