• OPTrust Releases Financial Results for 2002 
• Asset Diversification: Balancing Investment Risks and Returns
• Benefit Improvements Extended to Divested Members
• Facts About… “Points Off” and Reduced Pensions
• Your 2002 Annual Pension Statement
• Taking an Unpaid Leave of Absence? Be Sure to Let Us Know!
• New Booklet on Buying Back Credit
• Optional Membership in the OPSEU Pension Plan
• You Asked… Answers on Pension Security, Contributions, Your Annual Pension Statement

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Like most pension plans and other large institutional investors, the OPSEU Pension Trust experienced a negative investment return in 2002. Over the year, OPTrust’s investment portfolio lost 7.2%, reflecting the continuing downturn in the world’s stock markets.

While 2002 was the second year in a row in which OPTrust experienced an investment loss, the OPSEU Pension Plan continued to outperform its “benchmark,” which dropped by 7.8% in 2002. The benchmark is a tool that measures the overall performance of the markets in which we invest, in proportion to their weighting in the Plan’s investment portfolio.

At the end of 2002, the Plan’s net assets available for benefits stood at $8.5 billion, down from $9.4 billion in 2001. The decline in net assets reflects a $688 million investment loss as well as benefit payments that exceeded contributions by $223 million. At December 31, 2002, the Plan’s financial statements showed a surplus of $1.1 billion, compared to $1.8 billion in 2001.

Long-term results
“Our investment return, like that of other major investors, is closely linked to the performance of the markets we invest in, so the current drop-off in stock prices is a concern,” said David Rapaport, Chair of OPTrust’s Board of Trustees. “On the other hand, what is much more important is our ability to grow the pension fund over the long-term.”

Since the OPSEU Pension Plan was launched in 1995, OPTrust has achieved an average annual return of 8.8%. This tops both the 8.0% average for the benchmark over the same period and the Plan’s 7.5% investment return target, needed to pay for members’ and retirees’ pensions over the long-term.

Based on strong investment returns in the late 1990s, OPTrust’s recent funding valuation for 1999-2001 identified gains of $867 million. The gains were divided between OPTrust’s members and pensioners and the Government of Ontario, and were used to:

• pay for temporary and permanent benefit improvements for members and pensioners
• extend a modified contribution reduction for members until November 30, 2005
• eliminate the balance of the Plan’s initial unfunded liability
• create a $146 million reserve to stabilize member contributions, should the Plan experience a funding loss in the future
• create a separate contribution stabilization reserve, totalling $297 million, for the Government of Ontario.

Smoothing
Because investment returns can vary widely from year to year, OPTrust holds each year’s investment gains or losses in a “smoothing” reserve, to be recognized evenly over a four-year period. Smoothing is an accepted actuarial technique that helps cushion the impact of short-term fluctuations in earnings.

In 2002, OPTrust recognized smoothed earnings from 1999 and 2000, while part of the Plan’s losses from 2002 were held back for recognition in future years. This reduced the impact of these losses on the Plan’s 2002 financial statement surplus. At the same time, smoothing means the Plan had a deferred loss of $1 billion at year-end, which will reduce the surplus over the next three years.



Financial outlook
The Plan’s next funding valuation, covering 2002-2004, is currently scheduled for completion by mid-2005.

While it is too soon to predict the results, the size of the deferred loss is a concern. At the same time, many experts project that over the next decade, equity markets are unlikely to produce returns as strong as those experienced in the 1990s, which allowed OPTrust’s sponsors to improve benefits and reduce contributions. And even with strong returns in 2003-2004, it is likely to take several years to eliminate the Plan’s existing deferred loss.

Should the next valuation identify a funding loss, the shortfall would normally be made up through higher contributions, spread over a 15-year period. However, the stabilization reserves set aside by OPSEU and the Government of Ontario can be used to offset part or all of any required contribution increases.

Over the longer-term, a detailed study prepared for OPTrust’s Investment Division projects that with some adjustments to its asset mix, the Plan has a high probability of meeting or exceeding its investment target over the next 10 years.

In the meantime, as part of a “defined benefit” pension plan, OPTrust members have the security of knowing that the value of their earned pensions is not affected by changing investment returns.
 

