Your pension benefits are determined using a formula that considers:

• your average salary;
• your credited service; and
• the average YMPE (defined in the table below).

YMPE stands for Year’s Maximum Pensionable Earnings, an amount the government sets each year. The average YMPE is the average of the YMPE in the year you retire or die, or your employment terminates, and the four preceding years.Effective 1 July 2002, for your years of credited service after 1965, the pension formula will change, as follows:

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Before 1966, the Bank’s pension plan had a lifetime pension benefit of two per cent of average salary for each year of credited service. With the introduction of the Canada/Québec Pension Plan (C/QPP) in 1966, the Bank’s lifetime pension was changed to recognize that you will receive C/QPP benefits.

For years of credited service since 1966, the lifetime pension provides:

• a higher percentage on income for which members will receive no C/QPP benefits—two per cent of your income above the average YMPE; and
• a lower percentage up to the average YMPE, which percentage has now gone from 1.3 per cent to 1.5 per cent.

The Bank’s plan also provides a bridge pension—payable from retirement until age 65 or your death, whichever occurs first. Based on a fixed formula under the Banks’ plan, this bridge pension is roughly equal to the amount of the unreduced C/QPP benefits you have built up during your service with the Bank, to provide a more or less even flow of retirement income. The Bank’s pension formula is geared to recognize that you will receive benefits from the Canada/Québec Pension Plan (C/QPP). The lifetime pension provides:

• a higher percentage on income for which members will receive no C/QPP benefits—two per cent of your income above the average YMPE; and
• a lower percentage up to the average YMPE, which has now gone from 1.3 per cent to 1.5 per cent.

The Bank’s plan also provides a bridge pension—payable from retirement until age 65 or your death, whichever occurs first. This bridge pension is roughly equal to the amount of the unreduced C/QPP benefits you have built up during your service with the Bank, to provide a more or less even flow of retirement income. However, there is not an exact parallel between:

• your lifetime pension plus bridge pension; and
• your lifetime pension plus C/QPP benefits.

This parallel depends on a number of factors, including when you chose to start receiving your C/QPP benefits and your earnings throughout your work life.

Before age 65, the old and new formulas are equal, providing a two per cent benefit up to the average YMPE. At age 65, when the bridge is no longer paid, the new formula provides an enhanced benefit of 0.2 per cent up to the average YMPE, for each year of credited service. This extra 0.2 per cent used to be on your bridge pension, which ended at age 65. The benefit for your average salary above the YMPE stays at two per cent.

For years of credited service before 1966, the lifetime pension is unchanged at two per cent of average salary. Therefore, the lifetime pension improvement explained above doesn’t apply for those years.

Since pension calculations are complicated, we’ll provide detailed examples later this summer to help you estimate your increased benefit.

Pension experts have helped the Bank throughout the review process. We, Ttherefore, we do not expect authorities to overturn any of the proposed enhancements. However, we need comments and approval of some detailed design, administration and tax-related issues.

The Bank of Canada Pension Plan is subject to the Pension Benefits Standards Act (PBSA), for which the Office of the Superintendent of Financial Institutions is responsible. Our plan is also subject to the Income Tax Act, which is enforced by the Canada Customs and Revenue Agency.

There are a number of steps the Bank must take before making payments. For example, before the changes can take effect, the Bank must:

• make submissions to the Canada Customs and Revenue Agency to check the tax status of the enhancements; and
• formally amend the plan text and publish the amendments in the Canada Gazette; and
• make data and system changes.

The Bank expects the various steps to take several months and the revised amounts to start being paid close to the end of 2002 or early 2003.the current year. However, the first payment will include retroactive payments for each of the months from 1 July 2002.

All categories of plan members—current employees, retirees, eligible survivors, deferred pensioners, and Bank employees who transferred to EDS—will benefit from the increase in the lifetime pension. Other changes apply only to current and future employees.

During employee focus groups, we learned that not every Bank employee wants to save for retirement in the same way. That’s why the Bank will, in the first half of 2003, modify the pension plan to offer in addition to the current but improved a defined benefit (DB) option, and a defined contribution (DC) option and Group Retirement Savings Plan (GRSP). Employees will be able to choose the options that suit them best.

The DB option will be just like the current Bank of Canada Pension Plan (with the new enhancements). It will provide a guaranteed amount of pension based on annual salary and credited service. Participants will have no investment decisions to make. The Bank will continue to oversee the investment of the fund.

The new DC option will allow employees to decide how much to contribute and how to invest their own contributions and those of the Bank. The DC option responds to the desire expressed in focus groups to have more flexibility and control over pension benefits.may be more attractive to younger employees.

And the GRSP is very similar to an individual RRSP. Whether employees choose the DB or DC pension option, the GRSP will help them take advantage of their available RRSP contribution room through payroll deductions and lump-sum payments.

Finally, in response to calls for more focus on immediate as opposed to deferred compensation, the Bank will phase out the current long-service benefits (which consist of the severance payment, retirement allowance and death benefit). Current employees will be able to choose between continuing to accrue service for the purpose of the long-service benefits and receiving a current-service allowance of one per cent of salary. All employees hired after 2002 will receive the current-service allowance.

The enhancements were not designed with the pension actuarial surplus in mind. The changes were motivated by the desire to make the plan more attractive for current and future employees and more equitable for all categories of plan members.other plan members. However, the portion of the surplus used still allows the Bank to maintain the pension fund’s sound financial position, so that the plan will continue to be able to pay the promised benefits.

The plan enhancements will increase the liabilities of the plan by about $27 million and thereby reduce the actuarial surplus by that amount. Of this amount, roughly $10 million can be attributed to increased liabilities for employees and the rest to increased liabilities for retirees, eligible survivors, deferred pensioners and former Bank employees who transferred to EDS.

The actuarial valuation that will soon be filed with the Office of the Superintendent of Financial Institutions will show that, as of the end of 2001, the actuarial surplus was approximately $188 million. However, Tthis does not include the new pension enhancements.

You will soon receive another information bulletin and detailed examples on the pension plan enhancements. These should enable you to get a good idea of your own benefit improvement.

Earlier this year, the Bank outsourced the administration of its pension plan to Mercer Human Resource Consulting. For more specific questions, you can reach Mercer with the same toll-free number used to get information on the Retiree Health Benefit Program or other group benefits:

1 888 588-6111
or, in the Toronto area, at 416 868-2965

You can also reach Mercer by e-mail at:

bank-banque-canada@mercer.com.

The call centre is open Monday to Friday, 8:00 a.m. to 6:00 p.m. ET, and you can get answers to your questions about the pension plan in either English or French. If service representatives are unable to answer your questions over the phone, they will get back to you, most of the time within 24 hours, but no later than five business days after your initial call, for more complex questions.