Changes to the Canadian Forces Non-Public Funds Employees Pension Plan

Effective 8 July 2019

CHANGES TO THE CANADIAN FORCES NON-PUBLIC FUNDS EMPLOYEES PENSION PLAN 1

MORE SUSTAINABLE: CHANGES TO THE CANADIAN FORCES NON-PUBLIC FUNDS EMPLOYEES PENSION PLAN We are making changes to the Canadian Forces Non-Public Funds Employees Pension Plan (the Pension Plan) to support its sustainability and protect our commitment to maintaining a defined benefit pension plan for you, our members.

Thanks to skillful management, the Pension Plan has experienced strong returns over its lifetime, under challenging circumstances.

But for several years now, we have been required to top-up the plan funding, costing the organization millions of extra dollars.

In recent times, many plan sponsors have faced difficult decisions on how to most effectively use limited financial resources, and we are no exception. External factors have created a level of risk that the Chief Executive Officer (CEO) and the Pension Board are no longer comfortable with. We have decided to address this risk by changing certain elements of the Pension Plan in order to ensure its long-term sustainability.

The CEO and Pension Board have analyzed and considered a variety of plan change options. After determining which changes would affect employees the least, incorporating employee feedback from focus groups, and conducting a detailed analysis of the external factors affecting Canadian pensions, we have determined that the measures detailed below provide the best path forward for our membership and the long-term health of the Pension Plan. The ultimate goal was to protect the defined benefit plan and to look for the best balance for change for all employees.

We took a holistic approach when considering potential changes.

The upcoming enhancements to the Federal Government’s Canada Pension Plan (CPP) played a significant role in the decision making process. Starting in 2019, the CPP will be gradually enhanced and you will receive higher benefits in exchange for making higher contributions (for more information visit: https:// www.canada.ca/en/services/benefits/publicpensions/cpp/cppenhancement.html).

R ISKS TO D EF IN ED BE NE FIT P EN SION P L ANS • GLOBAL ECONOMY AND MARKET INVESTMENT RISKS REMAIN HIGH • HISTORICALLY LOW INTEREST RATES HAVE WEAKENED NORMALLY RELIABLE FORMS OF INVESTMENT INCOME • PEOPLE ARE LIVING LONGER IN RETIREMENT, ADDING PRESSURE TO LIFETIME PENSIONS

THE CHANGES COME INTO EFFECT FROM 8 JULY 2019, AND ONLY APPLY GOING FORWARD FROM THAT DATE. REGARDLESS OF A MEMBER’S RETIREMENT DATE, ALL THE BENEFITS OF SERVICE PRIOR TO 8 JULY 2019 WILL REMAIN COMPLETELY UNAFFECTED. CURRENTLY RETIRED MEMBERS WILL REMAIN UNAFFECTED BY THE CHANGES. 2 CHANGES TO THE CANADIAN FORCES NON-PUBLIC FUNDS EMPLOYEES PENSION PLAN

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CH AN GE S TO T H E CA NA DIA N FO RC E S NO N - PUB L I C F U N D S E MP LOY E E S P E N SIO N PL AN THAT CO M E I N TO E FFE CT FROM 8 J U LY 2 0 1 9 …But let’s start with what hasn’t changed:

YOUR CONTRIBUTION RATE REMAINS UNCHANGED! The upcoming changes to the Canadian Pension Plan (CPP) will affect all Canadian workers. Starting in 2019, the CPP will be gradually enhanced and you will receive higher benefits in exchange for making higher contributions. Since this will already affect your take home pay, we did not want to impact your take home pay twice.

1

THE PENSION FORMULA CHANGES FROM 1.5%/2% FOR BELOW/ABOVE THE CPP/QPP

YEAR’S MAXIMUM PENSIONABLE EARNINGS (YMPE)* TO 1.3%/2% BELOW/ABOVE YMPE We faced difficult decisions on how to most effectively use our limited financial resources and strongly considered the 2019 CPP enhancements. Essentially, the 0.2% reduction should be offset by the enhanced CPP, which will help maintain the same level of post-retirement income that existed pre-changes. Given the different segments of our workforce, we balanced the needs of new members just starting their pensions, as well as long-standing members who have contributed to the plan for many years. This is why the pension formula will be calculated taking into account your various years of service. If you’re close to retirement, this will have little impact since the majority of your pension earned will be prior to 8 July 2019.

*Year’s Maximum Pensionable Earnings (YMPE): The maximum earnings set each year by the Canada Pension Plan (CPP) and Quebec Pension Plan (QPP) on which you are required to make CPP/QPP contributions. The YMPE also determines the earnings amount that is used for calculating the Staff of the Non-Public Funds, Canadian Forces pension contributions each year.

