The quarterly newsletter for members of the OPSEU Pension Trust
Fall 2009, Number 48
In this issue...
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Plan sponsors approve gradual contribution rate increase
The OPSEU Pension Plan’s sponsors – OPSEU and the Government of Ontario – have approved a 3% increase in members’ and employers’ contribution rates, to be phased in gradually over the next three years.
The contribution rate increase is part of a proactive strategy developed by OPTrust to address a funding shortfall resulting from the Plan’s 2008 investment losses.
The strategy is designed to help OPTrust and its sponsors meet the Plan’s long-term funding requirements without reducing your pension benefits, while moderating the impact on your contribution rates.
The increase means your contributions will rise by 1% of salary in January 2010. Further 1% increases will take effect in 2011 and 2012. The contributions paid by your employer will rise by the same amount.
An average OPTrust member who earns $55,000 per year currently contributes approximately 6.7% of his or her salary to the Plan. These contributions will now increase to approximately 7.7% in 2010, 8.7% in 2011, and 9.7% starting in 2012.
Stabilization funds
Under the deficit management strategy, OPTrust filed the Plan’s most recent funding valuation with the provincial regulator.
Without the increase in contribution rates, this valuation would have shown a deficit of $1.8 billion as of December 31, 2008. The additional contributions resulting from the approved increase will reduce this shortfall to $606 million.
To cover the remaining deficit, the sponsors have approved a series of payments from the Plan’s member and employer rate stabilization funds. Annual payments of $64 million, including interest, will be amortized over 15 years.
The rate stabilization funds, which totalled $820 million at the end of 2008, were set aside by the sponsors from the Plan’s past investment gains.
Proactive approach
“Like most major pension plans, OPTrust experienced a large 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.”
No change to OPTrust pensions
This approach means that the Plan’s current deficit will be eliminated without reducing the pension you will earn for your future service. There will also be no change to the pension you have already earned for your past service.
The same protection applies to the pensions paid to OPTrust’s current retirees, and to the former and deferred members’ pensions. These earned pension benefits cannot be reduced under Ontario’s pension legislation.
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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 to $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 result exceeds both our 6.75% funding target and our 7.4% weighted benchmark return for the same period.
For more information, visit the news section on our website where we will continue to keep members informed of the Plan’s status throughout the year.
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Annualized contributions
Every two weeks, your employer will calculate your pension contributions, deduct them from your pay and remit them to OPTrust along with the employers’ matching contributions.
Your OPTrust contributions will be paid on an “annualized” basis. This means your employer will calculate your annual contributions based on your regular salary rate, and then divide this by the number of pay periods in the year. As a result, you will pay level contributions throughout the year, based on your pensionable salary.
Your contributions will still be integrated with the Canada Pension Plan. This means you will still pay lower contributions on your earnings below CPP’s “Year's Maximum Pensionable Earnings.” For example in 2010 you will pay 7.4% of earnings up to the YMPE ($47,200) and 9.0% above the YMPE. However, with the move to annualization, your OPTrust contributions will no longer rise once your actual earnings reach the YMPE partway through the year.
You will see a change for both the contribution rate increase and the annualized contributions during the first few pay periods in 2010.
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OPTions e-updates: Your source for Plan news
When OPTrust announces changes to your pension plan, such as the new Surplus Factor 80 provision or the contribution rate increase, you don’t need to wait for the next issue of OPTions to find out.
Once you are registered with our secure Online Services site, just set your communications preferences to automatically receive OPTions e-updates between each regular newsletter issue. Look for more details in your next issue of OPTions.
Not registered for Online Services? Visit our website to complete your registration or contact our Member and Pensioner Services staff to walk you through the process.
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New Chief Administrative Officer named
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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Your OPTrust pension as a financial resource
As an OPTrust member, you are contributing to your financial future through regular payroll deductions. In turn, your pension will provide you with a secure source of income at retirement, payable for your lifetime.
Your OPTrust pension is unlike a savings or investment account in that you cannot access money before retirement to help with the purchase of a new home, post- secondary education or any other financial commitments.
