About the Funding Task Force

The Funding Task Force was created by the Plan’s Sponsors’ Committee and Board of Trustees in 2009 when projections showed that the Plan’s next filed actuarial valuation would show a going-concern deficit due to 2008 market losses, continuing low interest rates and increasing member life expectancy. The task force’s mandate was to research and investigate ways to address the funding deficit for the next required valuation, as of January 1, 2011, and beyond, to keep the Plan financially healthy over the long term.

Member and employer representatives appointed from the Plan’s governing bodies – the Board of Trustees and the Sponsors’ Committee – were part of the task force. Five of the eight task force members were Plan members themselves, including two retired members.

Professional staff of the Plan and actuarial and legal advisors provided advice and analysis to the task force.

The Plan’s sponsors, who jointly govern the Plan through the Sponsors’ Committee and Board of Trustees, are OPSEU, OCASA and Colleges Ontario on behalf of the Boards of Governors of the colleges.

How the Funding Task Force conducted its review

The task force met monthly beginning in April 2010 and reported to the Plan governors at quarterly meetings. The extensive review was guided by a process that ensured the breadth of ideas and depth of analysis was appropriate to the decisions that would be required. It was agreed that member and employer views would be both represented and collected by the members of the task force.

Throughout its work the task force was assisted by professional staff, and external legal and actuarial advisors. Task force members also participated in a series of educational sessions about pension legislation, actuarial standards and valuations to ensure they all had a thorough understanding of the issues and were well equipped to evaluate potential solutions.

Only changes to benefits members would build in future were under consideration.
Already-earned benefits are protected under pension law.

The philosophy and principles for making changes

In establishing the task force, the Board of Trustees and Sponsors’ Committee set out in principle that members and employers would not want to see contribution increases or benefit reductions. They asked the task force to recommend additional principles that would guide the Board in making funding-related decisions in future. These principles would be used to further develop the Board’s formal funding policy.

Gaining a full understanding of the funding challenge

Before it could look at potential solutions the task force needed to know how far into the future the Plan would face funding challenges. This information would reveal if changes needed to have a short or long term impact. The Plan’s forecasts were tested by reviewing all of the actuarial assumptions on which they are based. The assumptions were  reviewed from several perspectives, including whether they were realistic based on the Plan’s own history, how they compared to those of other pension plans and if they were appropriate for the Plan’s overall objectives and tolerance for risk. Recent changes in actuarial standards and pension legislation also needed to be applied.

The review led to many of the actuarial assumptions being updated, including life expectancy, an assumption that has a large impact on pension plan costs because it directly affects how many pension payments will need to be paid.

As part of this initial review, the task force also considered:

• how the Plan’s benefits compare with those of other major Ontario pension plans
• which benefits are unique to the Plan
• the extent to which benefits are used by members

Criteria for evaluating potential changes

As a first step in identifying potential changes, these broad criteria were developed:

• members and employers would have low tolerance for contribution increases
• changes should not introduce intergenerational inequities
• preference should be given to benefit changes that
  • could be reversed in future
  • would have a meaningful impact on funding yet only a minimal impact on members
  • would leave members with the option or ability to offset the changes

Any changes would only be made to benefits that members would build in future, not to benefits they have already accrued, which are protected under pension law.

All these criteria were applied to a broad range of potential changes – from the pension formula itself to early retirement and death benefits – to create a short list of changes to evaluate more closely.

All of the assumptions were reviewed and updated as needed, including that the average member, retiring at age 60, will receive a pension for 27 years

An in-depth review of the short list of potential changes

An in-depth review was then carried out on those potential changes that met the initial broad criteria. The shortlist of changes included:

• extending the period the final average earnings calculation is based on
• introducing a cost for providing the surviving spouse’s pension
• making adjustments to contribution rates

The in-depth review covered:

• Measuring the specific impact of the change on Plan funding
• Testing what impact shifts in economic conditions and the Plan’s membership profile might have on the potential changes
• Identifying affected groups of members
• Examining the impact of various effective dates for each change

Monitoring

As work on the January 1, 2011 actuarial valuation proceeded, the task force monitored the impact the proposed changes would have on it. This was vital because in addition to incorporating all of the updated actuarial assumptions the valuation would have to reflect many other changes and factors, including:

• Changes in actuarial standards
• Changes in pension legislation and regulations
• Changes in the economic conditions and long term interest rates
• Changes in the investment markets and their impact on the projected value of the Plan’s assets as of January 1, 2011
• Updated member information

The valuation as of January 1, 2011 will be filed with the regulator as soon as possible following its approval by the Board of Trustees and the Sponsors’ Committee. Members and employers will be notified at that time.

Recommendations

Finally, the Task Force reported to the Board of Trustees and the Sponsors’ Committee on the completion of its work and its recommendations. The recommendations included further development of the funding policy to make clear how the policy guides decision making to strike a balance between maintaining a financially stable pension plan and delivering fair value to all generations of members.

With the increase to contributions to help fund the increased cost of paying lifetime pensions due to increased member life expectancy, no changes to benefits will need to be considered for the foreseeable future.