OPTrust is on track to eliminate the OPSEU Pension Plan’s unfunded liability as of the end of 2007 – 12 years ahead of schedule. That is the bottom line of an interim funding valuation completed by OPTrust’s actuaries in June.
The actuarial study estimated the Plan’s funding shortfall at $105 million at the end of 2006, down from $517 million the previous year.
Like most major Canadian pension plans, OPTrust has been managing the impact of substantial investment losses in 2001 and 2002.
However, unlike many of these plans, we are set to eliminate the funding deficit without raising member and employer contributions above the normal rate, or reducing the pension benefits members earn in the future.
The rapid reduction in the Plan’s funding shortfall is largely the result of OPTrust’s strong investment performance between 2003 and 2006.
Returns from these years have an impact now because OPTrust “smoothes” inverstment returns, recognizing part of each year’s investment gains or losses evenly over a five-year period.
As a result, the Plan’s 2007 funding valuation is expected to mark the end of the current funding deficit. The 2007 valuation will be ready in mid-2008 and, unlike the interim valuation, must be filed with Ontario’s pension regulators.
Normally, pension plans are required to increase contribution rates or reduce future benefits if they have an unfunded liability. However, key decisions by OPSEU and the Government of Ontario helped avoid both of these scenarios.
In 2002, the sponsors took a conservative approach to the allocation of past funding gains. First, while part of the gains was used to pay for a number of temporary and permanent benefit changes, the sponsors were conscious of the need to avoid creating major funding problems in the future. Second, each sponsor set aside part of the gains in separate contribution stabilization reserves.
Since 2003, the sponsors have used these reserves to make payments totaling $124 million against the current unfunded liability. This created a “breathing space,” allowing OPTrust to maintain contribution rates and benefits levels, while the outstanding deficit was gradually eliminated due to more recent investment earnings.
In the short-term, OPTrust has a positive funding outlook. Over the longer term, however, like any large investment fund, the Plan will continue to face market risks – and the possibility of future funding shortfalls.
For example, to fund members’ and retirees’ pensions, OPTrust must earn an average investment return of 7% per year. In the absence of stabilization reserves, a shortfall of $450 million – or about 3.5% of the fund’s $13.1 billion market value – would be enough to trigger a 1% contribution rate increase.
OPTrust is therefore continuing to actively manage both the Plan’s investment portfolio and its pension liabilities to reduce the risk of future funding shortfalls, as well as providing advice to the sponsors on the stabilization reserves and the use of any future surplus.
In August, investors around the world experienced a wave of turbulence as problems in the U.S. mortgage sector triggered significant declines in global financial markets.
For OPTrust members and pensioners, the good news is that the Plan has no direct investment in the subprime mortgage market and little exposure to the related “asset-backed” securities that were at the centre of the credit crunch. Like all major institutional investors, however, OPTrust is affected by swings in the broader Canadian and international equity and fixed-income markets.
As a long-term investor, OPTrust anticipates the possibility of significant short-term changes in market returns. Whether this summer’s market upheaval will have any impact on the Plan’s investment returns for 2007 will be known after the year-end.
In the meantime, the market shock helped highlight the fundamental security of your pension – along with a range of tools that OPTrust uses to manage investment risks over the long-term.
The OPSEU Pension Plan is a “defined benefit” plan. This means that when you retire, your pension will be based on your best five-year average salary and your years of credit in the Plan.
Unlike RRSPs and other personal investments, your earned OPTrust pension is not affected by changes in the financial markets. What’s more, your pension is backed by a $13.1 billion fund and future contributions by more than 47,000 members and the Government of Ontario.
The value of members’ and retirees’ pensions grows over time. As a result, OPTrust must invest the Plan’s assets to generate the long-term returns needed to pay for members’ earned benefits. This, in turn, means that OPTrust accepts a degree of investment risk.
One of the ways we manage this risk is by diversifying the Plan’s investment portfolio across a range of asset types and geographical regions.
