The quarterly newsletter for members of the OPSEU Pension Trust
Spring 2006, Number 38
In this issue...
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Strong 2005 Results and Continued Evolution of the Investment Program at OPTrust
- OPTrust's 15.6% investment return increases the Plan's net assets to $11.8 billion.
- Since its inception in 1995, OPTrust has achieved an average annual return of 10.4% and has achieved an average annual rate of return of 9.4% over the past ten years.
Strong investment returns for a third consecutive year in a row helped increase the OPSEU Pension Plan’s net assets by $1.6 billion in 2005. As a result, OPTrust ended our 11th year of operations with net assets of $11.8 billion, up from $4.6 billion at the inception date.
OPTrust’s 15.6% return in 2005
also bettered the Plan’s funding
target return of 7.5%. This target
is the average return the Plan
needs to achieve over the long term
to pay the projected cost of
members’ pensions.
In 2005, OPTrust registered an overall investment return of 15.6%, which also beat our weighted market benchmark return of 14.6%. The benchmark reflects the overall performance of the markets in which we invest, and serves as a performance reference point for our actively managed portfolio by indicating what we could
have earned through a methodical, passive approach to investing.
“2005 was a year of significant progress for OPTrust, as strong investment returns further
strengthened the Plan’s ability to keep our pension promise to members and retirees,”
said Deborah Stark, Chair of OPTrust’s Board of Trustees.
Since OPTrust’s launch in 1995, our investment portfolio has exceeded the 7.5%
target return eight years out of 11. Despite
volatile market conditions, the Plan has
achieved an average annual return of 10.4%
over the eleven-year period, compared to the
benchmark average of 9.4%.
The major initiatives in 2005 were a significant increase in our real estate holdings, approval of a target allocation to private equity and infrastructure investments, the establishment of a Private Markets Group to manage these investments, and a temporary increase in the balances of shortterm fixed income and cash held by the Plan.
The Plan’s above-benchmark performance in
2005 was largely driven by OPTrust’s global
equity and real estate portfolios, which
outperformed their benchmarks by 2.1% and
8.5% respectively.
OPTrust’s Canadian equities and fixed income
investments also performed well in absolute
terms, generating returns of 22.1% and 9.7%
respectively. However, our Canadian equity
portfolio underperformed its benchmark return
of 23.4%, while the fixed income portfolio’s
performance equalled that of the benchmark.
Investment Highlights
During 2005, the implementation of major
changes to the OPTrust investment portfolio
continued based on a restructuring plan
approved by the Board of Trustees in 2003.
The major initiatives in 2005 were a significant
increase in our real estate holdings, approval
of a target allocation to private equity and
infrastructure investments, the establishment of
a Private Markets Group to manage these
investments, and a temporary increase in the
balances of short-term fixed income and cash
held by the Plan.
Funding & Contribution Rates
The latest valuation showed a net funding deficit
of $428 million at the end of 2004 – representing
approximately 4% of the total assets in the fund
at that time – compared with a deficit of $255
million at the end of 2003. This amount did not
include net deferred gains of $69 million at the
end of 2004 that will eventually be used to
reduce the unfunded liability.
Despite the growth in the funding deficit, there
are sound reasons for confidence in the overall
financial strength of the Plan. First, the
Government of Ontario and OPSEU together
have $446 million in their rate stabilization
funds at the end of 2005, an amount that
exceeds the total funding deficit.
A second reason for optimism is that net deferred
investment gains increased to $899 million at
the end of 2005 and will have an increasingly
positive impact on our funding position as they
are recognized over the next four years.
Contribution rates remained at normal levels for
both members and employers in 2005. Based on
current projections, if the Plan achieves its
targets for investment returns during the period
leading up to December 31, 2007, (the next
required time for an actuarial valuation), and if
rate stabilization funds are not used for other
purposes, members may look forward to stable
contribution rates and pension benefits through
the end of the decade.
