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Fall 2005, Number 36
In this issue
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If you receive a layoff notice, you now have access to the Surplus Factor
80 option for the effective period of the recently negotiated Central
Collective Agreement between OPSEU and the Ontario Government. The
Government pays the cost of this benefit improvement, which was scheduled to
end on December 31, 2004.
Under Surplus Factor 80, you may be eligible to retire with an immediate
unreduced pension if:
- you receive a layoff notice on or before December 31, 2008, and
- your age plus your credit total 80 years or more on or before December 31,
2008, and on or before your last day of employment.
To retire under Surplus Factor 80, you must:
- notify your employer in writing that you are retiring under this provision
within 92 days of the last day of the month in which you receive your layoff
notice, and
- leave your employment and end your membership in the Plan no later than
the layoff date in the layoff notice.
Bridging to an Unreduced Pension
OPTrust members who receive a notice of layoff may also be able to “bridge”
to an unreduced pension. Bridging requires special provisions in your
collective agreement allowing the use of leaves of absence, the surplus
notice period and the period represented by severance payments to reach the
date on which you become eligible for one of the Plan’s unreduced retirement
options.
Please contact your human resources representative or OPTrust for more
information if this option applies to you.
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Thinking of Retiring Early? Factors to Consider
Regardless of where you are in your career, it’s never too soon to think
about retirement, especially if you’d like to retire early. Of course, a big
part of the retirement planning process concerns setting your personal and
financial goals. Knowing how your OPTrust pension can help you achieve your
goals is an important part of that process.
This is the second installment in the retirement planning series to help you
start thinking ahead. To help plan your retirement, OPTrust provides a
number of useful tools and publications. Our website is
a great place to start. We also recommend that you consult an independent
financial advisor to help you set and work towards your financial goals.
Retiring Early with an Unreduced Pension
Knowing your pension options when considering early retirement is the first
step. For instance, you may be eligible for an early, unreduced pension if
you attain:
- Factor 90 – your age plus your credit (in years, months and days) total at
least 90 years
- 60/20 – you are at least 60 years old and have 20 or more years of credit.
If you qualify for either of the above early retirement provisions, your
pension will be based on your credit in the Plan at your termination date.
The basic pension formula will be used to calculate your pension, and at age
65 your pension will be reduced to reflect Canada Pension Plan (CPP)
integration. You may decide to collect your CPP pension before age 65, but
this will not affect your OPTrust pension, as OPTrust does not integrate
your pension with CPP until age 65.
Retiring Early with a Reduced Pension
If you do not qualify for an early unreduced pension, you may retire at age
55 or older with a reduced pension. Please note that deferred members who
qualify may also choose to retire early with a reduced pension. You are
eligible for early retirement with a reduced pension if:
- you have at least two years of credit or continuous membership in the
Plan, and
- you are at least 55 years old when you end your employment and membership
in the Plan.
With this type of early retirement, your pension is calculated using the
basic pension formula (and does not include the CPP reduction until age 65).
However, your pension is reduced by 5% for each year you are under age 65.
The reduction will be prorated for partial years.
Points Off
If you terminate your employment on or before November 30, 2005, and begin
receiving your pension by December 2005 with "points off," the reduction
equals 5% for every year you are away from your earliest unreduced
retirement date (i.e., Factor 90, 60/20 or age 65).
In projecting this date, we use:
- your age when you begin to receive your pension, and
- your credit when your plan membership ended.
For example, if you are 57 years old and would be eligible for Factor 90 in
two years, under “points off,” your pension would be reduced by 10% if you
begin receiving your pension by December 2005. Under the regular plan rules,
your pension would have been reduced 5% for every year you were less than 65
(using this example, 40%).
This means you must terminate employment – and notify us to start your
pension – by November 30, 2005, at the latest.
A Reminder
Approximately six months before you plan to stop working is a reasonable
period of time to start making arrangements for retiring. OPTrust generally
requests that our office receive all required documents pertaining to your
retirement at least three months prior to your termination date. Of course,
if you give less notice OPTrust will serve you in a timely manner, but
waiting until only a few weeks before retirement could cause delays in your
first pension payment.
Working After Retirement
If you’ve begun thinking about retirement, you may be wondering what role
work may play in your future. For many people, the last thing they want to
do after retiring is work. For others, the option to continue working,
either at the same job or a new one, can be a blessing. Depending on your
circumstances and what activities you’d like to pursue in your retirement,
the option to continue working may be for you.
