Pension Changes Take Effect in January (OTF Report)
For the past two years OTF has been advising members of an actuarial funding deﬁciency in the Ontario Teachers’ Pension Plan (OTPP). OTPP is one of the biggest and best pension plans in the world. However, despite a stellar performance, the 2005 valuation showed that the Plan’s liabilities were greater than its assets. Key factors contributing to the actuarial deﬁcit were the low real return bond rate and our demographics – namely, the ratio of active to retired members, and members’ longevity. To be considered fully funded the Plan must have assets to pay pensions to current and retired members for 70 years. The valuation that the OTPP Board ﬁled with provincial regulators showed a fully funded Plan. To achieve balance, the assumptions were revised to reﬂect current retirement rates, salary increases, and a 3.1 per cent contribution increase. Current beneﬁt levels, including the 85 factor, have been maintained. To moderate the effect on members, the increase will happen in three stages.
- There will be a 2 per cent increase for both members and the government on January 1, 2007.
- An additional 1.1 per cent increase comes into effect on January 1,
2008. For 2008 only, a $76 million credit from the 1998 surplus will reduce the members’ contribution increase to 0.3 per cent.
- The plan deﬁcit has been amortized over 15 years. Starting on Janu- ary 1, 2009, and for the remaining 13 years of the amortization period, the full 1.1 per cent increase will apply.
Your pension contribution increases are offset because they are tax deductible. The next valuation in 2008 may result in further adjustments. If there is a surplus in the future those funds will be used to restore previous contribution rates before there are any beneﬁt enhancements. When they ﬁled the January 1, 2005 valuation, OTF, the government and the OTPP Board also agreed to have ongoing meetings, commission an expert review of the assumptions, and conduct a membership survey. We have hired Pollara to poll members about whether they prefer further contribution increases and/or beneﬁt reductions should there be another shortfall. I encourage you to participate in this survey. OTF believes that it is important to share the results of the expert review and the survey with members, and that these results along with all other relevant information be considered in future discussions. It is critical that all Plan members understand the value of their pension – it is most likely their greatest ﬁnancial asset. In August, the OTF Board of Governors approved a pension communication plan. The CD – What About My Teachers’ Pension? – is a key part of this strategy. Your school steward has a copy. It is also posted on the OTF website, otffeo.on.ca. The CD outlines how your Plan works, who does what, the speciﬁcs of the deal, and the history of the Plan. It is an indispensable tool for members. Changes in contribution rates will naturally lead to considerable discussion among members. However, it is important to base these discussions on facts – not rumour and speculation. The OTF Communiqué also outlines pension issues. Past issues are posted on the OTF website, otffeo. on.ca >Newsroom>Communiqué. I would like to take this opportunity to wish all members the very best in 2007. We enter a new year, knowing that our pension plan is secure and that it continues to be one of our most important assets.