Buying Prior Service Explained

Buying prior years of service, also know as a buyback, will increase your pensionable service. This means your future MEPP pension will be higher and you could retire with an unreduced MEPP pension sooner.

If your contributions are with another Registered Pension Plan (RPP) that does not have a transfer agreement with MEPP, or the option to transfer has expired, you may be able to take a lump-sum payout of that benefit and purchase a portion or the full amount of service under MEPP.

Before deciding to remove your benefits from an RPP, it is important to check with your financial institution to see if their requirements will allow your funds to be transferred into MEPP.

Before you begin this process, there are many important factors to consider:

Eligibility

Examples of eligible prior service could include:

  • previous employment with your current employer; and
  • previous employment with an employer who participates in another Registered Pension Plan (RPP).

Your employer’s Human Resources department will be able to tell you which types of past employment are eligible for purchase. You can also contact Member Services if you have any questions.

You can only establish your service from a previous RPP under MEPP if you are able to take a payout of your benefits from that plan as a lump-sum payout. You cannot begin purchasing service in MEPP until after your funds have been removed from the other plan.

Please note: Restrictions apply to the purchase of service using a previous RPP earned before 1992. Please contact Member Services directly if you earned service within this time frame.

Buyback Timelines

If you are buying service you earned in another RPP, your application should not be made until your lump-sum benefit has been removed from your previous RPP. You can speak to your employer for more information on how to apply to buy prior service.

Once you have applied you will be sent a Buyback Proposal which outlines:

  • how buying prior service will affect your pension;
  • how much it will cost you to buy your prior service;
  • how much prior service you can buy;
  • how to pay for your prior service; and
  • the deadlines for making your election and payment(s).

If a portion of the period you have requested to buy is not eligible for purchase, it will not be included in your Buyback Proposal.

Cost

The cost of prior service is based on the amount of money required today to fund what your pension will be in the future. This is called actuarial reserve costing, and includes assumptions about potential interest changes over time and life expectancy, as well as your salary and age.

If you are using funds from another RPP to purchase service, the value of the lump-sum benefit you receive from them may be less than the cost of buying the equivalent amount of prior service under MEPP. This means that you will not get credit for all of your prior service unless you pay for any resulting shortfall. However, if the value of your lump-sum benefit is worth more than the cost of buying service in MEPP, those funds will remain with you. MEPP will not accept funds in excess of the cost to purchase your prior service.

Visit our Buyback Estimator to get an estimate of the cost to buy your prior service. You can apply to buy a period of prior service through your employer’s pay and benefits coordinator.

If the prior service is from a different employer, we may need additional information from them. Contact Member Services or your employer’s pay and benefits coordinator for help in determining when this is the case.

Impact on MEPP Pension

You can see an estimate of how buying prior service might affect your pension by using the online Pension Estimator:

  1. Visit the MEPP Pension Estimator
  2. Complete the information fields and click on the button next to "Check here to provide your own service estimate"
  3. Run two pension estimate calculations:
    • One with only your current MEPP service
    • One that includes your current MEPP service plus the prior service

Compare these two estimates to see how buying prior service will impact your MEPP pension. Before removing your funds from another plan, you should consider:

  • the cost of the prior service;
  • the length of time it will take you to pay for the prior service;
  • how long it will take for the increase in your pension to offset the cost of buying the service; and
  • the impact that a Past Service Pension Adjustment (PSPA) might have on your RRSP contribution room.

You may want to consider speaking to an independent financial professional before deciding to remove your benefit from your previous RPP.

Is Purchased Service Treated the Same As Earned Service?

No. There are a couple of key differences. The first is that the salary from your prior service is not normally used in the calculation of your highest average salary.

The second is that, if you leave the Plan before turning 55 years of age and you choose to withdraw your funds, your purchased service will not be used to calculate your commuted value payout. Instead, you will receive a refund of what you paid to buy the service, plus interest.

Are There Locking-In Requirements?

In certain situations, benefits paid out from an RPP must remain “locked-in” (within locked-in retirement accounts (LIRAs), RPPs, etc.) until they are used to fund your retirement.

Most RPP locking-in requirements are subject to the jurisdiction (i.e. province) in which the benefits are accrued. If those funds are used to buy your prior service with MEPP, they will be administered in accordance with Alberta's locking-in requirements.

Are There Tax Consequences?

Your payments for purchasing prior years of service are tax deductible within the maximum limits set under federal tax rules.

For service after 1989, federal tax rules require that you have adequate RRSP room to allow for the certification of the Past Service Pension Adjustment (PSPA) associated with the prior service you are buying. This PSPA represents the value of the increase in your MEPP benefit entitlement, using the Canada Revenue Agency's (CRA) formula, and will reduce your RRSP contribution room.

Please consult the CRA for more information on PSPAs and how they may affect your contribution room.

Considerations Before You Leave Your MEPP Employer

If you wish to buy prior service, you must let Member Services and your employer know this before you stop participating in the Plan.

Paying For A Buyback When You Leave Your Employer

If you are already making payments towards a buyback when you leave your MEPP employer, you will have 90 days to finish paying for your buyback.

If you do not complete the payment, the amount of service attached to that purchase will be adjusted to reflect only what you have paid for to date.