Plan change clarifies the membership rules

No. 90

Effective January 9, 2006

Membership not allowed for retirees of 'related employers'

As a result of an amendment to the membership rules, employees who are receiving a defined benefit pension from a 'related employer' cannot be enrolled in - or continue to be members of - the PSPP.

Membership in the Public Service Pension Plan (PSPP) can be a powerful incentive in attracting and retaining employees with "in-demand skills". When an individual is hired in a PSPP-affiliated position (e.g., a professional, management or excluded position), plan membership is mandatory if he/she is a full-time employee and optional if he/she is working on contract.

However, if you are hiring a retiree, there is another rule to consider. Income tax legislation does not allow individuals to receive a defined benefit pension from one plan and contribute to another if the past and current employers are related (i.e. 'not at arms length' of each other). Because of this restriction under the Income Tax Act (ITA), the PSPP was amended to clarify that individuals who are receiving a pension from a 'related employer' are not eligible to join this Plan.

What is a 'related employer'?

For the purposes of PSPP eligibility, an employer is not at 'arms length' from your organization if the Ontario Government appoints the majority of that employer's Board of Directors and it offers a defined benefit pension other than the PSPP. Specific examples of related employers include:

• Hydro employers (Electrical Safety Authority, Hydro One, Independent Electricity Market Operator and Ontario Power Generation); and
• the Ontario Public Service, if the individual is receiving a pension from the OPSEU Pension Plan.

How does this affect PSPP membership?

Individuals who retired from a 'related employer' can work for your organization, but they cannot join the PSPP if they are receiving a pension. They can only join the PSPP if they - and the other pension plan - agree to stop the pension payments.

What about non-related employers? Individuals who retired and are receiving a pension from an employer that is 'arms length' can join the PSPP while continuing to receive their pension. Non-related employers include the Municipal, Federal or another Provincial government, and the private sector.

What do employers need to do?

As administrator of the PSPP, it's critical that we comply with the ITA, so we can continue providing your employees with a valuable pension benefit and tax relief for their contributions. We need your help in making sure that only eligible retirees - whether they are newly hired or currently active - are members of the PSPP.

For new hires: Since enrolment documents are completed after an offer of employment is made, it's important to ensure that the candidate is aware of this eligibility condition. Although the PSPP enrolment form will be changed to identify an affected pensioner, employers will need to advise candidates during the "offer" stage of this restriction. Therefore, any description of pension plan eligibility that is included in an "offer letter" must be reviewed and revised accordingly.

If, during the negotiation period, you or the prospective employee are unsure whether the past employer is related, please contact Jean Bubba, Employer Services Analyst, at 416-601-4026. We will need to know the pension plan from which the individual is receiving a pension to help out.

For active members: In order to ensure that existing members have been properly enrolled we need your help. If you are aware of an employee who is a PSPP member and who may be receiving a pension from a related employer, please contact us right away. We will then contact the member to obtain the information needed to determine if they are receiving a pension from a related employer. After reviewing this information, we will notify you and the employee if there is any impact on his/her membership.

What will the OPB be doing?

Determining eligibility for PSPP membership continues to be the responsibility of the OPB. We are revising our enrolment documents to collect the information we need to confirm a new employee's eligibility. We will also be alerting members to this issue through an article in the next OPB News, which is scheduled for release in February. The article will ask employees to contact us if they are (or think they may be) receiving a pension from a related employer.

If a member was enrolled in error, we will terminate his/her PSPP membership and refund the contributions, with interest. The employer can choose to receive a refund of the contributions or have the overpayment deducted from future remittances.

Why is this important?

All pension plans in Ontario must be registered with Canada Revenue Agency. Registration provides valuable tax benefits for members and the pension plan. However, to receive these benefits, the pension plan must comply with the ITA. For the OPB, this means confirming eligibility for PSPP membership, to avoid collecting - and paying out - unauthorized funds.

We will be able to provide you with more details when we issue the revised enrolment form. In the meantime, if you have any questions, please contact Jean Bubba.