Vesting
Vesting means that you are unconditionally entitled to
receive the pension you have earned under the pension plan, whether that benefit is
payable now or sometime in the future.
Saskatchewan legislation specifies the maximum period of
time that members must work before becoming vested. However, some plan sponsors allow
members to vest earlier than required by legislation.
For pensions earned prior to January 1, 1994, you are
vested if your age plus continuous service or membership with the plan totals 45 years or
more, with a minimum of 1 year of continuous service or membership. Pensions earned after
January 1, 1994 are vested when you complete two years of continuous employment. It is
important to note that you must satisfy the vesting rule at the date of your termination
of membership.
Let us suppose, for instance, that you became a member of a
plan in June 1989, you terminated membership in May 1996 and you are age 33 at that date.
Your entitlement to benefits earned from June 1985 to December 31, 1993 would be
determined by the "rule of 45". Since your age together with service totals less
than 45 years, those entitlements are not vested with you. However, pension entitlements
earned on and after January 1, 1994 are vested because you have been employed for more
than two years.
You also are vested, regardless of the amount of your
service or membership, upon reaching the plan’s normal retirement date or on the
termination of the plan.
If you leave a pension plan before becoming vested you
forfeit your right to a pension benefit or any associated contributions made by your
employer. However, you would be entitled to a refund of your own contributions (if any),
plus interest.
Locking-in
Once pension benefits become vested in accordance with the
"rule of 45" or "two years employment rule", they also are locked-in.
If pension money is locked-in, funds cannot be taken out of the pension plan as a lump sum
cash payment. Locked-in money can only be used to provide you and your spouse with
retirement income.
If you are a vested member of a pension plan, you may
have the option of transferring money from the plan. The portability options are described
in a section to follow. Nevertheless, the pension money remains locked-in.
No one has the authority to grant an exception to the
locking-in rules regardless of the circumstances in which you might find yourself. The
legislation does not provide a release of pension money to alleviate financial hardship.
However, the legislation does allow a payment of cash in lieu of a pension under the
following circumstances:
- Sometimes a member will have only a small vested benefit in
the plan when the member terminates employment. The legislation allows the plan to pay a
member a pension entitlement in cash if the annual pension payable at retirement is less
than 4 per cent of the YMPE or if the commuted value of the benefit is less than
20 per
cent of the YMPE.
- A pension plan may provide a lump sum payment where you have
a medical condition that is likely to shorten considerably your life expectancy.
- The pre-retirement death benefit
may be paid as a lump sum to the surviving spouse of a member or
former member.
- A plan is permitted to contain a provision that allows a
refund of up to 50% of the contributions that you made up to December 31, 1993, plus
interest. A plan is not required to offer a partial refund of member contributions and
cannot do so with respect to contributions made after December 31, 1993.
- A refund can be made of excess member contributions. The
"50% rule" was described in the Contributions section.
- The Act permits the attachment of pension funds by the
Family Justice Services Branch of Saskatchewan Justice as a means of enforcing
court-ordered maintenance payments.
- The Income Tax Act places limits on the amount of
contributions to and benefits payable from pension plans. To avoid conflict, The
Pension Benefits Act unlocks any amounts that are in excess of the Income Tax Act
limits.
For further details, please refer to our bulletin
"Unlocking Pension Money".
