Actuarial Valuation Results - Toronto Civic Employees

Pension and Benefit Fund (The Civic Fund) and

the Toronto Fire Department Superannuation and

Benefit Fund (The Fire Fund)

The Corporate Services Committee recommends the adoption of the following report (October27, 1998) from the Chief Financial Officer and Treasurer:

Purpose:

To present the results of the actuarial valuation as at December 31, 1997, of the Toronto Civic Fund and the Toronto Fire Fund and to submit recommendations for benefit improvements. As well, this report should serve to initiate discussions with the plan stakeholders with respect to the plans assuming full responsibility for their administrative and operational costs.

Funding Sources, Financial Implications and Impact Statement:

There are no funding implications relating to this report.

Recommendations:

It is recommended that:

(1)(a)effective January 1, 1998, the pension benefit payable to eligible survivors of former members of the Civic and Fire Plans be increased from 60 percent of the former member's pension at time of death to 66 and 2/3 percent;

(b)pensions to surviving spouses of former members, which commenced prior to January 1, 1998, and which continue to be in payment on the date Council adopts this recommendation be increased to 66 2/3 percent effective January 1, 1998;

(c)that for a five year window (subject to annual review) commencing January 1, 1998, unreduced early retirement be available upon attaining 30 years of credited service;

(d)that effective January 1, 1998, employee and employer contribution rates in the Civic Plan be reduced from 7 percent to 5 percent less Canada Pension contributions, and in the Fire Plan from 7.5 percent to 5.5 percent less Canada Pension contributions, and that effective with the pay period including August 1, 1998, a one year contribution holiday be instituted;

(e)that effective January 1, 1998, an interim increase of $6.90 in the semi-monthly pensions for certain disability pensioners and $4.20 per semi-monthly payment to surviving spouses of disability pensioners whose pensions were formerly indexed on the basis of increases to Workers compensation pension;

(f)that the City exercise its right to offset unfunded liabilities arising from post-1988 benefit improvements in the Fire Department Superannuation and Benefit Fund in an amount equal to the actuarial value of the pension increases provided of July 1, 1998, in the amount of $4,833,000.00; and

(2)the Chief Financial Officer and Treasurer approach the stakeholders of the Toronto Civic Employees' Pension and Benefit Fund and the Toronto Fire Department Superannuation and Benefit Fund with the view that the pension funds should bear the proportionate share of the total administration costs of the plans in order to allocate actuarial gains more equitably.

Background:

The actuarial valuations of the Toronto Civic Employees' Pension and Benefit Fund and the Toronto Fire Department Superannuation and Benefit Fund as at December 31, 1997, indicate that both funds are in significant actuarial surplus positions.

The pension plans actuarial surplus increased in 1997 from $74,703,000.00 to $126,945,000.00 for the Civic Plan and from $48,795,000.00 to $64,190,000.00 for the Fire Plan primarily as a result of excellent investment returns. Other contributing factors were lower than assumed wage increases and low inflation.

The plan documents as filed with the Pension Commission of Ontario provide that surpluses may only be used to provide pension improvements. The surpluses are notionally allocated to provide inflation protection under plan provisions which index pensions to the less of excess return and the CPI when surpluses are present.

At the beginning of 1998, the Ontario Municipal Employees' Retirement System (OMERS) instituted a number of benefit improvements in order to reduce their growing surplus. These included improved spousal and survivor pensions, an 85 Factor early retirement program, reduced early retirement reduction factors and a contribution reduction. Effective August 1, 1998, they also imposed a one year contribution holiday. Similar changes as recommended by the actuary to the Metro Pension Plan and the Metro Police Pension Plan were approved by Council earlier this year.

The pensioners associations representing retired members of the Civic and Fire Plans have requested similar improvements. In light of the significant actuarial surpluses in the plans it is appropriate to improve the plans as set out in the Recommendations Nos.1(a)-1(d).

Recommendation No.1(e) pertains to the indexing provisions which are contained in the plan documents. Under the indexing provisions, pensions are increased each July 1^st , by the lesser of the increase in the consumer price index and the excess invest return of the fund were surpluses exist.

Prior to formally incorporating indexing into the plans, adhoc indexing using a similar formula was provided on an annual basis to most pensioners each July 1^st. One small group of disabled fire fighters had since 1984, been indexed on January 1^st of each year on the same basis as the indexing formula for Workers Compensation Board benefits. As the elapsed time between their last adhoc increase and the first increase under the formalized policy is 18 months, it would be appropriate to provide additional inflation protection for the six month period from January 1, to June 30, 1998 to bring them in line with all other fire pensioners. I recommend that the additional increase be $6.52 per pay for pensioners and $1.96 per pay for surviving spouses, the difference between the last increase this group received and the amount all other fire pensioners received on July 1, 1997.

Recommendation No.1(f) also pertains to the indexing programs. The plans provide that where after 1988, the City approves a benefit improvement such as indexing at a time when the plan is not in a surplus position and the City is required to fund those improvements, the City may offset its costs against future surpluses arising in the plans. During 1988 to 1991, the Fire Plan was in a deficit position due to adverse actuarial and investment experience. In order to provide pension indexing under its adhoc policy, the City as plan sponsor was required to fund these increases. In 1992, the plan returned to a surplus position and the City has in each year since, offset its unfunded liabilities by an amount equal to the actuarial cost of adhoc pension increases at the time those increases were granted. It is recommended that the City continue this approach and elect to offset $4,833,000.00 of the remaining unfunded liabilities effective July 1, 1998. The City's 1998 budget estimates projected this reduction in unfunded liability payments.

The City of Toronto currently bears the cost of general administration of these pension plans. Negotiations are recommended to take place with the four Trustees of the pension plans who do not currently share in these costs with the intent that they bear their proportionate share of the estimated annual cost of $745,000.00. The Finance Department is currently being reorganized and this process should offer opportunities for efficiencies.

Comments:

The Corporate Services Committee in approving similar benefit improvements in the Metro Pension Plan and Metro Police Pension Plan directed the City Treasurer to approach the stakeholders of the City's private pension plans with a view to the plans picking up their full administrative costs in the same manner as the OMERS plan does. The benefit recommendations contained in this report were initiated in response to improvements in the OMERS plan and employee group requests for parallel improvements in the Civic and Fire Plans. It would be appropriate that the treatment of administrative costs for the private plans also parallel those for the OMERS plan.

The Pension Committee of the Civic fund and the Benefit Fund Committee of the Fire Plan at their September 1998 meetings endorsed the recommended benefit improvements.

Contact Name:

Ivana Zanardo

Director

Pension, Payroll and Employee Benefits

397-4143

(A copy of the Actuarial Valuation Report as of December 31, 1997, prepared by Buck Consultants Ltd., was forwarded to all Members of Council with the November 9, 1998, agenda of the Corporate Services Committee and a copy thereof is also on file in the office of the City Clerk.)