Pensionable bonuses
Following the release of the Excellent Care for All Act (Bill 46), HOOPP has received a number of questions about whether a bonus or a portion of an executive’s compensation tied to performance is pensionable.
A bonus is considered pensionable if it represents a fundamental and recurring component of an employer’s long-term compensation program. One-off or ad hoc bonus payments that do not occur on an ongoing basis and that do not form a long-term component of an employer’s compensation program are not pensionable.
The rationale for this is to ensure that members contribute on earnings they receive on a consistent basis. This prevents members from paying extra contributions earlier in their career that will not impact the benefit they receive and also prevents artificial increases to their Average Annualized Earnings when they near retirement. In other words, this ensures that members do not pay too much, or too little, for the benefits they receive and that all members are treated fairly and get what they pay for.
Although compensation arrangements vary in their design and features from one employer to the next, a common approach is to hold back a portion of an executive’s 2011 salary and award a bonus in 2012 if the executive achieves his/her performance targets for 2011. HOOPP has no issues with this approach as this is consistent with the bonus structure that many employers already have in place.
Under this type of arrangement, contributions deducted from the pensionable bonus should be treated the same as retroactive pay. When a pensionable bonus is paid for a previous calendar year, contributions must be deducted using the contribution rates in effect for the year in which the bonus applies, not for the year in which it is paid. Using this example, if a bonus is paid in 2012 for 2011, contribution rates from 2011 would apply notwithstanding the fact that the payment is made in 2012.
If you have any questions, please call 416-646-6445 or 1-877-43-HOOPP(46677) from 8:00 a.m. to 5:00 p.m. (Eastern Time) Monday to Friday to speak with a Client Services representative.
Dec 2011
