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Winter 2005, Number 34
In this issue
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On January 1, 2005, OPTrust marked the tenth anniversary of the OPSEU
Pension Plan’s operations. OPTrust officially commenced its operations on
January 1, 1995 with a vision to provide service and security to our members
and pensioners. This initial vision has led OPTrust to become one of
Canada’s leading public sector pension plans.
The OPSEU Pension Trust was established to deliver a secure retirement
income to you and the more than 75,000 other members and pensioners of the
OPSEU Pension Plan.
Building the Trust
In the spring of 1994, members of OPSEU voted to take responsibility –
together with the Government of Ontario – for the management of their
pension fund. The decision to create a jointly-sponsored plan has a
significant impact for our stakeholders, but more importantly, it has
affected the lives of members like you who count on OPTrust for a secure
retirement income to meet the pension promise.
OPTrust set out with a clear mandate from our members and pensioners and our
sponsors, OPSEU and the Government of Ontario. We were established to
provide you with a retirement income, deliver the finest service and
communications, and give you a voice in how your pension plan is run.
Long-Term Growth
Over the last decade, a key priority of OPTrust was to focus on the
long-term growth of the fund. OPTrust’s investment program is designed to
realize the investment return needed to fund members’ and retirees’ pensions
over the long term, while keeping investment risk within acceptable limits.
More significant than OPTrust’s investment return in any single year,
however, is our ability to grow the fund over a much longer period. Pension
plans like ours have a long-term obligation to our pensioners and members,
who look forward to decades of retirement.
To pay the estimated cost of members’ and retirees’ pensions, the Plan needs
to earn an average annual investment return of 7.5%. Since 1995, the Plan
has achieved an average annual return of 9.7%, exceeding our benchmark that
tracks the overall performance of the markets in which we invest.
Better Service
Our members and pensioners are the focus of everything we do at OPTrust. You
have told us that you count on OPTrust for useful information and prompt,
reliable service and we’ve listened to you. During the course of ten years,
we took steps to better meet your needs by keeping you informed through our
newsletters, booklets, the OPTrust website, secure Online Services and
personal communication – both in-person and over the telephone.
Based on your feedback, we’ve maintained our commitment of providing the
prompt and courteous personal service that you’ve told us you value. This
input also helped shape OPTrust’s “client-centred” approach to delivering
services. We continue to provide you with prompt telephone access to our
staff, and on average callers wait less than 11 seconds before speaking to
an OPTrust staff member.
We have also established a new set of service standards which set our target
time for the completion of a wide range of transactions. As part of our
mandate we are always looking at ways of improving the services we offer and
the way in which we communicate, to ensure you have the right information
when you need it.
Improved Benefits and Contribution Stabilization Funds
With joint trusteeship, OPSEU Pension Plan members and pensioners had a say
in how their $467 million share of unallocated gains was to be used, back in
2002.
The results included benefit improvements for members and pensioners, an
extended reduction in members’ contributions, an extension to Factor 80 to
March 31, 2005, a reduction to the CPP offset and the provision of separate
funds to stabilize contributions for members and employers to address Plan
investment losses. These funds are now providing contribution support.
Security in Retirement
At OPTrust, security continues to be the touchstone for everything we do. We
take a long-term financial perspective to help ensure the security of the
pension promise now and into the future. OPTrust is committed to ensuring
the long-term security of the pension promise, and responding to the
changing needs of our members and pensioners.
Unlike RRSPs and other individual investments, the value of your OPTrust
pension is secure for your lifetime. It is also protected against inflation,
a feature you can depend on now and in the future.
OPTrust’s Changing Demographics
Over the last ten years, the number of active members in the Plan dropped
from 64,300 at the end of 1995, to 44,243 at the start of 2005. The number
of curr ent pensioners maintained its steady upward trend, increasing by
almost 16,000 to 20,449. The transfer of provincial government services to
other employers continued to have a major impact on OPTrust’s membership
throughout our ten years in operation. Deferred and divested members – who
retain rights in the Plan – account for 10,964 of the total population in
2005.
Demographic changes in OPTrust’s active membership and pensioner population
reflect expected maturing of a new plan as well as changes in the Ontario
Public Service. This trend is reflected in OPTrust’s long-range funding
projections but does not affect the security of your benefits.
Planning for the Future
Looking ahead, we will keep working to ensure the security of OPTrust’s
pension promise and to deliver services that respond to your changing needs.
