It is important to refer to your pension plan booklet, or other plan documents, for specific information on your plan. These documents can be obtained from your pension plan administrator.
Members in a Defined Benefit (DB) Plan earn a pension based on a formula set by the plan. That formula may be based on a combination of earnings or contributions, years of membership in the plan, age at retirement, or other factors.
A DB Plan may be contributory (where employees and the employer make contributions) or non-contributory (where only the employer makes contributions).
All employee and employer contributions to a DB Plan are pooled in one pension fund which allows for certain risks to be shared (or pooled).
Your pension statement will show the contributions made since the previous statement, the amount of pension you have earned up to the statement date, and the age(s) at which you can start your pension based on the current plan rules. You should thoroughly review every pension statement you receive for accuracy, as it is more challenging to have errors corrected years later when you are ready to retire.
DB Plan funding requirements are based on actuarial valuations, which include factors such as estimated return on investment of pension plan funds and estimated life expectancy. The employer assumes the risks associated with a DB Plan and must make additional contributions (referred to as special payments) if the pension plan experiences losses. Losses can result from poor investment performance or pensioners living longer than expected.
Exception: Multi-Employer Pension Plans (MEPPs), where contributions are defined by collective agreements.
Your DB pension benefit is generally a fixed amount for life, but may reduce to a lower amount on death that will continue to be paid for the life of your principal beneficiary.
Subject to a waiver by both you and your spouse or cohabiting partner, you may also be able to choose a pension that stops on your death (referred to as a life-only pension).
Some DB Plans may have indexing (also referred to as inflation protection) with moderate increases each year based on the increase in (or a fraction of the increase in) the Consumer Price Index. You should review your plan documents or check with your plan administrator.
If you are vested when plan membership is terminated in addition to the option to leave the money in the DB Plan to receive a pension at retirement, your other options may include:
transferring the commuted value of your pension to a new employer’s pension plan;
transferring the commuted value of your pension to an insurance company to provide a life annuity (i.e. pension) at retirement.
You may be able to receive all or a portion of your benefit as cash or for transfer into a Registered Retirement Savings Plan (RRSP). This usually exists if:
The commuted value exceeds tax shelter limits under the federal Income Tax Act.
You cannot unlock your pension benefit while you are an active member of a DB Plan or if you are in receipt of a pension from the plan. General information about the unlocking rules can be found here.
