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CONVERSION of benefits

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CONVERSION of benefits


Frequently asked questions (FAQ)
FRANÇAIS

To guide you through the questions you can have about the conversion, we invite you to consult the questions and answers presented below. The most frequently asked questions could be added.

What is the difference between a Defined Benefit (DB) plan and a Defined Contribution (DC) plan?

Defined Benefit Plan:

In this plan, the pension that is payable is set in advance using a precise formula, while the contributions to be paid are periodically assessed by an actuary. As a general rule, such a plan sets the worker's contribution in advance and stipulates that the employer assumes the balance of the cost of the pension benefit and of the other benefits payable. (Source : Retraite Québec's website)

Defined Contribution Plan:

In this plan, the contribution which the employer and, where applicable, the worker must pay is set in advance. The pension or retirement income amount is not known ahead of time, since it depends on such factors as the amounts accrued with interest, the interest rate in effect at the time a life annuity is purchased, or the rates related to the life income fund (LIF). (Source : Retraite Québec's website)

For the RRTAP plan
  • The portion related to credited service from December 31, 2006 to January 1, 2019 that is fully employer-fundedconsists of Defined Benefits (DB). Hence, in the event the assets accumulated in the plan are insufficient to fund the payment of pensions, the employers will have to make additional payments. This rule also applies to the additional credited pension granted following the conversion.
  • The portion funded by employers before January 1, 2007 and the portion funded by employees before January 1, 2019 consist of Defined Contributions (DC). The income which employees may receive at retirement will, for instance, be dependent on the amounts paid, the returns, and the moment when payments begin.

Note that following recent changes, the plan will be fully DB for the period of credited service starting on January 1, 2019. The pension amount will be equal to 1.9% of eligible earnings for each year of credited service starting on January 1, 2019. The employee and employer contribution rate will be established so that it represents 50% of the total cost of the plan determined when an actuarial valuation is done (including the stabilization fund and the amortization of possible deficits related to membership starting on January 1, 2019). In 2019, the employee and employer contribution rate has been established at 7.25% of eligible earnings.

Is it beneficial for me to convert my Defined Contribution (DC) component balance?

Unfortunately, there is no simple answer to this question. Several variables must be taken into account, including:

  • What will be the future returns of my DC component balance?
  • What is my risk tolerance?
  • When will I retire?
  • At what age will I die?
  • Do I want my spouse to receive part of my pension when I die? At what age will my spouse die?
  • How will I use my DC component balance at retirement (to purchase an annuity or obtain retirement income through withdrawals from my balance)? Will I leave it in the RRTAP (using variable benefits) or transfer it to my financial institution?
  • What will be the administration and investment fees of the financial products in which I will be investing my DC component balance?
  • Do I intend to leave any amounts to my heirs when I die?
  • What are my other sources of income at retirement?
  • Etc.
Your co-worker could conclude that a conversion would be beneficial for him or her, while this may not be the case for you. And vice versa. We therefore encourage you to consult an independent financial planner and legal advisor to make sure that your decision is appropriate to your personal situation.

A conversion statement and this FAQ have been prepared to help you make this important decision. Online information sessions will also be held to answer your questions. For more information on these sessions or to watch them again, visit the RRTAP's informational website (http://rrtapinfo.aoncanada.com).

These sessions will be held on the two following dates:
  • May 14, 2019 at 10:00 a.m.
  • June 3, 2019 at 10:00 a.m.

As previously mentioned, the anticipated future returns on your DC component balance may be a factor in your decision. Therefore, various scenarios have been reviewed and are presented in the following table. Based on different ages at the time of the conversion, you will find enclosed the minimum return, excluding fees, which your DC component balance should generate in the future so that the conversion does not benefit you solely on the basis of the returns. Of course, as previously mentioned, the returns of your DC component balance should not be the sole factor to consider in your decision-making.

Therefore, if your DC component balance generates annual returns, excluding fees, starting in 2019 until the date of your death and that of your spouse, where applicable, that are greater than the rate indicated in this table, the option of no conversion should possibly be considered. Conversely, if the returns during this period are below the rate indicated, the conversion option could be considered. This rate was established using the assumptions indicated in the Actuarial assumptions section of your conversion statement. For instance, they imply that you will be retiring at the age of 58 on average, and that a person who is 40 at December 31, 2018 should live to 88.

Age at December 31, 2018 25 years 39 years 55 years 65 years
Minimum required rate of return for the DC component 5.35% 5.15% 4.35% 3.65%
How can I benefit from the conversion?