As we celebrate ten years of success, challenges, and growth, we look
forward confidently to the future. We thank you for your participation and
support in building OPTrust.
Key Highlights
Since 1995, we’ve experienced several significant achievements:
- Our member and pensioner population has grown from 69,000 to over 75,000.
- Our net assets have more than doubled from $4.5 billion in January 1995 to
over $10 billion in 2005.
- OPTrust adopted a liability management strategy to preserve the long-term
security of the Plan.
- The service provided to our membership has been consistently rated very
highly by members and pensioners.
- We have taken a leadership role in matters such as providing same-sex
spousal benefits and supporting corporate governance.
- We took an active approach to protecting the value of OPTrust’s
investments through diversification, recalculation of the asset mix to meet
the liability needs and expected economic trends, and ensuring diligence in
selecting investment managers.
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OPTrust Contributions: An Investment in Your Future
Your contributions – and the contributions made by your employer – represent
an important investment in your future. By contributing a certain percentage
of your salary along with your employer, you are securing the right to a
lifetime pension from the OPSEU Pension Plan. As long as you contribute, the
value of your pension continues to grow.
Pension Promise
The OPSEU Pension Plan is a “defined benefit” plan. This means that your
pension will be based on your salary and your years of service credit. Your
pension does not depend on the amount you contribute or on changing
investment returns. As a result, the value of your earned OPTrust pension is
payable for your lifetime. This benefit is sometimes called the “pension
promise.”
Your earned OPTrust pension is not subject to market risks or the success of
particular investments. Instead, OPTrust invests the pension fund on your
behalf. This allows the Plan to take advantage of investment opportunities
and cost savings not available to individual investors. The Plan’s
investment returns help ensure that money is available to pay for your
pension – and that of every other member and pensioner in the Plan.
New 2-step formula in effect
Starting January 1, 2005 OPTrust’s new two-step contribution formula is
in effect with the contribution rate returning to the normal 8%. This
change was announced in the Spring and Fall 2004 issues of OPTions and
was reflected in your January pay stubs.
Under the new formula, your pension contributions - and those paid by
your employer - will be calculated in two steps:
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For your earnings up to Canada Pension Plan’s
Year’s Maximum Pensionable Earnings (YMPE), your contributions will
equal 6.4%
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For earning above the YMPE, your OPTrust
contributions equal the full 8%.
The YMPE is the limit on annual earnings covered
by CPP. For 2005, the YMPE is $41,100. |
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OPTrust Introduces New Manager Structure for Canadian Equities
OPTrust has implemented a new manager structure for the OPSEU Pension Plan’s
Canadian equity portfolio, following a review of the existing structure.
OPTrust reviewed our Canadian equity portfolio both to evaluate the
proportion of actively managed versus passively managed assets (see below)
and to determine if any further changes were warranted within each strategy.
The review resulted in significant changes to the allocation between active
and passive strategies, as well as changes to the investment managers
retained to implement these strategies.
The proportion of our Canadian equity portfolio allocated to active
strategies was increased from about50% to about 75%. The remaining 25% of
passive investments was shifted from a purely passive indexing strategy to
an “enhanced passive” strategy.
This approach is intended to provide the investment manager with some
latitude to choose stocks relative to the index, but is significantly more
constrained than the traditional active approach. The objective is for the
investment manager to add a moderate amount of value, with lower risk than a
traditional active strategy.
The enhanced passive portion of the portfolio is being managed by Barclays
Global Investors, an expert in indexing strategies. OPTrust has an
established relationship with Barclays.
Within the increased allocation to active strategies, OPTrust added two new
investment managers:
- Sceptre Investment Counsel was selected to manage a new, dedicated
allocation to small capitalization (“small cap”) Canadian stocks.
- PCJ Investment Counsel was added to our roster of active managers. PCJ was
selected for their ability to achieve better returns in strong market
conditions, as well as to add value through the selection of specific large
capitalization stocks and to effectively time purchases and sales of these
securities.
In addition, one of our existing investment managers, Beutel Goodman, was
selected for an expanded mandate that now includes small cap stocks in
addition to their existing portfolio of large capitalization stocks.
Canadian Equities Within the Plan’s Total Portfolio
OPTrust's investment in Canadian equities accounts for approximately 25% of
the Plan’s total fund. Since the Plan’s inception, our Canadian equity
portfolio has been a significant source of growth.
