 |
December 17, 2003
Special Notice to Employers
Over the past few months, some of your employees may have received a letter from us informing them that they have under or over contributed to the plan. As a result, those employees who under contributed are now required to pay for their shortfall while those who over contributed received a refund.
Background
A member contribution discrepancy (MCD) occurs when an employee works for more than one employer in a calendar year or has purchase and employment credit in the same year. Each employer follows the same (correct) reporting practice but cannot anticipate or avoid a possible contribution discrepancy—we can only determine MCDs once we have posted all of the member’s service.
Since January, we have been developing a system to generate invoices and payments to members with MCDs and/or excess credit in a reconciled year. To date, we have sent letters to 6,645 members who have over contributed (also received a refund) and 2,400 members who have under contributed.
CPP integration
An MCD is a result of our plan’s integration with the Canada Pension Plan (CPP). As you know, employees make pension contributions to both CPP and the Teachers’ Pension Plan (TPP) on earnings below the Year’s Maximum Pensionable Earnings (YMPE).
While they are contributing to CPP, their TPP contribution rate is lower (7.3%). Once their earnings exceed the YMPE, they stop contributing to CPP and their TPP contributions increase to 8.9%.
Because of this two-step formula, contributions are not deducted based on an employee’s total earnings if they work for more than one employer in a school year. A contribution shortfall may also occur if a purchase of credit was calculated independently of employment income in the same calendar year.
Example
Janice works for two employers and has pensionable earnings of $30,000 for each employer. The YMPE for the year is $39,900.
Janice’s employers each remit the following based on the amounts they paid her:
Remitted Contributions
Employer A 7.3% x $30,000 = $2,190.00
Employer B 7.3% x $30,000 = $2,190.00
Total $4,380.00
The actual contributions required for Janice’s employment are:
Required Contributions
7.3% x $39,900 = $2,912.70
8.9% x ($60,000 - $39,900) = $1,788.90
Total $4,701.60
Contribution Difference
We would send Janice a letter indicating a contribution shortfall of $321.60 ($4,701.60 - $4,380). To avoid paying interest charges, she would have 60 days from the date of notification to pay the total amount owing.
Questions
If you know any employees who have worked for another employer in the same calendar year, you may wish to inform them that a potential shortfall in contributions can occur. If they have any questions about their MCD or refund, please ask them to contact our Client Services department directly.
|
|
