Funding

The Funding Policy highlights the Plan’s long term focus of protecting promised benefits and minimizing contribution rate volatility, while recognizing the desire to achieve intergenerational equity. To deliver on these longer term goals while managing through short term volatility a blend of stability contributions, conditional benefits, and reserves are used.

Learn how the Plan Governors use the Funding Policy to make decisions. 

Funding Policy

Revised effective June 1, 2018

There are six funding levels that help the Plan maintain a long-term focus and achieve its key strategic goals of benefit security, contribution stability and intergenerational and inter-design equity. Note that “Design 1” refers to the DBprime, and “Design 2” refers to DBplus, the plan design for OTRFT members.  

At Level 1

Design 1

If the Plan has a deficit after using all reserves and the 3% stability contributions being paid by active members, Ontario pension law would require stability contributions to be further increased temporarily and/or that benefits members build in future be reduced to eliminate a deficit. Conditional inflation protection would not be paid to retired and deferred members.

Design 2

If the Plan has a deficit after using all reserves and contributions being paid by active members, the Plan would not pay post-retirement conditional inflation protection to retired and deferred members and will not pay pre-retirement benefit increases to active members. The Plan will also temporarily remove any early retirement subsidies. The Plan may consider reductions to future benefits by reducing the lifetime annual pension factor below 8.5%. 

At Level 2

Design 1

With the 3% in stability contributions being paid by active members and the Plan’s funding reserves being fully used, the funding level exceeds provincial funding minimums, meaning the Plan has a small surplus. The Plan will provide the current period of conditional inflation protection increases to retired and deferred members.

Design 2

With the contributions being paid by active members and the Plan’s funding reserves being fully used, the funding level exceeds provincial minimums, meaning the Plan has a small surplus. The Plan will provide the current year of conditional inflation protection increases to retired and deferred members and would restore the annual pension factor to 8.5% for future benefits while considering restoring any prior pension factor reductions in previous years (if any). The subsidized early retirement reduction rate will be set at 5%. Pre-retirement benefit increases for active members will not be made. 

At Level 3

Design 1

Stability contributions of 3% are required from active members. The Plan will provide current period conditional inflation protection increases for retired and deferred member plus make additional increases for past years of conditional inflation rate increases missed (if any). Surplus funds over provincial minimums will also be allocated to funding reserves to withstand up to a 0.5% reduction in the discount rate.

Design 2

The Plan will apply conditional inflation protection increases for retired and deferred members for the current period plus make additional increases for past years of inflation rate increases missed (if any). Pre-retirement benefit increases for active members will be applied. The subsidized early retirement reduction rate will be 5% and the lifetime annual pension factor will be 8.5%. Surplus funds over provincial minimums will also be allocated into funding reserves to withstand up to a 0.5% reduction in the discount rate.

At Level 4

Design 1

Stability contributions of 1%, 2%, or 3% are required from active members. All periods of conditional inflation protection increases for retired and deferred members have been made. Surplus funds over provincial minimums will be allocated into reserves to withstand up to a 1% reduction in the discount rate and build reserves to fund future conditional inflation increases for retired and deferred members.

Design 2

The Plan will pay current period pre-retirement benefit increases to active members and consider providing increases for past years of pre-retirement benefit increases that were missed (if any). The lifetime annual pension factor will be 8.5%. In addition, the Plan will consider early retirement reduction factors of 3%, 4%, or 5%. Post-retirement conditional inflation protection will be applied and surplus funds over provincial minimums will be allocated into reserves to withstand up to a 1% reduction in the discount rate and build reserves to fund future conditional inflation increases.

At Level 5

Design 1

Active members will be contributing stability contributions of 0% or 1%. The Plan has fully funded the reserves required to fund future conditional inflation protection increases and withstand a 1% reduction in the discount rate. Additional funding reserves are being built to withstand up to a 7.5% increase in liabilities as an additional cushion for securing promised benefits. 

Design 2

Pre-retirement benefit increases for active members and post-retirement conditional inflation protection for retired and deferred members will be applied, while the early retirement reduction factor will be 3%.The Plan will consider a lifetime annual pension factor to a rate of 8.5% or 9.5%. The Plan has the reserves required to fund future conditional inflation protection increases and can withstand a 1% reduction in the discount rate. Additional funding reserves are being built to withstand up to a 7.5% increase in liabilities as an additional cushion for securing promised benefits.

At Level 6

Design 1

Full funding reserves have been built. Stability contribution rate is 0%. Conditional inflation protection for retired and deferred members will be paid. The Plan has sufficient surplus to consider any combination of the following changes:

  • Provide ad hoc inflation protection increases on the part of pensions not covered by conditional or guaranteed inflation protection
  • Allocate additional funds into reserves – up to the federal tax limit
  • Reduce contributions below basic contribution levels
  • Improve benefits.

Design 2

Full funding reserves have been built. The lifetime pension factor is at least 9.5%. Conditional inflation protection for retired and deferred members and pre-retirement increases for active members will be made. The Plan has sufficient surplus to consider any combination of the following changes:

  • Provide post-retirement inflation protection increases above 75% of CPI
  • Increase the lifetime annual pension factor beyond 9.5%
  • Improve other benefits on an ad hoc basis.