Plan sponsors specify a “normal” retirement age, the age where a plan member can retire with a full pension in retirement. This age is typical 65. However, for many plans, it is not 65. The normal retirement age can be based on years of service with the the company and the member’s age, also known as the qualifying factor.
Qualifying Factor + 85 Factor
- The qualifying factor is a formula which is used to determine whether a plan member is eligible for an unreduced pension, up to 10 years or more before the “normal retirement age”.
- The qualifying factor of 85 is usually as the name says, 85, but it can be 80 or 90. Each company is different. The 85 factor is calculated by adding your age + years of pensionable service. If your age plus years of service equal to 85, you are entitled to unreduced pension in this example.
Age for Unreduced Pension
- To calculate the age of when a plan member is eligible to take early retirement, the formula is detailed below.
Example: Steve is 50 years old. He has been a teacher for the last 30 years and joined the plan on his first day of work. The plan has a normal retirement age of 65, with a qualifying factor of 85. What’s the earliest age at which Steve can qualify for unreduced early retirement benefit?
Steve can retire with an unreduced early retirement benefit at 57 years and 6 months.
Integrated Pension Plans
Keep in mind that there are also defined benefit plan sponsors that incorporate the amount that an individual would receive from CPP/QPP into the final retirement benefit. This is known as an “integrated plan”. If a plan member does retire before 65, the “normal retirement age”, the pension benefit will likely be reduced to reflect CPP/QPP benefits.
