• OPTrust Releases Financial Results for 2003
• Member Contributions Returning to Normal Rate
• Factor 80 and Points Off to End in 2005
• Your 2003 Annual Pension Statement
• Plan Change: Pension Transfers and Excess Refunds
• OPTrust Files New Class Action Suit Against Nortel
• Satisfaction with OPTrust’s Service Increases
• 1,400 Contract/Unclassified Members Join the Plan
• Online Services Offers New Secure Message Feature
• You Asked…

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• OPTrust’s 17.3% investment return increases the Plan’s net assets to $9.6 billion.
• A funding loss is expected in the Plan’s next valuation, due to negative returns in 2001-2002.

Strong results for OPTrust’s investment portfolio in 2003 helped increase the OPSEU Pension Plan’s net assets to $9.6 billion, up $1.1 billion from the previous year.

“Approximately 60% of the Plan’s assets are invested in Canadian and foreign stocks,” said David Rapaport, chair of OPTrust’s Board of Trustees. “As a result, the Plan was in a good position to benefit from last year's strong recovery in the world’s major stock markets.”

Investment performance
Over the year, OPTrust achieved an overall return of 17.3%. This is more than double the 7.5% target return needed to pay for members’ and retirees’ pensions over the long term.

Our results were also significantly better than the Plan’s weighted benchmark of 13.6%. The benchmark measures the overall performance of the markets we invest in. By outperforming the benchmark, OPTrust’s investment strategy generated approximately $310 million in added value for the Plan.

Since OPTrust’s launch in 1995, the Plan has achieved an average annual return of 9.7%. This long-term return tops both our 7.5% target and the 8.6% average benchmark for the same period.

Despite volatile markets, OPTrust has achieved an average annual return of 9.7% since 1995. In 2003, the Plan’s return was a very strong 17.3%

Funding loss expected
Despite these strong results, OPTrust, like most major investors, has been affected by poor markets in recent years. In 2001 and 2002, investment losses reduced the Plan’s net assets by $1.5 billion.

While the Plan benefited substantially from the market upturn in 2003, we are also managing the effects of losses from earlier years. Meanwhile, the projected cost of members’ pensions has continued to rise, increasing by approximately $1.2 billion over the past three years.

As a result, while the long-term outlook remains strong, we expect that the Plan’s next actuarial funding valuation will identify a funding loss.

Building security for the future
OPTrust’s Board of Trustees has therefore made a number of strategic decisions.

First, the Trustees approved a series of changes to the Plan’s investment policies. These changes will help the Plan to meet or exceed our target return over the long-term, while keeping risk within acceptable limits.

Second, the Board adopted an enhanced “liability management strategy” to address the consequences of the projected funding loss and reduce the risk of contributions rising above the Plan’s normal rate over the next several years.

Taken together, these decisions will further strengthen the Plan’s financial base over the long-term, while helping to ensure stable contribution rates for members and employers.
 

We Report to You… Want a handy summary of OPTrust’s investment and financial results for 2003? What about the Plan’s funding outlook and our work to provide you with prompt, friendly service? It’s all at your fingertips, in our Annual Highlights for Members and Pensioners 2003.   Get the Big Picture For detailed information on OPTrust’s performance over the year, including the Plan’s audited financial statements, see our full 2003 Annual Report.

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Member Contributions Returning to Normal Rate

The current reduction in member contributions to the OPSEU Pension Plan will end on January 1, 2005 – 11 months sooner than previously scheduled. The early return to the normal rate follows an amendment to the Plan text approved by OPSEU and the Government of Ontario in April.

The Plan’s normal contribution rate for both members and employers is 8% of the members’ regular salary. ^note

Since December 1999, members have enjoyed a temporary contribution reduction. This has been paid for from the members’ share of past Plan gains. Employers have paid contributions at the normal rate over this period.

For the first three years, members’ contributions were reduced by 4% of their regular salary. In December 2002 and again in December 2003, member contributions increased by 1%, to the current rate of 6% of salary. Another 1% increase is scheduled for December 1, 2004. With the recent Plan change, the final 1% step to the normal rate will take place on January 1, 2005.

Managing contribution rates
The January return to normal member contributions is part of OPTrust’s “liability management strategy.”

Under this strategy, OPTrust’s Board of Trustees plans to file the next funding valuation in 2004. The valuation, which covers the period to the end of 2003, is expected to identify a net funding loss.