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OPTrust Achieves Settlement in Nortel Securities Class Action
On February 8th, OPTrust announced
the conditional settlement of a major
U.S. securities class action against
Nortel Networks. Under the settlement, Nortel
will pay financial compensation of approximately
US$ 2.4 billion (based on current share prices),
consisting of US$ 575 million in cash and
approximately 628 million common shares. Nortel’s insurers will contribute an additional
US$ 228.5 million.
Among the allegations in the class action is
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.”
As lead plaintiff, OPTrust sought to recover damages
for all investors who purchased Nortel shares over the
16-week class action period in 2000–2001. OPTrust
incurred a loss of approximately CDN$ 52 million on the
Nortel shares we purchased between October 24, 2000
and February 15, 2001.
“Our role in the suit was consistent with OPTrust’s
interests as a major institutional investor with a long-term
stake in the proper functioning of capital markets,” said
Heather Gavin, Chief Administrative Officer and Plan
Manager of OPTrust. “We’re especially mindful of ensuring
the long-term viability and health of the OPSEU Pension
Plan, and that our ultimate responsibility is to our
members and pensioners.”
Compensation will be shared between the members of the
OPTrust class, which covers the class period October 24, 2000 to February 15, 2001, and the members of a
subsequent class covered by a second securities class action
for the period April 24, 2003 to April 27, 2004 (the
“Nortel II litigation”). While we actively pursued recovery
of damages experienced by the Plan, these losses did not
affect OPTrust’s capacity to meet its pension obligations.
Corporate governance discussions between the plaintiffs
and Nortel are ongoing. The settlement is subject to court
approval and to applicable regulatory approvals.
As of December 31, 2005, OPTrust continued to own
$11 million in Nortel shares. OPTrust is a broadly
diversified pension fund with holdings in most major
indices, including the TSX composite index, and in major
corporations around the world. Our professional investment
managers may decide to purchase or sell Nortel shares at
various times, based on publicly available information and
their professional appraisal of the markets. OPTrust
continues to monitor all investment activity and is not
treating Nortel differently in this respect.
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OPTrusts's Funding Outlook
OPTrust takes a prudent approach to managing the Plan’s funding
situation. The most recently filed funding valuation revealed a funding
shortfall of $428 million, largely created by the investment losses of
2001 and 2002. The good news is that we have since had three years of strong
investment returns. We have $11.8 billion in assets. As well, the Plan sponsors
set aside gains in the good years to offset the bad. Current reserves total $446
million, which is more than sufficient to offset the funding loss.
Like most major pension plans, OPTrust uses a technique called “smoothing”
to spread each year’s unplanned investment gains or losses over a five-year
period. This process lessens the effect of sometimes significant fluctuations in
investment returns on the Plan’s funded position.
As a result of smoothing, investment losses from 2001 and 2002 continue to have an impact on the Plan’s funded
position. Actuarial valuations filed as at the end of 2003 and 2004 confirmed a total deficit of $428 million. This
deficit is being paid down through payments from stabilization funds which the employer and employee sponsors
prudently set aside from gains arising out of the 2001 funding valuation.
In 2005, OPTrust earned significantly more than it requires to fund the Plan’s pension obligations. Accordingly,
if the Plan achieves its long term target rate of return on investments over the next two years leading up to the
December 31, 2007 funding valuation, the $428 million deficit at the end of 2004 could be substantially eliminated.
In the meantime, members and employers have the security of significant stabilization funds to help offset future
pressure on contribution rates.
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New Board Trustees
 |
 |
| “I hope my overall governance experience, past
responsibility for the CAAT pension plan and
oversight of its divestment to a jointly trusteed
structure, and my experience as a provincial
politician working in and chairing multi-party
committees will prove useful to the trust and
serve the interests of its members.” |
“I am honoured to be appointed to the OPSEU
Pension Trust as the first retiree trustee. As
a former union activist I have always been
interested in how our pension plan has
invested the fund to ensure that the funds
are available to pay the pensions that have
been promised.” |
In January we announced the appointment of a former
Ontario politician and a retired union activist to our
Board of Trustees. The new trustees are Richard
Johnston, member of the Ontario legislature from 1979 to
1990 and former contender for the New Democratic Party
leadership; and Ruth Galinis, a former government
employee and retired OPSEU official.
