FCAA is Saskatchewan’s financial and consumer marketplace regulator.
Subject to certain conditions, a pension plan can allow plan members to receive pension benefits under a defined benefit plan, while simultaneously accruing further benefits under the same plan (as when a pensioner continues to work).
Phased retirement is an optional benefit that exceeds the minimum standards provided under The Pension Benefits Act, 1992. Because phased retirement is an optional plan provision, it is up to the employer to determine whether a pension plan will offer the benefit. In other words, it is the employer's decision whether to offer phased retirement to a particular individual, and to determine the terms and conditions of the arrangement. Of course, any decision the employer makes must comply with pension and income tax legislation.
Pursuant to the Income Tax Regulations (Canada) (ITR), phased retirement benefits are not permitted for a designated plan, or for an employee who was at any time considered to be a connected person with a participating employer.
For more information about phased retirement select from the options below.
In order to comply with the ITR, the plan must address the following two conditions:
1. To qualify for phased retirement, the plan member must be:
2. Qualifying members are able to receive up to 60% of their accrued pension while they continue to accrue additional benefits under the plan. The 60% limit is based on the amount of pension entitlement, including bridge benefits, that are payable from the plan if the member retired on the date that phased retirement payments commence.
There is no requirement that the partial pension be based on a reduction in work time, or that there be a corresponding reduction in salary. As a result, qualifying employees will be able to receive up to 60% of their accrued pension benefits while continuing to work, part-time or full-time, as well as continuing to accrue benefits for that work.
In addition to amendments required to comply with the ITR, it is recommended that plan sponsors amend the plan text to provide that a written agreement between the employer and the employee be established to set out the phased retirement arrangement.
Consistent with a plan administrator’s fiduciary duty to members, it is expected a plan administrator will provide the information necessary for a plan member to make an informed decision before entering into a phased retirement period.
Members receiving phased retirement benefits are treated as active members, and the payment of phased retirement benefits is not considered to be a commencement of a pension in pay. Phased retirement benefits are a temporary benefit, payable over the phased retirement period only. On full retirement, the member will make an election as to the form of the lifetime pension.
The phased retirement period ends when the member dies, terminates plan membership, retires, or the plan terminates. The pension benefit accrued during the phased retirement period is fully vested. The amount of the pension benefit paid to a person after the end of the phased retirement period is not reduced to account for the payments received during the phased retirement period.
Phased retirement does not apply to former plan members, in receipt of a pension from the plan, who recommence work in employment covered by the plan.
Any material costs associated with providing phased retirement must be reflected in the actuarial valuation.
Phased retirement for defined contribution plans is accomplished by way of a variable benefit. The Regulations allow, but do not require, a defined contribution plan to offer a variable benefit to members and former members who are eligible to retire. A plan which offers a variable benefit may allow a member to continue to work while receiving a variable benefit from the plan. For information on a variable benefit, read the Member Guide and Retirement Options Guide.