Normally, this would trigger an immediate increase in contributions above the normal rate. However, in its role as plan sponsor, OPSEU has set aside part of the members’ share of past gains in a separate fund to stabilize member contributions. At the end of 2003, the members’ fund stood at $172 million. A similar fund established by the Government to stabilize employer contributions totalled $338 million.

In March, OPSEU agreed to use the members’ fund to offset contribution increases arising out of the funding valuation. The valuation results won’t be available until this summer. However, we project that the stabilization funds will be enough to keep contributions from rising above the normal rate until at least 2007.

At that time, the plan’s next funding valuation will show whether investment returns have been high enough to reduce the balance of the Plan’s past losses.

In the meantime, the return to the normal contributions in January 2005 will help preserve the stabilization fund, to offset possible contribution increases in the future.

Between December 1999 and January 1, 2005, an average member who earned $45,000 per year would have saved almost $7,700 due to the reduced member contribution rate. Employers have contributed at the normal rate throughout this period

Note:  OPTrust contributions are “integrated” with the Canada Pension Plan. This means you pay lower contributions to OPTrust for the portion of your salary that is also covered by CPP.

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Factor 80 and Points Off to End in 2005

OPTrust’s two temporary early retirement options are set to expire in 2005. Known as “Factor 80” and “Points Off,” the two provisions are scheduled to end on March 31 and December 31, 2005, respectively.

Both of these temporary benefit enhancements have been paid for through the members’ share of the Plan’s past funding gains.

Factor 80 allows eligible active and divested members to retire early with an unreduced OPTrust pension. To qualify, your age plus your years of pension credit must total exactly 80, on or before March 31, 2005.

Two related provisions for eligible members who receive a layoff notice – Surplus Factor 80 and Factor 80 Bridging – expire on December 31, 2004. These benefits were negotiated between the sponsors during collective bargaining, but funded through plan gains.

Points Off applies to active and divested members and deferred pensioners who:

• are 55 or older when they leave their jobs, and
• start to receive a reduced pension by December 31, 2005.

For these members, Points Off means a smaller early retirement reduction – and a larger pension from OPTrust.

Funding outlook
With a funding loss expected when OPTrust files the Plan’s next actuarial valuation, the Plan will not be able to extend these benefits, unless OPSEU and the Government of Ontario negotiate additional funding arrangements. However, all benefits will remain in effect until their scheduled expiry dates.

The funding loss will have no impact on any of the Plan’s permanent provisions – including the Factor 90 and 60/20 early retirement options – or on the pension amounts paid to OPTrust retirees.

Factor 80 eligibility
If you think you may qualify for Factor 80 before March 31, 2005, you should contact OPTrust to confirm your eligibility.

To retire under Factor 80 you must meet strict time limits for submitting your resignation notice and starting your pension.  For more information, see the “temporary provisions” section of OPTrust’s booklet It’s Your Pension, or contact us directly.
 

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Your 2003 Annual Pension Statement – A Handy Financial Planning Tool

Wondering when you will qualify for an unreduced OPTrust pension? Want an estimate of much your pension will be? How about how much credit you have in the Plan?

You’ll find the answers to these and other important questions about your OPTrust pension on your 2003 Annual Pension Statement (APS).

Your statement’s in the mail… and online
OPTrust has been mailing statements to all our active and divested members in several batches, starting in late April. The last mailing will take place in mid-June.

You can also view your APS online – anywhere, anytime. Just visit log on to our secure Online Services site for members and pensioners.

Financial planning
One key to a successful retirement is developing a financial plan years, even decades, ahead of time. And, if you are like most OPTrust members, your pension is one of your most valuable and secure financial assets.

So no matter what stage you are at in your career, when you are considering your options, its useful to know how much your OPTrust pension will be under a range of different retirement scenarios.

Your APS & OPTrust’s pension estimator
That’s where your APS – and OPTrust’s online pension estimate calculator  – come in.

Simply go to the Pension Planning Tools section of our Web site and enter your salary and credit information from your APS. You can then use the calculator to test how a variety of factors might affect your OPTrust pension. These include increases in your salary, whether you work full or part-time, and changes in your projected retirement date.

Then, for each scenario, you can use our new retirement income calculator to factor in income from your RRSPs, other investments or another job. The result is an estimate of your total retirement income – and a comparison to your earnings before you retire.

Note: If you are planning to retire within the next five years, we recommend that you contact our Member and Pensioner Services staff to confirm your eligibility and the amount of your OPTrust pension.

Andrea Dunkerly registered for OPTrust’s secure Online Services at the OPSEU convention in April. “It was easy to sign up and the site is so convenient,” she said. “It’s great to be able to access my APS online. I check my bank balances online, so why not my pension, too?”