Reporting to You… OPTrust’s financial results for 2002 are summarized in Diligence, Service, Security: Annual Highlights for Members and Pensioners 2002, mailed with this issue of OPTions. More detailed information on OPTrust’s performance over the year is available in our full annual report, including: highlights of the service OPTrust provided to members and pensioners over the year key member and pensioner statistics a detailed discussion of OPTrust’s investment strategy and performance an overview of the Plan’s financial position, including full financial statements a list of OPTrust’s significant investments at year-end. To order a printed copy of the full annual report – in English or French – please contact us. OPTrust’s full annual report gives you the big picture on our performance in 2002.

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Over time, financial markets tend to rise and fall at different times, as part of the normal business cycle. That is why diversification is a central part of OPTrust’s investment strategy.

Diversification simply means not putting all the Plan’s eggs in one basket. By investing in a mix of different asset types and geographic regions, OPTrust achieves two important goals:

• broadening the range of opportunities for growth, and
• reducing exposure to downturns affecting specific asset classes, economic sectors or geographic regions.

In 2002, for example, investing in different asset types played a major positive role for OPTrust. Fixed income (nominal return bonds) and inflation-sensitive (real return bonds and real estate) investments make up about 43% of the Plan’s assets. While real estate makes up less than 1% of the portfolio, strong returns from nominal and real return bonds last year helped offset part of loss the Plan experienced on the 57% of its assets invested in equities.

On the other hand, geographical diversification of OPTrust’s equity portfolio had a negative impact in 2002, as international stock markets slumped more steeply than their Canadian counterparts.

In 2002, OPTrust commissioned a major study of the Plan’s asset mix, testing its performance against a wide range of economic scenarios. OPTrust’s Board of Trustees will use the results to determine if changes are needed to better position the Plan to meet or exceed our investment target over the long-term. The details of any changes will be reported in future issues of OPTions.


 

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Under a recent amendment to the OPSEU Pension Plan, a package of benefit improvements that took effect for active members in late 2002 now applies to all divested OPTrust members as well.

The improvements for divested members include:

• extending OPTrust’s Factor 80 early retirement option to March 31, 2005
• extending the “Points Off” program for those who start to receive a reduced pension by December 31, 2005
• permanently increasing divested members’ OPTrust pensions starting at age 65, by reducing the Plan’s “CPP offset” from 0.675% to 0.655%
• eliminating the CPP offset applied to the pensions paid to retirees’ survivors, up until the date the retiree would have reached age 65.

The decision to extend the improvements to divested members was made by OPSEU in early 2003, in its role as one of the Plan’s sponsors. The improvements now apply to all members whose jobs were divested to a non-OPTrust employer and who are eligible for a “special deferred pension” from OPTrust.

The $25 million cost has been paid for from the members’ and pensioners’ $467 million share of the OPSEU Pension Plan’s gains from 1999–2001. The gains have now been fully allocated.

In March, OPTrust sent personalized notices to all divested members outlining the plan improvements. Separate notices were also sent to divested members who will qualify for Factor 80 before June 30, 2003. For those who will qualify later, their Factor 80 eligibility date will be shown on their 2002 Annual Pension Statement, to be mailed later this spring.

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A number of members have asked us for more information on the temporary “Points Off” program, which was recently extended to December 31, 2005.

How Points Off works
The OPSEU Pension Plan allows members who are age 55 or older when they leave their jobs – and who don’t qualify for an immediate unreduced pension – to take an early reduced pension any time before age 65.

Under the Plan’s normal rules, the pension reduction equals 5% for every year you are under age 65 when your pension starts. This reduction remains in effect for your lifetime. Your pension is also reduced at age 65 for CPP integration.

With Points Off, the reduction equals 5% for every year you are away from your earliest permanent unreduced retirement date (Factor 90, 60/20 or age 65). In projecting this date, we use:
          i)      your age when you begin to receive your pension, and
          ii)     your credit when your Plan membership ended.

Points Off is available to active and divested OPTrust members and to former members who have the right to a deferred pension. Depending on your circumstances, Points Off could mean a substantially higher pension from OPTrust than under the Plan’s normal rules for reduced pensions.

Time limits
To qualify for Points Off, your pension must commence by December 31, 2005. This means your pension must be effective by December 1, 2005, at the latest. However, your OPTrust pension cannot start until the month after you leave your job. So, to take advantage of Points Off, you must:

• be at least age 55 when you terminate your employment, and
• terminate your employment - and notify OPTrust that you want to start receiving your pension – by November 30, 2005 at the latest.

For divested members, these criteria are based on the date you leave your job with your successor employer.

OPTrust recommends that you contact us at least six months before you plan to start your pension. This will allow us to confirm your eligibility and avoid any delays in processing your retirement.