It is important that all the required documents listed in the section Documents required for the conversion of your entitlements on your conversion statement (page before the last of the document) be sent to Aon, completed and signed, by July 2, 2019. They must be received before this date for the application to be accepted. If all the required documents are not received by July 2, 2019, you will be deemed to have waived your right to convert amounts from your Defined Contribution (DC) component balance into defined benefit (DB) entitlements.
What happens if some of the required documents are not sent or if the documents are not properly filled out?

You are responsible for making sure that all the required documents are sent and are properly filled out. Any incomplete applications will be rejected. In such a case, you will be deemed to have waived your right to convert amounts from your Defined Contribution (DC) component balance into Defined Benefit (DB) entitlements.
Do I need to send the required documents if I do not wish to convert my Defined Contribution (DC) component balance?

No. You must return the required documents to Aon only if you wish to exercise your conversion right.
Can I change the choice I sent to Aon?

No. Once the required documents have been sent to the RRTAP administrator, you will no longer be able to change or modify your choice, even if you do so before July 2, 2019. Your choice is irrevocable.

We invite you to consult an independent financial planner and legal advisor to make sure that your decision is appropriate to your personal situation.
How was the conversion cost determined?

The Plan's actuary calculated the cost of the conversion using the information in your file, as well as the assumptions found in the section Actuarial Assumptions on your conversion statement. A 20% markup was applied for the period of credited service between January 1, 2014 and December 31, 2018 and 25% for the period of credited service between January 1, 2011 and December 31, 2013.

This cost varies from one member to another, depending on their age, credited service and eligible earnings.
Why was the cost of conversion marked up by 20% for the period of credited service from January 1, 2014 to December 31, 2018, and by 25% for the period of credited service from January 1, 2011 to December 31, 2013?

These markups are provided in the agreements between the parties to ensure that the cost of the conversion funded by your Defined Contribution (DC) component balance adequately covers the promised additional credited pension being granted. Once the conversion is done, these additional credited pensions are fully assumed by employers.
How was the additional credited pension that can be granted calculated if I opt for conversion?

The additional credited pension was calculated as follows:
  • 0.800 % of your eligible earnings from January 2011 to June 2013;
  • 0.765 % of your eligible earnings from July 2013 to March 2015;
  • 0.750 % of your eligible earnings from April 2015 to December 2018.

Each of these additional credited pensions was indexed at 2% until December 31, 2018.

Note that if your Defined Contribution (DC) component balance at December 31, 2018 is below the cost of the conversion, the additional credited pensions will be limited to those that can be funded using your DC component balance.

What will be the impact on the amount of my credited pension in the Defined Benefit (DB) component and on my Defined Contribution (DC) component balance if I opt for conversion?

The impact on your pension amount and on your DC component balance will depend on your balance at December 31, 2018 and on whether or not you wish to limit the amount that can be used for the conversion. Here are four examples that will help you better understand the impacts. It is up to you to choose the example that fits your situation.
  • If the conversion cost is lower than the balance at December 31 of the employer's contributions in your DC component (you participated in the plan from 1989 to 2007)
  • If the conversion cost is lower than the balance at December 31, 2018 of the DC component
  • If the conversion cost is higher than the balance at December 31, 2018 of the DC component
  • If the conversion is limited to an amount that you have established

If the conversion cost is lower than the balance at December 31 of the employer's contributions in your DC component (you participated in the plan from 1989 to 2007)

Pre conversion

Balance at December 31, 2018 of the employer contributions included in your DC component balance
(Contributions section on page 4 of your conversion statement)
$55,000
Balance at December 31, 2018 of the employee contributions included in your DC component balance
(Contributions section on page 4 of your conversion statement)
$80,000
Credited pension at December 31, 2018 from the prior Defined Benefit (DB) component
(Credited Pension section on page 4 of your conversion statement)
$350/month
Total conversion cost
(Conversion section on page 5 of your conversion statement)
$35,000
Total additional credited pension that can be granted if you opt for conversion
(Conversion section on page 5 of your conversion statement)
$200/month

Post conversion (if you decide to convert all periods of credited service)

Balance at December 31, 2018 of the employer contributions included in your DC component balance $20,0001
Balance at December 31, 2018 of the employee contributions included in your DC component balance $80,000
Credited pension at December 31, 2018 of the prior DB component $550/month2
Balance at December 31, 2018 of the employee contributions of the prior DB component $03
  1. 1  Represents the difference between the balance of $55,000 pre conversion and the conversion cost of $35,000
  2. 2  Represents the aggregate of your credited pension at December 31, 2018 of $350/month and your total additional credited pension of $200/month granted post conversion
  3. 3  Nil since no amount from your employee contributions included in your DC component balance was used to fund all or part of the conversion cost. These employee contributions will be taken into account, where applicable, to determine any excess contributions at the time your membership in the Plan is terminated.