However, your pension may be transferred to a locked-in retirement account (LIRA) or similar retirement savings arrangements if you end your employment before you are eligible for an immediate pension (typically before age 55).
In the meantime your pension is secure – and continues to grow based on the years of credit you earn and increases in your annual salary.
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“Surplus Factor 80” provision approved by sponsors
OPSEU and the Government of Ontario have approved an amendment to the OPSEU Pension Plan extending the temporary “Surplus Factor 80” option for eligible members in the Ontario Public Service (OPS).
Surplus Factor 80 is an early retirement option that is available to eligible plan members who are permanently laid off. The provision allows affected members to qualify for an unreduced OPTrust pension if their age plus their credit in the Plan total 80 years or more by the time they leave their employment.
The plan amendment also enables employers and bargaining agents outside the OPS to negotiate agreements to provide a Surplus Factor 80 option to members in other non-OPS organizations that participate in the Plan.
Surplus Factor 80 in the OPS
If you are a member of the Plan and work in the OPS, you may qualify for the new Surplus Factor 80 provision, if:
- you receive a notice of layoff and are laid off under the Central Collective Agreement before January 1, 2013, and
- your age plus your credit in the Plan equal 80 years or more on the date your employment ends.
The new Surplus Factor 80 reflects changes in the OPS collective agreement ratified by OPSEU and the Government of Ontario in early 2009. The provision applies retroactively to eligible members who received a notice of layoff before February 26, 2009.
For members who receive a layoff notice after February 25, 2009, there is one additional eligibility requirement. For these members to qualify, the employer must provide OPTrust with confirmation that the layoff is consistent with the new OPS collective agreement. Under Appendix 17 of the collective agreement, a laid-off member is eligible for Surplus Factor 80 only if the available options for reassignment or redeployment to a permanent vacancy have been exhausted.
The additional cost to the Plan for the extended Surplus Factor 80 provision will be paid by the Government of Ontario.
Surplus Factor 80 in non-OPS bargaining units
For members of other bargaining units, employers and OPSEU may negotiate an agreement to provide access to the Surplus Factor 80 option or other similar provisions. In these cases, the parties must notify OPTrust of the terms of any such agreement.
Pension bridging
Plan members who receive a notice of layoff may also be able to “bridge” to an unreduced pension.
Like Surplus Factor 80, bridging requires special provisions in your collective agreement. These provisions allow laid-off members to use leaves of absence, the surplus notice period and the period represented by their severance payments to reach their eligibility date for an unreduced pension.
Eligible members can use bridging to qualify for a pension under the Plan’s Factor 90 (age + credit = 90 years) or 60/20 (age 60, 20 years of credit) early retirement options. Where the necessary agreements are in place, bridging can also be used to qualify for a pension under Surplus Factor 80.
Under the current collective agreement, eligible members in the OPS can use bridging to qualify under all three of these early retirement options.
For more information
If you receive a notice of layoff and think you may be eligible for Surplus Factor 80 or pension bridging, please contact your human resources representative and OPTrust for more information.
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Retirement still a long way off? Your OPTrust pension is a secure investment
For younger OPTrust members, retirement planning may not be a key priority now, with many looking at retirement dates over 30 to 40 years away. Younger members may also find it difficult to find extra money to save for retirement when paying for student loans or saving to buy their first home.
But if you are a recent graduate or just a few years into your first career, your pension contributions are a secure investment for your future – regardless of how long you remain a member of the Plan. What’s more, your employer matches your pension contributions.
In fact, for most active members, their OPTrust pension is one of their largest financial assets. So, it’s good to know that you can count on your earned pension even if you decide to change jobs or leave your current employer during your career.
Let’s look at an example of a member who contributes to an OPTrust pension but leaves after a couple years in the Plan.
Example
Salma started her career in the Ontario Public Service five years ago. But she recently quit her job to return to school and pursue a full-time graduate degree. With the market downturn over the last year, Salma decided to leave her earned pension in the Plan rather than transferring it to a registered retirement savings account.