Canadian equities continue to be attractive. They hold the prospect of
comparable returns to U.S. equities, without exposure to currency risk or
unforeseen events in the United States not reflected in the Canadian market.
The performance of Canadian equities is also more likely to match changes in
the Plan’s funding requirements.
Active vs. Passive Investment Strategies
OPTrust has used a combination of both “active” and “passive” strategies for
managing the Plan’s equity investments.
Under a passive, or “index” strategy, the manager maintains a mix of assets
that is designed to track the movement and match the performance of a major
stock market index – such as S&P/TSX Composite Index in Canada or the S&P
500 Index in the United States.
Using an “active” strategy, in contrast, managers are authorized to buy and
sell stocks as they see fit, subject to limits set out in their contract
with OPTrust. The goal is to outperform the relevant market index within a
defined level of risk.
In general, passive strategies carry lower investment management fees and
involve less risk. Active strategies offer the possibility of higher returns
than the given market index, but typically with a higher cost and level of
risk.
OPTrust’s Canadian Equity portfolio has a target weighting of 25% within the
Plan’s total fund.
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Facts About…CPP Integration and Your OPTrust Pension
Wondering what CPP integration means and how it affects you? Are you
considering early retirement and want to know the impact of taking CPP
before age 65?
Your OPTrust pension is “integrated” with the Canada Pension Plan (CPP).
This reflects the fact that you will receive retirement income from both
OPTrust and CPP for the years you were an OPTrust member. The goal is to
provide you with a combined pension income from both Plans for this period,
equal to approximately 2% of your salary times your years of credit in the
OPSEU Pension Plan. CPP integration affects both your OPTrust contributions
and the pension amount you will receive from OPTrust when you retire.
Your Contributions
While you are a member, CPP integration means that you pay lower OPTrust
contributions for your earnings that are also covered by CPP. This applies
to your salary up to CPP’s Year’s Maximum Pensionable Earnings (YMPE). For
salary above the YMPE, the full OPTrust member contribution rate applies.
OPTrust’s new two-step contribution formula means that, starting in 2005,
your
OPTrust contributions will equal 6.4% of salary below the YMPE, and 8.0%
above it
(see above).
Your OPTrust Retirement Pension
Under the OPSEU Pension Plan, your basic age-65 pension is also calculated
using a two-step formula.
Your Pension at Age 65. First, your OPTrust Pension payable at age 65 will
equal 2% times your average salary times your years of credit, minus a
reduction for CPP integration. This reduction equals 0.655% times your
average salary if it is below or equal to the average YMPE when you retire
times your years of credit (up to 35 years).
If You Retire Early. If you retire before age 65 under one of OPTrust’s
unreduced early retirement options, your OPTrust pension will include both
your lifetime pension plus a temporary top-up amount until you reach age65.
Sometimes referred to as a “bridge,” this top up amount equals – and offsets
– the 0.655% CPP reduction before your 65th birthday.
The integration of your OPTrust pension at age 65 reflects both the lower
contributions you paid to OPTrust on part of your earnings, and your
eligibility for CPP benefits.
Online Calculator Shows CPP Integration
Want to know how CPP integration will affect your OPTrust pension? Our
online pension estimate calculator can help.
Once you’re there, you enter your current salary and credit information, you
have a range of options to project your future OPTrust estimated pension. In
each case, the calculator will estimate your age-65pension, after CPP
integration. For early retirement scenarios, it will also show the
additional pension amount you would receive prior to CPP integration.
Once you have estimated your OPTrust Pension, you can include projected
income from CPP, your own RRSPs and other sources, to estimate your total
retirement income.
For more information on CPP integration and your pension, see OPTrust’s
updated booklets It’s Your Pension and
Your
Pension and the Canada Pension Plan or by
contacting OPTrust.
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You asked…
Question: Why is factor 80 expiring on March 31, 2005?
Answer: Factor 80 is a temporary early retirement benefit. Since April 2000,
the cost of this benefit has been paid for from the members’ share of the
Plan’s actuarial funding gains. While members’ and retirees’ pensions are
secure, and the sponsors have access to stabilization funds to keep
contributions from rising above the Plan’s normal rate, the Plan will not be
in a position to pay for an extension of Factor 80.
Question: Could OPSEU and the government agree to extend factor 80 during
collective bargaining?
