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Summer 2004, Number 35
In this issue
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- OPTrust’s 17.3% investment return increases the Plan’s net assets to $9.6 billion.
- A funding loss is expected in the Plan’s next valuation, due to negative returns in
2001–2002.
 Strong results for OPTrust’s investment portfolio in 2003 helped increase the OPSEU Pension Plan’s net assets to $9.6 billion, up $1.1 billion from the previous year.
“Approximately 60% of the Plan’s assets are invested in Canadian and foreign stocks,” said David Rapaport, chair of OPTrust’s Board of Trustees. “As a result, the Plan was in a good position to benefit from last year’s strong recovery in the world’s major stock markets.”
Investment performance
Over the year, OPTrust achieved an overall return of 17.3%. This is more than double the 7.5% target return needed to pay for members’ and retirees’ pensions over the long term.
Our results were also significantly better than the Plan’s weighted benchmark of 13.6%. The benchmark measures the overall performance of the markets we invest in. By outperforming the benchmark, OPTrust’s investment strategy generated approximately $310 million in added value for the Plan.
Since OPTrust’s launch in 1995, the Plan has achieved an average annual return of 9.7%. This long-term return tops both our 7.5% target and the 8.6% average benchmark for the same period.
Funding loss expected
Despite these strong results, OPTrust, like most major investors, has been affected by poor markets in recent years. In 2001 and 2002, investment losses reduced the Plan’s net assets by $1.5 billion.
While the Plan benefited substantially from the market upturn in 2003, we are also managing the effects of losses from earlier years. Meanwhile, the projected cost of members’ pensions has continued to rise, increasing by approximately $1.2 billion over the past three years.
As a result, while the long-term outlook remains strong, we expect that the Plan’s next actuarial funding valuation will identify a funding loss.
Building security for the future
OPTrust’s Board of Trustees has therefore made a number of strategic decisions. First, the Trustees approved a series of changes to the Plan’s investment policies. These changes will help the Plan to meet or exceed our target return over the long-term, while keeping risk within acceptable limits.
Second, the Board adopted an enhanced “liability management strategy” to address the consequences of the projected funding loss and reduce the risk of member contributions rising above the Plan’s normal rate over the next several years.
We Report to You…
Want a handy summary of OPTrust’s investment and financial results for 2003? What about the Plan’s funding outlook and our work to provide you with prompt, friendly service?
It’s all at your fingertips, in our Annual Highlights for Members and Pensioners 2003, included with this issue of The Pension Connection.
Get the Big Picture
More detailed information on OPTrust’s performance over the year, including the Plan’s audited financial statements, is available in our full annual report.
Both the annual report and the shorter highlights report are available online, along with a list of OPTrust’s investments with a value of $10 million or more. To order a printed copy, contact us by phone, fax or e-mail.
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Voting Our Proxies: 2003 Highlights
In the previous issue of The Pension Connection, we featured an article on our Proxy Voting Guidelines and the importance of good corporate governance. Here we address our approach and provide an overview on how we voted in 2003 on a range of key governance issues.
Sound Corporate Governance
As a shareholder investing in a number of companies, we think it is important to vote our shares to promote good corporate governance and shareholder value. Our approach to voting the Plan’s shares is twofold: it reflects our fiduciary responsibility to members and pensioners, and it ensures the long-term profitability of the companies in which we invest.
As a major institutional investor, OPTrust takes an active interest in corporate governance issues in the companies where we invest. When we buy shares in a company, we also acquire the right to vote on issues that require shareholder approval. These issues can affect a company’s direction and profitability. We, therefore, treat our voting rights as an important financial asset and vote all our shares.
OPTrust’s Approach
The Plan’s shares are voted according to our detailed Proxy Voting Guidelines approved by OPTrust’s Board of Trustees. These guidelines address key governance issues such as the appointment of independent auditors and directors, compensation and stock option plans, and mergers and acquisitions. They also address a range of social, ethical and environmental concerns. Where voting issues arise that fall outside the guidelines, the voting fiduciary refers the matter to OPTrust for guidance. In such instances, these issues are put forward to our Proxy Voting Subcommittee, made up of our Trustees.
OPTrust also uses a leading independent proxy voting organization, Institutional Shareholder Services (ISS), to actively vote our shares. This approach allows us to benefit from detailed research on voting issues and ensures that voting is consistent.