Diversification has two main advantages. First, it increases the Plan’s ability to meet our investment return targets under a range of different economic scenarios. Second, it helps limit OPTrust’s exposure to downturns affecting individual markets or sectors.
OPTrust invests in a mix of assets, including Canadian and international stocks, fixed income investments, real-estate and private market holdings. This asset mix is designed to maximize our ability to cover the projected cost of members’ pensions and reduce the risk of funding shortfalls over the long-term.
“Actuarial smoothing” is another tool that buffers the Plan against short-term market fluctuations. By recognizing part of each year’s investment gains or losses over a five-year period, we stabilize the actuarial value of the Plan’s net assets.
Since the projected cost of members’ and retirees’ pensions rises at a relatively steady pace, smoothing helps avoid sudden changes in the Plan’s funded status.
Finally, since 2002, OPSEU and the Government of Ontario have set aside a portion of past funding gains in separate reserves. If the Plan experiences a funding shortfall, the sponsors can use these reserves to avoid or limit increases in contribution rates.
Taken together, these measures are designed with two goals in mind. First, each helps to ensure the long-term security of the OPSEU Pension Plan and your OPTrust pension. Second, they help reduce the impact of market volatility in the short term, stabilizing contribution rates and members’ future benefits.
OPTrust’s Asset Mix
OPTrust’s asset mix is designed to achieve the Plan’s target rate of return over the long-term while managing the risk of funding shortfalls. To help meet this goal, OPTrust’s Board of Trustees has approved a series of measures to increase the Plan’s diversification over several years.
When fully implemented, this strategy will:
- raise the Plan’s real estate investment portfolio to 10% of the total fund
- add investments in private equity and infrastructure totaling 25% of the fund over time
- reduce the allocation to Canadian and global public equities and fixed income investments.
Click here for more information on OPTrust’s investment strategy.
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Federal Budget Raises Pension Age Limit to 71
The most recent federal budget, tabled in March 2007, introduced two tax measures that broaden the pension options available to OPTrust members.
The changes to Canada’s Income Tax Act:
- raise the “pension age limit” to 71, up from age 69
- open up an income-splitting option once you retire.
Pension age limit
Together with elimination of mandatory retirement in Ontario last year, the change to the pension age limit means that OPTrust members can now keep working and contributing to the OPSEU Pension Plan up to age 71.
While most OPTrust members will still choose to retire at or before age 65, delaying retirement may be attractive to some who want to continue increasing their future pensions.
If you continue working past age 65, you must start to receive your pension before the end of the calendar year in which you turn 71. As a result, you must terminate your plan membership by November 30th of that year.
This change does not affect your ability to retire with an unreduced OPTrust pension at age 65 – or earlier, if you qualify for Factor 90 or 60/20.
The increase in the pension age limit also means you can continue contributing to your RRSP – and delay when you convert your RRSPs into retirement income – up to age 71.
Pension income splitting
Once you retire, the budget will also allow you to report part of your OPTrust pension as your spouse’s income, for tax purposes. This may help you reduce your combined tax bill or qualify for certain tax credits.
For more information on the change to the pension age limit, visit: http://www.cra-arc.gc.ca/tax/registered/budget2007-e.html. For information on income splitting, go to http://www.cra-arc.gc.ca/agency/budget/2007/pension-e.html
Important: Your pension and your RRSPs are important financial assets. We recommend that you get independent advice from a qualified financial professional before making decisions about your pension and your retirement.
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LMDA Update: Transfer Decision Deadline
In January, OPTrust welcomed almost 400 new members who transferred from the federal government to Ontario’s Ministry of Training, Colleges and Universities under the federal-provincial labour market development agreement (LMDA).
These members now have an important decision to make about whether to transfer their federal pensions to OPTrust, or leave their past credit with the federal public service plan.