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It’s that time of year again. OPTrust has started mailing personalized Annual Pension Statements to all active and divested members of the OPSEU Pension Plan.

The 2002 Annual Pension Statement (APS) gives you a snapshot of your OPTrust pension as of December 31, 2002 and provides valuable information to help you plan for your financial future. This includes:

• an estimate of the pension you have earned with the OPSEU Pension Plan as of December 31, 2002
• the earliest date when you will qualify for an unreduced pension from OPTrust
• a projection of the pension you will receive when you retire
• the pension credit and salary information used for your calculations, as well as your total contributions
• credit for buyback payments over the year and/or transfers from other pension plans
• the names of the beneficiaries identified in your OPTrust records.

APS guide
Enclosed with your APS you will also find a Guide to Your 2002 Annual Pension Statement. The guide provides a section-by-section explanation of the key terms and concepts used in your 2002 statement, along with answers to frequently asked questions.

We suggest that you read the statement together with the guide, to make sure you understand your personal pension entitlements. We also recommend that you keep both the statement and guide in a secure place for future reference.

If you find any inaccuracies in your statement, please contact OPTrust. To change or correct the beneficiary information on your APS, you will need to fill out OPTrust’s Identifying Benefit Recipients form.

Please note: You cannot update your beneficiary information by marking the changes on your Annual Pension Statement. OPTrust can only update this information if we receive a signed copy of the Identifying Benefit Recipients form.

Mailing dates
Statements will be mailed between late April and late June. As in past years, OPTrust will also be sending a special version of the 2002 APS to divested members in June.

For more information on your Annual Pension Statement and a complete list of mailing dates, click here. If you have not received your statement by July 2003, please contact us.
 

OPTrust’s Online Pension Calculator – A Retirement Planning Tool Wondering what retirement date will be best for you? Want to know how salary increases over your career will increase your pension? OPTrust’s online pension estimator can help. The estimator asks you to enter your salary and years of credit in the OPSEU Pension Plan. To make sure you are using accurate information, it is a good idea to have your 2002 Annual Pension Statement handy. You can then use the estimator to project your future pension under a range of different retirement scenarios.

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If you are planning an unpaid leave of absence of longer than one month, you have some options – and some important decisions to make – concerning your pension.

This applies to:

• pregnancy, parental and adoption leaves
• leaves due to illness or while on WSIB
• special or educational leaves.

Before you start any of these types of leave, you must fill out OPTrust’s Option to Make Pension Contributions While on Leave of Absence Without Pay form (OPTrust 1025) together with your Human Resources representative. Completing this form will tell OPTrust whether or not you have decided to make pension contributions during your leave.

Contributing during your leave
If you decide to contribute, you will continue to earn credit for the period of your leave.

It is important that you send the Option to Make Pension Contributions form to OPTrust before you start your leave. If you delay, OPTrust may be unable to process your contributions. Although you can still apply to buy back credit for your leave when you return to work, this may increase your cost.

Buying back credit for your leave
If you opt not to contribute, you won’t earn credit during your leave. However, you will have the option of buying back this service when you return to work.

To purchase this credit, you must submit a buyback application to OPTrust within 24 months of the end of your leave. (See OPTrust’s new booklet Your Pension and Buying Back Credit, for more details.)

Pregnancy and parental leaves
It is particularly important to fill out the Option to Make Pension Contributions form before taking a pregnancy, parental or adoption leave. This is because the law requires you and your employer to continue making pension contributions during these leaves, unless you submit a signed copy of the form declining to contribute.

If you decide to contribute during your leave, completing the form will ensure this happens promptly. You can also indicate whether you want your employer to deduct your contributions from your Supplementary Unemployment Benefit allowance, if applicable. If you decide not to contribute, you must submit a form indicating your choice. In this case, you can still buy back credit for your leave once you return to work.

WSIB and LTIP
If you are off work due to an illness or workplace injury, your OPSEU Pension Plan contributions will continue automatically as long as you are still paid by your employer.

If you receive benefit payments directly from WSIB, however, your regular contributions will be interrupted. In this case, you should complete the Option to Make Pension Contributions form, indicating whether or not you want to contribute while you are away from work.

If you are eligible to receive LTIP benefits, your employer is required to pay your regular contributions on your behalf.

If you have any questions about your own status regarding WSIB or LTIP, contact your Human Resources representative.

