Pensions and other future benefits

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The obligations arising from public sector pensions and other employee and veteran future benefits, sponsored by the Government or some of the consolidated Crown corporations and other entities, are measured on an actuarial basis and are presented net of pension assets and unrecognized net actuarial gain or loss, as well as contributions and benefits paid by some of the consolidated Crown corporations and other entities after their measurement date of December 31 up to March 31.

Public sector pensions

The Government sponsors a number of defined benefit pension plans covering substantially all its employees, principally members of the federal public service, the Canadian Forces (including the Reserve Force) and the Royal Canadian Mounted Police, as well as employees of certain Public Service corporations and territorial governments. The Government also sponsors several other pension plans; the two most significant ones being for Members of Parliament and federally appointed judges. The Government has a statutory obligation to pay the pension benefits it sponsors.

The liabilities for public sector pension plans sponsored by the Government are initially recorded through pension accounts, which are generally established pursuant to legislation. The pension accounts track transactions such as contributions, interest credits, benefit payments, transfers and administrative expenses. Any adjustments required under the Government's accounting policies are then recorded through allowance for pension adjustment accounts. The allowance accounts reflect the differential between accrual and cash accounting recognized through the years. They also reflect the accumulated difference in interest calculations and consolidation adjustments related to refundable tax amounts remitted to or refunded from the Canada Revenue Agency.

The Government's pension plans are generally financed from employer and employee contributions or from Government and member contributions. The contributions are either part of general funds or transferred to the Public Sector Pension Investment Board (PSPIB) for investment. Since April 1, 2000, amounts equal to contributions less benefit payments and other charges related to the public service, Canadian Forces—Regular Force and Royal Canadian Mounted Police pension plans, and since 2007 for the Canadian Forces—Reserve Force pension plan, that fall within the Income Tax Act limits are transferred to the PSPIB. The goal of the PSPIB is to maximize returns on investments without undue risk of loss, while having regard to the funding, policies and requirements and financial obligations of each of the pension plans. The PSPIB, a Canadian Crown corporation established under the Public Sector Pension Investment Board Act, reports the results of the investments in an annual report tabled in Parliament. Contributions for all the other pension plans sponsored by the Government are part of general funds.

More information on the above-mentioned plans can be found in the respective annual report on the administration of the plans tabled in Parliament.

In addition, some of the consolidated Crown corporations and other entities maintain their own defined benefit pension plans covering substantially all of their employees. The majority of the defined benefit pension plans are contributory plans. Employer and employee contributions are made in accordance with the provisions of the plans. Pension plans' funds are held in external trusts that are legally separate from Crown corporations and other entities.

i. Pension plans

Public Service Pension Plan, Canadian Forces Pension Plan including the Reserve Force Pension Plan and Royal Canadian Mounted Police Pension Plan

The pension plans for the public service, Canadian Forces—Regular Force and the Royal Canadian Mounted Police provide for the payment of a lifetime pension and a temporary bridge benefit payable normally until age 65, the age at which members generally become eligible for the Canada Pension Plan (CPP) or Quebec Pension Plan (QPP). The annual lifetime pension is based on the average salary of five consecutive years of highest-paid service and the years of pensionable service. For the Canadian Forces—Reserve Force pension plan, the annual lifetime pension is based on a percentage of indexed pensionable earnings with a temporary bridge benefit payable normally until age 65, the age at which members generally become eligible for the CPP or QPP. Pension benefits are indexed annually on January 1 to take into account the cost of living.

Pension benefits accrue at a rate of 2% per year of pensionable service up to a maximum of 35 years, the exception being the benefits offered under the Canadian Forces—Reserve Force pension plan which accrue at a rate of 1.5% up to a maximum of 35 years. Pension benefits are coordinated with those of the CPP or the QPP. Pension benefits for the public service pension plan members will accrue under either Group 1 for employees who were plan members prior to January 1, 2013, or Group 2 for employees joining the public service pension plan on or after that date. The normal retirement age for Group 1 members is 60. For Group 2 members, the normal retirement age is 65 and other age-related thresholds were increased by 5 years.

