Tax reporting and pension adjustments
Overview
This section provides employers with detailed information on the tax reporting rules and requirements of the OPSEU Pension Trust. It describes specific tax reporting issues, required employer calculations, reporting responsibilities and the Pension Adjustment data file specifications.
The information and procedures set out in this section apply to all employers that participate in the Plan, including the Ontario Public Service (OPS) employers and other agencies, boards and commissions (ABC’s). The only exception is the tax reporting for buyback payroll deductions, where the process varies for the OPS and for non-OPS employers.
Tax deduction and receipting
There are two types of member contributions that the employer remits to the OPTrust. “Regular” contributions are deducted from the member’s pensionable salary and past service “Buyback” deductions are optional payments of prior service. In all cases, a regular payroll contribution is a before tax deduction. As a before tax deduction, the taxable income is reduced at source. No tax receipt is required from the Plan for this deduction. However, the employer must report these contributions and the associated Pension Adjustment (PA) on the member’s T4.
As for past service buyback deductions, the tax implications differ between WIN and the Agencies, Boards, and Commissions (ABC’s). In the case of member buyback deductions through WIN (the Ontario Public Service payroll system) the deductions are completely managed by the OPTrust and are taken as an after tax deduction. As such, the OPTrust will issue a tax receipt at year-end.
Important! OPS employers: As the payroll buyback processing and its associated receipting is handled completely by the OPTrust, the employer should never use the OPTrust Buyback GTN codes for deductions of any kind.
Buyback deductions taken from members that are employed by an ABC are managed separately by each employer. It is the responsibility of the employer to report any deductions along with the associated PA.
Any lump sum or ongoing buyback payment received directly by the OPTrust from the member will be reported by the OPTrust.
Federal regulations
Canada Revenue Agency (CRA)
The role of the CRA is to administer tax-sheltered vehicles that individuals use for retirement savings. It uses Pension Adjustment (PA), Past Service Pension Adjustment (PSPA) and Pension Adjustment Reversal (PAR) reporting requirements to “level the playing field” between tax-sheltered vehicles.
The CRA also sets the Year’s Basic Exemption (YBE) and Year’s Maximum Pensionable Earnings (YMPE) and the Canada Pension Plan (CPP) contribution levels for both the member and employer.
The YBE and YMPE are also used to determine the level of member and employer contributions that are payable to the OPSEU Pension Plan (see the Reporting Pension Data section). For more information on the CRA rates please visit the CRA website.
Income Tax Act (ITA)
The ITA sets the maximum benefit level in a defined benefit plan, maximum transfer value of benefits and tax deductibility of contributions (S147.2). Section 16 of the OPSEU Pension Plan Text stipulates that the administration of the Plan must comply with the ITA and its regulations. For more information on the ITA, please visit the Department of Justice website to read it online.
Maximum contributory earnings
The maximum contribution that can be made by a member of the Plan is set by the ITA (section 8503(4)(a)). Pension earned in excess of the ITA limit is payable from the OPSEU Supplementary Benefits Plan, which is administered separately by the OPSEU Pension Trust. For a list of historical rates please see the Forms and Tools page.
Important! The employer should inform the OPTrust directly of any member that is near or above the maximum contributory earnings level for the year.
Pension adjustments
Reporting pension adjustments
The PA reflects the value of pension benefits the member accrues in the Plan for a year. The PA represents the theoretical equivalent of one year of pension plan benefits to contributions made to a money purchase pension plan such as an RRSP. Maximum pension contributions are prescribed by the ITA and its regulations that can be tax sheltered. A PA would reduce the maximum pension contribution room to determine the amount of, if any, contributions that can be made to an RRSP. The PA reduces the members RRSP room for the following year by the value of the PA. The employer must report all current service PAs by the end of February in the year following the benefit accrual. For more information on PA reporting responsibilities please refer to the PA reporting chart on the Forms and Tools page in the Reporting Pension Data section of the Employer Manual.
In addition to reporting the members’ PA to the CRA, the employer must report the PA to the OPTrust. OPTrust will incorporate this PA into any Pension Adjustment Reversal the member may be eligible for upon termination. The data file submitted to OPTrust should be a standard text file that has the following data fields (see the Forms and Tools page for a sample):
Year
Member's SIN
Member's first name
Member's last name
Member's PA
This file must be submitted to OPTrust by March 31 of the year following the tax-reporting year.
Calculating Pension Adjustments (PAs)
The employer must report the Pension Adjustment (PA) on the members T4 every year that a pension benefit is accrued. The PA represents the theoretical value of one year of pension benefit accrual.
Due to the implementation of gains in December 2002, the Plan changed the CPP offset portion of the PA formula. The change in the Plan’s CPP offset affected the way employers calculated the PA for members who contributed to the OPSEU Pension Plan.
The member’s PA for the OPTrust is calculated using the following formula:
Pension Adjustment=(Benefit Entitlement x 9) - $600* * prorated for partial years due to plan termination or enrolment).
The benefit entitlement is calculated according to the OPSEU Pension Plan’s benefit formula, which incorporates the CPP offset.
For members of the Plan as of December 1, 2002, employers should use the CPP offset factor of 0.655% (for former members that terminated prior to December 01, 2002 please contact OPTrust directly). As a result, the Benefit Entitlement (BE) for these members should be calculated as follows:
For salary rates up to the Year’s Maximum Pensionable Earnings: (1.345% x Annual Salary Rate) x Credit* = BE For salary rates above the YMPE: ([1.345% x YMPE] + [2% x (Annual Salary Rate – YMPE)] ) x Credit* = BE
* pro-rated for partial years if the member moves between employers of the Plan (the offset is not prorated for part-time, unclassified, or partial year service due to plan termination or enrolment).
Example John’s annual salary rate for 2016 was $45,500 and he earned 365 days of credit in the OPSEU Pension Plan. (1.345% x 45500) x (365/365) = 611.98 (611.98 x 9) – 600 = 4908 (PA)
Example Michelle’s annual salary rate for 2016 was $60,200 and she earned 365 days of credit in the OPSEU Pension Plan. ([1.345% x 54900]+(2.0% x (60200-54900)] x (365/365) = 844.41 (844.41 x 9) – 600 = 7000 (PA)
Transfers to the PSPP
When a member has a mandatory transfer between the OPSEU Pension Plan and the Public Service Pension Plan (administered by the Ontario Pension Board) the employer must calculate the PA separately for the benefit accrual in each Plan (reported as one figure on the members T4).
Amended PA
A members’ Pension Adjustment will need to be amended whenever the members’ entitlement to a benefit is changed for a prior tax-reporting year. There are several events that could give rise to the amendment of a member’s PA:
Retroactive salary award
Grievance settlement
Incorrect/inaccurately calculated PA
Important! It is the employer’s responsibility to calculate and report any amended PA to the CRA and to inform OPTrust of any changes.
Tax reporting and pension adjustments procedures
Calculating and remitting PA
Like most procedures described in this manual section, the calculation and reporting of a members Pension Adjustment is an iterative interaction between OPTrust and the employer.
Employer calculates PA
The employer will calculate the member’s regular current service PA
Report PA
The PA, along with the annual contribution amount must be reported on the members T4 and distributed to the member by the end of February in the year following the benefit accrual
Report PA to CRA by February 28
Report PA to OPTrust using the standard text file format by March 31.
OPTrust updates member database
Once the file has been received from the employer the OPTrust will update the member PA to the OPTrust database.
Note: The reporting of the Pension Adjustment to the OPTrust for the Ontario Public Service is handled centrally by the Shared Services Bureau. Each individual ministry need not submit this information for their member.