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In late March, both OPSEU and the Government of Ontario notified OPTrust of their agreement in principle to extend the OPSEU Pension Plan’s temporary Factor 80 early retirement option.

The previous Factor 80 provision expired on March 31, 2002.

Before any extension of Factor 80 can come into effect, both sponsors – OPSEU and the Government of Ontario – must approve an amendment to the OPSEU Pension Plan. As this issue of OPTions went to press, the Government had not yet signed the required Plan amendment.

Factor 80 is a temporary option that allows eligible OPTrust members to retire early with an unreduced pension.

To qualify under the Plan’s recently expired Factor 80 provision, a member’s age plus years of credit in the Plan must have totalled exactly 80 on or before March 31, 2002. Eligible members must also meet strict deadlines for submitting their notice to the employer and for retiring and starting to collect a pension. Information provided to OPTrust by the sponsors to date indicates that the same provisions would apply to any extension of the Factor 80 option.

Once a plan amendment extending Factor 80 comes into effect, we will send a letter to all members whose OPTrust records indicate that they may qualify for Factor 80 before any new deadline.

Until both sponsors sign a plan amendment, OPTrust staff cannot:

• confirm members’ eligibility for any extended Factor 80 provision, or
• provide pension estimates or retirement calculations based on an extension of the Factor 80 option.

As more information on the extension of Factor 80 becomes available, the details will be posted on OPTrust’s Web site at www.optrust.com.

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After six years of strong investment results, the OPSEU Pension Trust (OPTrust) reported an investment loss of 3.5% in 2001. Over the seven years since the OPSEU Pension Plan was launched, OPTrust has achieved an average annual return of 11.3%.

At the end of the year, the Plan’s net assets stood at $9.4 billion, down from $10.0 billion in 2000. The decrease in net assets results from the Plan’s $359 million investment loss, as well as pension and other benefit payments made over the year.

Despite the decrease in net assets, however, the Plan’s financial statement surplus increased to $1.8 billion at the end of 2001. The surplus is not a "gain" that can be used to improve benefits or reduce contributions (see page 2 for more information). However, it is an indication of the continued strength of the Plan.

"Smoothing"
The growth in the financial statement surplus reflects the "smoothing" of investment returns. Each year, OPTrust’s investment returns are held in reserve and recognized evenly over a four-year period. This helps cushion the impact of short-term fluctuations in earnings.

Last year, "smoothed" earnings from 1998-2000 more than offset the recognized portion of the investment loss experienced in 2001. The unrecognized portion of the 2001 loss will reduce the Plan’s surplus over the next three years.

Investment performance
"Canadian and foreign stock markets had a difficult year in 2001," said Stan Sanderson, chair of OPTrust’s Board of Trustees. "OPTrust’s investment return – like that of all large institutional investors – is closely tied to the performance of the markets."

In fact, despite its 3.5% loss, OPTrust outperformed its investment "benchmark." The benchmark measures the overall performance of the markets that OPTrust invests in. In 2001, OPTrust’s benchmark registered a drop of 4.4%. Since 1995, OPTrust has bettered its benchmark in five years out of seven.

Long-term results
"It is normal for investment returns to vary from year to year as part of the business cycle," said Sanderson. "We anticipate that a pension plan like ours may occasionally experience a year of negative returns. What is more important, given our commitment to our members and pensioners, is the ability to grow the pension fund over the long-term."

Because the OPSEU Pension Plan is a "defined benefit" plan, the value of your earned pension does not change depending on the Plan’s investment return. Instead, your pension is calculated using OPTrust’s pension formula, based on your average salary and years of credit in the Plan.

To pay for members’ and pensioners’ benefits, OPTrust needs to achieve an average annual return of 7.5% over the long-term. With an average return of 11.3% since 1995, the Plan has topped this target by 3.8%. OPTrust also outperformed its overall benchmark for the same period, which rose by an average of 10.5%.

The financial statement surplus continued to grow in 2001, due to the "smoothing" of investment earnings from previous years.

We Report to You

OPTrust’s financial results for 2001 are summarized in the report Focusing on Pension Security: Annual Highlights for Members and Pensioners 2001. Detailed information on OPTrust’s performance, including full financial statements and a list of the Plan’s significant investments, is available in our full Annual Report.

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Every three years, OPTrust carries out an "actuarial funding valuation" of the OPSEU Pension Plan. This valuation compares the Plan’s assets to the projected cost of members’ and pensioners’ current and future benefits.

The results of the funding valuation for 1999-2001 will be ready in mid-2002.

If this valuation finds that OPTrust’s assets have grown more quickly than needed to pay for accrued pension benefits, the resulting "gain" will be shared equally between the Plan’s membership and the Government of Ontario.