If you choose to start receiving your pension and then start working again,
who you work for may affect your pension. If you work for an employer who
does not contribute to the OPSEU Pension Plan, your pension is not affected.
If you are re-employed or engaged by an employer who contributes to the
Plan, the impact on your pension depends on your salary and whether or not
you rejoin the Plan. Please contact OPTrust before you decide to work again
for an employer who contributes to the Plan. It is your responsibility to
inform a participating employer that you are currently receiving a pension.
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2004 Funding Valuation Highlights
With the completion of the latest funding valuation, the OPSEU Pension
Plan’s financial stability was further underlined. Because of this
stability, member and employer contribution rates are not expected to
increase before 2007 at the earliest.
Managing Gains
The commitment to sound governance by the Government and OPSEU is reflected
in the practice of only approving those permanent benefit improvements that
the Plan can afford. We do not anticipate having to roll back improvements,
and no reduction in future pension benefits is contemplated.
The bottom line – for our 74,000 members and pensioners – is that the OPSEU
Pension Plan is in solid financial shape and fully capable of delivering a
secure pension that you and your family can count on in your retirement
years.
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You Asked...
Question: I work at the LCBO. Will the OLBEU merger with OPSEU affect
my pension?
Answer: No, the merger will not affect your OPTrust pension. However,
should you know someone in an unclassified or non-permanent position at the
LCBO, please let that person know that he or she has the option to join the
OPSEU Pension Plan at anytime. For more information on joining the Plan,
download our brochure for contract and unclassified staff
Consider Joining
the OPSEU Pension Plan.
Question: I’ve just had my first child. Should I update my beneficiaries?
Answer: Yes. It is a good idea to notify OPTrust of any changes to your
beneficiary information. You can check, update or change your beneficiary
information through OPTrust’s secure Online Services. Alternatively, you may
complete an Identifying Benefit Recipients
(OPTrust 1015) form, available on
our website or by request through OPTrust’s Member and Pensioner Services or
your HR department.
Please note that if you are considering making changes to your beneficiary
information, there are a number of things to consider. Factors like your
marital status or whether or not your children are in school full-time after
age 18 could affect who would receive a benefit in the event of your death.
That’s why we suggest you read our booklet
Your Pension and Your
Beneficiaries.
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OPTrust Welcomes New Trustee: Michael Beswick
OPTrust is pleased to announce the appointment of Michael Beswick to the
Board of Trustees by the Government of Ontario.
Recently retired in 2004 as Senior Vice-President, Pensions, for the Ontario
Municipal Employees Retirement System (OMERS), Beswick was associated with
OMERS since 1974. He started in the policy area and was responsible for
pension administration, policy, communications, systems and data. Apart from
OMERS, he has worked in the areas of pensions, employee benefits and
compensation in industry.
Beswick plays an active role on a number of Boards including the Association
of Canadian Pension Management (past President), the Toronto Board of Trade
Pension and Benefits Committee, Providence Healthcare and its Pension
Committee, and the editorial board of the Pension and Benefits Monitor
magazine. He is a past member of the Salvation Army Investment Committee,
the Victoria Order of Nurses Pension Committee and the Trent University
Board of Governors, where he was chair of Trent’s Investment and Pension
Committee.
New Vice-Chair: Jordan Berger
Trustee Jordan Berger was appointed to Vice-Chair of the Board in the
spring. First appointed to the Board in 2001, Berger has worked as OPSEU’s
Supervisor, Strategic Planning and Policy Development since 1997. He is
responsible for policy research and planning on a wide range of issues
facing the union. During the early 1990s, he worked as a policy advisor to
the Chair of Management Board of Cabinet during Ontario’s Rae government.
The Board of Trustees also extends a fond farewell to Bob Bellamy who served
as a Government appointee from 2000 to 2005, and to David Rapaport, a Union
appointee, who was on the Board from 2002 to 2005, and served as Board Chair
and Vice-Chair. Rapaport remains as a temporary Trustee at the request of
the OPSEU Executive Board.
OPSEU and the Government of Ontario jointly sponsor the OPSEU Pension Trust.
Each sponsor appoints five volunteer Trustees to the Board, which is
responsible for overseeing the investment of the Plan’s assets, the
administration of members’ and pensioners’ benefits, and the provision of
quality service to OPTrust’s membership. Every two years, the roles of Chair
and Vice- Chair alternate between a Government and an OPSEU appointee.