Public service Group 1, Canadian Forces—Regular Force and Royal Canadian Mounted Police members contribute at different rates than public service Group 2 members. The member contribution rates are as follows:

Public service Group 1, Canadian Forces—Regular Force and Royal Canadian Mounted Police pension plan members contributed:

• for the first nine months of the 2019 fiscal year, 9.8% (9.5% in 2018) of salary up to the Yearly Maximum Pensionable Earnings (YMPE) for the CPP or QPP and 12.1% (11.7% in 2018) of salary above the YMPE; and
• for the last three months of the 2019 fiscal year, 9.6% (9.8% in 2018) of salary up to the YMPE and 11.8% (12.1% in 2018) of salary above the YMPE.

Public service Group 2 pension plan members contributed:

• for the first nine months of the 2019 fiscal year, 8.8% (8.4% in 2018) of salary up to the YMPE for the CPP or QPP and 10.5% (9.9% in 2018) of salary above the YMPE; and
• for the last three months of the 2019 fiscal year, 8.7% (8.8% in 2018) of salary up to the YMPE and 10.2% (10.5% in 2018) of salary above the YMPE.

Contribution rates for Group 2 members were lower than for Group 1 members due to the lower cost of the benefits related to increasing the normal age of retirement from 60 to 65.

Members of the Canadian Forces—Reserve Force contribute 5.2% on pensionable earnings up to 66-2/3 times the defined benefit limit as determined under the Income Tax Regulations.

Employer contributions are made monthly to provide for the cost (net of employee contributions) of the benefits that have accrued in respect of that month at a rate determined by the President of the Treasury Board. For 2019, the employer contribution rates were about 1.0, 1.5 and 1.2 (1.0, 1.4 and 1.2 respectively in 2018) times the current year's employee contribution for the plans under the Public Service Superannuation Act, the Canadian Forces Superannuation Act (Regular Force pension plan) and the Royal Canadian Mounted Police Superannuation Act, respectively. For 2019, the employer contribution rate was about 2.2 (2.1 in 2018) times the current year's employee contribution for the Reserve Force pension plan.

The superannuation accounts, which record the transactions that pertain to pre April 1, 2000 service, are credited with interest at rates that are based on the Government of Canada long-term bond rate. The average interest rate credited to the superannuation accounts was approximately 4.0% (4.2% in 2018).

The pension fund accounts, which record the transactions that pertain to service since April 1, 2000, are flow through accounts used to transfer funds to the PSPIB. The balance in the pension fund accounts at year-end represents the amounts awaiting transfer to the PSPIB.

The retirement compensation arrangements (RCA) accounts record transactions for those pension benefits above the pension limits set under the Income Tax Act. The RCA accounts No. 1 and No. 2 are registered with the Canada Revenue Agency (CRA) and a transfer is made annually between these RCA accounts and the CRA, either to remit a 50% refundable tax in respect of the net contributions and interest credits or to receive a refund based on the net benefit payments.

Members of Parliament retiring allowances

Members of Parliament are eligible at a certain age to receive a basic allowance upon termination of membership and after having contributed to the plan for at least six years. Retirement age is set at 55 for pensionable service accrued before January 1, 2016 and at 65 for pensionable service accrued on or after January 1, 2016, with the option of reduced benefits for early retirement at age 55. The basic allowance accrues at a rate of 3% per year of pensionable service for both Members of the House of Commons and for Senators. For service accrued before January 1, 2016, the accrual rate is multiplied by the average of the best five consecutive years of sessional indemnity up to a maximum of 75% of the plan member's average sessional indemnity. For service accrued after December 31, 2015, the accrual rate is multiplied by the average of the best five consecutive years of pensionable earnings up to a maximum of 75% of the plan member's average pensionable earnings. Basic allowances are indexed annually on January 1 to the cost of living once recipients reach age 60. Pensionable service accrued on or after January 1, 2016, under the Members of Parliament pension plan, is coordinated with the CPP or QPP at age 60.

The contribution rates have increased over time to bring the plan members' share to 50% as at January 1, 2018. For the 2019 fiscal year, plan members contributed at a rate of 19.4% (19.5% in 2018) of their salary for the first nine months and a rate of approximately 19.5% (19.4% in 2018) for the last three months.