The members’ and pensioners’ share of any gains can be used to improve benefits, reduce contributions or be set aside in a stabilization fund against possible future contribution increases.

The Government must first use its share of any gains to eliminate any unfunded liability it owes to the Plan. It may then use any remaining gains to improve benefits, reduce employer contributions or establish a stabilization fund.

Before any change to benefits or contribution levels can come into effect, both sponsors must approve an amendment to the OPSEU Pension Plan.

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A New York court has appointed OPTrust to the role of "lead plaintiff" in a class action suit against Nortel Networks Corp. and a number of its senior officers.

Among the allegations in the class action are that between October 24, 2000 and February 15, 2001, Nortel used improper accounting practices and issued false and misleading statements to investors about its financial position and performance. The result, the suit alleges, was to artificially inflate Nortel’s share price during this "class period."

The class action aims to recover damages resulting from these alleged irregularities on behalf of investors who bought Nortel shares at any point during this four-month period, including OPTrust.

"Lead plaintiff"
As lead plaintiff, OPTrust will be acting on behalf of all investors covered by the class action. This includes a significant number of Canadian investors who purchased Nortel shares during the class period. In taking on the lead plaintiff role, OPTrust aims to protect the interests of OPSEU Pension Plan members and pensioners, as well as those of other Nortel investors.

OPTrust lost approximately $52 million (CDN) as a result of its purchase of Nortel shares during the class period. While sizable, this loss does not have a significant impact on the health of a pension fund as large as the OPSEU Pension Plan.

At December 31, 2001, OPTrust had net assets totalling more than $9.4 billion and a financial statement surplus of $1.8 billion.

Corporate governance
OPTrust’s leading role in this class action is consistent with our standing as a major institutional investor. The Plan has a long-term interest in ensuring that publicly traded companies adhere to a high standard of corporate governance. We therefore support efforts to ensure full, timely and accurate financial disclosure and a high standard of corporate conduct.

OPTrust’s Nortel holdings
At the end of 2001, OPTrust still held more than 8.5 million shares in Nortel, with a market value of $104 million.

This reflects the fact that Nortel continues to account for a large proportion of the total value of the Toronto Stock Exchange’s (TSE) 300 Index. It also reflects the evaluation of Nortel’s future prospects by OPTrust’s external investment managers.

While Nortel tops OPTrust’s list of significant equity investments, the Plan’s stake in the company was well below Nortel’s weight in the TSE 300 in 2001. This played a major role in OPTrust’s avoiding the worst of the drop-off in the TSE 300 over the year. In 2001, the TSE 300 fell by 12.6%, largely due to a 77.7% drop in Nortel’s share price. In contrast, OPTrust’s Canadian equity portfolio showed a loss of 4.5%.

Class action
The class action against Nortel is pending in the United States District Court for the Southern District of New York. The suit was originally filed in February 2001. OPTrust applied to the Court to be named lead plaintiff in December 2001, and was appointed to the lead plaintiff role on January 10, 2002.

OPTrust is represented in the complaint by the U.S. legal firm Milberg Weiss Bershad Hynes & Lerach LLP. In Canada, OPTrust is represented by the pension law firm Koskie Minsky. These firms are assuming all legal costs related to the suit, to be reimbursed from any damages recovered.

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Wondering when you can retire with an unreduced pension? Want an estimate of your earned pension? Your Annual Pension Statement will provide answers to these and many other questions about your personal pension entitlements.

The 2001 Annual Pension Statement (APS) is a snapshot of your OPTrust pension as of December 31, 2001. Your statement includes valuable information to help you plan for your financial future. This includes:

• an estimate of the pension you had earned at year-end
• a projection of the pension you will receive when you become eligible to retire
• your total credit and average annual salary (used in calculating your pension)
• your credit for any buybacks and/or transfers from other pension plans
• your total contributions, plus interest
• the names of the beneficiaries you have identified.

APS Guide
This year, we have responded to members’ feedback by expanding the Guide to Your 2001 Annual Pension Statement that will be mailed with your APS. The guide provides section-by-section explanations of the key terms and concepts used in your 2001 statement, along with answers to frequently asked questions.

Your statement lists your pension information in an easy-to-read table format. To help answer any questions you may have, we suggest that you read the statement in conjunction with the guide. We also recommend that you keep both the statement and guide in a secure place for future reference.

Divested members
As in past years, OPTrust will be sending a special version of the Annual Pension Statement to divested members. This will help keep these "special deferred pensioners" up-to-date on their entitlements in the OPSEU Pension Plan.

