Questions and Answers: Reinstating past service

posting date Posted: September 10, 2010

Am I affected by this change?
This change may affect your option to reinstate past service if:

  • you joined the OPSEU Pension Plan within the last 24 months
  • you had a period of prior membership with OPTrust or its predecessor (the Public Service Pension Plan) and
  •  you received a payout from the Plan when your previous employment ended.

When is the change effective?
The new buyback provision goes into effect on October 1, 2010.

Applications received on or before September 30, 2010 and within the 24-month application window will be calculated under the “old” rules. Applications received on or after October 1, 2010 will be calculated under the “new” rules.

How will the cost change?
For applications received on or before September 30, 2010 and within the 24-month application window, the cost to purchase your prior contributory service is calculated as the higher of your:

  • gross payout amount plus interest, and
  • contributions for the period calculated at the salary rate at application.

The cost is matched by your employer.

For applications received on or after October 1, 2010, the cost to reinstate prior contributory service will be calculated as the “actuarial” value of the pension benefit. The full cost of the buyback is paid by you.

To calculate the actuarial cost, OPTrust uses a number of factors – such as your age and current salary rate, current interest rates, and the amount of service you are purchasing – to determine the current cost of the additional pension you will receive if you complete your purchase. In most cases, the actuarial cost for reinstating this service will be higher than under the cost formula that ends on September 30, 2010.

Why is there a change?
When you end your membership in the Plan before retirement, you have the choice to leave your pension benefit with OPTrust and collect a pension at retirement or transfer the value of your pension benefit out of the Plan and invest it elsewhere.

If your pension benefit is transferred out of the Plan, you no longer have credit in the Plan and do not qualify for an OPTrust pension.

If you transferred the value of your pension out of the Plan, you received a “commuted value” of your pension. This is the amount of the immediate lump-sum payment in today’s dollars, estimated to be equal in value to your future lifetime pension. To restore your credit in the Plan, the current value of the pension must be repaid.

How do I apply to reinstate my service?

If you are interested in reinstating prior service, please complete Application for Past Service Credit form and return it to our office on or before September 30, 2010, to qualify under the Plan’s previous cost rules. OPTrust will then provide you with a formal cost quote. 

Why should I apply?
Buying back your past service is optional. But to be eligible to reinstate prior service under the less expensive costing option, you must apply within 24 months of the date you became a member of the OPSEU Pension Plan and before October 1, 2010.

Buying back credit will increase the amount of your OPTrust pension at retirement and may help you qualify for one of the Plan’s early retirement options – or qualify sooner.

Have you submitted an application?
If you submitted an application to reinstate your prior service to OPTrust within the 24-month application window on or before September 30, 2010, you do not need to reapply.

You have up to 10 years to complete your buyback payments. This period starts three months after the date OPTrust mails you your original agreement form.

What if I can’t afford the buyback payments?
You are not obligated to purchase any periods of past service. That’s why we suggest you apply to buy back credit even if you’re not ready to buy.

Once you apply, the cost to reinstate your past service is “locked-in” (under the old rules) and you open a 10-year window. This gives you the flexibility to consider your buyback options and to complete buyback payments. OPTrust will apply interest to your principal cost three months after the original quote is mailed to you. We will not recalculate the cost under the “new” rules until after your 10-year payment window has expired.

Why is the cost to reinstate my previous service expensive?
The cost for an open option buyback is calculated on an “actuarial” basis. As a result, your cost may be considerably higher than if you applied within the Plan’s normal 24-month window.

To calculate the actuarial cost, OPTrust uses a number of factors – such as your age and salary rate, interest rates, and the amount of service you are purchasing – to determine the current cost of the additional pension you will receive if you complete your purchase and the potentially earlier eligibility date.

What are my payment options?
Your payment options are the same regardless of the date you apply to reinstate your prior membership. Once you receive your cost quote from OPTrust, you have several payment options:

  • Lump sum payment – you can pay for your buyback in a lump sum, either by cheque or money order. Lump sum payments can also be made through a direct transfer from a tax sheltered source such as an RRSP.

    Special payment rules apply for service before 1992, which we will outline in your formal cost   quote. 
  • Financing option (payroll deduction) – if you are regular full-time or part-time employee, you have the option of paying through a series of biweekly payroll deductions. Other options are available to seasonal or casual employees (details provided with the cost quote). If you choose the financing option, your total cost will include financing interest.
  • Combined lump sum/financing option – regular full-time and part-time employees may also opt to pay for through a combination of lump sum payments and payroll deductions.

How will buying back my previous service affect my taxes?
Your buyback may affect your income tax in two ways: by reducing your available RRSP room, and by reducing your taxable income. OPTrust will provide you with an official income tax receipt reporting any tax deductible buyback payments you make during the previous tax year.

For service before 1992, your payment should come from an RRSP.