Understanding the Canada-U.S. Totalization Agreement

Many Canadians and Americans face the reality of a career that spans both sides of the 49th parallel. Amidst an era of globalization, it is common for promotions to create cross border opportunities and for company restructurings to force a long-term cross border move. The result of having a career on both sides of the border can lead to some confusion over how an individual’s history of employment can be quantified, relative to the necessary requirements to qualify for each country’s pension plan. Specifically, how are my Canada Pension Plan (CPP), Canadian Old Age Security (OAS) and U.S. Social Security (SS) benefits affected by my work experience in both Canada and the U.S.? What if I don’t meet the minimum eligibility criteria to qualify for these pensions?

Let’s re-examine the eligibility requirements for these three pension plans: CPP and SS are based upon one’s earnings record. The difference is that the SS minimum criteria for eligibility requires ten years of service, while a CPP benefit mandates only a single payment into the pension in order to become eligible. OAS criteria follows a different qualification path based upon residency rules vs. work history, specifically, the amount of time one has resided in Canada since the age of 18. A full OAS benefit is paid once the individual has amassed 40 years of Canadian residency since the age of 18. A partial benefit can be paid when the applicant has a minimum of 10 years of Canadian residency (assuming Canadian residence when payments commence) or 20 years of Canadian residency (assuming U.S. residence when payments commence). For more specific details on CPP, OAS and SS, please visit: “Cross Border Retirement Income: Canada Pension Plan, Canadian Old Age Security, U.S. Social Security and the Windfall Elimination Provision.” The question thus remains; what if I do not meet these eligibility requirements?

This concern marked a call to action and on Aug. 1st, 1984, the birth of the Canada-U.S. Totalization Agreement came to be. There was a subsequent amendment on Oct. 1st, 1997. The manifestation of this Agreement allows an individual to “totalize” their history spent north and south of the border to qualify for U.S. Social Security and/or Canadian Old Age Security. The tallying of cross border residence/work history in tandem allows an individual to potentially meet eligibility requirements that would not have otherwise been met if U.S and Canadian histories stood in isolation from one another. It’s imperative to recognize that although the Agreement tackles the pension (OAS or SS) qualification hurdle, it does not enhance the resulting benefit in question. In other words, your U.S. Social Security benefit will be based upon U.S. work history and your Canadian Old Age Security will be centered on the duration of Canadian residence beyond age 18. Let’s review a few examples.

Mr. Smith, a Canadian citizen and U.S. green card holder, decides to retire in 2019. His career culminates under the following circumstances: thirty years working in Ontario for GM Canada and six years earning gainful employment income under GM U.S. in Detroit. Mr. Smith decides to return to his roots back in Canada. For simplicity’s sake, let’s assume he has spent forty years in Canada beyond the age of 18 by the time he reaches 65. In this case, he qualifies for a full OAS benefit and a CPP benefit based upon his Canadian earnings record, but he does not meet the minimum years of service when he was employed in the United States to qualify for U.S Social Security. In steps the application of the Canada-U.S. Totalization Agreement, allowing Mr. Smith to leverage his CPP credits to make up the 4-year deficit in order to meet SS qualifications. Even though Mr. Smith now qualifies, his SS benefit will be based upon his six-year earnings record vs. the ten-year minimum requirement. Had the Agreement not existed, Mr. Smith would not have been able to receive any SS benefit.

Let’s turn our attention to how the Agreement can play out in a slightly different scenario. In this scenario the circumstances are as follows: Ms. Jones is a U.S. citizen and Canadian permanent resident. She has spent all but five years living and working in the U.S. with  plans to continue Canadian residency  going forward. With only 5 years as a Canadian resident, Ms. Jones has not met the ten-year minimum residency requirement to receive a partial OAS benefit.  The Agreement, though, triggers the ability to pull U.S. residence history to bring total residency time to the minimum OAS requirement for partial OAS benefits. However, it does not boost the OAS benefit to a higher amount, rather, it simply allows Ms. Jones to qualify to receive an OAS benefit based upon the five years she has resided in Canada since the age of 18. Like the previous example, had the Agreement not been made, Ms. Jones would not have been able to meet the qualifications for OAS eligibility.

With this scenario in mind, how does one apply the Agreement to claim their own pension benefits?

The pension plans of Canada and the U.S. communicate with each other quite well. As such, if you live in the U.S. can visit or write any U.S. Social Security office to apply for either U.S. or Canadian benefits.

If you live in Canada and hope to apply for U.S. benefits simply visit or write to any U.S. Social Security office located near the border.

So where do you find yourself? Are you caught in the middle of this unique issue? You are not alone in your quest to find a path forward. With regulations and agreements constantly in flux, it’s important to examine your options through the lens of current cross border agreements. To find out more, contact Cardinal Point.