Click here for a copy of the Option to Make Pension Contributions form. For more information, please contact OPTrust Member and Pensioner Services.

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OPTrust has launched a new booklet for members on purchasing – or “buying back” – credit in the OPSEU Pension Plan.

For members who are eligible, buying back credit for past service can be an important way to increase the value of their pensions. By adding to your credit, completing a buyback:

• will increase the pension amount you will receive when you retire
• may help you qualify for one of OPTrust’s unreduced early retirement options (Factor 80, Factor 90 or 60/20), or qualify sooner
• may help you qualify for post-retirement health, dental and life insurance benefits provided by the Government of Ontario.

The booklet Your Pension and Buying Back Credit provides key information on the buyback process, including:

• the advantages of buying back credit
• the types of service that you may be eligible to purchase
• the application process and deadlines
• how the costs are calculated
• the available payment options and deadlines

The booklet also includes answers to frequently asked questions, a copy of OPTrust’s buyback application form and a handy checklist to help you keep track of your buyback.

Your Pension and Buying Back Credit is available on this site. To order a printed copy, please contact us.

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For most OPTrust members, joining the OPSEU Pension Plan is a mandatory condition of their employment. However, some people who are not automatically enrolled in the Plan when they start their jobs have the option of joining – and starting to earn the same pension benefits as other OPTrust members.

This option is available to contract/unclassified and seasonal employees who work in the Ontario Public Service or with another OPTrust employer.

By enrolling voluntarily, these employees start contributing to the Plan, along with their employers. As long as they keep working for an OPTrust employer, the value of their pension continues to grow. And when they leave their jobs or retire, they have the same pension and termination options as other OPTrust members.

What’s more, since many contract/unclassified employees eventually get permanent jobs, joining the Plan voluntarily gives them a head start on their pension. This eliminates the need to buy back this credit when they become permanent – and is usually less expensive, too.

OPTrust has introduced a new brochure to help ensure that contract/unclassified employees are aware of their pension options – and the benefits of joining OPTrust. The brochure is available – along with more detailed information on the Plan – on this site.

If you know a coworker who is in a contract or unclassified position, bringing this to their attention may help them plan for their future.

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Question: Do the Plan’s investment losses affect the value of my pension?

Answer: No. Unlike most RRSPs or other individual investments, the value of your OPTrust pension does not rise and fall depending on investment returns. Instead, your pension is calculated using the Plan’s “pension formula.”

When you retire, your pension income will be based on your total credit in the Plan and your average annual salary. As long as you continue to earn credit, the value of your pension will keep growing. And once you retire, your pension will increase annually to keep pace with inflation.

Question: If the markets continue to perform poorly, will my OPSEU Pension Plan contributions go up?

Answer: Members’ and employers’ contribution rates are set based on the results of OPTrust’s actuarial funding valuations, which are carried out at least once every three years.

Normally, if the valuation identified a funding loss, contributions would have to be increased immediately. However, because of gains from 1999-2001, the sponsors have established separate reserve funds to stabilize member and employer contributions in the future. These reserves could be used to offset some or all of any required contribution increase.

OPTrust’s next funding valuation, covering 2002-2004, is currently scheduled for mid-2005 at the latest. At this point, it is too soon to predict whether there will be any immediate impact on member contributions. In the meantime, the Board of Trustees continues to review the Plan’s funding status on an annual basis.

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 provided by your employer. You may also have additional credit from previous periods when you were a member of the Plan or from service you have bought back. This additional credit isn’t reflected in your plan membership date.

However, your pension amount and your eligibility for early retirement are based on your total credit in the Plan, not your plan membership date.

Question: Does the time I missed due to the OPS strike show up on my Annual Pension Statement?

Answer: Yes. If you missed work due to the 2002 OPS strike, your “2002 Credit” will be less than a full year. If you opted to buy back the strike period and completed your payment before December 31, 2002, the credit for the time you missed will be listed separately under “2002 Buybacks and Transfers.”

If you did not buy back credit for the strike, you can still do so. Contact OPTrust Member and Pensioner Services for more information.

Question: Why is the estimated pension on my Annual Pension Statement higher before age 65 than after?

Answer: If you take advantage of one of the Plan’s early retirement options (Factor 80, Factor 90 or 60/20), your OPTrust pension will not be reduced for CPP integration until you reach age 65. At age 65, your OPTrust pension is reduced to reflect the fact that your OPSEU Pension Plan contributions are lower for the portion of your earnings that is also covered by CPP.

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