I M PACT OF E N H A N C ED C P P AT AGE 6 5 Shared contributions of 9.9% Employee contributions of 4.5% / 6%

CURRENT

FUTURE

CPP Pension (25%)

Enhanced CPP Pension (33.3%)

Shared contributions of 11.9%

NPF Pension

NPF Pension

Employee contributions of 4.5% / 6%

CHANGES TO THE CANADIAN FORCES NON-PUBLIC FUNDS EMPLOYEES PENSION PLAN 3

PEN SIO N F O R M U L A

NEW - For pensionable service earned on or after 08 July 2019: Years of Pensionable Service since July 8, 2019

+

+

2% of your Highest Average Pensionable Earnings above the average YMPE

[

[

1.3% of your Highest Average Pensionable Earnings up to the average YMPE

For pensionable service earned between January 1, 1997 and July 07, 2019:

+

+

[

2% of your Highest Average Pensionable Earnings above the average YMPE

[

+

1.5% of your Highest Average Pensionable Earnings up to the average YMPE

Highest Average Pensionable Earnings = your average earnings as a member during the three highest-paid consecutive years in the ten years before your pensionable service ceases.

Years of Pensionable Service between January 1, 1997 and July 7, 2019

For Pensionable service earned before January 1, 1997

+

2

1.8% of your average annualized earnings for 1994, 1995, 1996 up to $34,900

+

2.4% of your average annualized earnings for 1994, 1995, 1996 up to $34,900 but below $52,350

+

+

2% of your Highest Average Pensionable Earnings above the average YMPE

+

Years of Pensionable Service before January 1, 1997

2% of your average annualized earnings for 1994, 1995, 1996 above $52,350

+

3.

[ [

1.5% of your Highest Average Pensionable Earnings up to the average YMPE

[

2.

40% of your total required contributions before January 1, 1997.

[

1.

THE GREATEST OF 1, 2 OR 3 BELOW:

Years of Pensionable Service before January 1, 1997

THE PENSIONABLE AGE* FOR RETIREMENT INCREASES FROM 60 TO 65.

People are living and working longer today than ever before, and the common industry practice for retirement is shifting nationally to 65+. Given the strain that the added expense of early retirement places on the Pension Plan, combined with increased longevity in plan members, increasing the pensionable age to 65 is a necessary change.

*Pensionable Age: the earliest age at which you may begin to receive a pension benefit without the consent of the Employer and without reduction by reason of early retirement.

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THE EARLY RETIREMENT REDUCTION INCREASES FROM 3% PER YEAR TO 5% PER YEAR. Early retirement is a personal decision for each individual employee. Given that it is a choice that is subsidized by the Pension Plan, the early retirement reduction was increased to 5% which reflects the actual cost of early retirement to the Pension Plan. Increasing the reduction was considered a fair compromise between employees choosing early retirement, and the added cost borne by all members of the Pension Plan.

THE BRIDGE BENEFIT REMAINS WITH A CLARIFICATION ON ELIGIBILITY FOR RETIREMENTS UNDER THE AGE OF 55.

If you retire between the ages of 50 and 55 with at least 10 years of total pensionable service earned both before and after July 8, 2019, you will be eligible to receive the bridge benefit. In this case, your bridge benefit will be calculated based on only your pensionable service earned prior to July 8, 2019. No bridge benefit is payable for your pensionable service earned on and after July 8, 2019.

Your bridge benefit will be paid from the first of the month following age 60 until the month you turn age 65. Should you die prior to age 65, your bridge benefit will cease in the month following your death.

NO DO U B T, YO U ’ VE GOT Q U E ST ION S… 1. W ill my take home pay change? Your contribution rate remains the same, but it is important to bear in mind that your take home pay will change due to upcoming changes to CPP by the Federal government.

2. S hould I retire before July 8, 2019? When you decide to retire is a personal decision. It is important to understand, though, that the pension you earn before July 8, 2019 will not be affected by the changes. The pension changes are not applied retroactively. Also, for every additional year of service, your pension will increase and, of course, you will continue to earn your salary.

3. When

can I retire?

I f your pensionable service is earned from July 8, 2019 onwards, then your pensionable age is age 65.

This means:

YOU CAN RETIRE….

AND RECEIVE…

On the first day of the month following your 65th birthday.

An immediate unreduced pension.

On the first day of the month following your 55th birthday.

An immediate pension reduced by 5/12 per cent for each month (5% per year) preceding age 65.