Answer: As sponsors, OPSEU and the Government of Ontario can agree to amend
the OPSEU Pension Plan to provide enhanced benefits, such as an extension of
Factor 80. However, the sponsors would also have to agree to provide the
additional funding required to pay for these benefits.
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OPTrust Welcomes New Trustee: Ann Marshall
The Government of Ontario has named Ann Marshall to the OPTrust Board of
Trustees.
From 1994 until April 2004, Marshall had an independent advisory role with
OPTrust as an Investment Consultant, and had the opportunity to observe and
participate in OPTrust’s growth since inception.
Marshall started her career as a high school teacher. In 1979, she became
president of James P. Marshall, an institutional investment consulting firm,
until the firm’s merger with Hewitt Associates in 2000, at which time she
became practice leader.
Now retired, Marshall serves on the board of the Family Service Association
of Toronto.
“I am honoured to be appointed a Trustee,” says Marshall. “For the past ten
years I was privileged to work as an Investment Consultant to OPTrust, and I
feel it is time that I give back to this organization.”
“I believe I can contribute in assisting the Board to make decisions from
both an investment and administrative point of view that will benefit the
membership.”
New Chair and Vice-Chair on the OPTrust Board
A new Chair and Vice-Chair will head OPTrust’s Board of Trustees for the
next two years. Deb Stark, an appointee of the Government of Ontario, was
named Chair as of
November 2004. David Rapaport, an OPSEU appointee, takes on the Vice-Chair
role.
Deb Stark was appointed to the Board by the Ontario Government in 2002.
Currently the Assistant Deputy Minister of the Ministry of Agriculture and
Food’s (OMAF) Research and Corporate Services Division, Stark started her
career as a veterinarian. She joined the
OMAF in 1987 as an extension veterinarian for dairy and beef, then became
Ontario’s Provincial Veterinarian and Director of the provincial Veterinary
Laboratory Services in 1992.
As Board Chair, Stark will chair the Administration Committee, as well as
sit on the Investment and Governance & Compensation Committees. She is also
a member of the Adjudication Panel.
“My time as Trustee has shown me that the Trust is full of dedicated people
who take their jobs very seriously,” says Stark. “Since I work in the OPS, I
also know how terrific our members are.”
“At OPTrust, I am helping great people help great people. It doesn’t get any
better than that.” Rapaport steps into the role of Vice-Chair after serving
as the Board’s Chair since 2002. Appointed to the Board in 2001 by OPSEU, he
sits on the Administration and Governance & Compensation Committees, and
chairs the Investment Committee.
An OPSEU activist for more than 17 years, Rapaport served as a member of the
Union’s executive board for six years during the time the OPSEU Pension
Trust was created. He works as a Project Leader and Systems Analyst within
the Ministry of Education in Toronto.
The OPSEU Pension Trust is jointly sponsored by OPSEU and the Government of
Ontario. 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 clients. Every two years, the roles of Chair
and Vice- Chair alternate between a Government and an OPSEU appointee.
OPTrust Board of Trustees
The 10 member Board of Trustees includes five Trustees appointed by OPSEU
and five appointed by the Government of Ontario. The current members of the
Board of Trustees are:
- Deb Stark (Chair)
- David Rapaport (Vice-Chair)
- Bob Bellamy
- Jordan Berger
- Alicia Czekierda
- Heather Gavin
- Don Jordan
- Ann Marshall
- Tony Ross
- Stan Sanderson
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Your Annual Pension Statement and Online Services
Wondering when you can retire? Want to know what your age 65 pension will
be? Or how much credit you have in the Plan? Your 2004 Annual Pension
Statement (APS) will answer these and many other important questions to help
you plan for the future. Your 2004 APS is coming soon – both online and in
the mail.
Why Wait for the Mail?
When you register for OPTrust secure Online Services, you have immediate
access to your Annual Pension Statement before our mailings start. The 2004
statements will be available online in early April. Your electronic APS will
also be archived for future reference on your personalized, secure home
page. As in past years, OPTrust will mail the statements to members in four
separate batches, by ministry or employer groups.
Mailings will take place between late April and late June.
Pension Planning Tool
Your 2004 APS will give you a detailed snapshot of your OPTrust pension as
of December 31, 2004. It will also provide valuable information to help you
plan for the future.