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Plan Change: Pension Transfers and Excess Refunds

A recent amendment to the OPSEU Pension Plan will help ensure equal treatment for former OPTrust members who decide to transfer the value of their pensions out of the Plan. The change was approved by the Plan’s sponsors – OPSEU and the Government of Ontario – in April and will take effect for members who leave the Plan on or after July 1, 2004.

Under the OPSEU Pension Plan, vested members who leave their jobs with an OPTrust employer can choose one of three options:

• leaving their pension credit with the Plan and taking a deferred OPTrust pension, payable in the future
• transferring the “commuted value” (CV) of their pension to a locked-in retirement account (LIRA) or similar retirement savings arrangement (for members under age 55), or
• transferring their pension to another registered pension plan with which OPTrust has a reciprocal transfer agreement.

In some cases, members who choose to transfer their pension to another plan may also be eligible for a refund from OPTrust. The recent change affects how this “excess value” refund is calculated.

Transfers to other plans
OPTrust has reciprocal transfer agreements with 18 other public sector pension plans. Each agreement includes a formula for calculating the “transfer value” of members’ service. These transfer values may be different from the CV that the member could transfer to a LIRA.

When a former member chooses to transfer his or her pension to one of these plans, the receiving plan will calculate the value of the member’s service based on that plan’s benefit provisions. At the same time, OPTrust will calculate both the transfer value and the CV of the member’s service under the OPSEU Pension Plan.

Depending on the different provisions of the two plans one of the following may occur:

Scenario 1: In some cases, both the CV and the transfer value of the member’s OPTrust pension may be less than the amount required by the new plan to pay for the same amount of credited service. In this situation the member has two options. He or she can either i) accept a reduced amount of credit in the new plan or ii) make a top-up payment to buy back the remaining amount of credit.

Scenario 2: In other cases, the CV and/or the transfer value of the member’s OPTrust pension may be equal to or greater than the amount required by the new plan. In this case, the member will receive full credit for the OPTrust service in the new plan. This typically applies when a member transfers to the Public Service Pension Plan due to a promotion to a management or excluded position.

Excess refunds
In some cases under Scenario 2, the former member who is transferring his or her pension may also be eligible for a refund from OPTrust.

In the past, refunds were payable if the OPTrust transfer value or the CV exceeded the amount required by the new plan to provide credit for the member’s full service. The refund amount was based on either the CV or the transfer value – whichever was higher.

With the Plan change, excess refunds will be paid only if the CV is higher than the amount required by the new plan. If the OPTrust transfer value exceeds this amount but the CV does not, a refund will no longer be paid.

As a result, some former members may receive a smaller refund or no refund at all. In other cases, the member’s refund amount will be unaffected. The new refund rule mirrors the practice of other major pension plans.

The change will have no impact on the amount of credit that the members can transfer to their new plan. However, since any refund will be based on the CV of the member’s OPTrust pension, the new rule means equal treatment for members who transfer their CV to a LIRA and those who transfer their service to another pension plan.

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OPTrust Files New Class Action Suit Against Nortel

OPTrust has filed a new class action lawsuit against Nortel Networks Corp. and three of its senior officers. The suit, which has been filed in a New York court, covers the period from April 24, 2003 up to and including April 27, 2004.

The class action alleges that during this period Nortel and the individual defendants issued false and misleading statements to investors about the company’s financial position and performance and violated anti-fraud provisions of US federal securities legislation. The result, the suit alleges, was to artificially inflate Nortel’s share price.

The class action seeks to recover damages experienced by all investors who purchased Nortel shares during the class period. OPTrust has also filed an application to be named “lead plaintiff” in this suit. In this role, OPTrust would be acting on behalf of all investors covered by the class action.

OPTrust is currently lead plaintiff in an earlier class action lawsuit against Nortel. This suit alleges serious disclosure and accounting irregularities between October 24, 2000 and February 15, 2001. This earlier lawsuit was certified by the courts in New York following unsuccessful attempts by Nortel to have it dismissed. Notice was issued to potential class members in Canadian and American newspapers in early April 2004.

OPTrust is pursuing both lawsuits as part of our fiduciary responsibility to the members and pensioners of the OPSEU Pension Plan. These legal actions are consistent with our role as a major institutional investor with a continuing interest in the proper functioning of capital markets. We continue to support efforts to ensure full, timely and accurate financial disclosure and a high standard of corporate conduct, in the interests of all investors

While we are actively pursuing recovery of damages experienced by the Plan, these losses do not affect OPTrust’s capacity to meet our pension obligations.
 

