Retirees’ pensions unaffected by Plan deficit

The OPSEU Pension Plan’s sponsors – OPSEU and the Government of Ontario – have approved OPTrust’s recommendation for a 3% increase in members’ and employers’ contribution rates, to be phased in gradually over the next three years.

The contribution increase is part of a proactive strategy developed by OPTrust to deal with the funding deficit resulting from the Plan’s 2008 investment losses. The strategy is designed to help meet the Plan’s long-term funding requirements without reducing pension benefits.

Under this strategy, the deficit will have no impact on your monthly OPTrust pension, including your annual inflation adjustment.

In fact, under Ontario’s pension legislation, your earned pension cannot be reduced to deal with a funding shortfall. This protection applies to:
• the pensions paid to current retirees and survivors
• the deferred pensions of former and divested members
• the pensions active OPTrust members have earned so far in their careers.

The increase means active members’ contributions will rise by 1% of salary in January 2010, 2011 and 2012. The contributions paid by employers will rise by the same amount.

Stabilization funds
Under its deficit management strategy, OPTrust filed the Plan’s most recent funding valuation with the provincial regulator.

Without the contribution increase, the valuation would have shown a deficit of $1.8 billion as of December 31, 2008. The future contributions resulting from the approved increase will reduce this shortfall to $606 million.

To cover the remaining deficit, the sponsors have agreed to use part of the Plan’s member and employer rate stabilization funds. Payments of $64 million a year, including interest, will be amortized over 15 years.

These funds, which totalled $820 million at the end of 2008, were set aside as a reserve by the sponsors from the Plan’s past investment gains.

Proactive approach
“Like most major pension plans, OPTrust experienced a significant investment loss in the recent global market downturn,” said Tony Ross, Chair of OPTrust’s Board of Trustees.

“We are working with our sponsors to deal with the funding shortfall sooner rather than later. By taking a proactive approach now, we expect to avoid even larger contribution increases in the future, while  maintaining the value of our 82,000 members’ and retirees’ pensions.”

For more information, visit our website where we will continue to keep you informed of the Plan’s status throughout the year.

OPTrust’s funding outlook
As part of its deficit management strategy, OPTrust has modified the Plan’s asset smoothing” methodology. As a result, most of the Plan’s investment losses have been recognized in the 2008 funding valuation. The deferred portion of these losses, which will be recognized between 2009 and 2012, has been capped at $927 million, down from $2.4 billion.

This financially conservative decision, together with the other elements of OPTrust’s strategy, reduces the risk of larger deficits and further contribution increases in the future.

Assuming a modest recovery in the financial markets over the next five years, the Plan’s rate stabilization funds should be large enough to offset any future shortfall. If investment returns recover more quickly than expected, the sponsors will have three options: paying down the deficit more quickly, increasing the stabilization reserves or reducing future contribution rates.

In the meantime, OPTrust is continuing to implement a multi-year diversification strategy. The goal is to reduce the volatility of the Plan’s investment returns while meeting our funding target over the long term. Since the Plan’s inception in 1995, OPTrust has achieved an average annual return of 8.1%. This exceeds both our 6.75% funding target and our 7.4% weighted benchmark return for the same period.

For more information, including answers to questions about the Plan’s deficit and your pension, visit our website.

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New Your pension to increase by 0.5% in 2010 online

Starting January 2010, your OPTrust pension will increase by 0.5% for inflation protection. Every January your OPTrust pension is adjusted to reflect the increase in the cost of living.

The cost of living is determined by the Consumer Price Index (CPI) as reported by Statistics Canada. The CPI used by OPTrust reflects the cost of a weighted basket of over 600 goods and services that are typically purchased by Canadian consumers each month. These weights ensure that a 10% price increase in rent, for example, would have a greater impact on the index than a 10% increase in the price of milk.

How we calculate your increase
Your 2010 inflation adjustment is calculated by dividing the CPI average for the two 12-month periods ending the previous September. For example, the 2010 escalation factor and 0.5% increase is calculated as:

The 2010 increase is lower than in previous years. This is largely due to a drop in prices for energy products such as gasoline, which was lower in 2009 than in 2008. According to Statistics Canada, of the eight major components in the CPI, three recorded declines in the 12 months to August: transportation, shelter, and clothing and footwear.

What’s more, inflation dipped below zero last summer – the first time in 15 years. Since OPTrust uses an average CPI over the two 12 month periods, the approach better protects your inflation adjustment for the periods when inflation fell below zero in 2009.

