Pension Plan Changes to Come into Effect in January (OTF Report)
My ﬁrst year as OTF table ofﬁcer has been both rewarding and challenging. At the forefront of the challenges were pension negotiations, which were complicated by historically low interest rates and an escalating actuarial deﬁcit. Nevertheless, on June 30, 2006 the Ontario Teachers’ Pension Plan (OTPP) ﬁled a valuation with the provincial regulators that showed a fully funded pension plan.
The Teachers’ Superannuation Fund became Ontario Teachers’ Pension Plan in 1989 and at that time the plan’s partners – OTF and the Ontario government – became responsible for it, determining pension beneﬁts and setting the contribution rates. The Ontario Teachers’ Pension Plan Board (OTPPB) administers the plan, invests its assets, and determines the economic assumptions on which it is valued. In 1998 pension beneﬁts were enhanced when the retirement factor was reduced from 90 to 85. However, contribution rates have remained constant since 1990.
In June 2005, the OTPPB reported assets of $90 billion. Despite this stellar performance, the plan’s liabilities were greater than its assets, thereby creating an actuarial funding shortfall. To be considered fully funded the plan must have sufﬁcient assets to pay pensions to all current and retired members over a 70-year span. Low interest rates, the declining ratio of active to retired members, and the longevity of retirees are all factors affecting the cost of pensions.
By law the plan must ﬁle a valuation with provincial regulators every three years. Although not compelled by legislation to ﬁle until 2006, the partners agreed to ﬁle the 2005 valuation, as the shortfall for 2005 was signiﬁcantly less than the shortfall for 2006. To eliminate the $20 billion
actuarial deﬁcit for the 2005 valuation a number of measures were taken.
- The OTPPB revisited and revised assump- tions to reﬂect current retirement rates and salary increases.
- Current beneﬁt levels, including the 85 fac- tor and indexing were maintained.
- Ontario government contributions will increase by 2 per cent on January 1, 2007, and by 1.1 per cent on January 1, 2008.
- Members’ contribution rates will increase
by 2 per cent on January 1, 2007, and by an additional 0.3 per cent on January 1, 2008. The 2008 increase has been offset by a $76 million credit from a 1998 surplus.
As well, the partners have agreed to form a work group to review the assumptions used by OTPPB. The work group intends to survey plan members to ascertain their views about what action it should take should there be another funding shortfall. The next evaluation – due in 2008 – will determine the need for adjust- ments. They could be pension rate contribution increases, beneﬁt reductions or both.
You will be fully informed of all the changes that are taking place. At its annual meeting in August the OTF Board of Governors approved a commu- nication program to make members aware of the various issues impacting their pensions.
During this coming year, as OTF president, I will continue to work hard on your behalf to make sure that your pension plan continues to work for you.