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Changes to Article 28 – Severance Pay for CUPW –Urban Postal Operations
Frequently Asked Questions
Q1: How do I let Canada Post know whether I want to receive my severance payment on June 30, 2004 or when I retire? A: Between now and April 30, 2004 you will receive a personalized letter indicating the value of your entitlement as of December 31, 2003. The letters will be sent out in batches in alphabetical order beginning with employees whose last name starts with the letter “A”. Included with the letter will be a form on which to make your choice of either receiving the benefit on June 30, 2004 or taking it upon retirement. You will have 30 days to respond to the letter and make your choice. For employees who choose to receive their benefit before retirement, payment may be delayed beyond June 30, 2004 if forms are incomplete or required documentation is missing.
Q2: Can I receive my severance entitlement now instead of waiting until June 30, 2004? A: No. Payments will not be made prior to June 30, 2004.
Q3: How will the value of my severance payment be calculated? A: The payment is based on your years of continuous service as of December 31, 2003, multiplied by one week of your regular weekly salary as of December 31, 2003, capped at a maximum of 28 weeks. The payment value assumes you will be accepting your benefit on June 30, 2004. If you choose to receive your benefit when you retire, your salary at the time of retirement will be used in the calculation. The value of the payment is pro-rated for periods of part-time service based on the scheduled hours of your substantive part-time position. Periods of continuous casual and temporary service will also be included provided these periods qualify as continuous service. Where qualified, these periods of casual and temporary service will also be pro-rated based on the scheduled hours of the position. The following are examples of calculations:
Example 1
Status: Full time employee, no break in service Continuous Service Date: June 30, 1993 Hourly Wage as of Dec. 31, 2003: $19.92
Step 1: The employee’s hourly wage is multiplied by 40, the number of hours in a regular full-time weekly schedule ($19.92 x 40 = $796.80).
Step 2: The employee’s weekly pay is multiplied by the employee’s years and months of service as of Dec. 31, 2003 ($796.80 x 10.50 years = $8,366.40).
The value of the severance payment before income tax and statutory deductions = $8,366.40.
Example 2
Status: Full-time regular employee with prior periods of part-time service Continuous Service Date: Oct. 28, 1984 Hourly Wage as of Dec. 31, 2003: $19.92 Part-Time Service: Oct. 28, 1984 to Feb. 7, 1994 (9.28 years) Scheduled Hours of Part-Time Work: 30 hrs/week (vs. full-time schedule: 40 hrs/week) Full-Time Service: Feb. 8, 1994 to Dec. 31, 2003 (9.89 years)
Step 1: The employee’s part-time years of service are converted to the annual full-time equivalent (9.28 years x 30/40 = 6.96 full-time equivalent years).
Step 2: The employee’s converted part-time service (6.96 years) is added to the full-time years of service (9.89 years) for a total of 16.85 years of pro-rated continuous service.
Step 3: The employee’s hourly rate ($19.92) is multiplied by 40, the number of hours in a regular full-time schedule for a weekly pay of $796.80.
Step 4: The employee’s weekly pay is multiplied by the years and months of service ($796.80 x 16.85 years = $13,426.08).
The gross value of the severance payment before income tax and statutory deductions = $13,426.08.
Q4: Is my severance payment considered to be pensionable earnings? A: No. This benefit has never qualified as pensionable earnings.
Q5: What are the tax implications of this change? A: They will vary with your individual circumstances. If you choose to receive this benefit on June 30, 2004, the payment will be reflected on your 2004 Statement of Remuneration Paid (T4 and/or Relevé 1) as 2004 employment income. Before making a decision about how you want to receive this benefit, you are encouraged to consult a financial advisor to ensure that you make the choice that best suits your personal situation.
Outlined below are some facts to keep in mind when making your decision: o If you choose to take the payment on June 30 2004, it will be fully taxable. In addition to income tax, the payment will be subject to Canada Pension Plan and Employment Insurance deductions; o If you choose to take the payment upon retirement, and if current income tax rules are in effect at the time of your retirement, you may be eligible to transfer up to $2,000 per year of employment before 1996 into an RRSP, regardless of your RRSP Deduction Limit. This option is not available if you choose to take the payment on June 30, 2004, prior to retirement. This tax treatment has been confirmed with the Canada Customs and Revenue Agency (CCRA).
Q6: If I choose to take my payment on June 30, 2004, can I have some or all of it transferred directly into an RRSP without having the income tax withheld for the portion I transfer? A: Yes, you may transfer up to 85% of your benefit directly into an RRSP if you can demonstrate that you have RRSP contribution room. As part of a special arrangement with the Canada Customs and Revenue Agency (CCRA) regarding the unique administration of this benefit, Canada Post must show due diligence by requiring proof that you have RRSP contribution room. Therefore, it is your responsibility to provide a copy of your 2003 RRSP Deduction Limit Statement – it forms part of your Notice of Assessment from CCRA, or is available directly from CCRA Client Services (1-800-959-8281). In addition, you will be required to sign a declaration that you have not exceeded your RRSP deduction limit for 2004. Your personalized letter will provide additional information concerning required documentation.
