Amendment to The Civil Service Superannuation Act

 

Bill 43, The Civil Service Superannuation Amendment Act, received Royal Assent in the Manitoba legislature on October 14, 2020. 

 

This Bill changes the provisions of the Civil Service Superannuation Fund pension plan, and became effective immediately.

 

The majority of the amendments are minor housekeeping changes that update or clarify existing provisions of The Civil Service Superannuation Act (CSSA), however three of the anticipated changes are more significant. The following changes were made at the joint recommendation of the Superannuation and Insurance Liaison Committee (representing employees) and the Employer Pension and Insurance Advisory Committee (representing employers).

 

1. Revised Basis for Calculating Pension Commuted Values.

 

The method used to calculate the lump sum value of a pension will now use a different interest rate assumption than was previously used. This change will reduce the lump sum amounts payable on termination, death, or division of pension.

 

This change does not affect the pension payable to members who are in receipt of a monthly pension or to retiring members who choose to receive a monthly pension from the plan. 

 

The commuted value of a pension is the present value of the member's anticipated future monthly pension payments. In other words, it is the amount the member would need to invest today in order to generate that same amount of monthly pension for their lifetime.

 

To determine the commuted value of a member's future pension payments, an assumption must be made about the rate of interest the member will be able to earn on their lump sum amount. If the member is expected to earn a low rate of interest, the initial lump sum will need to be higher in order to provide that monthly pension. If the member is expected to be able to earn a higher amount of interest, a smaller lump sum will be sufficient to provide that same monthly pension.

 

Prior to this amendment, commuted values were determined assuming that members would invest the lump sum in a combination of bonds. Low bond rates were resulting in very high lump sum amounts. The CSSA now requires that commuted values be determined assuming that members will earn the same interest rate as is used to determine the funding requirements of the pension plan. This new methodology is one of the methods permitted by the Canadian Institute of Actuaries and will result in lump sum payments that are cost neutral to the plan.

 

Why was this change recommended? 

 

The reduction in the lump sum amounts paid out of the plan will have a direct positive impact on the funded status and long term sustainability of the pension fund. The amounts recently paid out to terminating members, particularly to those of retirement age, have tended to be much higher than the amounts they and their employers paid into the fund, which was causing significant losses to the pension plan. The plan's actuary had warned that, if this was allowed to continue, these losses would need to be offset by reduced benefits or increased contributions for the members who remain in the plan.

 

2. Extended Timeline for Maternity or Parental Leave Purchase

 

The decision to contribute in respect of a period of maternity leave or parental leave has been extended to 30 days after the end of the leave. Previously, the CSSA required that the election to contribute while on maternity or parental leave must be declared prior to the start of the leave.

 

Why was this change recommended? 

 

This change allows employees greater flexibility in making arrangements to contribute in respect of periods of maternity and parental leave.

 

3. Appointment of Employee Representatives on the Board

 

Employee representatives will now be appointed by the Superannuation and Insurance Liaison Committee rather than through an election process. Members of the Superannuation and Insurance Liaison Committee are appointed by organizations that represent employees and retired members of the pension plan.

 

The four employee representatives are to include one pensioner and one person representing the interests of the employees and former employees of Manitoba Hydro.

 

Why was this change recommended? 

 

Participation in the employee representative election has been declining steadily. For the 2019 election, ballots were returned by about 20% of eligible employees. No other large public sector plan in Canada elects employee representatives.

 

Q & A on Bill 43

 

How does Bill 43 affect me?

 

  • If you are receiving a pension from the plan, none of the changes in the Bill affect you. Your monthly pension amount won't change, your payment schedule won't change, and your deductions won't change as a result of Bill 43.

  • If you are planning to receive a monthly pension from the plan when you retire, none of the changes in the Bill will affect your pension – not the amount of your pension or when you would be eligible to collect it. 

