October 15, 1999

To: Community Services Committee

From: Commissioner of Community and Neighbourhood Services

Subject: Options available to families requiring subsidized child care and adversely

affected by provincial changes in asset ceiling provisions of the needs test

Purpose:

This report discusses options available to families seeking or receiving subsidized child care who may be adversely affected by recent provincial changes to the treatment of registered retirement savings programs as assets under the Needs Test used to assess subsidy eligibility.

Funding Sources, Financial Implications and Impact Statement:

The options discussed in this report have no financial implications for the City.

Recommendations:

It is recommended that this report be received for information.

Council Reference/Background/History:

In a report dated June 2, 1999, the Department advised Council of a provincial change in the treatment of Registered Retirement Savings Plans, RRSPs under the asset ceiling provisions of the Needs Test used to assess families' eligibility for subsidised child care. Effective June 1, 1999, RRSPs ceased to be exempt from inclusion in the asset ceiling calculation. The department estimates that the change could render up to 2,000 families currently in receipt of child care subsidy ineligible. At the direction of Council, the department continues to discuss with Provincial Officials the adverse impact this new guideline is having on families within the City who continue to require child care subsidy assistance. Also, as directed by Council, this matter was raised as a priority issue at the annual conference of the Association of Municipalities of Ontario in August 1999.

In addition to these ongoing negotiations with Provincial Officials, the department was also directed to explore other options available to assist affected families to adjust to the changed provincial directive including the potential relief afforded by the Saskatchewan Housewife Pension Plan.

Comments and/or Discussion and/or Justification:

Overview of Provincial Change:

The Provincial Guidelines for Determination of Available Income states that "pension plans that are mandatory and part of the terms of employment are exempt from being considered as liquid assets. RRSPs are exempt as a liquid asset if they are locked in and cannot be accessed under any circumstances until retirement. Confirmation from a financial institution must be provided to state that funds are locked in".

An RRSP is a tool by which wealth is accumulated for retirement years. However, funds contributed to most RRSPs may be withdrawn at anytime and taxed in the years of withdrawal. Because of the available option of withdrawal, RRSPs could be used as a means of shielding income from subsidy eligibility assessment unless they are locked-in. The monies invested in a locked-in RRSP must be used to provide some form of life retirement income and therefore, can not be withdrawn until retirement. In extenuating circumstances, such as a disabling illness that shortens life expectancy, these funds may be withdrawn. If death occurs, any locked-in funds may be paid out to one's stated beneficiary.

A pension plan can be vested immediately upon commencement of employment or the vesting period may be several years of employment. In general, company pension plans once vested, may not be cashed out unless the employee leaves the employment of the company. At this time, these monies can be cashed out or transferred into an RRSP or another company's pension plan. The provincial guidelines places RRSPs in the same position as a vested pension, by insisting on their being locked in to qualify for exemption from asset assessment. The province, in its changes to the guidelines appears to be ensuring that where retirement assets are being excluded from eligibility assessments, clients cannot subsequently access these funds for other than intended purposes.

Options Available to Affected Subsidized Families:

There are a number of locked-in RRSPs offered by banks and trust companies into which the current investment might be transferred. The money could be accessed only in the form of an annuity (monthly benefits) after retirement age. If a family has one or more RRSPs and they transfer them into a locked-in RRSP, they will not be able to access these funds until retirement. They can continue to use this type of RRSP until such time as they no longer need subsidy if they wish to provide for their retirement. After this time has passed, they can initiate another RRSP in which monies deposited would not be locked -in. There is no limit to the number of RRSPs an individual may have.

If the contributor is over 55 years of age (unlikely for most families requiring subsidized child care) investing in a Registered Retirement Income Fund, RRIF, which is not subject to provincial regulation at this time, is an option.

Dissolving any RRSP amounts above the asset ceiling limit and taking it into income in the year is an option. In this case, the amounts withdrawn would be subject to tax. This income would have to be spent before subsidy eligibility assessment so as not to be considered a liquid asset.

With regards to the Saskatchewan Pension Plan, SPP, joining it is not dependent upon residency, income, employment status, gender or membership in other plans. SPP members are full time employees, part-time employees, self-employed people, homemakers, farmers and students. The contributions to this plan are locked-in, invested and are used to provide the member with a pension at retirement. The plan is similar to other locked-in pension plans and adheres to RRSP guidelines. It also qualifies as an RRSP that would be acceptable by the Province of Ontario as being exempt from asset ceiling determination for the purpose of child care subsidy.

Conclusions:

The options available to families requiring subsidised child care and likely to be adversely affected by the recent provincial change respecting the treatment of RRSPs as assets were researched with the assistance of a Certified Financial Planner at the Retirement Counsel of Canada. They are outlined in this report in response to Council's request for additional information on this matter. It is recommended that this report be received for information.

Contact Name:

Brenda Patterson (phone 392-3319, fax 392-4576)

General Manager, Children's Services

Commissioner, Community and Neighbourhood Services Department