If the conversion cost is lower than the balance at December 31, 2018 of the DC component

Pre conversion
Balance at December 31, 2018 of the employer contributions included in your DC component balance
(Contributions section on page 4 of your conversion statement)
$5,000
Balance at December 31, 2018 of the employee contributions included in your DC component balance
(Contributions section on page 4 of your conversion statement)
$80,000
Credited pension at December 31, 2018 of the prior Defined Benefit (DB) component
(Credited Pension section on page 4 of your conversion statement)
$350/month
Total conversion cost
(Conversion section on page 5 of your conversion statement)
$35,000
Total additional credited pension that can be granted if you opt for conversion
(Conversion section on page 5 of your conversion statement)
$200/month

Post conversion (if you decide to convert all periods of credited service)
Balance at December 31, 2018 of the employer contributions included in your DC component balance $01
Balance at December 31, 2018 of the employee contributions included in your DC component balance $50,0002
Credited pension at December 31, 2018 of the prior DB component $550/month3
Balance at December 31, 2018 of the employee contributions of the prior DB component $30,0004
  1. 1  Nil since the conversion cost is greater than the balance of $5,000.
  2. 2  Represents the difference between the balance of $80,000 before the conversion and the excess conversion cost amount that was not funded by the balance at December 31, 2018 of the employer contributions included in your DC component balance of $30,000 ($35,000 minus $5,000).
  3. 3  Represents the aggregate of your credited pension at December 31, 2018 of $350/month and your total additional credited pension of $200/month granted post conversion
  4. 4  Represents the portion of the conversion cost funded by your balance at December 31, 2018 of the employee contributions included in your DC component balance. These employee contributions will be taken into account, where applicable, to determine any excess contributions at the time your membership in the Plan is terminated.

If the conversion cost is higher than the balance at December 31, 2018 of the DC component

Pre conversion
Balance at December 31, 2018 of the employer contributions included in your DC component balance
(Contributions section on page 4 of your conversion statement)
$0
Balance at December 31, 2018 of the employee contributions included in your DC component balance
(Contributions section on page 4 of your conversion statement)
$30,000
Credited pension at December 31, 2018 of the prior Defined Benefit (DB) component
(Credited Pension section on page 4 of your conversion statement)
$350/month
Total conversion cost
(Conversion section on page 5 of your conversion statement)
$30,0001
Total additional credited pension that can be granted if you opt for conversion
(Conversion section on page 5 of your conversion statement)
$170/month1

Post conversion (if you decide to convert all periods of credited service)

Balance at December 31, 2018 of the employer contributions included in your DC component balance $0
Balance at December 31, 2018 of the employee contributions included in your DC component balance $02
Credited pension at December 31, 2018 of the prior DB component $520/month3
Balance at December 31, 2018 of the employee contributions of the prior DB component $30,0004
  1. 1  The conversion cost was limited to your DC component balance at December 31, 2018 (i.e. $30,000). The additional credited pension granted following the conversion was determined based on the available $30,000 balance.
  2. 2  Nil since your entire $30,000 balance was used to fund the conversion cost.
  3. 3  Represents the aggregate of your credited pension at December 31, 2018 of $350/month and your total additional credited pension of $170/month granted post conversion
  4. 4  Represents the portion of the conversion cost funded by your balance at December 31, 2018 of the employee contributions included in your DC component balance. These employee contributions will be taken into account, where applicable, to determine any excess contributions at the time your membership in the Plan is terminated.

If the conversion is limited to an amount that you have established

Pre conversion

Balance at December 31, 2018 of the employer contributions included in your DC component balance
(Contributions section on page 4 of your conversion statement)
$0
Balance at December 31, 2018 of the employee contributions included in your DC component balance
(Contributions section on page 4 of your conversion statement)
$80,000
Credited pension at December 31, 2018 of the prior DB component
(Credited Pension section on page 4 of your conversion statement)
$350/month
Conversion cost for credited service between January 1, 2014 and December 31, 2018 (marked up by 20%)
(Conversion section on page 5 of your conversion statement)
$20,000
Conversion cost for credited service from January 1, 2011 to December 31, 2013 (marked up by 25%)
(Conversion section on page 5 of your conversion statement)
$15,000
Additional credited pension that may be granted if you choose conversion for credited service between January 1, 2014 and December 31, 2018
(Conversion section on page 5 of your conversion statement)
$115/month
Additional credited pension that may be granted if you choose conversion for credited service between January 1, 2011 and December 31, 2013
(Conversion section on page 5 of your conversion statement)
$85/month

