Staff Report #2
April 13, 2023
To All Commissioners
Re: 2022 Draft Pension Fund Audit
Recommendations
That the Commission:
- TABLE the draft financial statements, as set out in Enclosure I, relating to the non-insured pension fund as at December 31, 2022 noting the only outstanding audit requirement relates to the receipt of a required outstanding service organization report from Manulife;
- DIRECT administration present, at a future meeting, the final audited statements noting the final statements are to be forwarded to the Financial Services Regulatory Authority as required under the Pension Benefits Act;
- DIRECT administration to discontinue the annual pension audit consistent with revised pension regulations exempting pension plans with fewer than $10 million in assets, and further to work with Manulife to complete the necessary annual financial reports required; and
- DIRECT administration to review potential pension enhancements with Manulife and provide a report back to the Commission with recommendations.
Background
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 2022 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.
In October 2022, Manulife completed the most recent actuarial valuation for funding purposes as at January 1, 2022. This valuation showed the fund as having an excess going concern surplus of approximately $5.2 million with $5.6 million calculated as the solvency excess. Since the ratio of solvency assets to solvency liabilities is more than 85%, the next actuarial valuation of the plan will be required no later than January 1, 2025 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 report validates the stability of the plan and its ability to meet its future obligations to retirees.
Discontinuation of Annual Audit
In December 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, 2022 were $6.0 million, the pension plan no longer requires an annual financial audit. Manulife has indicated they are able to complete the financial forms necessary to file the annual information return with the Financial Services Regulatory Authority (FSRA), replacing the financial audit. This is consistent with how they support other pension plans with assets below the threshold. What still remains however, is the required actuarial valuation as noted above, which will continue to provide the plan administrator, the commission as well as plan members, assurances that the remaining assets are adequate to meet future obligations. As such, administration is recommending discontinuing the annual financial audit going forward. Discussions regarding this option also took place with the Pension Advisory Committee, who also endorsed this recommendation (see Enclosure II).
Pension Advisory Committee
The Commission, consistent with the requirements of the Pension Benefits Act, established a Pension Advisory Committee in 2012. The Committee is comprised of two members appointed by the Amalgamated Transit Union, Local 741 one of which will be a retired member, a retired non-union member appointed by the General Manager, the Director of Human Resources and the Director of Finance. The Committee, in terms of its role mirrors that established under the terms of the 2000 Memorandum of Agreement with the Union in respect of the pre-February 1, 1989 Pension Plan (Plan).
The role of the Committee, in respect of the Plan, includes:
- monitoring/reviewing the administration of the Plan;
- as appropriate, making recommendations to the General Manager respecting the administration of the Plan; and
- promoting awareness and understanding of the identified pension plan on the part of members of the Plan defined as paid up members, disabled members and outstanding terminated members.
The Committee does not limit or qualify the role, responsibility and authority of the LTC in terms of Plan administration as defined in the Plan document. The Committee reports to the General Manager, and as such, any Committee recommendations are forwarded to the General Manager for consideration. The General Manager is the designated Plan Administrator.
In terms of the administration of the Plan, the Committee from time to time assesses potential pension benefit improvements for members defined as having a “paid up pension” i.e. members that have not reached age 65 and/or not accessed their pension benefits under the Plan. The assessment of potential improvements is consistent with the commitment set out in the Memorandum of Agreement with the Union, established in 2000. Given uncertainties with respect to current market fluctuations and how they may impact the value of the pension plan, administration was reluctant to consider any improvements until such time as the next actuarial valuation is completed in 2025. As set out in Enclosure II, the members of the Pension Committee voted to give consideration to improvements that could be made. In order for consideration to be made, Manulife will need to undertake an actuarial assessment of the impacts of any proposed changes on the overall plan. Subsequent to Commission concurrence with the report recommendations, administration will instruct Manulife to begin an assessment noting that any recommended improvements would be the subject of a future report and approval of the Commission.
The most recent pension adjustments for paid up members, approved by the Commission, was in 2016, which provided increases in annual pension indexing along with a one-time annual pension percentage increase. The indexing improvement was funded from actuarial surpluses in existence at the time.
Summary
Copies of the audit report will be provided to the Manulife Insurance Company, the Pension Advisory Committee and FSRA. A meeting with the Pension Advisory Committee will be scheduled subsequent to the completion of the filings.
Enclosures
I – Draft 2022 Financial Statements
II – Pension Advisory Committee Meeting Minutes
Recommended by:
Mike Gregor, Director of Finance
Joanne Galloway, Director of Human Resources
Concurred in by:
Kelly S. Paleczny, General Manager