Even with inflation at a lower level, OPTrust’s annual inflation adjustment can make a big difference over time. For example, a pensioner who retired in 1995 with an average pension of $20,000 will receive $26,619 from OPTrust in 2010. For more information, refer to OPTrust’s fact sheet Inflation protection for your pension.

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Planning to move to the U.S.?

OPTrust offers direct deposit pension payments to financial institutions throughout the United States. So, if you plan to live or spend part of the year south of the border, all you need to do is set up a U.S. bank account and we’ll deposit your monthly pension. You can still maintain your Canadian account for the months you are in Canada.

You can notify OPTrust through your secure Online Services account or by completing a
Personal Information Change Request form. Remember to update your new home mailing address too.

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Flip through the business section of any newspaper today and you will notice that pension plans worldwide have attracted growing attention. In Canada, this is largely due to three key factors.

First, Canada’s population is aging. According to Ontario’s Ministry of Finance, the number of seniors is projected to more than double in Canada over the next 30 years. Second, there is growing concern that many Canadians may not have adequate savings for their retirement years. Lastly, the current economic crisis has had an impact on pension plan funding and retirement income security.

To address these and other emerging issues, government and industry stakeholders in Ontario and across the country are exploring options to reform Canada’s pension system.

In June 2009, the provincial government created an Advisory Council on Pensions and Retirement Income – a recommendation from the Expert Commission on Pensions report released in 2008. The council’s job is to look at long-term reforms to strengthen the pension system for Ontarians and to increase Ontario’s competitiveness.

In August 2009, federal and provincial finance ministers agreed to host a national summit on pensions next year to focus on pension reform and retirement income issues.

OPTrust is monitoring these developments and will keep you informed in future issues of Pension Connection.

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¹The Globe and Mail online edition, May 31, 2009

2010 pension payment calendar

Your OPTrust pension is paid on a monthly basis, usually on the 26th except for December when the pension is paid earlier. When the 26th falls on a Saturday or Sunday the pension is paid the previous Friday.

*Since February is a short month, OPTrust pensions are paid earlier.

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The OPSEU Pension Plan is a “defined benefit” plan. This means that at retirement, your pension was calculated using your best five-year average salary and your years of credit in the Plan while you were a member.

Unlike a defined contribution pension plan, individual RRSPs and other personal investments, your pension is not affected by fluctuations in the financial markets. That means as an OPTrust retiree, you can count on your pension to provide you with a secure income in retirement.

What’s more, your pension is payable for your lifetime and is adjusted each year to keep pace with inflation. Since the Plan’s inception in 1995, annual inflation adjustments have totaled 29.5%. If your pension was worth $18,000 in 1995, in 2010 it would total $23,957, an increase of $5,957 over a 16-year period.

Your pension is backed by the Plan’s assets and the future contributions of our more than 48,000 members and the Government of Ontario.

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OPTrust's Board of Trustees appointed Bill Foster to the position of Chief Administrative Officer (CAO) effective November 4, 2009.

Mr. Foster assumes this role after nine years as a member of OPTrust’s senior management team, most recently as the Vice-President of Member and Pensioner Services.

As Chief Administrative Officer, Mr. Foster will assume overall responsibility for managing the activities of OPTrust’s Administration Division. In his previous role, Mr. Foster provided consistent leadership in a number of critical areas, including the development of OPTrust’s funding policy and our deficit management strategy, and the planning and delivery of the high-quality services OPTrust provides to our members and pensioners.

Mr. Foster replaces Heather Gavin, who has stepped down from the position of Chief Administrative Officer and Plan Manager. Ms. Gavin served on the Board of Trustees for over a decade before her appointment in 2006.

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If you have not yet submitted your Great-West Life claims for 2008, the good news is you’ve still got time. All Great-West Life claims for dental and medical coverage for 2008 must be received by Great-West Life on or before December 31, 2009.

Send your insured benefits claims to:

Great-West Life Health and Dental Claims
P.O. Box 4076, Station A
Toronto, ON M5W 3A3

You can download forms from the Great-West Life website at www.greatwestlife.com.

You can track your claim submission online by using GroupNet, Great-West Life’s online service. Please do not send your claim to OPTrust, we cannot guarantee it will arrive before the deadline. If you have any questions about your insurance claim, please contact Great-West Life at 1-800-874-5899 or 416-440-0406.