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Satisfaction with OPTrust’s Service Increases

One of the ways OPTrust tracks how well we meet your needs – and those of our 75,000 other members and pensioners – is through our regular Client Satisfaction Survey. Judging by the most recent results, you’ve noticed some improvements.

The survey, which is mailed to a random sample of members and pensioners, asks for feedback on the quality and timeliness of our service, what we do well, and where we need to do better.

In the first quarter of 2004, members and pensioners gave us an overall satisfaction rating of 8.0 out of 10. This rating is our highest since 2001, and a significant increase over previous years.

The survey also shows that members and pensioners appreciate our prompt, personal service and the quality of our publications and Web site. At the same time, members want to access more pension information online. As a result, we are continuing to add features to our popular Web site – including the new, secure Online Services.

The most recent survey also shows an increase in the proportion of members who reported that their pension transaction was completed promptly – from 49% in early 2003 to 63% in early 2004. This may reflect the fact that over the year, we reduced the number of overdue cases by more than 50%.

Of course, there is still room for improvement and the timeliness of our services remains a top priority for OPTrust. In January 2004, we started measuring transaction times against a new set of service standards, and over the year we will keep looking for ways to improve efficiency. In the meantime, we remain committed to the accuracy and prompt, courteous and personal service you have come to expect.

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1,400 Contract/Unclassified Members Join the Plan

More than 1,400 eligible contract employees made the decision to join the OPSEU Pension Plan in 2003. Unlike permanent employees, for whom membership is mandatory, contract, or “unclassified,” employees have the option to join the Plan voluntarily.

Once they join, these members earn the right to the same secure, lifetime pension as other members. And, as with all Plan members, their employers share the cost of their future pensions by contributing to the Plan.

To help ensure contract employees know about their option to enrol – and about the advantages of an OPTrust pension – we have launched a special section of the OPTrust Web site for contract staff.

To complete an enrolment form, employees should contact their human resources or pay and benefits representative.

If you are one of our new members, welcome to the OPSEU Pension Trust!

If you have a contract or unclassified colleague who might be interested in joining the Plan, why not suggest they visit our Web site or give us a call?
 

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Online Services Offers New Secure Message Feature

OPTrust has added a new secure message feature to our Online Services section of our Web site. Unlike regular e-mail, messages sent through Online Services are fully encrypted.

This means you can now send confidential information (e.g. your Social Insurance Number, employment or banking information) to OPTrust and retrieve our responses – all from inside your personalized, password-protected area in the OPTrust site.

To send us a secure message, simply log on to Online Services and select “communicate with OPTrust.” When our response is ready, we’ll send you an e-mail notice with a link to Online Services, so you can log on to retrieve our reply.

The secure message function also allows you to send and receive attached electronic documents and lets you keep an archive of past messages sent through the system.

Other Online Services features allow you to:

• check and update your beneficiary information
• update your mailing address, phone number and e-mail address
• choose to receive OPTrust statements and publications online
• sign up to receive e-mail notices about OPSEU Pension Plan news.

You can sign up for Online Services any time. You will need your Social Insurance Number and a recent Annual Pension Statement to register. If you don’t have a copy of your APS or need help registering, simply call our Member and Pensioner Services line for assistance.
 

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You Asked…

Question: Why is my estimated pension on my Annual Pension Statement lower after age 65?

Answer: The OPSEU Pension Plan is “integrated” with the Canada Pension Plan. This means that you pay lower contributions to OPTrust for the part of your salary that is also covered by CPP.

By the same token, your OPTrust pension is reduced to reflect these lower contributions. This reduction takes place at age 65 – the same age at which you qualify for an unreduced pension from CPP. If you retire early, your OPTrust pension will not be reduced for CPP integration until you reach age 65. That is why your Annual Pension Statement shows a higher pension before age 65 than after.

Question: Why doesn’t the “plan membership date” on my Annual Pension Statement include the unclassified service I bought back?

Answer: Your plan membership date is the most recent date on which you joined the Plan. This may be different from your date of hire or the continuous service date used by your employer. You may also have credit for periods of previous plan membership or periods of service you have bought back – including previous unclassified or contract service.

This additional credit does not affect your plan membership date. However, it is included in the “total credit” shown on your statement. It is your total credit – not your plan membership date – that OPTrust uses to calculate your pension amount and your eligibility for early retirement.

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Posted on May 20, 2004