DBPRIME PURCHASES
What you need to know to complete the service purchase
Hear from the CAAT Plan and watch for your statement
With a couple of exceptions, you are responsible for the full cost of the purchase, with no contributions from your employer. Remember that during your regular active service, your employer contributes the same amount as you.
In most cases, payment will be in a lump sum. You may have the choice of paying by cash, or by a transfer from your RRSP (there are situations where you could be restricted to one or the other).
You can choose to make the purchase up until you retire or leave your job.
You will have 90 days to make full payment at the quoted cost. If the payment is made after 90 days, the amount owing will be recalculated.
In the same way your regular CAAT Plan contributions are tax deductible, a service purchase will be deductible if you pay in cash and have RRSP contribution room. This "room" for the current year is determined by your Pension Adjustment (PA) amount - that is, the deemed value, calculated by your employer, of the pension benefit you earned in the previous year.
A Past Service Pension Adjustment (PSPA) is the deemed value of the additional benefit created by the purchase - it reduces your RRSP contribution room. To create room for the purchase within your RRSP, you may need to withdraw some funds from it, which will be considered taxable income in the year the funds are withdrawn, or you may need to transfer funds from your RRSP to purchase the leave.
Keep in mind: A purchase may affect your PA amount. If you pay for a leave of absence before April 30 of the year after the leave ends, it will be included in the PA reported for the period.
If you choose to buy the leave after April 30 of the following year, we will calculate a PSPA and send it for approval to the Canada Revenue Agency.
Note that PAs have been used since 1990. These calculations are not required for service periods before that year. However, there are some other tax issues, such as the pre-1990 deductibility limit of $3,500, which you would need to consider.
Federal law places a maximum on the amount of post-1990 unpaid leaves of absence you can purchase. The total amount is 5 years, plus an additional 3 years for pregnancy or parental leave.
Your decision to make a purchase will be affected by the issues of tax deductibility, PAs and the possibility of a PSPA.
If you have already retired or terminated employment, you are not eligible to make a purchase, unless you are rehired and resume membership in the Plan.
Although pre-1992 service can be purchased, it must be transferred directly from the previous plan–it cannot be purchased using cash or through an RRSP transfer.
Funds from Group RRSPs, and Deferred Profit Sharing Plans (DPSPs) are not eligible to be transferred into the CAAT Plan.
Once your payment is received, the CAAT Plan will mail you a confirmation letter. You will be able to see the service purchase on future Annual Statements. Take a moment to check your My Pension account, if you have one, to see your purchase there as well.
Note: You may wish to seek independent financial advice, particularly around the tax implications of this purchase.