How we measure up
So how did we measure up against our guidelines? OPTrust’s overall 2003 voting summary is consistent with our Proxy Voting Guidelines and our corporate governance policies. A vote for or against a governance issue simply reflects how each proposal measures up to our guidelines, and not whether or not we voted for or against a general concept. In some cases we would not support a proposal due to inadequate information.
Appointment of Auditors
In most instances OPTrust voted “for” the appointment of auditors. Where OPTrust voted “against”, it was due to the auditor incurring more than 50% of its revenues from non-audit work, possibly affecting its ability to render an independent opinion. This is consistent with our guidelines.
Board Diversity
OPTrust voted “for” all board diversity proposals, as set out in our guidelines.
Clean, Renewable Energy
OPTrust also voted “for” shareholder proposals requesting a report on renewable energy practices.
Stock Option Plans
OPTrust voted “against” stock option plans that were excessive or did not meet
OPTrust’s prescribed criteria for such plans.
Election of Directors
OPTrust “withheld” or voted “against” the election of directors for a number of reasons such as poor attendance or the nominees served on too many boards.
As trends in corporate governance develop, ISS refers issues to our Proxy Voting Subcommittee for additional guidance in voting our shares. For example, shareholder proposals seeking to limit an auditor to only providing audit services were referred to the committee of Trustees who voted “for” this proposal in cases where non-audit fees surpassed 50% of an auditor’s total revenues.
OPTrust’s Board of Trustees periodically reviews our voting record and considers whether changes to the guidelines may be required to ensure that the interests of our members and pensioners are represented through the proxy voting process.
For more information on our Proxy Voting Guidelines, click here.
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OPTrust’s Liability Management Strategy
In 2003, OPTrust’s Board of Trustees adopted an enhanced “liability management strategy” to manage the effects of investment losses from previous years while preserving the long-term security of the Plan. The strategy includes three key components:
- adjusting OPTrust’s actuarial smoothing methodology to better reflect the Plan’s liabilities over time
- advancing the date of the Plan’s next actuarial funding valuation
- increasing the ongoing monitoring and analysis of trends that could affect the Plan’s funded status in the future.
Actuarial Smoothing
As part of this strategy, OPTrust revised the Plan’s “actuarial smoothing” method.
Smoothing reduces the short-term impact of volatile investment returns by deferring – or “smoothing” – part of each year’s gains or losses over several years. By adjusting the way smoothed amounts are calculated, and recognizing them over a longer period, our new method will help ensure a more stable funding base for the Plan’s pension liabilities.
In addition, we plan to file our next “actuarial funding valuation” as of December 31, 2003 – one year earlier than legally required. This timing will result in earlier funding improvements, and manage past losses over the Plan’s next two funding valuations.
A systematic approach to security
OPTrust takes a systematic approach to managing liability risk. This involves ensuring that estimates of the cost of members’ and retirees’ earned pensions are sound and that contributions and investment income will be sufficient to fund these entitlements. We, therefore, review the Plan’s actuarial assumptions on a regular basis, testing them against the Plan’s experience and projections regarding future conditions. We also carry out sensitivity analyses to determine the potential impact should experience differ from assumptions regarding investment income and the cost of members’ entitlements.
Security promise
Our Board of Trustees will continue to explore a range of alternatives for managing various funding scenarios to ensure the long-term security of the pension fund. However, we want to assure you that a funding loss would have no impact on the value or security of the pension paid to all OPTrust retirees.
As an OPTrust pensioner you have the financial security of a lifetime pension from the
OPSEU Pension Plan. It’s payable for your lifetime and increases annually to keep pace with inflation.
What is an Actuarial Funding Valuation?
By law, OPTrust must carry out an “actuarial funding valuation” that is provided to regulators at least once every three years. The purpose of the valuation is to confirm whether the Plan’s assets are sufficient to pay the projected cost of members’ and retirees’ pensions.
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Ontario's New Health Premium may affect your pension payments
Want to know how the new health premium will impact your OPTrust pension amount?
Depending on your annual pension amount and whether or not you live in Ontario, you may see an increase in the income tax deduction from your OPTrust pension payment.
Beginning July 1, 2004, the new Ontario Health Premium (OHP) must be collected through the provincial income tax system. The premium is based on personal taxable income from all sources including your OPTrust pension. It sets out deduction amounts for different income brackets and how much you can expect to pay.
The table below lists the different taxable income levels and the OHP deduction amount for 2004 and 2005.
| Individual Taxable Income |
2004 Tax Year |
2005 and Subsequent Tax Years |
Monthly Premium
(starting with the July 2004 pension payment) |
$0 – $20,000 |
Nil |
Nil |
Nil |
$20,001 – $25,000 |
3% over $20,000 to a maximum of $150 |
6% over $20,000 to a maximum of $300 |
$0 to $25 |
$25,001 – $36,000 |
$150 |
$300 |
$25 |
$36,001 – $38,500 |
$150 + 3% over $36,000 to a maximum of
$225 |
$300 + 6% over $36,000 to a maximum of
$450 |
$25 to $37.50 |
$38,501 – $48,000 |
$225 |
$450 |
$37.50 |
$48,001 – $48,600 |
$225 + 12.5% over $48,000 to a maximum
of $300 |
$450 + 25% over $48,000 to a maximum of
$600 |
$37.50 to $50 |
$48,601 – $72,000 |
$300 |
$600 |
$50 |
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How is your pension affected?
By law, your OPTrust pension is taxable income and is subject to
various tax deductions, including the new health tax. The new OHP,
however, applies to Ontario residents only; if you live outside Ontario,
you are not affected.
Depending on your annual taxable income, a certain percentage will be deducted according to the new guidelines (as indicated below) and will be reflected on your July 26th pension pay date – if you are an Ontario resident. If you are receiving an annual pension of $20,000 or less, you are not affected by the OHP tax.
Who will deduct the OHP?
OPTrust will determine the amount of OHP deduction based on your annual OPTrust pension. This amount is listed under your provincial tax deduction. If you have other sources of income, the OHP deduction will be withheld at source by the other pension plans or employers. Any over or under payment is reconciled by the tax authorities when your income tax return is filed.
OPTrust will issue a Pension Information Change Statement to any pensioner affected by the OHP tax. If you have any questions about your OPTrust pension, please contact our Member and Pensioner Services line. For more information on the new Ontario Health Premium visit the Government of Ontario Web site at www.gov.on.ca.
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Your Privacy Matters
Keeping your personal information confidential has always been fundamental to the way we do business at OPTrust. We are committed to ensuring the protection and security of your personal information. As part of our commitment, OPTrust has conducted a thorough review to determine any steps the organization must take to enhance its privacy policies.
 In fact, OPTrust along with other public sector pension plans already had strict standards in place about dealing with personal information. We also believe in constant vigilance on privacy matters. OPTrust staff has always taken great care and sensitivity when dealing with member/pensioner personal information.
In fact, OPTrust has in place a privacy policy with stringent privacy principles that sets out specific rights and obligations including, among others:
- advising individuals of the purposes for which their personal information is being collected and used
- outlining the circumstances or purposes under which it will be disclosed to third parties obtaining consent of the individual for such collection
- identifying uses and potential disclosure, such as under a court order, and;
- ensuring that the information is not used or disclosed for other purposes without further consent.
Our privacy policy explains why we ask for your personal and confidential information, how we protect your records, when we release your information and how you can view, check and correct your personal information.
Please be assured that the use, collection and disclosure of your personal information will continue to be very important to OPTrust. We will continue to assess the impact of any changes in how we communicate or provide services and ensure that our practices meet or exceed the best privacy standards. We will also keep you informed about any steps that we are taking in this regard.
More information on our Privacy Policy is available online.
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Spousal Relationship Breakdowns
Under the OPSEU Pension Plan, when a spousal relationship ends a former spouse may become entitled to a portion of the member’s pension accrued during the spousal relationship as part of the equalization process under the Family Law Act.
 Pension law will not permit the payment of more than 50% of the pension benefit earned during the period of the spousal relationship, to be paid to a former spouse for the equalization of family property.
Spousal breakdown after retirement
If your spousal relationship ends after you retire and start receiving your pension payments, your former eligible spouse will be able to receive specified pension benefit payments from OPTrust from the date stated in the court order or domestic contract as long as the date is in the future. Pension payments cannot be backdated. The end of the spousal relationship after retirement does not affect the ex-spouse’s eligibility for a survivor pension under the Plan, should you die.