Richard Johnston, appointed to the OPTrust board by the
Government of Ontario, was an administrator and
counsellor at Trent University before becoming a social
worker specializing in helping the elderly. As an MPP, he
crusaded for improved benefits for the poor and disabled.
He served as Chair of the Ontario Council of Regents for
the Colleges of Applied Arts and Technology in Ontario
from 1991 until 1995, President of the First National
Technical Institute on the Tyendinaga Mohawk Territory
and a director at Trent University from 1995 to 1998, and
President of Centennial College in Scarborough from
1998 to 2004. Mr. Johnston currently operates a vineyard
in Prince Edward County.
Ruth Galinis, appointed to the OPTrust board by
OPSEU, was recently awarded lifetime membership
in the union. Starting her career as a human rights
officer in the Ministry of Labour, she worked as a
regional consultant consecutively with the Ministry of
Citizenship and Immigration, Ministry of Culture and
Ministry of Tourism and Recreation. She served as an
OPSEU local representative in Sault Ste. Marie and
the labour representative on the Sault College board
of governors. Ms. Galinis is the first OPSEU retiree
appointed to the OPTrust board.
Deb Stark, Board Chair, commented that OPTrust’s
governance model is based on appointing trustees who
understand the pension needs of Plan members. “We
believe that complex investment recommendations
must make sense to non-financial trustees to make
sense to the plan,” she explained. “The trustees have
access to all the expertise they require to evaluate the
risks and potential returns of different investment
assets and make the right decisions.” OPTrust currently
retains more than 20 external legal, financial, and
investment advisors and continues to expand its pool
of investment related expertise.
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Service Spotlight
Welcome to a new feature in OPTions where we will be sharing with
you our administration’s performance against set service standards.
We have finally eliminated the backlog
of files we inherited when the plan
split, and having worked on new
administrative systems, we are very excited
about the opportunity to provide our members
with the positive service experiences they
deserve from their pension plan.
When we set out to establish service standard
targets, we looked at the processing of the case
from the member’s perspective, bearing in mind
your needs and expectations. Based on feedback
we received from you on the phone, at our
Direct Contact presentations and through the
service satisfaction surveys you responded to,
standards were established taking into
consideration the steps necessary to complete
the case, but more importantly, incorporating
what we heard from you.
The focus of this premiere article is on end to
end processing – from the time the case is opened in our office until the case is closed,
including the period when you select your
option. It is important that you understand
how long your case resides with us, and how
long it resides with outside sources to account
for the total processing time.
In future issues of
OPTions, we will
highlight specific cases
to enable you to
understand the work
involved in completing
your case, including
what we are doing to
resolve existing issues
and improve our
performance.
While a case is being processed, interruptions
often occur that cause the case to be paused.
Internal interruptions occur while an
organization other than OPTrust works on your
case, often to obtain additional information
from an employer, such as salary confirmations.
External interruptions occur in situations
where we must wait for you to select an option
or for your financial institution to complete a
step. When this occurs, the time is not
counted towards our service standards.
The following graph provides a breakdown
of the percentage of time each case was in the
hands of OPTrust.
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Facts about... Your 2005 Annual Pension Statement (APS)
View your APS Online
Why wait for Canada Post? We’ve made it easy for
members to view their APS anywhere, anytime. Simply
log on to our secure Online Services website to access
your APS at your leisure.
Your Annual Pension Statement has undergone a makeover,
but the information about your earned pension with
OPTrust remains the same.
HERE ARE SOME FAST FACTS ABOUT YOUR 2005 APS
- All active and divested members will receive an APS.
- Statements are mailed out in four batches, starting in late April to mid-June. Mailing dates are listed on our website.