This includes:
- an estimate of the pension you have earned in the OPSEU Pension Plan
- the earliest date when you will qualify for an unreduced pension
- a projection of the pension you will receive when you retire
- the pension credit and salary information used for your calculations, and
your total contributions, plus interest
- the individuals or organizations you have identified to receive survivor
benefits.
Check Your Address and Beneficiaries Online
Your 2004 Annual Pension Statement is coming soon. So, now is an ideal time
to make sure OPTrust has your current mailing address and up-to-date
beneficiary information.
Update your information online…
Simply log on to OPTrust’s secure
Online Services. From there you can
check your mailing address and survivor benefit recipients – and make
changes as required.
Or send us your changes by mail…
Don’t have Internet access? No problem. To change your address, just fill
out our
Personal Information Change Request form and mail it to OPTrust. You can
check your beneficiary information when you receive your 2004 APS, and make
any changes using our Identifying Benefit Recipients form. Both forms are
available from OPTrust or your human resources representative.
The deadline for making changes that you want to appear on your 2004 APS is
February 18, 2005.
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2005 Inflation Adjustment: 1.7%
Every year, OPTrust pensions are increased to reflect changes in the cost of
living. This inflation protection is an important feature of the OPSEU
Pension Plan – and a source of security for your future retirement income.
In January 2005, the most recent increase – of 1.7% – took effect. OPTrust
retirees saw an immediate increase to their annual pension amount.
The annual inflation increase also applies to the deferred pensions that
will be paid to divested and terminated members in the future.
For these individuals, the annual inflation increases start from the first
day of the month following their divestment or termination. The increase for
the first year is prorated. In each subsequent year, the full increase
applies.
When the member retires, OPTrust calculates the cumulative escalation factor
for the whole deferred period and increases the member’s pension
accordingly. From that point on, the member’s pension will continue to rise
each January, based on the change in Canada’s Consumer Price Index.
The maximum pension increase in any year is 8%, with any additional
adjustment carried forward to the next year.
For divested members, the 2005 pension escalation factor – and the increase
in your future pension – will be shown on your 2004 Annual Pension Statement
(APS).
Anjali was divested effective December 31, 1999. In January 2000, her
special deferred pension was valued at $17,000 per year, at retirement. With
inflation protection, her future annual OPTrust pension is now worth
$19,157.
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Tax Reporting: How Your Pension Affects Your RRSP Room
Canada’s Income Tax Act sets out rules that limit the total amount of
tax-sheltered savings you can accumulate in different types of retirement
savings plans. Under these rules, the benefit you earn in the OPSEU Pension
Plan for periods after 1989 reduces your available RRSP contribution room.
Your pension adjustment is not equal to your contributions, it is based on a
formula under the Income Tax Act.
Pension Adjustments (PAs)
For credit you earn through regular pension contributions, this reduction is
called a “pension adjustment” (PA).
Your pension adjustment:
- is reported each year on the T4 slip (box 52) issued by your employer, and
- reduces your RRSP contribution room for the following tax year.
Buying back credit for periods of past service after 1989 also reduces your
RRSP room. In some cases, your buyback may result in an additional pension
adjustment. Where this is the case, the additional PA amount will be
included in the pension adjustment reported on the T4 slip issued by your
employer, or on a separate T4 issued by OPTrust. You will need to report all
your PAs on your income tax return.
Income Tax Receipts
If you made a buyback payment in 2004 OPTrust will send you an official
income tax receipt by the end of February, 2005. You should report your
buyback contributions on your 2004 tax return. Your regular payroll
contributions are reported by your employer on the T4 slip (box 20).
Note: Income tax receipts are not issued for buyback payments made by
transferring funds from an RRSP, which are not tax deductible.
Annual Buyback Statements
If you are continuing to make buyback payments as of December 31, 2004, you
will also receive an Annual Buyback Statement from OPTrust. The
statement will report on the status of your buyback, including how much
credit you are buying, the total cost, your 2004 payments and your
outstanding balance at year-end. These statements will be mailed in February
2005.Statements will not be sent to members who completed their buyback
payments in 2004.
Your 2004 Annual Pension Statement
Any buyback payments made over the year will also be reflected in your 2004
Annual Pension Statement (APS). The APS will show your buyback contributions
and the total credit you purchased in 2004.
Your 2004 APS will be available online in early April. OPTrust will mail the
APS between April and late June, 2005 (see above).
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Posted on January 28, 2005
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