The Government contributions are made monthly to provide for the cost (net of plan member contributions) of the benefits that have accrued in respect of that month at a rate determined by the President of the Treasury Board. The Government contributions, expressed as a multiple of plan member contributions, are on average as follows:

Contributions are credited to the appropriate pension account, either the Members of Parliament Retiring Allowances Account or the Members of Parliament Retirement Compensation Arrangements Account. The pension accounts are also credited with interest at a rate determined by the Chief Actuary of Canada. The average interest rate credited to the pension accounts in 2019 was approximately 2.9% (2.4% in 2018).

Pension plan for federally appointed judges

This plan provides fully indexed annuities to judges and to all eligible survivors providing they meet minimum age and service requirements. The full benefit amount is generally payable when the member has completed 15 years of pensionable service and the sum of the member's age and years of service totals 80.

Judges appointed to the bench before February 17, 1975, make required contributions of 1.5% of salary. All other judges contribute 7% of salary.

Legislation does not require a specific pension account to be maintained to record the transactions pertaining to this plan. Therefore, except for the portion recorded in the Supplementary Retirement Benefit Account, the liability pertaining to this plan is recorded through an allowance account. During the year, benefits paid are recorded as expenditures against the statutory payment authority. The expense is adjusted at year-end through an allowance account, to bring the current year expense from cash to an accrual accounting basis, similar to that of the other pension plans. During the year, the benefit payments charged to the expenditure authority amounted to $170 million ($159 million in 2018). At March 31, 2019, the portion of the pension liability recorded through an allowance account for the judges' pension plan amounted to $3,105 million ($2,732 million in 2018).

Consolidated Crown corporations and other entities pension plans

Pension benefits provided under consolidated Crown corporations and other entities defined benefit pension plans accrue depending on the terms of the plans. Generally, they are based on a combination of an accrual rate per years of pensionable service and some type of pensionable earnings average. Some of the consolidated Crown corporations and other entities defined benefit pension plans are closed to new entrants.

ii. Actuarial valuations

As required under the Public Pensions Reporting Act, actuarial valuations of the pension plans sponsored by the Government are performed at least every three years for funding purposes. The actuarial valuations are performed by the Office of the Chief Actuary, submitted to the President of the Treasury Board, and tabled in Parliament.

The most recent date of the actuarial valuation for funding purposes of each pension plan sponsored by the Government is as follows:

1. Canadian Forces—Regular Force—March 31, 2016;
2. Canadian Forces—Reserve Force—March 31, 2016;
3. Members of Parliament—March 31, 2016;
4. Federally appointed judges—March 31, 2016;
5. Public Service—March 31, 2017; and,
6. Royal Canadian Mounted Police—March 31, 2018, valuation currently in-progress.

The actuarial valuations for the public service, Canadian Forces, Royal Canadian Mounted Police and Members of Parliament pension plans include the valuation of the Retirement Compensation Arrangements (RCA) component related to each plan.

Where applicable, the funding valuations provide the Government with recommendations for setting both employer and employee contribution rates, as well as any actuarial adjustment to amortize deficiencies or excesses. These actuarial adjustments are made in equal instalments over a period not exceeding 15 years commencing in the year in which the actuarial report is laid before Parliament.

To address actuarial deficiencies, no adjustment ($340 million in 2018) was made to the Public Service Pension Fund Account, $3,107 million (nil in 2018) was credited to the Public Service Superannuation Account, $145 million ($145 million in 2018) was credited to the Canadian Forces Pension Fund Account, no adjustment ($1,813 million in 2018) was made to the Canadian Forces Superannuation Accounts, $5.3 million ($5.3 million in 2018) was credited to the Reserve Force Pension Fund Account, $9 million ($9 million in 2018) was credited to the Royal Canadian Mounted Police Pension Fund Account, and no adjustment ($40.7 million in 2018) was made to the Members of Parliament Retiring Allowances Account. To address actuarial excesses, no adjustment ($118.9 million in 2018) was debited from the Members of Parliament Retirement Compensation Arrangements Account. The actuarial adjustments recorded in pension fund accounts are transferred to the PSPIB for investment. To address deficiencies, the consolidated Crown corporations and other entities made special funding payments of $8 million ($25 million in 2018).

