Employers with a CSS Pension Plan contribution rate formula integrated with YMPE may find this article of interest.
The CSS Pension Plan is a defined contribution pension plan. Under the CSS Pension Plan rules, the employer sets a required contribution rate between 1% and 9% of regular or total earnings. The employer and the employee then make matching contributions at the same rate. A member can also make additional voluntary contributions.
In setting the required contribution rate, an employer will typically look at their total rewards strategy and establish a rate that best supports that strategy. CSS has observed that many employers have set a flat rate of 5% or 6%. However, many other employers have set contributions that are lower or higher than that, and several employers have integrated their contribution rate formula with the year’s maximum pensionable earnings (YMPE).
What is the YMPE and YAMPE?
Please read this article on the Government of Canada’s website: https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/payroll/payroll-deductions-contributions/canada-pension-plan-cpp/cpp-enhancement.html
The amount that each of us contributes to the Canada Pension Plan (CPP), and therefore the benefit we earn, is directly related to the YMPE. The YMPE is an earnings ceiling – we make contributions to CPP on the earnings under the YMPE. Starting back in January 2019, most Canadians started contributing more to CPP up to the YMPE.
Starting in January 2024, there will be two earnings ceilings. The first earnings ceiling is the YMPE. The second earnings ceiling is the year’s additional maximum pensionable earnings (YAMPE).
The YAMPE is based on the amount of the YMPE. The YAMPE is approx. 7% higher than the YMPE in 2024; and approx. 14% higher than the YMPE in 2025 and subsequent years. It looks like this:
Most employees pay 5.95% (matched by the employer) in contributions to CPP up to the YMPE. Starting in 2024, employees who earn above the YMPE will pay 4% (matched) on their earnings between the YMPE and the YAMPE.
The changes to CPP were designed to increase retirement income for working Canadians.
Does the YMPE/YAMPE affect an integrated contribution formula to CSS Pension Plan?
The addition of the YAMPE in 2024 does not directly impact the contribution rate that is on record with CSS Pension Plan.
As mentioned earlier, many employers have set a flat rate of matched contributions to the CSS Pension Plan. Unless the employer decides to amend their flat rate formula to be an integrated formula, the YMPE/YAMPE changes do not impact their contribution formula.
Some employers do have a formula that is integrated with the YMPE. That formula might look like this:
and
An employer does not have to change their contribution rate formula due to the addition of the YAMPE.
In all cases, employers are encouraged to ensure that their CSS Pension Plan contribution formula continues to align with their overall total rewards strategy. Please connect with employerservices@csspension.com if you are making or have made changes to your contribution rate formula.