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Investments: Growing Real Estate
In the fall of 2004 we told you about OPTrust's commitment to a long-term
strategy to increase the size of the Plan's real estate investment
portfolio. Since then, we've expanded our portfolio with $220 million funded
to the end of 2004 and a further $232 million funded during the first half
of 2005. As a result, our real estate portfolio now comprises approximately
4.0% of the Plan's total assets as at June 30, 2005, up sh arply from less
than 0.5% at the end of 2003. This growth is in keeping with changes to the
asset mix approved by the Board of Trustees in 2003 to increase the real
estate portfolio to 9.5% of the total Fund.
Real Estate's Advantage
The trend among many Canadian pension funds is to invest in commercial real
estate, and with good reason. Over time, real estate has proven to be an
excellent investment, providing fund diversification, solid performance and
steady income returns. What's more, real estate tends to be more stable than
stocks and performs well during periods of inflation, which can help offset
increases to retirees' indexed pensions.
Diversity is Key
According to Robert Douglas, Managing Director of OPTrust's Real Estate
Investments, “Our strategy is to invest directly in office, retail,
industrial and multi-family properties in Canada and use indirect investment
vehicles for the U.S. and other international markets. However, the
cornerstone of our strategy is to ensure diversity by property type,
geography, and investment manager. With this approach we can draw on the
Investment Division's strengths and resources while balancing management
fees.”
Performance-wise, the real estate portfolio posted returns of 12.9% in 2004,
the same as in 2003. According to Mr. Douglas, OPTrust can expect another
year of solid investment returns from its growing real estate portfolio in
2005. Because of its favourable investment characteristics for pension
funds, real estate will remain a key asset in OPTrust's portfolio for the
foreseeable future.
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Message to Members on OPTrust’s Funding Status
With the completion of the latest actuarial valuation as at December 31,
2004, which was approved by the Board in September 2005, it was revealed
that your pension plan remains secure and in a strong financial position.
Here’s an update on the situation. We currently have $10.4 billion in
actuarial assets, plus $2.9 billion in projected future contributions from
current members and their employers. The estimated future cost of members’
lifetime pension benefits is $13.1 billion. As a result, the Plan has a
funding shortfall of $428 million. While this is up from the previous year,
the current shortfall amounts to only 4% of the Plan’s actuarial assets.
However, consistent with their commitment to prudence, the Plan’s sponsors –
OPSEU and the Ontario Government – set aside funds during the years of
strong investment returns to keep the fund in a strong financial position
during periods of weaker returns. Specifically, the Government set aside
$276 million, and OPSEU $185 million. The combined $461 million in reserves
is more than enough to cover the current deficit.
Beginning in 2004, each sponsor began to use a portion of its rate
stabilization funds to cover the annual unfunded liability payments. That
means member and employer contributions will not rise above the normal rate
until at least the Plan’s next required funding valuation.
“We believe that we are the only major Canadian pension plan to successfully
reserve a significant portion of past gains to offset a funding gap and thus
eliminate the risk of contribution rate increases,” said Bill Foster,
OPTrust’s acting Executive-Vice President and Chief Administrative Officer.
“This is what good pension fund governance is about.”
Anticipation and Planning
Pension regulations in Ontario require an actuarial valuation to be carried
out at least once every three years to ensure that sufficient assets are set
aside to pay for future pension benefits. Since OPTrust performed a
valuation in 2001, it did not require another until the end of 2004; we
chose instead to do the next valuation in 2003. The reason for doing so was
to more actively manage the investment losses the Plan incurred in 2001 and
2002 – years in which many investors had losses.
With the completion of the actuarial valuation, as of the end of 2003, it
was revealed that the Plan had a net loss of $255 million for 2002 and 2003.
That loss was anticipated, as we developed our Liability Management Strategy
to address investment losses from 2001 and 2002. We also anticipated that
those losses would impact the Plan’s funding status for 2005 and 2006.
However, as mentioned above, both OPSEU and the Government prudently set
aside a part of the funding gains realized between 1999 and 2001 in separate
contribution rate stabilization funds.
Trustees, staff and actuaries of the Plan will continue to monitor the
funding health of the Plan very closely, while pursuing the Plan’s
multi-year liability management strategy.
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Facts About… Plan Governance
What do we mean when we say an organization is “well governed?” In the
case of OPTrust, it means that the Board of Trustees, which represents OPSEU
members and the Ontario Government, takes an active approach to ensuring
that OPTrust effectively conducts and manages the business for which OPTrust
was created. That is, to pay the pensions of OPSEU members now and in the
future. Over the last 10 years, the fulfillment of that responsibility has
been a resounding success. Looking ahead, the role of good governance at
OPTrust will continue to play a critical role in ensuring that our 74,000
active and retired members – and their families – can depend on us for a
secure retirement income.