Table 6.15 presents a summary of the balances and transactions for public sector pension plan liabilities. In particular, receipts and other credits for the Government's pension accounts consist of contributions from plan members, the Government of Canada, participating Public Service corporations and territorial governments, as well as transfers from other pension funds, actuarial adjustments to amortize deficiencies, refunds of refundable tax and interest. Payments and other charges for the Government's pension accounts consist of annuity payments, minimum benefits, cash termination allowances (lump sum payments to employees suffering a disability), returns of contributions, pension division payments, transfer value payments, transfers to other funds, remittances of refundable tax, payments of administrative expenses, actuarial adjustments to amortize excesses, and transfers to PSPIB. Adjustments to the Government's allowance accounts result from the differential with annual actuarial valuations performed for accounting purposes. These include differences between benefits earned and contributions and interest calculations, as well as from other adjustments required under the Government's accounting policies such as recognition of actuarial gains and losses and consolidation adjustments related to refundable tax amounts.

Pension benefits funded by the Government relate to post March 2000 service that falls within the Income Tax Act limits for the three main public sector pension plans and all service for the Canadian Force—Reserve Force pension plan, as funds are invested through the PSPIB. Funded pension benefits also relate to consolidated Crown corporations and other entities where pension plans' funds are held in external trusts that are legally separate from Crown corporations and other entities. For unfunded pension plans, separate invested funds are not maintained. These relate to all pre April 2000 service and only to post March 2000 service that falls above the Income Tax Act limits for the three main public sector pension plans, all service periods for the pension plans of the federally appointed judges and Members of Parliament, and some of the consolidated Crown corporations and other entities pension plans.

Table 6.16 presents a summary of transactions in public sector pensions that resulted in charges to expenses. Interest is calculated based on the accrued pension obligations under the various plans. The net interest expense represents interest of $6,005 million ($6,347 million in 2018) credited to the superannuation accounts in accordance with the pension legislation, a provision of $4,841 million ($3,950 million in 2018) and interest of $442 million ($436 million in 2018) on the consolidated Crown corporations and other entities' obligations, shown net of $7,779 million ($6,712 million in 2018) in expected return on pension investments.

Public Service Superannuation Account

This account, established by the Public Service Superannuation Act, is used to record all transactions (contributions, benefit payments, transfers and interest credits) in respect of service accrued by public service members up to March 31, 2000.

Public Service Pension Fund Account

This account is used to record the transactions in respect of service accrued on or after April 1, 2000, under the Public Service Superannuation Act. An amount equal to contributions less benefit payments and other charges is transferred to the PSPIB for investment. The closing balance in this account represents the net cash position prior to the transfer to the PSPIB.

Canadian Forces Superannuation Account

This account, established by the Canadian Forces Superannuation Act, is used to record all transactions (contributions, benefit payments, transfers and interest credits) in respect of service accrued by Canadian Armed Forces members up to March 31, 2000.

Canadian Forces Pension Fund Account

This account is used to record the transactions in respect of service accrued on or after April 1, 2000, in accordance with Part I of the Canadian Forces Superannuation Act. An amount equal to contributions less benefit payments and other charges is transferred to the PSPIB for investment. The closing balance in this account represents the net cash position prior to the transfer to the PSPIB.

Reserve Force Pension Fund Account

This account is used to record the transactions in respect of service accrued on or after March 1, 2007, in accordance with Part I.1 of the Canadian Forces Superannuation Act. When the closing balance of this account is in a positive net cash position, an amount equal to contributions less benefit payments and other charges is usually transferred to the PSPIB for investment.

Royal Canadian Mounted Police Superannuation Account

This account, established by the Royal Canadian Mounted Police Superannuation Act, is used to record all transactions (contributions, benefit payments, transfers and interest credits) in respect of service accrued by Royal Canadian Mounted Police members up to March 31, 2000.

Royal Canadian Mounted Police Pension Fund Account

This account is used to record the transactions in respect of service accrued on or after April 1, 2000, under the Royal Canadian Mounted Police Superannuation Act. An amount equal to contributions less benefit payments and other charges is transferred to the PSPIB for investment. The closing balance in this account represents the net cash position prior to the transfer to the PSPIB.