As part of this process, OPTrust will send affected members an “Appendix B2” form by the end of September. This form provides members with estimates of:
- the transfer value of their federal pensions and the service it represents in the OPSEU Pension Plan
- the buyback cost, if there is any shortfall between the available transfer value and the cost of their federal service under the OPSEU Pension Plan.
To help explain the available options, OPTrust has held more than 20 information sessions for these members across the province and sent out three separate mailings, in addition to their regular enrolment information. Members who want to transfer their federal pensions must complete the Appendix B2 form and return it to OPTrust by the December 2007 due date listed on the form.
Important: If you joined OPTrust as part of the LMDA transfer but have not received your Appendix B2 form by the end of September – or if you have any questions about your options – please contact OPTrust.
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OPTions Online: The Greener Way to Get Your Pension News
At OPTrust, we’re always looking for ways to reduce our environmental “footprint.” We have two good reasons for this. First, it’s the right thing to do. Second, members like you have told us it matters.
Last year, as part of this effort we started mailing your OPTions newsletter without an envelope. This saves roughly half a metric ton of paper – and more than $6,000 – each year.
OPTions online
What you may not realize is that there is an even more environmentally friendly alternative – receiving OPTions online.
All you need to do is sign up for OPTrust’s secure Online Services. As part of the process, you’ll be asked how you want to receive OPTrust communications. Just check the box to receive OPTions electronically.
If you’re already registered for Online Services but still receive OPTions in the mail, simply log in, click on “Communicate with OPTrust” and follow the links.
Once you choose OPTions online, we’ll send you a special e-mail notice when each new issue of the newsletter is posted to our website – often a week or more before the print version is in the mail.
Other Online Services features
Of course, there are plenty of other good reasons to sign up for Online Services. These include:
- updating your address and contact information
- checking and updating your list of beneficiaries
- receiving and viewing your Annual Pension Statement online,
- communicating directly with OPTrust through secure e-mail
- checking the status of any ongoing buybacks and managing your payments
- signing up to receive OPTrust news alerts.
Register for OPTrust’s Secure Online Services
Online Services. It’s fast, convenient and green – and it’s easy to register.
Step 1 Click here to register now.
Step 2 Enter your personal information. You will need your Social Insurance Number, postal code, date of birth and a copy of your most recent Annual Pension Statement.
Step 3 Enter the e-mail address you want to use to receive information from OPTrust.
Step 4 Choose a password, then select a secret question and answer (in case you forget your password).
Step 5 Select your communications preferences, including whether you want to receive OPTions online.
Need help registering? Don’t have your Annual Pension Statement? No problem. Just call us at 416-681-6100 or 1-800-637-0024.
Important: Protect your privacy – Once you are registered, do not share your Online Services password.
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Unclassified Enrolments Push Membership to 5-Year High
More than 1,900 unclassified, contract and casual employees opted to join the OPSEU Pension Plan between May 2006 and June 2007. This is up significantly from the approximately 1,400 non-permanent staff who joined the Plan over the previous 16 months.
The jump in unclassified enrolments helped boost the total number of active members in the Plan to 47,068 as of the end of June. OPTrust’s active membership is up by 2,500 since the end of 2005, and stands at its highest level since 2002.
Outreach program
The increase in enrolments follows the launch of a new outreach program by OPTrust. The program is designed to inform eligible non-members about the Plan’s benefits and their option to join. Unlike permanent employees, unclassified, contract and casual staff are not automatically enrolled in the Plan when they start their jobs, but they are eligible to join.
In May 2006, OPTrust sent letters and e-mail messages to more than 10,000 eligible employees with the Ontario Public Service, the LCBO and other OPTrust employers. Since then, notices sent to new contract staff each month have reached another 7,500 eligible employees.
This spring, OPTrust also introduced a new series of 20-minute lunchtime seminars for unclassified staff who want to find out more. Information on joining the Plan is also available online, including a special brochure and multi-media presentation for eligible non-members.