- Your APS provides you with an account of your pension as of the end of 2005. The “total credit” listed on your
statement includes any buyback credit that you have paid for as of December 31, 2005. This is used to calculate your “Pension at age 65 based on your credit at 31-DEC-2005.” Credit you bought back in 2005 is also shown separately under “2005 Buybacks and Transfers.”
- Any remaining credit you have agreed to buy back is included in the “future credit” used to estimate your future pension if you work until you are eligible to retire. By providing you with credit information, your APS can help you to monitor your buyback payments, make financial decisions and plan for your retirement. In March, OPTrust mailed separate Annual Buyback Statements to every member who had an ongoing buyback at the end of 2005. This statement, like the APS, is available through the secure Online Services section of our website.
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My Annual Pension Statement lists my
total contributions plus interest. Is this
how much my pension is worth?
No. The OPSEU Pension Plan is a “defined
benefit” plan. This means that once you are
vested, your pension is calculated using the
Plan’s benefit formula (see OPTrust Pension
Basics below). As a result, your pension is
based on: i) your years of credit in the Plan;
and ii) your best consecutive five years’ average
annual salary rate.
Members who leave the Plan before they are
vested receive a refund of their contributions
plus interest. You are vested when you have
two years of credit or continuous membership
in the Plan.
My statement lists my pension
eligibility date. Does it make a
difference if I terminate my employment
at the start or the end of the month?
Yes it does make a difference. If you
terminate at the beginning of the month,
you will not be receiving a salary (because
you are no longer employed), but your
pension will not start until the first day of
the month following your termination date.
Your pension is paid on the 26th day of each
month. It is best to terminate at the end of
the month so that you will not have any
gaps in income. It is a good idea to notify
your employer/Human Resources department
to begin the process of applying for your
pension up to six months before your
planned termination date. This will help
ensure that there is plenty of time to make
the necessary arrangements – and that you
receive your first pension payment on time.
Waiting until only a few weeks before your
termination date could cause delays in your
first payment.
Clarification on Bill 211
and the elimination of
mandatory retirement
at age 65:
In the last issue of
OPTions (Issue 37,
Winter 2006), we
noted that Bill 211,
eliminating mandatory
retirement at age 65,
had passed successfully.
However, we should
also have indicated that
the bill would not go
into effect until
December 2006.
We regret any confusion
that may have resulted
from this oversight.
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Updating Your Info
With Your Employer?
Please note that for
reasons of privacy and
to protect your personal
information, OPTrust
does not share your
personal data.
If you recently updated personal information with
your Human Resources department for entry to the
Workforce Information Network (WIN), it is important
to know that the WIN system is not connected to OPTrust, and
your information is not automatically updated in OPTrust’s records. You will need to
contact OPTrust separately to update any personal information.
To ensure that OPTrust receives any changes to your personal information, you can
make the changes quickly and easily by going to www.optrust.com and registering for
Online Services, or contact our Member and Pensioner Services staff at 416-681-6100
or 1 (800) 637-0024.
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Whitby Mental Health Centre Employees Remain OPTrust Plan Members
331 employees at the Whitby Mental Health Centre (WMHC) will maintain their
membership in the OPSEU Pension Plan following its transfer from the provincial
government to the public hospital system. Their continued membership in the Plan will
be grandfathered under a special provision in the Plan, which is important in order to
preserve their pensions rather than dividing them and diminishing their overall value.
Employees hired after the transfer of the WMHC on March 27, 2006 will not be eligible
to join the OPSEU Pension Plan. They will join the Hospitals of Ontario Pension Plan.
“This is great news for employees
at the Centre because it will allow
them to continue contributing to the
same pension plan,” says local
president Joan Gates. “Maintaining
the stability of their members’
pensions is of paramount importance
to OPTrust, and they continue to
show their commitment to their
membership in the face of change.”
The Centre’s board and management
are pleased that through voluntary
recognition, the vast majority of the
Centre’s employees can maintain
membership in the OPSEU Pension
Plan.
Whitby Mental Health Centre
Employees Remain OPTrust Plan
Members
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Posted on May 16, 2006