Members of Parliament Retiring Allowances Account

This account was established by the Members of Parliament Retiring Allowances Act to provide pension benefits to eligible Members of Parliament who contributed to the plan. "Member" means a Member of the Senate or the House of Commons. Benefits are also available to eligible surviving spouses or eligible dependent children of Members who served on or after a certain date and contributed under the Act.

Members of Parliament Retirement Compensation Arrangements Account

This account was established by the Members of Parliament Retiring Allowances Act to provide for benefits in respect of pension credits accrued by Members of Parliament which are not payable out of the Members of Parliament Retiring Allowances Account. Benefits are also available to eligible surviving spouses or eligible dependent children of Members.

Retirement Compensation Arrangements Accounts

The Retirement Compensation Arrangements (RCA) Accounts were established by the Special Retirement Arrangements Act to provide supplementary pension benefits to certain federal employees.

The RCA Account, No. 1 (RCA No. 1) provides for pension benefits in excess of those permitted under the Income Tax Act for the pensions paid under the Public Service Superannuation Act, the Canadian Forces Superannuation Act and the Royal Canadian Mounted Police Superannuation Act. The RCA No. 1 was created effective December 15, 1994.

The RCA Account, No. 2 (RCA No. 2) provides for pension benefits to public service employees who were declared surplus as a result of a three-year early retirement incentive program that ended on March 31, 1998. It pays the difference between an unreduced pension and the reduced pension for early retirement payable from the Public Service Superannuation Account. The RCA No. 2 was created effective April 1, 1995, and is funded entirely by the Government.

Supplementary Retirement Benefits Account

This account was established by the Supplementary Retirement Benefits Act to provide for pension benefit increases resulting from changes in the Consumer Price Index. The account continues to provide for increased pension benefits resulting from indexation for pensions of federally appointed judges, and recipients of pensions under various continuation acts and other related acts.

Allowance for pension adjustments

This account records the accounting adjustments resulting from annual actuarial valuations of public sector pension plans sponsored by the Government.

Actuarial losses of $3,697 million ($4,654 million in 2018), due to plan experience and changes in actuarial assumptions, were recognized in this account and increased pension expenses for the year.

An amount of $3,266 million ($2,353 million in 2018) was recorded in this account to offset the amortization of deficiencies charged to the pension fund accounts and superannuation accounts during the year but already accounted for in previous years' expenses or in actuarial gains and losses.

No amount ($119 million in 2018) was credited to this account to offset the withdrawal of surplus recorded in a superannuation account during the year but already accounted for in previous years' actuarial gains and losses.

An amount of $243 million ($92 million in 2018) was debited from this account and decreased pension costs to adjust for the difference between the Government contributions and the net cost of benefits earned.

An amount of $124 million (nil in 2018) was debited from this account and decreased pension costs to adjust (not adjusted in 2018) for a past service cost reduction related to a curtailment.

An amount of $4,841 million ($3,950 million in 2018) was credited to this account to adjust for the difference between interest based on the accrued pension obligations and interest credited to the superannuation accounts. In addition, an amount of $7,160 million ($6,119 million in 2018) was debited from this account to record the expected return on the pension investments.

As well, a consolidation adjustment of $46 million was debited ($49 million credited in 2018) from this account and credited (debited in 2018) against personal tax revenues to eliminate the effect of internal transactions resulting from tax amounts credited (debited in 2018) from the RCA accounts that were previously recorded as tax revenues.

The unrecognized net actuarial loss of $19,178 million ($15,838 million in 2018) will be recognized in this account and will affect expenses in future years.

As a result of annual actuarial valuations for accounting purposes, the accrued pension obligations of $345,207 million ($328,497 million in 2018) less the pension assets of $157,608 million ($141,840 million in 2018) were found to be $31,957 million ($30,918 million in 2018) higher than the balance of the pension fund accounts of $5 million ($399 million in 2018) and the superannuation accounts of $155,637 million ($155,340 million in 2018). The excess or shortfall is made up of the following: