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ARTICLE

Pension Changes Take Effect in January (OTF Report)

Hilda Watkins
Winter 2006

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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.