  • If you are away from work for an approved maternity or parental leave, you will have more time to decide if you want to make pension contributions in respect of that leave, and you'll be able to make those contributions when you return to work rather than during the leave.

  • If you remove your pension from the fund as a lump sum amount, the amount available to you will be significantly lower under the revised calculation method. 

    • If you have terminated prior to October 14, 2020 and you return your completed termination option forms and supporting documents within 120 days of the day they were provided to you, your lump sum value will be determined using the method in place prior to the amendment. If you terminate on or after October 14, 2020, or if you had previously terminated but a recalculation of your value is required on or after October 14, 2020, the new method will apply. Your termination date is your last day of employment as reported to us by your employer. If you had previously terminated and a recalculation is required after the day the Bill receives Royal Assent, the recalculation will be done using the method in effect on the day the recalculation was requested. 

    • The impact of the change in lump sum values varies with age. For those who are age 55 or older with at least 10 years of qualifying service, the values under the new method could be in the range of 1/3 to 1/2 less than under the prior method. The reduction will be greater for younger members or those who are age 55 or older but have less than 10 years of qualifying service.

 

How is the commuted value calculation changing?

 

The commuted value of a pension is the present value of the member's anticipated future monthly pension payments. In other words, it is amount the member would need to invest today in order to generate that same amount of monthly pension for their lifetime.

 

To determine the commuted value of a member's future pension payments, an assumption must be made about the rate of interest the member will be able to earn on their lump sum amount. If the member is expected to earn a low rate of interest, the initial lump sum will need to be higher in order to provide that monthly pension. If the member is expected to be able to earn a higher amount of interest, a smaller lump sum will be sufficient to provide that same monthly pension.

 

Previously, commuted values were determined assuming that members would invest the lump sum in a combination of bonds. Low bond rates were resulting in very high lump sum amounts. The change to the CSSA requires that commuted values be determined assuming that members will earn the same interest rate as is used to determine the funding requirements of the pension plan. This new methodology is one of the methods permitted by the Canadian Institute of Actuaries and will result in lump sum payments that are cost neutral to the plan.

 

Why is the commuted value calculation changing?

 

A reduction in the lump sum amounts paid out of the plan will have a direct positive impact on the funded status and long term sustainability of the pension fund. The amounts recently paid out to terminating members, particularly to those of retirement age, tend to be much higher than the amounts they and their employers pay into the fund, which is causing significant losses to the pension plan. The plan's actuary has warned that, if this is allowed to continue, these losses would need to be offset by reduced benefits or increased contributions for the members who remain in the plan. This change was made at the joint recommendation of the Superannuation and Insurance Liaison Committee (representing employees) and the Employer Pension and Insurance Advisory Committee (representing employers).

 

Does this affect my severance benefit or vacation cashout amounts?
 

No. Bill 43 deals specifically with the lump sum amount that an employee might remove from the pension plan instead of receiving a monthly pension. Severance benefits and vacation cashout are employer benefits that are outside the pension plan. They would not be affected by Bill 43.

 

Why didn't CSSB tell me about this earlier?

 

When Bill 43 received First Reading, CSSB did not do a wide-scale communication about it, such as posting information on our website, sending a special newsletter, or any other form of general announcement. We were, however, fully transparent about it when communicating with individual members to whom it might be relevant.  If staff recognized that this Bill could be an important factor in their discussions with a member, they advised the member of this potential. We answered all member questions to the best of our ability.

 

The main reason CSSB did not proactively communicate on Bill 43 is that, while a Bill is proceeding through the legislative process, its status is still speculative. It is unknown when it will be passed, if it will be altered at all from its original version, or even if it will be passed at all. The last time an amendment to the Civil Service Superannuation Act received First Reading (Bill 29 in 2016), it never went past that stage.

 

Legally, a plan administrator is not required to communicate on potential plan changes. Under the Pension Benefits Act, the administrator is required to give notice of a plan amendment to affected plan members within 60 days after an amendment is made.

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