Post conversion (if you decide to limit the conversion to $30,000)

Balance at December 31, 2018 of the employer contributions included in your DC component balance $0
Balance at December 31, 2018 of the employee contributions included in your DC component balance $50,0001
Credited pension at December 31, 2018 of the prior DB component $520/month2
Balance at December 31, 2018 of the employee contributions of the prior DB component $30,0003
  1. 1  Represents the difference between the balance of $80,000 before the conversion and the limit of $30,000 which you determined.
  2. 2  Represents the aggregate of your credited pension at December 31, 2018 of $350/month, your additional credited pension granted following the conversion for credited service from January 1, 2014 to December 31, 2018 of $115/month, and part of your additional credited pension granted following the conversion for credited service from January 1, 2011 to December 31, 2013 that can be funded by the remaining $10,000 (i.e. the established amount of $30,000 less the conversion cost of $20,000 for credited service from January 1, 2014 to December 31, 2018), for a pension of $55.
  3. 3  Represents the portion of the conversion cost funded by your balance at December 31, 2018 of the employee contributions included in your DC component balance. These employee contributions will be taken into account, where applicable, to determine any excess contributions at the time your membership in the Plan is terminated.
Why will up to $600 in administrative fees be charged and deducted from my Defined Contribution (DC) component balance?

Members who opt for the conversion will generate additional work for the plan (processing, calculations and adjustments to their file). Under the agreements made by the parties, these expenses are assumed by the members who decide to take advantage of them.

The $600 fees may be revised downward by the Pension Committee if a large number of members opt for the conversion.
What will be the future returns of my Defined Contribution (DC) component balance?

It is impossible to answer this question. Several specialists attempt to predict fluctuations in the stock market every year, but few succeed. Geopolitical tensions, a decrease in consumer confidence, an increase in company profits or an increase in the Bank of Canada's key policy rate are various factors that can affect the performance of your DC component balance.

Note that your DC component balance is invested with the Caisse de dépôt et placement du Québec. An investment policy specific to the DC component was established by the Pension Committee with the help of its investment advisor. Preference was given to the life cycle structure. Hence, the proportion of your investments in fixed-income securities (less risky) increases throughout your career. The objective is to reduce stock market risk and stabilize your DC component balance as much as possible as you near retirement.

Although past returns are not a guarantee of future performance, the following table shows the returns obtained by the plan over various periods:

Number of years RRTAP annual return
(as a %, excluding fees)
5 9.06
8 8.46
10 4.96
20 6.15
Since the plan was established (January 1990) 7.29
How do I sign up for the online sessions? Who will be facilitating them?

All the necessary information is available on the RRTAP's informational site (http://rrtapinfo.aoncanada.com) in section Changements au régime de retraite. The online sessions will be led by the plan's actuaries.
If I am eligible for retirement and would like to begin receiving my pension, what should I do?

You must notify your employer of your intention to take your retirement at least three (3) months before your retirement date. An accelerated estimated payment process is in place so that payment of the pension begins on the first day of your retirement. To benefit from it, you simply need to follow the procedure that was implemented in order to meet the deadlines for the transmission of the documents related to your retirement.

If you retire and would like to convert all or part of your Defined Contribution (DC) component balance, you must send Aon the documents listed in the section Documents required for the conversion of your entitlements, completed and signed, by July 2, 2019. The adjustment, retroactive to your retirement date, of your pension amount will be made at the latest when your pension is paid on September 1, 2019.
Where can I see the impact of the conversion, if I choose it?

You can see the increase in the Defined Benefit (DB) component of your credited pension, following the conversion, on your annual statement as of December 31, 2018 which you will receive in September 2019.


Other topics
What is a termination of membership?

When an employee is no longer employed by any of the employers participating in the Plan, he or she remains an active member for twelve (12) consecutive monthly reports. If no contributions were made during those 12 months, the termination of membership is real and the employee does not have to request it. The employee will automatically receive an option package at the end of this period. The effective date for the termination of active membership is the last day of the twelfth month following the date of termination of employment.

Note that the 12-month period is not required in the event of a retirement or death. In such a case, the effective date of the termination of membership is the date of retirement or death.
If I terminate my employment, how is the lump sum amount of my benefits under the Defined Benefit (DB) component determined?

The lump sum amount represents the estimated value of your credited pension in the DB component.

Depending on your age at the time of your termination of employment, various options are available to you. One of the options available to members who are less than 55 years of age at the time of their termination of membership is the payment of a lump sum amount. This amount is calculated using the actuarial assumptions that are stipulated by legislation, including assumptions on interest rates, the age at which the pension benefit starts to be paid, and life expectancy. Please note that some portions of your pension benefits will be paid in proportion to the plan's degree of solvency, up to 100%.

Here is an example of the options available to a member who opted for the conversion on December 31, 2018 and who is aged 40 at the time of his termination of membership.

Value of pension benefit on the date of termination

Monthly benefit Estimated value of credited pension1 Lump sum amount
Defined contribution (DC) component balance N/A $15,000 $15,0002
Credited pension from the prior DB component
(before 2019)
$350 $49,000 $49,0002
Credited pension granted following the conversion $200 $28,000 $19,6003
Credited pension from the current DB component
(startig in 2019)
$150 $12,800 $11,5204
  1. 1  For illustration purposes only.
  2. 2  Full payment, regardless of the plan's solvency ratio.
  3. 3  Payment based on the solvency ratio of the prior DB component, up to 100%. In this example, the ratio is 70%.
  4. 4  Payment based on the solvency ratio of the current DB component, up to 100%. In this example, the ratio is 90%.
Available options

For the DC component

  • Defer the transfer of the lump sum amounts:
$15,000
  • Transfer of lump sum amount to a legally authorized instrument
    (such as a LIRA):
$15,000


For the DB component

  • Deferred pension payable at 65:
$700/month5
  • Transfer of lump sum amounts to a legally authorized instrument
    (such as a LIRA):
$80,1206
  1. 5  Represents the aggregate of the credited pensions from the prior DB component ($350/month), granted following the conversion ($200/month), and the current DB component ($150/month).
  2. 6  Represents the lump sum amount of the DB credited pension ($49,000), the credited pension granted following the conversion ($19,600) and the credited pension from the current DB component ($11,520).
Should I use the RRTAP informational site to obtain my estimated pension or other information on the Plan?

The RRTAP informational site is a "one-stop shop" that provides members with information and news on the Plan. It also enables members to consult their annual statements and to access various useful forms.

The retirement simulator also allows members to obtain and compare the estimated pension at retirement based on different retirement dates and scenarios.

You can visit the RRTAP informational site at http://rrtapinfo.aoncanada.com
Why is the amount of my projected pension at retirement shown on the retirement simulator at the RRTAP informational site different than the one that appears on my annual statement?

There are two main reasons why the amount of your income at retirement on the retirement simulator is different than the one shown on your last annual statement:
  • The data that are used are not the same
  • The assumptions used for the projection are different
1) The data that are used are not the same

The annual statement uses data at December 31 of the previous year (for instance, the annual statement that you will receive in September 2019 uses the data sent at December 31, 2018). Therefore, all the data received (e.g. paid contributions or earnings) and any return on your Defined Contribution (DC) component balance after this date are not taken into account.

The retirement simulator at the RRTAP informational site uses the most recent data that are available. Hence, the projections of your retirement pension take into account the most up-to-date data.


2) The assumptions used for the projection are different

The annual statement assumes that your salary will increase by 2% each April 1 until you retire.

The retirement simulator at the RRTAP informational site allows different salary increase assumptions to be used. The various assumptions used by the retirement simulator are presented in the results table. Note that the retirement simulator also shows the retirement income from your DC component balance.
If I terminate my employment and take my retirement at 58, can I withdraw my Defined Contribution (DC) component balance and receive my credited pension from the Defined Benefit (DB) component only at 60, given the reductions applicable before the age of 60?

Yes, you can withdraw only your DC component balance, provided you are no longer in the employ of any employer in the Plan and are at least 50 years of age. Payment of the credited pension from the DB component will begin from the moment you request it.

We therefore encourage you to consult an independent financial planner and legal advisor to make sure that your decision is appropriate to your personal situation.

Here are the applicable reductions, based on your age at the time when payment of the credited pension from the DB component begins (and you were aged 50 or older at the time of termination of active membership):
  • 4% per year between the payment start date and 60 years, if under 60
  • No reduction if aged 60 and over
Can I leave my Defined Contribution (DC) component balance in the RRTAP and receive retirement income from this balance?

Following the amendments made to the plan effective January 1, 2019, you can leave your DC component balance in the plan and gradually withdraw amounts from it. This new option that is available is called a Variable Benefit.

This option enables you to continue to benefit, even at retirement, from possibly lower management fees and from investment categories that are usually not available individually from financial institutions. These are two of the advantages of investing your DC component balance with the RRTAP's assets of roughly $600 million. You benefit from the group's strength!

Several provisions still need to be defined by your Pension Committee. This new option will be available in the second half of 2019. You will be receiving more information in the coming months.