As a member of a registered pension plan, the benefits you earn under MEPP are regulated by the Income Tax Act. For every year that you are active in MEPP, your employer will report a Pension Adjustment (PA) which represents the value allocated by the Canada Revenue Agency (CRA) to increase your MEPP benefit entitlement. This PA reduces your Registered Retirement Savings Plan (RRSP) contribution room for the following year.
Additionally, if you buy prior service that occurred after 1989, a Past Service Pension Adjustment (PSPA) will be associated with the prior service you are buying. This PSPA represents the value of the additional pension you purchased and will reduce your RRSP contribution room.
A PSPA has the same effect on your RRSP contribution room as that of making your own RRSP contributions. CRA will only certify the PSPA if it is less than your total available RRSP contribution room, although there is an $8,000 over-limit amount available if you need it.
If the PSPA cannot be certified by CRA, you will not be able to proceed with buying the prior service unless you are able to do a qualifying transfer or a qualifying withdrawal. You can also choose to purchase only as much service as you have RRSP room for.
How Much is My PSPA?
You will receive a Buyback Proposal once your employer has confirmed with us that your leave of absence can be purchased. To help you decide whether to buy a period of service, we will provide you with an estimate of your PSPA in the proposal.
What is a Qualifying Transfer?
A qualifying transfer is a type of transaction under which prior service can be bought using funds from an existing tax-sheltered vehicle, such as an RRSP or Locked-In Retirement Account (LIRA).
This transaction will reduce your PSPA by the value of the funds transferred from your RRSP or LIRA, which means you can reduce or even eliminate the amount of RRSP contribution used by buying prior service. If you wish to make a qualifying transfer, be sure to indicate the amount you will be transferring from your RRSP or LIRA on your Buyback Election.
Timing is Important
We must receive the funds from a qualifying transfer before any other payment, and before the payment due date shown on your Buyback Proposal. We will adjust the PSPA before sending it to CRA, which will help you maximize your RRSP contribution room. If any other payment is received by us before the transfer of those registered funds, the full PSPA will be reported to CRA.
It can take time to complete a Qualifying Transfer. Speak to your financial institution as soon as possible.
Will My PSPA Be Certified By CRA?
If your existing RRSP contribution room is higher than the PSPA (less any qualifying transfers), CRA will certify the PSPA and reduce your RRSP contribution room accordingly. We will notify you once your PSPA has been certified.
What if I Don't Have Enough RRSP Contribution Room?
If the PSPA cannot be certified because it is higher than your RRSP contribution room and you have chosen not to do a qualifying transfer, CRA will contact you and supply you with the information you need to complete a qualifying withdrawal. This means you would remove the required amount from your RRSPs and pay tax on the withdrawal.
If you cannot (or do not wish to) complete a qualifying withdrawal, you will not be able to proceed with buying the service. For more information about qualifying withdrawals, please contact CRA.
What if I Decide Not To Make a Full Payment?
If you receive your Buyback Proposal and decide not to buy the full period of service, please contact Member Services as soon as possible for more information on how to buy a portion of your service.
Reducing the amount of service you plan to buy before you start to make payments may result in a smaller PSPA. If you make payments on prior service and then decide to buy only a portion of the service covered in your Buyback Proposal, the PSPA will not be prorated. We report your PSPA to CRA after your first payment is received, and we are not able to amend the PSPA once it has been issued.
If, at any point in the future, you decide to purchase the full period, the PSPA calculated at that time will be reduced by the PSPA that has already been filed.