Wednesday, July 21, 2010

Foreign earnings impact on Canadian pensions - Update

A more detailed status report on the impact of foreign earnings on Canadian pensions from Nortel was posted on the Koskie Minsky Site on July 15, 2010. The conclusion is good news, for a change, for those of us with foreign service earnings included in our Canada pension calculations.

As stated on the K.M. site:

Over the past several months, the Canada Revenue Agency ("CRA") has been reviewing Nortel's practice for the calculation of individuals' pensions that include a foreign service earnings component. As a result of this issue, some pension plan members who have foreign earnings and who recently became retirement eligible have experienced process delays and/or have been receiving reduced monthly pensions or transfers based on pension calculations that exclude foreign service earnings.

The CRA recently completed its review and has concluded that Nortel's historical practice of including foreign service earnings as eligible earnings for the purposes of pension benefits is acceptable. The CRA will continue to permit the calculation of pensions in accordance with this practice. Going forward, it is clear that plan members in receipt of monthly pensions that include foreign service earnings will experience no change to their monthly pension payments. For those individuals who have experienced delays and/or reduced pensions, these issues have now been resolved. Mercer will immediately begin to recalculate affected pensions, however, it may take six to eight weeks to complete most of the recalculations and to implement the appropriate payments and transfers.

Individuals who have already received and submitted an option statement to Mercer will now have their pensions calculated with the inclusion of foreign service earnings. If you have experienced a temporary reduction in your monthly pension or transfer amount based on a calculation that excludes foreign service earnings, you will receive either a lump sum top-up payment or additional transfer amount, as applicable, to compensate you for that reduction. If you received an option statement from Mercer in the past, but have not yet completed your form, please proceed to submit your option statement to Mercer and your pension and/or commuted value entitlement will be calculated with the inclusion of your foreign service earnings. Please contact Mercer with questions that are specific to these issues.

Please note that the CRA continues to review tax issues related to Pension Adjustment Reversals and tax on cash payments of the commuted value of registered pensions. We will advise once this review is complete and a conclusion has been reached by the CRA.

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