Important: All 2008 claims received after the December 31, 2009 deadline will not be reimbursed.

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Improvements to insured benefits plan

In the spring 2009 issue of Pension Connection, we communicated a number of improvements to the insured benefits plan for eligible pensioners. Effective January 1, 2010 the following changes apply to your insured benefits coverage:

Vision care and hearing aid plan
100% of premiums for vision care and hearing aid plans will be paid by the Government of Ontario. If you were not previously enrolled in these plans, coverage will apply automatically at no cost to you, and you are not required to complete enrolment forms. The plan provides coverage for:

• Vision care: $340 in any 24-month period for prescription eye glasses, contact lenses and laser eye correction surgery. (100% of one routine eye exam every 24 months is covered separately under the supplementary health and hospital plan.)

• Hearing aid: maximum $1,200 per person every four years for the purchase of hearing aids

Major restorative dental services
Maximum coverage for major restorative dental services increases from $1,200 to $2,000 per year, for you and your eligible dependants. Reimbursement remains at 50% of eligible expenses.
Insured benefits are provide by the Government of Ontario and administered by Great-West Life not OPTrust. If you have any questions about your coverage, please contact Great-West Life at 1-800-874-5899, 416-440-0406 or www.greatwestlife.com.

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Your retirement snapshots

Retirement means different things to different people. It could be the opportunity to spend more time with family and friends, take up a new hobby, work part-time or travel down south for the winter. With more than 24,000 OPTrust retirees in the Plan, everyone has a unique perspective to share.

After living in Kingston, Ontario for 21 years, Abdulaziz Alibhai decided to move to Toronto at retirement to be closer to his siblings and their families. While it took a couple of years to adjust to the fast-paced environment, Abdulaziz says that being in the same city to share in family celebrations and special occasions was worth the transition. In Abdulaziz’s spare time, he takes piano lessons, gardens and spends a lot of time pursuing his two passions – reading and writing.

Adrian Chase has a laid back approach to retirement. After spending more than two decades as a property assessor in Dryden, Ontario, Adrian enjoys the flexibility that retirement brings. It means he can drive out to Saskatchewan to visit his siblings or go salmon fishing in Northern, B.C. on a whim. He’s now toying with the idea of taking the train across Canada or heading to the arctic to see the polar bears.

 After a 25 year career as a bilingual translator in the OPS, Olga Dey-Bergmoser Thompson is as busy in retirement as she was during her career. To date, Olga’s written more than 50 articles as a freelance writer. She also co-authored and published two illustrated children’s stories – Little Jenny and her Pennies and Charlie – with her late husband.

When Diana DeSouza retired in 1998, she took the opportunity to return to school and obtain a Travel Industry Services certificate from Humber College. Today Diana works as a part-time travel consultant specializing in Alaskan and Caribbean cruises. She has won three awards for outstanding achievements at her organization.

Stella Magic says the security of her OPTrust pension means she can pursue her two favourite hobbies – travelling and producing videos. Over the last 15 years, Stella has visited 20 countries and produced documentaries for each destination. In her free time, Stella gives educational presentations on her various trips using her videos at community
centres and retirement homes.

For Dave Pringle retirement means he can volunteer at the Canadian Warplane Heritage Museum in Hamilton, Ontario. As a tour guide, Dave enjoys meeting people from all over the world as he gives tours in the museum’s hangar of the more than 36 planes used by Canada’s military from World War II to present.

At age 75, Mary Proper has no plans of slowing down any time soon. Since retiring from the OPS, Mary has more time to work on her farm. She has entered horses in the Royal Agricultural Winter Fair, and volunteers at a local hospital. Active in her community, Mary also attends several seniors’ social events each year.

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OPSEU appointee joins the Board

Ron Langer was appointed by OPSEU to the Board of Trustees in September 2009.

Langer’s career spans 20 years in both the private and public sectors in business and real estate financing with the Business Development Bank of Canada, the Royal Trust Corporation, and the Ontario Development Corporation. Langer currently works as a Senior Business Advisor with the Ministry of Economic Development and Trade in London, Ontario.

An OPSEU activist, Langer is the President of Local 103 (London and Aylmer), Union Co-Chair for the Ministry of Economic Development and Trade’s Employee Employer Relations Committee, and a union member of the Ontario Public Service’s Central Employee Employer Relations Committee. He also serves on the board of Life*Spin (Low Income Family Empowerment * Sole-Support Parent Information Network), a not-for-profit organization in London.

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