Actuarial Valuation Results -

The City of York Employee Pension Plan

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

Purpose:

To forward the Report on the Actuarial Valuation of the City of York Employee Pension Plan as at January 1,1998, and to submit a request for additional funding as required under the Pension Benefit Act of Ontario.

Funding Sources, Financial Implications and Impact Statement:

Funds are available in the Employee Benefit Reserve Fund to deal with the one time payment described in this report.

Recommendations:

It is recommended that:

(1)the Report on the Actuarial Valuation of the City of York Employee Pension Plan be received for information; and

(2)approval be granted to fund the $829,602.00 additional one-time payment from the Employee Benefit Reserve Fund.

Background:

The Actuary has completed his valuation and report of The Corporation of the City of York Employee Pension Plan as at January 1, 1998. The purpose of this valuation is to determine the funded status of the plan on a going concern and solvency basis and establish the minimum funding requirements for 1998. The last valuation was as at January 1, 1995.

The valuation of the plan on a going concern basis determines the relationship between the respective values of assets and accumulated benefits, assuming the plan will be maintained indefinitely. The results of the valuation as at January 1,1998 indicates a funding excess (surplus) of $4,503,000.00 compared to $1,669,000.00 as at January 1, 1995. There was a subsequent post retirement adjustment granted as calculated under the By-law that decreased the going concern funding excess by $1,407,000.00.

The main reason for the increase in the funding excess was due to a positive plan experience on investment returns of $9,146,000.00. This was offset by losses for the granting of cost of living adjustments, reductions in special payments and mortality experience.

The actuary advises that the funding excess of $4,503,000.00 may be used to eliminate the previous special payment of $602,760.00 annually for unfunded liability and reduce the payments for the post retirement adjustment granted July 1,1995, from $66,252.00 annually to $30,780.00.

The Ontario Pension Benefits Act requires that when a pension plan is reviewed its financial status must be examined on a "solvency basis" as well as on that of an ongoing arrangement. A solvency type valuation is intended to duplicate the valuation that would be performed if the Plan were discontinued, in its entirety, as of the date of valuation. If a deficit emerges on the solvency basis, the Act prescribes that such deficit may be amortized over five years or until December 31, 2002, if later. The actuarial opinion must specify the amount of solvency deficit and the proposed method for its amortization.

In the actuary's opinion, the plan's assets would be less than its actuarial liabilities if the plan were to be wound up on January 1,1998. Actuarial liabilities would exceed the plan assets by $14,014,000.00. The actuary has advised that it would require special payments of $1,389,000.00 annually to December 2002 to eliminate this solvency deficiency.

Comments:

Allowance was made in the 1998 budget for special payments to the City of York Employees Pension Plan in the amount of $670,000.00. The former City of York funded this Plan on a minimum funding basis and it is recommended that we continue this policy. The effect of the funding requirements, disclosed in the actuarial report, is to increase the current year expenditure from the budgeted amount of $670,000.00 to $1,498,614.00. The net changes in budget are as follows:

The City of Toronto is required by the Pension Benefit Act of Ontario to make these special pension contributions to the City of York Employee Pension Plan.

The City currently administers five pension plans which were in existence prior to OMERS. The Finance Department is undertaking a review of the relationship of these plans to the City with the goal to reduce or eliminate the administration costs and limit the City's liability.

Conclusion:

The City should continue to maintain its minimum funding policy in regards to this pension plan. An actuarial review should be done on an annual basis for the purpose of assessing the level of funding required.

Contact Name:

Ivana Zanardo

Director

Pension, Payroll and Employee Benefits

397-4143

(A copy of the Corporation of the City of York Employee Pension Plan - Report on the Actuarial Valuation for Funding Purposes as at January 1, 1998, prepared by William M. Mercer Limited, was forwarded to all Members of Council with the November 9, 1998, agenda of the Corporate Services Committee and a copy thereof is on file in the office of the City Clerk.)