If you are a divested member, please be sure to notify OPTrust of any changes in your address, beneficiaries or employment status. This will help us keep your file current and keep you informed about your benefits.

Mailing dates
The statements will be mailed to members in four separate batches, by ministry or employer groups. Mailings will take place between late April and late June.

If you have not received your statement by July 2002, please contact our Client Services department at (416) 681-6100 or 1-800-637-0024.

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If you are currently buying back past service, your 2001 Annual Pension Statement now provides you with a more accurate account of your credit.

The "total credit" shown on your statement includes only the paid portion of your buyback. The remaining credit you have committed to purchase, but have yet to pay for, is shown separately as "future credit."

In estimating your earned pension as of December 31, 2001, we have used your total credit. By excluding the unpaid portion of your buyback from this estimate, we are able to give you a more accurate figure for the pension you have actually earned.

We have, however, included your "future credit" in estimating your projected pension at retirement. This allows you to project your retirement income, assuming that you will complete your purchase.

If you have a current buyback with OPTrust, you will find more information in the 2001 Annual Buyback Statement that we mailed to you in March.

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For OPSEU Pension Plan members who work in the Ontario Public Service (OPS), the OPSEU strike that began on March 13, 2002 raises important questions about the impact on their pension credit.

Below are some general answers on how the strike may affect your pension credit, depending on your individual circumstances.

As more details become available – or if the Government and OPSEU negotiate any special payment arrangements for lost pension credit – we will provide up-to-date information on this site and in future issues of OPTions.

QUESTION: Does going on strike affect my pension credit?
ANSWER: Yes. Members normally earn credit for periods of contributory service. When you are on strike, however, you are not being paid, and pension contributions are not made on your behalf. As a result, you do not earn credit in the Plan while you are on strike.

QUESTION: Why does pension credit matter?
ANSWER: Your pension credit matters in several ways:

• It is a key factor in calculating the amount of your OPTrust pension.
• It is used in determining your eligibility for OPTrust’s unreduced early retirement options, including Factor 90, 60/20 and the temporary Factor 80 option.
• It is used in determining your eligibility for post-retirement health and dental benefits paid for by your employer.

QUESTION: Can I buy back credit for the time I was on strike?
ANSWER: Yes. The OPSEU Pension Plan allows members to buy back credit for strike periods after they return to work. It is possible that OPSEU and the Government may negotiate special payment arrangements for purchasing this service. If not, members will need to submit a buyback application to OPTrust within 24 months of the end of the strike, under the Plan’s normal buyback rules.

QUESTION: I worked under the essential services agreement. Did I continue to earn credit in the Plan?
ANSWER: Yes. If you worked during the strike – under the essential services agreement, for example – your employer deducted pension contributions for the time you worked. This means you will accrue pension credit for the period worked. After the strike, you will be able to buy back credit for any strike periods you did not work.

QUESTION: What about people on LTIP or pregnancy/parental leaves?
ANSWER: If you were on LTIP before the strike began and did not return to work until after the strike ends, then your pension credit will not be affected. While you are on LTIP, your employer is responsible for paying both the member’s and the employer’s share of pension contributions to OPTrust.

Members who were on a pregnancy or parental leave and whose SUB allowance was interrupted due to the strike will not receive pension credit for the period of the work stoppage. You will have the option of buying back this service once the strike is over.

QUESTION: How will the strike affect my current buyback payments?
ANSWER: Because you are not paid while you are on strike, any buyback payments made through payroll deduction will have been interrupted.

Once the strike is over, your buyback payroll deductions will resume at the regular rate. You will have a choice about how to make up for your missed payments. You may either choose to make a lump sum "catch-up" payment or have your payment schedule re-amortized to cover the missed amount. We will contact affected members with more details after the strike ends.

QUESTION: Will the strike affect my Factor 80 retirement?
ANSWER: If you qualified for Factor 80 before the strike, your eligibility will not be affected. You must still meet the deadlines for submitting your notice and retiring under the Factor 80 provision. If you do not retire until after the strike, you will be able to buy back the strike period to ensure that your pension is not reduced.

If you expected to qualify for Factor 80 between March 13 and March 31, 2002, you may need to buy back the strike period in order to qualify. You can purchase this service once the strike has ended. You must complete any buyback prior to retiring. Please contact OPTrust as soon as possible after the end of the strike to make the necessary arrangements.

As this issue of OPTions went to press, OPSEU and the Government of Ontario announced an agreement in principle to extend the Factor 80 window, but had not signed the necessary plan amendment. For more information see Update: Extension of Factor 80 in this issue of OPTions as well as additional questions and answers on the OPSEU strike elsewhere on this site.

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