Who Does What or Best Practices
Our governance model provides detailed guidelines and responsibilities to
ensure the Plan is effectively managed. Effective management starts with the
Board of Trustees, which is responsible for oversight of all aspects of the
Plan’s operation. In all areas, the Trustees retain overall governance
responsibility, but also select and monitor staff and external service
providers to implement OPTrust policy across the full range of specialized
areas.
The Trustees oversee OPTrust’s investment policies and performance, and
select and monitor specialized investment advisors and money managers to
ensure that money is available to pay members’ and pensioners’ benefits now
and in the future. The Trustees also ensure that the proper processes are in
place to monitor the Plan’s liabilities, and that the Plan’s financial
statements accurately reflect its financial position. In this regard, the
Trustees receive important advice and support from the Plan's external
actuary and auditor. In addition, the Trustees oversee the Plan’s
administration to ensure both members and pensioners receive the benefits to
which they are entitled, along with timely and effective communications and
services.
As part of their mandate, the Trustees receive an intensive orientation to
the Plan and ongoing training in pension plan governance and administration.
The Board also retains independent advisors – including legal, actuarial,
investment and accounting professionals, and an independent custodian – to
help the Board manage investment and operational risks. The Trustees set
policy and strategic priorities and monitor the performance of the Plan
through its senior management team, which in turn employs measures to ensure
staff accountability.
Overseeing Governance
Among the various committees established by the Board to ensure the ongoing
success of OPTrust is the Governance and Compensation Committee. The fact
that OPTrust has such a committee is a testament to the critical importance
that governance plays in the organization. Stan Sanderson, Chair of the
committee, explained the committee’s two-fold task: “Our committee is
responsible for reviewing, considering and recommending the right course of
action to take when governance issues arise. But we also do an annual review
of the objectives, performance and compensation of the Plan’s two Executive
Vice-Presidents – the Chief Investment Officer and the Chief Administrative
Officer. So, when you consider the Plan’s founding documents as agreed to by
both sponsors, as well as the responsibilities of the Trustees, standing
committees and senior management, OPTrust has a sound governance structure
that helps ensure the Plan stays on the right track.”
Standing Committees of the Board
In addition to the Governance and Compensation Committee, the Trustees have
established four other committees that report to the Board:
- Administration Committee: oversees the Plan’s operations including its
organizational plans, and operating and capital budgets.
- Audit Committee: ensures that OPTrust’s financial statements are complete
and objective, reviews the Plan’s accounting and financial policies and
ensures OPTrust’s systems and processes comply with legal and professional
standards.
- Investment Committee: monitors the performance of the OPSEU Pension Trust
Fund and its investment managers, and reviews their compliance with
OPTrust’s investment policies and related legal and regulatory requirements.
- Adjudication Panel: gives plan members and pensioners access to a review
process in the event of disputes concerning OPTrust’s decisions on
eligibility, benefit entitlements or other pension-related rights under the
OPSEU Pension Plan.
Good Governance Enhances Pension Security
OPTrust’s governance structure is designed to ensure that the Plan’s members
and pensioners can depend on a secure retirement income. Although the
overall fiduciary responsibility for the Plan rests with the Trustees, it is
the responsibility of all OPTrust employees to ensure that they perform
their duties to a fiduciary standard with a view to helping secure the
pension promise for every plan member.
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10th Anniversary Coverage: A Snapshot of Change at
OPTrust
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Buying Back Credit for the 1996 OPS Strike
After the 1996 OPS strike, all affected members were given the
opportunity to buy back credit for the strike period. More than 25,000
members took advantage of special payment options and purchased this credit.
However, several thousand other members did not complete their strike
buyback. Under the OPSEU Pension Plan’s buyback rules, these members are
still eligible to purchase credit for the 1996 strike.
To buy back this service you must still be a contributing member of the
Plan, and you must complete all payments, including interest, by March 31,
2007, as this is the date that OPTrust’s 10-year buyback payment time limit
for the 1996 OPS strike comes to an end. For members who did not complete
the purchase of credit for the 1996 strike, special statements will be
mailed this fall that will provide you with updated costing and payment
options.
For more information, please contact OPTrust Member and Pensioner Services.
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Posted on September 20, 2005
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