Excess Contributions: What Are They?

July 14, 2021

A recent change to pension standards has resulted in a higher number of retirees receiving excess contribution payouts at the time of retirement.

Under pension law in Saskatchewan, your total contributions* (plus interest) cannot be more than 50% of the commuted value of your pension at the time
you receive your benefit. The commuted value of your pension is the lump-sum value of the pension benefit you’ve earned at the time you leave the Plan. So, when you retire, terminate Plan membership, or pass away, the Federation will compare the commuted value of your pension to your total contributions (plus interest) throughout your career. If your total contributions are more than half of the commuted value of your pension, you will receive those excess contributions as a lump-sum payment.

In December, the Canadian standards for calculating commuted values were changed, and resulted in an overall reduction to commuted value amounts. In turn, this led to a drop in the threshold for what constitutes excess contributions, leading to an increased number of payouts to retiring members.

It’s important to note that not every member will have excess contributions on the date they leave the Plan. The calculation is determined based on several factors such as age, service, period over which service was earned, interest rates earned on contributions, and assumptions. Given the variables involved with this calculation, excess contributions can’t be accurately estimated ahead of time, and therefore will not appear on any retirement estimates you may receive. Your commuted value and resulting excess contributions, if any, can only be determined at your actual retirement date.

Excess contribution payouts are taxable income, though the STRP will transfer all or a portion of those payouts to a Registered Retirement Savings Plan if you have the RRSP contribution room.

* Contributions and interest are adjusted for any teacher contributions and interest unmatched by government before the excess test is performed.