Q7: Why can I only transfer up to 85% of my entitlement payment into an RRSP if I choose to receive it on June 30, 2004? A: Fifteen per cent of your payment will be withheld to cover statutory deductions of Employment Insurance and Canada Pension Plan. If this amount is not withheld, your regular pay would be used to cover these statutory deductions, and in some cases this would significantly reduce your pay cheque.
Q8: If I choose to receive the payment on June 30, 2004, can I transfer some or all of my entitlement directly into a Spousal RRSP? A: Yes. This option is only available for this one-time lump-sum payment. Note: A “Spousal RRSP” is very different from your “spouse’s RRSP”. A Spousal RRSP is a special kind of RRSP owned by you, based on your available contribution room, but with the cash payout to be enjoyed by your spouse at a later date.
Q9: Can I transfer some or all of the payment into my spouse’s RRSP? A: No. A spouse’s RRSP is simply an RRSP owned by your spouse and is separate and distinct from yours. This special severance payment cannot be transferred directly to your spouse’s RRSP account. It must be paid to the individual Canada Post employee entitled to the benefit who can then transfer it into a personal RRSP or a Spousal RRSP.
Q10: What happens if I retire from Canada Post in 2004, but before the benefit is paid out on June 30? A: When you receive your personalized letter with the form asking you to decide to either take the benefit on June 30, 2004 or upon retirement, you should indicate your intention to take it at retirement by checking the appropriate box.
Q11: Can I buy back pensionable service with this severance entitlement payment without having income tax withheld? A: It depends on the type of service being bought back. Buy back of pensionable service for periods after 1989 are fully tax deductible. For buy back of prior service before 1989, the tax deductibility rules as defined by the CCRA are different depending upon whether you were a contributor to the pension plan for the period being purchased. If you are interested in purchasing prior service using your severance payment, you must complete and return the pension information and option form that will be included with your personalized letter in order for us to contact you with additional instructions. If after receiving the additional instructions you elect to proceed with purchasing elective service, you will be provided with the necessary information about the purchase to enable you to contact the CCRA to discuss any tax regulations that apply to your situation.
Q12: What happens if I opt to receive the payment at retirement but resign before my anticipated retirement date? A: Upon resignation, you will receive a lump-sum payment equivalent to your years of continuous service to December 31, 2003 multiplied by one week of regular salary as of December 31, 2003. It will be pro-rated for part-time service and capped at 28 weeks of salary.
Q13: Can I receive some of my severance pay on June 30, 2004 and the balance upon retirement? A: No. Canada Customs and Revenue Agency (CCRA) have confirmed that you must choose to receive 100% of the payment either on June 30, 2004 or upon retirement.
Q14: If I choose to receive my severance pay when I retire, can I change my mind later and have it paid out? A: No. CCRA have confirmed that employees must make a one-time, irrevocable decision to either receive the payment on June 30, 2004 or upon retirement.
Q15: If I decide to receive my payment at retirement, will Canada Post pay interest on the funds during the interim period? A: No, but the payment will be based on your salary the week preceding your retirement.
Q16: Will my years of service as a Federal Government employee count towards my years of service at Canada Post for the purpose of calculating my severance payout? A: It depends on your individual circumstance. If you were employed by a Federal Government department and transferred to Canada Post prior to October 16, 1984, without having severed your employment with that Federal Government department, those years of continuous service will count towards your years of service at Canada Post.
Q17: I have used RRSP funds to purchase a home under the Registered Home Buyers Plan. Can I repay these RRSP funds by transferring my severance payment directly into my RRSP account without having the income tax withheld? A: No. If you participated in the Home Buyers Plan, you may not avoid paying income tax on your severance payment by using it to repay your RRSP.
Q18: Is Canada Post able to transfer my severance payment directly into a Registered Education Savings Plan (RESP) on my behalf? A: No. This is your responsibility.
Q19: Will Canada Post offer financial counseling to assist me in determining the best option? A: No, the decision is a personal one and will vary with your individual circumstances.
Q20: I was a member of another Canada Post bargaining group before joining CUPW. Will my total years of service with Canada Post be used to calculate the value of this severance payment? A: Yes. The payment will be based on your total years of continuous service at Canada Post regardless of union or management affiliation.
Q21: Will the receipt of a severance payment on June 30, 2004 result in an overpayment of Employment Insurance and Canada Pension Plan deductions when I file my 2004 income tax return? A: No, you will not end up with an overpayment of premiums when you file your 2004 Income Tax form. Once the maximum contribution rates have been reached, no further contributions will be deducted from your pay for the remainder of the year.
Q22: Why are the years of service associated with my severance payment different from the years of service used to calculate my pension? A: An employee’s years of service, for the purpose of calculating the value of their severance payment, is based on years of continuous employment at Canada Post. On the other hand, an employee’s pension eligibility service is based on the number of years and portions of years that he or she has contributed to the Canada Post Pension Plan as well as any pension service transferred from an eligible employer to Canada Post’s Pension Plan.
Q23: Is this offer to pay out the severance benefit being made to other employee groups at Canada Post? A: Management and Exempt employees have been given the same opportunity. For all other groups, severance pay is a benefit provided through their respective collective agreements. However, changes to the severance provisions of the other collective agreements will certainly be part of the next rounds of negotiations with the other bargaining units.
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