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ARTICLE

Pension Outlook: A Small Contribution Increase (OTF)

Hilda Watkins
December 2007

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Members of the Ontario Teachers’ Pension Plan understand  that  they  enjoy  a  superior  array of  benefits  as  part  of  their  pension  package. Recognizing that fact, members in a survey last year supported phased increases in their benefit contributions.

The pension rate increase of 0.3 percent that goes into effect on January 1, 2008 represents the second phase in a series of staged increases nego- tiated to moderate the effect on plan members. The first scheduled increase of 2 percent went into effect on January 1, 2007.

As you may recall, the preparations for filing the 2005 pension valuation were fraught with challenges. Despite the plan’s stellar performance, an actuarial deficit existed. In order to balance the assets and liabilities, thereby complying with the legal requirement to file a fully funded plan with the provincial regulators, the OTPP board agreed to revise the actuarial  assumptions and the partners (OTF and the government) agreed to  increase contribution rates, thus preserving the integrity of your pension provisions.

The OTPP partners determine pension provisions and contribution  rates. Ordinarily, the government matches your  contributions to the plan dollar for dollar. However, for 2008 only, the government will contribute an additional 1.1 percent while OTF members will contribute 0.3 percent. This difference is due to a $76 million credit from the 1998 surplus that  OTF  used to decrease the contribution increase for members. On January 1, 2009, the final 0.8 percent increase for members is scheduled to take effect, making a total contribution increase of 3.1 percent for each of the partners.

As part of the settlement reached during negotiations, an expert panel was commissioned to report to the partners on the actuarial assumptions by August 2007. However, unforeseen circumstances  made  this  deadline  impossible  to meet. The panel has spent considerable time discussing and conducting  research into mortality rates, demographics, the funding management policy, as well as contribution and discount rates. As  requested,  the  expert  panel  has  presented its preliminary findings to  OTF in a series of meetings, thus giving us the opportunity to pose questions  and  provide  input.  OTF’s  pension lawyer and actuary have been an integral part of this process.

The  next  mandatory  valuation  of  the  plan, scheduled  for  January  2008,  could  result  in further adjustments. If there is  a surplus in the future,  those  funds  will  be  used  to  return  to previous contribution rates before there are any benefits enhancements. The recovery of the real return bond rate has improved the economic climate. However, we must also be cognizant of the 2005 deficit that was amortized over 15 years.

Nevertheless, teachers can be assured that:

  • Members’ input from the survey as well as the results of the expert panel will be used to inform future discussions with the government and the Ontario Teachers’ Pension Plan Board (OTPPB).
  • Members enjoy a superior array of benefits as part of their pension package.
  • Members’ pension contributions are matched dollar for dollar by the government to fund their defined benefit pension plan – a plan for which the pension entitlement of the member upon retirement is set out in a clearly defined set of rules.
  • The monetary value of a member’s pension is usually a member’s greatest asset upon retirement.