CHANGES TO THE CANADIAN FORCES NON-PUBLIC FUNDS EMPLOYEES PENSION PLAN 5

If your pensionable service started prior to July 8, 2019, then your total pensionable service earned before and after July 8, 2019 is used to determine your retirement date; however, you may have two (2) different pensionable ages for the purpose of calculating your pension benefit. This means:

IF YOU ARE… At least sixty-five (65) years of age and have less than ten (10) years of pensionable service*

At least sixty (60) years of age and have ten (10) or more years of pensionable service*

At least fifty-five (55) years of age and have less than ten (10) years of pensionable service*

YOU CAN RETIRE….

AND RECEIVE…

On the first day of the month following your 65th birthday.

An immediate unreduced pension.

On the first day of the month following your 60th birthday.

An immediate pension.

• For your service prior to July 8, 2019, the pension is unreduced.

• For your service on or after July 8, 2019, the pension is reduced by 5/12 per cent for each month (5% per year) preceding age 65.

On the first day of the month following your 55th birthday.

An immediate pension.

• For your service prior to July 8, 2019, the pension is reduced by 1/4 per cent for each month (3% per year) preceding age 65.

• For your service on or after July 8, 2019, the pension is reduced by 5/12 per cent for each month (5% per year) preceding age 65.

Or, alternatively, you may elect to defer your pension.

At least fifty (50) years of age and have ten (10) or more years of pensionable service*

On the first day of the month following your 50th birthday.

An immediate pension.

• For your service prior to July 8, 2019, the pension is reduced by 1/4 per cent for each month (3% per year) preceding age 60.

• For your service on or after July 8, 2019, the pension is reduced by 5/12 per cent for each month (5% per year) preceding age 65.

Or, alternatively, you may elect to defer your pension.

* Please note that pensionable service includes service earned both before and after July 8, 2019.

6 CHANGES TO THE CANADIAN FORCES NON-PUBLIC FUNDS EMPLOYEES PENSION PLAN

For example, Jane has a total of ten (10) years of pensionable service. She earned five (5) years of pensionable service before July 8, 2019 and earned five (5) years of pensionable service after July 8, 2019.

Jane wants to retire at age sixty (60).

• B ased on Jane’s total 10 years of pensionable service, she can retire at age 60.

• Jane’s pension benefit for her 5 years of pensionable service before July 8, 2019 will not be reduced. This is because her pensionable age for this period of service is age 60.

• Jane’s pension benefit for her 5 years of pensionable service after July 8, 2019 will be reduced by 25 per cent. This reduction is because her pensionable age for this period of service is age 65. Therefore, if Jane retires at age 60, then the benefit has to be reduced by 5% per year (or 5/12 per month) which equals a 25% reduction.

5 years of pre- July 8, 2019 Pensionable Service = $3,750

1.3% of $50,000 = $650

=

+

+ 5 years of postJuly 8, 2019 Pensionable Service = $3,250

[ [

[ [

1.5% of $50,000 = $750

+

If Jane’s highest average pensionable earnings are $50,000, her pension is calculated as:

-

25% reduction ($812.50) = $2,437.50

$6,187.50 per year

CHANGES TO THE CANADIAN FORCES NON-PUBLIC FUNDS EMPLOYEES PENSION PLAN 7

ON TH E R OA D F O R CHA N GE : We have created a range of communication resources to help you understand how the Pension Plan works and how the changes might affect your eventual retirement plans: • M arch 2018: Ask the Expert sessions – your opportunity to ask questions directly with subject matter experts • CEO Quarterly Messages: Featuring answers to the most Frequently Asked Questions • S pring 2018: Pension Plan Estimator will be updated to reflect the upcoming changes. Once available through Coughlin and Associates, you will be able to explore how the changes will affect your retirement income • June 2019: Ask the Expert Returns • 8 July 2019: Pension changes come into effect

WHAT DOES THIS MEAN FOR ME? Coming Spring 2018! Coughlin and Associates will be updating the pension estimator to reflect the pension changes, designed to provide you with an estimate of your future monthly retirement benefit. While this estimate will not contain all the information of a formal pension estimate, it will provide you with the opportunity to review your current situation and project future pension benefits.

WHAT DO YOU NEED TO DO? All you need to do is stay informed. We understand that the Pension Plan is very important to you, and any change to the Pension Plan can raise questions. You are encouraged to visit www.cfmws.com/pension to access a variety of retirement planning resources.

For general information regarding the Pension Plan, pension benefits, contributions, etc. please contact your local Human Resources office.

For information regarding your annual pension statement or pension options after retiring or terminating, please contact our Pension Administrator, Coughlin and Associates at: npfpension@coughlin.ca or 1-888-613-1234

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