Notice For: United Association of Journeymen and Apprentices of the Plumbing and Pipefitting Industry of the United States and Canada, Local 740 Pension Plan (the “Plan”)
NL Registration Number 075302
Changes to Lump Sum Commuted Values Paid from the Plan and the Level Income Optional Form of Pension
To: Active and Deferred Vested Plan Members entitled to benefits under the Plan
And To: UA Local 740 (the “Union”)
From: Trustees of the Plan (“Trustees”)
Date: October 1, 2020
This notice is for information purposes only and is being provided to you as required by applicable legislation and as directed by the Superintendent of Pensions for the Government of Newfoundland and Labrador. No action is required by you.
Changes to Lump Sum Commuted Values Paid from the Plan
The Trustees wish to inform you that there has been a change to the prescribed standards which dictate how pension commuted values are calculated in the Plan. The Canadian Institute of Actuaries released the final amendments to the standards which prescribe these methods, Section 3500 of the Practice-Specific Standards for Pension Plans – Pension Commuted Values (“CV standard”), on January 24, 2020.
What is a commuted value?
The commuted value — sometimes known as the “CV”, “lump sum cash value” or “lump sum transfer value” — is the total value in today’s dollars of the lifetime pension you have earned and would be entitled to receive if you left your benefits in the Plan until you reach retirement age. In other words, it is the amount of money that must be set aside today to provide your future pension. It is an actuarial calculation that involves many factors, including your age, pension earned to date and interest rates. Many of the factors are dictated by standards set by the Canadian Institute of Actuaries.
Overview of Changes
The CV standard generally applies when calculating lump sum payments provided in lieu of immediate or deferred pensions resulting from death or individual termination of pension plan membership. The revised CV standard, and its new calculation methods, is required to take effect starting on December 1, 2020. The Plan administrator has updated systems to accommodate the changes to the calculation of lump sum payments from the Plan due to the revised CV standard. The impact of the changes will generally result in lower lump sum commuted value payments for members or beneficiaries who elect to terminate the pension they have earned in the Plan and take their commuted value. Members who choose to leave their pension in the Plan will not be affected by these changes.
Who will be affected by these changes?
The changes to the CV standard do not change a member’s earned benefit entitlement from the Plan if a member elects to leave their benefit in the Plan and chooses to retire at a future date and receive their benefit as a monthly pension.
The changes to the CV standard impact the lump sums that are transferred out of the Plan on member termination (leaving before retirement), and at certain other times such as pre-retirement death and marriage breakdown.
If you leave the Plan with a termination date on or after December 1, 2020 and request a lump sum CV payment in lieu of a deferred pension, your lump sum will be calculated using the revised CV standard. Similarly, if your benefit is subject to a commuted value calculation for other reasons, such as a recalculation, pre-retirement death or marriage breakdown, and the effective date of that calculation is on or after December 1, 2020, the lump sum will be calculated using the revised CV standard.
All registered pension plans that are subject to the legislation are required to implement the changes as of December 1st, 2020.
Pension Plan Amendment – Removal of the Level Income Option
On January 31, 2020, the Superintendent of Pensions for the Government of Newfoundland and Labrador issued a memo advising that defined benefit pension plans offering the integrated level income option must be amended to comply with Section 42 of the Pension Benefits Act, 1997 and Directive 14 – Integration Formula. The legislative change impacted the “Level Income” form of pension available under the Plan.
The level income option was one of the retirement options available to members that retired between the age of 55-65. This option attempted to even out a member’s pension income based on their OAS entitlement at age 65. Under this option, the monthly pension from the Plan was increased to include the equivalent of the OAS entitlement payable at age 65. When the member turned 65, the monthly pension from the Plan reduced by the OAS entitlement amount as determined at the time of retirement. This option was a life only pension, meaning there was nothing payable to a beneficiary upon the member’s death.
Following receipt of the memo, the Trustees were advised that the formula for calculating the level income option can only integrate the pension payable at age 65 with the value of the member’s entitlement to CPP. The value of the CPP integration amount should be prorated to reflect the member’s actual entitlement of CPP benefits earned during the period of membership in the Plan. The Trustees analyzed the effect of the CPP integration formula on the level income option and found the values of the level income option would provide less benefit to the member than the other retirement options available under the plan. In addition, member utilization of this option was extremely low. Over the past 5 years, 160 members retired with only 9 electing the level income option. Based on these details, Trustees decided to remove the “Level Income” option from the retirement options available to the members because it was detrimental to the member’s retirement.
The Pension Plan has been amended to reflect that:
Effective August 1, 2020, the “Level Income” optional form of pension is no longer available under the terms of the Plan to members that retire on or after August 1, 2020.
If you have any questions about this notice, please contact the Plan administrator:
Ms. Leslie Wells
UA Local 740 Benefits Office
709-747-2249, ext 308