For more information on spousal relationship changes after retirement, OPTrust offers a Fact Sheet Spousal Relationship Breakdown, which explains what happens to your pension when your spousal relationship ends. To obtain a print copy contact our Member and Pensioner Services line.
However, OPTrust urges both pensioners and their former spouses to seek independent legal advice.
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Retiree Benefit Change: Prescription Drug Deductible
Effective June 1, 2004 retirees of the Ontario Public Service (OPS) saw a change to their prescription drug deductible. The deductible was reduced to $3 per DIN (Drug Identification Number) from the $5 introduced at the beginning of the year. This reduction will be in effect for the remaining life of the collective agreement between the Ontario Public Service Employees Union (OPSEU) and the Ontario Government.
 The change in the prescription drug deductible is the result of an OPSEU grievance settlement signed on May 17, 2004. This settlement also clarified a number of other benefit issues but did not result in any further changes to the manner in which the benefit plan is administered.
The $3 deductible will apply to drugs purchased on or after June 1, 2004. Any drugs purchased between January 1, 2004 and May 31, 2004 are subject to the $5 deductible. Great-West Life, the insurer for the retiree plan, has been advised accordingly.
Source: Government of Ontario, June 2004
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Online Services: Your Beneficiary Information is Up-to-Date
Good news for pensioners who want to view, update or change their beneficiary information using OPTrust Online Services. OPTrust has successfully completed a “conversion project” which resulted in transferring our pensioner data files to our new secure Online Services. This means that your online beneficiary profile is up-to-date, and accurately reflects the information we have listed in our records.
In 2002 as part of our improved client service model, OPTrust moved our pension payroll function in-house and implemented a “Retired Members System (RMS).” As part of this process, all records for pensioners who retired after 2002 were included in the new database system and records for pensioners with a retirement date prior to 2002 were listed in our previous system. While the beneficiary information in both systems was accurate, it was necessary to consolidate the two databases in RMS and our Online Services.
Have you registered for Online Services?
Why not sign-up today? Once you are registered you have secure access to:
- check and update your beneficiary information
- view a copy of your 2003 T4A
- update your mailing address, phone number and e-mail address
- update your banking and TD1 information
- choose to receive OPTrust statements and publications online
- two-way messaging
- sign up to receive e-mail notices about OPSEU Pension Plan news.
You can sign up for Online Services any time. You will need your Social Insurance Number and a recent T4A Statement to register. If you don’t have a copy of your T4A or need help registering, simply call our Member and Pensioner Services line for assistance. OPTrust Online Services gives you access to your personal pension information in a secure Web environment.
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Helpful Web sites
There is a wealth of information available online and sometimes you’re not sure where to start. For your information, we’ve compiled a list of pension and retirement-related Web sites that you may find useful: Canada Pension Plan (CPP)
Canada Site
- main Web site with list of direct links to primary sites for Government of Canada.
www.gc.ca
Phone: 1-800-277-9914
Great-West Life
- a site where members can self register to access information about their benefits.
www.gwl.ca
Phone: 1-800 874-5899
Old Age Security program (OAS)
- provides benefit and payment information on the OAS program.
www.sdc.gc.ca
Phone: 1-800-277-9914
The Ontario Seniors’ Secretariat
- provides information about the senior population, lifestyle, health and well-being, and includes an online version of the Guide to Programs and Services for Seniors in Ontario.
www.gov.on.ca/citizenship/seniors
Seniors’ InfoLine: 1-888-910-1999
OPSEU Retired Members Division
- an association for former OPSEU members that allows you to follow what’s going on in the Union and participate in activities geared towards retirees.
www.opseu.org
Phone: 1-800-268-7376 Ext. 664
The Quarter Century Club (QCC)
- an association for all retired Ontario Public Service employees with 25 or more years of service.
www.qcclub.gov.on.ca
Phone: 1-800-561-8657
50plus.com
- Formerly the Canadian Association of Retired Persons (CARP), is a Canadian Web site providing unique content, community and commerce for people over the age of 50.
www.50plus.com
Phone: 416-363-8748
Don’t have Internet access at home? Not a problem, most local public libraries offer Internet access free of charge.
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