Advantages of joining
Joining the Plan gives unclassified employees access to the same valuable benefits as other OPTrust members. Key features of the Plan include:
- Easy contributions through automatic payroll deductions
- Employer contributions that cover part of the cost
- A secure, lifetime pension that grows with your salary and years of service
- The option to transfer your pension to an RRSP or another employer’s pension plan, if you leave your job before age 55.
For unclassified employees who later become permanent, joining now can also mean a head start on their pensions. That’s because contributing now is easier – and often less costly – than buying back credit for unclassified service at a later date.
More members also mean a broader funding base for the Plan and greater stability for the future. So when unclassified employees join, it is good for OPTrust’s 47,000 other members, too.
Tell a Co-worker
Do you have unclassified, contract or casual co-workers? If so, why not ask them if they know about their option to join OPTrust? Here’s how eligible non-members can find out more:
- Visit www.optrust.com and click on “join the plan.”
- Register for one of OPTrust’s special lunch-time seminars for unclassified employees. Sessions are scheduled for October 30 and November 28 in Toronto. To register or find out about future sessions, send an e-mail to infosessions@optrust.com.
- Call OPTrust at 416-681-6100 (in Toronto) or 1-800-637-0024.
“Joining OPTrust Made Sense to Me.”
Melanya Aguila is an unclassified member who knows the value of her OPTrust pension.
For Melanya Aguila, an unclassified communication officer at the Ministry of Government Services, the decision to join OPTrust was easy.
“I had a pension plan at a previous job, so I already knew how valuable a pension is,” she told OPTions.
Security was one factor in Aguila’s decision. “I have my own RRSP, but investing is risky,” she explained. “So, it is good to know that my OPTrust pension is secure and will keep growing. Plus, I’ll have the option of transferring my money if I leave the public service.”
Convenience was important, too. “My contributions are automatically deducted from my pay, so it’s an easy way to save for the future. And it’s great that my employer pays part of the cost, too.”
And because she is hoping to land a permanent position, it made sense to Aguila to enroll in the Plan now. “It’s important to plan ahead,” she said.
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Tell Us YOUR Pension Story
Have you contacted OPTrust for help with a pension transaction? Where does your OPTrust pension fit in your financial plans? What does your pension mean to you?
We’d like to hear your pension stories. Just send an e-mail to communications@optrust.com.
If we use your story in OPTions or on our website, we’ll send you a special OPTrust portfolio, free.
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You Asked: Questions about Buying Back Credit
Question: I worked as a seasonal employee in the Ministry of Natural Resources for three summers when I was in university. Now, I’ve started a permanent job in the OPS. Can I buy back my unclassified service?
Answer: Yes. To buy back credit for your previous service, you must submit a buyback application to OPTrust within 24 months of the date you join the Plan. Once we receive your complete application, we will calculate the cost of your buyback and send you a purchase agreement.
Question: I joined OPTrust last year, when my job at the Ministry of the Attorney General was converted to “flexible part-time.” If I buy back my unclassified service, does the employer pay part of the cost?
Answer: Yes. When you buy back any “prior non-contributory service” with the OPSEU Pension Plan, your employer pays a share of the cost. This applies to previous contract or unclassified service. It also applies to unpaid leaves of absence due to illness, including when you are on WSIB, or if you are on a pregnancy, parental or adoption leave.
Question: I work at the LCBO and applied to buy back credit for six years of casual service when I joined OPTrust in 2003. However, I never made any payments. Can I still complete my buyback?
Answer: Yes. As long as OPTrust received your buyback application within the 24-month time limit, you have up to 10 years and three months from when we send you your purchase agreement to complete your payments. To make payment arrangements, log onto OPTrust’s secure Online Services, go to www.optrust.com to send us a secure e-mail, or contact us by phone.
Direct Contact Pension Information Sessions
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Posted on June 6, 2007
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Direct Contact Information Session Schedule 