Staff Report #2
April 29, 2020
To All Commissioners
Re: 2019 Draft Pension Fund Audit
That the Commission:
- APPROVE the draft financial statements, as set out in Enclosure I, relating to the non-insured pension fund as at December 31, 2019; and
- DIRECT administration to forward the 2019 Pension Statements to the Financial Services Regulatory Authority (formerly administered by the Financial Services Commission of Ontario) as required under the Pension Benefits Act.
The audit of the pension fund applying to the pre-February 1, 1989 pension plan benefits and the preparation of the related report and financial statements are in accordance with the requirement of the Pension Benefits Act 1987. The 2019 Auditors’ report and related financial statements deal with one of three parts of the funding program for the Commission’s pension plan.
As indicated in Note 1 (see Enclosure I) of the notes to the financial statements, the fund’s net assets provide:
- for applicable active members, benefits in respect of services rendered on or after January 1, 1987 up to and including January 31, 1989 in accordance with the terms of the February 1, 1989 plan amendments and/or as amended from time to time;
- for applicable active members, an amended pre and post-retirement surviving spouse’s benefit for all pre-February 1, 1989 service; and
- for disabled members at February 1, 1989 plan benefits in accordance with the terms of the pre-February 1, 1989 pension plan document, for the period of January 1, 1987 to January 31, 1989.
Pension benefits accrued up to December 31, 1986 are provided for under a fully insured group annuity policy, and the liability and related assets are not reflected in the attached financial statements, except as noted above.
Post-January 31, 1989 pension benefits for active members are provided by OMERS. Changes by OMERS to the plan since January 31, 1989 apply to service after January 31, 1989 only. The liability and related assets for post-January 31, 1989 service are not reflected in these financial statements.
The Pension Benefit Act requires an actuarial valuation be completed every three years. The last actuarial valuation of the non-insured pension fund was completed as at January 1, 2019. The January 2019 actuarial valuation showed the fund as having an excess going concern surplus of approximately $4.0 million ($3.4 million on a solvency basis). The next actuarial valuation of the plan will be required no later than January 1, 2022 or in the event of a prior plan change affecting the cost of the plan, in accordance with the minimum requirements of the Ontario Pension Benefits Act.
The Commission has entered into agreements with its employees governing the use of any estimated actuarial surplus over a period of time with such use being to improve pre-February 1, 1989 pension benefits for members of the post-February 1, 1989 plan and who have not yet accessed the plan benefits as well as members who had retired, and were accessing plan benefits. Amendments approved by the Commission in October 2015, have been applied and are reflected in the attached statement.
Effective June 8, 2019, all regulatory functions of FSCO were assumed by the Financial Services Regulatory Authority (“FSRA”). FSRA has indicated that until such time as new regulatory guidelines are issued, all existing regulatory directions remain in effect.
On December 11, 2019 changes to the Ontario General Regulation under the Pension Benefits Act increased the threshold of assets triggering the filing of an auditor’s report for pension plans from $3 million to $10 million. Given the assets as at December 31, 2019 were $6.9 million, the pension plan did not require an audit for its 2019 fiscal. Given the audit was scheduled to proceed in January and the alternatives to not completing the audit were not fully understood or communicated with the Commission, administration chose to proceed and complete the audit as planned. Discussions regarding options for the future will take place in 2020 with Manulife (plan custodian) and KPMG (auditors contracted to complete audits through 2020) with a recommendation the subject of a future staff report.
As part of an audit engagement, any events that may impact the financial statements or the organization on an ongoing basis must be noted as a subsequent event and contingencies within the notes to the financial statements. The following is the added note:
“Subsequent to December 31, 2019, the COVID-19 outbreak was declared a pandemic by the World Health Organization. The situation is dynamic and the ultimate duration and magnitude of the impact on the economy, including the volatility of markets for marketable securities, and the financial impact on the Plan is not known at this time.”
Copies of the audit report will be provided to the LTC Pension Fund Committee, Manulife Insurance Company and FSRA. A meeting with the Pension Committee will be scheduled in 2020 to review once the filings are completed.
The General Manager and the Director of Human Resources have been listed as pension plan administrators, covering both the OMERS plan and the pension fund held by Manulife.
Mike Gregor, Director of Finance
Joanne Galloway, Director of Human Resources
Concurred in by:
Kelly S. Paleczny, General Manager