Total credit in the Plan: 5 years
Best average annual salary: $60,000
Date of birth: September 17, 1983
OPTrust pension at age 65: $4,572
(Payable for life)
After contributing to the Plan for five years, Salma can count on an annual pension of $4,572 (in today’s dollars) at age 65 – the Plan’s normal retirement age. Salma’s pension will be payable for her lifetime.
During Salma’s lifetime, her deferred OPTrust pension will increase every year to keep pace with inflation. OPTrust’s inflation protection feature is designed to protect the buying power of retirees’ pensions. Since the Plan’s inception in 1995 annual inflation protection increases have totaled 32.4%. For example, if under a different scenario Salma’s deferred OPTrust pension was $4,572 in 1995, today it would be worth $6,054.
If, during her career, Salma decides to return to the OPS or another employer that contributes to the Plan, she will be able to increase her earned OPTrust pension at retirement.
One of the ways to find out how your pension will grow during your career is to use our online pension estimator.
Five reasons why your OPTrust pension is a good investment
- you receive a pension payable for life
- your employer matches your pension plan contributions
- your pension will be adjusted for inflation annually
- if you leave your job, you can move your pension to an RRSP or another pension plan, or leave it with OPTrust
- it’s an easy and safe way to save for the future.
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Question: Is my OPTrust pension secure?
Answer: Yes. Your pension is supported by an $11 billion investment fund and the future contributions of OPTrust’s approximately 48,000 active members and their employers.
OPTrust’s deficit management strategy is designed to address the Plan’s current funding shortfall without reducing pension benefits.
The strategy will allow OPTrust and the Plan’s sponsors to meet the Plan’s current funding requirements, while reducing the risk of further contribution increases in the future.
Question: Will contributions be reduced if the Plan has a surplus in the future?
Answer: OPSEU and the Government of Ontario are responsible for decisions on how to allocate any Plan surplus.
Assuming that there is a modest recovery in the financial markets over the next five years, the 3% contribution increase plus the use of the rate stabilization funds should be enough to meet the Plan’s funding requirements.
If investment returns recover more quickly than expected, the sponsors will have the option of paying down the deficit more quickly, increasing the stabilization reserves or reducing future contribution rates.
OPTrust has recommended that the sponsors consider reducing contributions to their current rates before using any future surplus to enhance pension benefits.
Question: Are my pension contributions tax deductible?
Answer: Yes. The increase in members’ pension contributions will reduce your taxable income. This will help reduce the impact on your take-home pay.
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Strengthening Canada’s pension system
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.
While OPTrust members, like most public sector employees, have the security of a strong defined benefit pension plan, a staggering three-quarters of Canadians in the private sector have no pension plan at all.
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 Pension 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 OPTions.
The Globe and Mail online edition, May 31, 2009
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New Trustees join the Board
The Government of Ontario appointed Scott Campbell to the OPTrust Board of Trustees in April 2009.
With a career spanning 30 years in the Ontario Public Service, Campbell was the first Corporate Chief Information Officer (CIO) for the Government of Ontario – a position he held until he retired in 2001.
Since then, Campbell has worked as the CIO with the Government of British Columbia, Ontario’s first Chief e-Health Strategist, the Interim CIO for the Canadian Partnership Against Cancer, and Interim CIO of the Ontario Agency for Health Protection and Promotion.
Campbell runs his own information technology consulting firm and provides strategic advice to change large complex organizations.
He serves as Chair of the Board of Directors of the Trillium Health Centre, a Toronto area hospital. He is also a member of the Editorial Advisory Board of CIO Government Review and the TELUS Toronto Community Board.
“It is a privilege to be a part of the OPTrust Board. I look forward to working with my fellow Trustees, OPTrust management and staff to ensure that the short and long term needs of the members and pensioners are met,” said Campbell.
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 Information Network), a not-for-profit organization in London.
Langer has degrees in political science and history from York University, and business administration from the University of Windsor.
“I hope my business experience and commitment to the OPSEU membership will assist OPTrust in ensuring long term sustainability and protecting the interests of members and retirees.”
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Posted on December, 2009
