ITA Maximum Pension - ProVal 319

ProVal calculates the Income Tax Act (ITA) Maximum Pension reflecting “post-reform” regulations. The parameters of the Canadian ITA Maximum Pension dialog box, accessed by clicking the Canadian Maximum Benefits button of the Regulatory Data topic, allow you to control the valuation assumptions for service and early retirement reductions in the calculation of the ITA maximum pension and also allow you to define pre-reform and post-reform benefit accrual service for use by the #CANMAX operator.

ProVal’s calculation of the limit on the amount of pension that can be paid annually multiplies the number of years of benefit accrual service by the calendar year dollar limit (at the time benefit payments commence) on accruals for each year of service and adjusts for early retirement, i.e., (1) x (2) x (3), where:

is the dollar maximum annual accrual payable at commencement age;
is the number of years of benefit accrual service at decrement age; and
is the early retirement reduction, based on valuation (i.e., rounded) age and exact service: 0.25% per month (3% per year) by which the pension commencement age precedes the earliest of age 60, 30 years of service and 80 points (age plus service), with a maximum reduction of 45%.

Note: In the Canadian registered pension mode, this calculation is “turned on” if the Apply ITA maximum pension box of the Benefit Definition is checked. Otherwise, and in other modes, the same calculation may be obtained by use of the operator #CANMAX in the Benefit formula.

The Canadian ITA Maximum Pension dialog box is not used to adjust the maximum benefit limit for payment on a form of benefit other than the ITA maximum form (life annuity with 15-year guarantee or joint and survivor 66 2/3% life annuity with 5-year guarantee), if an adjustment is desired. In the Canadian registered mode, the adjustment can be made by using the ITA maximum pension adjustment parameters of each Benefit Definition contained in your Plan Definition; in other modes, it must be coded into the formula expression of the Benefit formula of each Benefit Definition (in OPEB mode, the applicable Benefit formulas, for the gross benefit and the participant contribution, of each Benefit Definition).

The Canadian ITA maximum pension parameters are:

Service for benefit accruals:

This parameter determines how to measure years of service in (2) above. You may specify either a service Field or a Service Definition. If you specify a field, you may refer to a hire date or to a numeric field containing the amount of service as of the valuation date. Select the desired field from among the numeric and date fields unhidden in the current Project or, if you need fractional accumulation of service (e.g., hours-related service) or rounding (e.g., completed years), select from the library of Service Definitions. The button accesses the library to create and modify Service Definitions.

Note: If you leave this specification at the pre-set option, “<date of hire>”, ProVal will use the field selected for the Date of hire (or hire age) parameter of the Active Data topic of the Census Specifications.

Service for early retirement reductions:

This parameter determines how to measure years of service for purposes of determining the applicable regulatory early retirement reduction factor described in (3) above. You may specify either a service Field or a Service Definition. If you specify a field, you may refer to a hire date or to a numeric field containing the amount of service as of the valuation date. Select the desired field from among the numeric and date fields unhidden in the current Project or, if you need fractional accumulation of service (e.g., hours-related service) or rounding (e.g., completed years), select from the library of Service Definitions. The button accesses the library to create and modify Service Definitions.

Allow service split based on reform date:

By checking this box, you identify Pre-reform service and Post-reform service to ProVal, in order to count just one or the other in (2) above. To apply the ITA maximum pension limit to either pre-reform or post-reform service, you must use the #CANMAX operator in your benefit formula, with an appropriate left argument (either 2 for pre-reform or 1 for post-reform). Thus, for example, for grandfathered plans that continue to apply the paragraph 9(g) maximum pension rule of Information Circular 72-13R8, you may apply the limit to just post-reform service.

Select the Pre-reform service field from among the numeric and date fields unhidden in the current project.

Specify Post-reform service by selecting either a service Field or a Service Definition. If you specify a field, you may refer to a hire date or to a numeric field containing the amount of service as of the valuation date. Select the desired field from among the numeric and date fields unhidden in the current project or, if you need fractional accumulation of service (e.g., hours-related service) or rounding (e.g., completed years), select from the library of Service Definitions. The button accesses the library to create and modify Service Definitions.

Notes:

If you indicate the service basis for either pre-reform or post-reform service, you must also specify the service basis for the other.
ProVal computes pre-reform service as the lesser of total (benefit accrual) service and the value indicated by the selected pre-reform service field. Post-reform service is not compared, however, to total service and thus not capped at the total service amount. Therefore, be sure that your specifications for benefit accrual service, pre-reform service and post-reform service are consistent (that the sum, as of the valuation date, of the amount of service indicated by the pre-reform and post-reform service parameter selections is equal to the amount of service indicated by the benefit accrual service parameter selection).

Important: As mentioned above, to reflect a service split in the ITA maximum pension, you must use the #CANMAX operator, with an appropriate left argument. Merely checking the Apply ITA maximum pension box of the Benefit Definition will not replace total service in (2) above with pre-reform or post-reform service.

Use public safety occupation early retirement reduction:

If this box is checked, in lieu of the early retirement reduction of (3) above, ProVal will apply the 0.25% per month (3% per year) reduction for each month (year) by which the pension commencement age precedes the earliest of age 55, 25 years of service and 75 points (age plus service), with a maximum reduction of 45%. This is in accordance with the regulatory criteria for plan members employed in a public safety occupation.