May 11, 1999

To:Corporate Services Committee

From:Chief Financial Officer & Treasurer

Subject:Actuarial Valuation Results - Metropolitan Toronto Pension Plan and the Metropolitan Toronto Police Benefit Fund

Purpose:

To comment on the recommendations of the Actuary relating to the actuarial valuation as at December 31,1998 of the Metropolitan Toronto Pension Plan and the Metropolitan Toronto Police Benefit Fund. In addition to report that the consultation process with the Police Services Board regarding the request from the Board of Trustees of the Metropolitan Toronto Police Benefit Fund to improve survivor benefits and contribution rates in the Metropolitan Toronto Police Benefit Fund has been completed.

Funding Sources, Financial Implications and Impact Statement:

Not applicable

Recommendations:

1.That the December 31, 1998 actuarial reports be received and the recommendations to increase pensions be approved.

That an employee and employer contribution holiday be granted in the Metropolitan Toronto Police Benefit Fund for the period January 1, 1999 to December 31, 2000, with the plan to review and report annually on the feasibility of extending the contribution holiday.

3.The basic percentage for spousal survivor pensions in the Metropolitan Toronto Police Benefit Fund be increased to 66 2/3 % from 60% for all active members, effective July 1, 1998.

4.That the existing contribution holiday in the Metropolitan Toronto Pension Plan be extended to December 31, 2000.

Background:

Metropolitan Toronto Police Benefit Fund

The Corporate Services Committee had before it at its April 19, 1999 meeting a request from the Board of Trustees of the Metropolitan Toronto Police Benefit Fund recommending that:

(1)the plan should be converted to a non-contributory plan subject to annual review, effective January 1, 1999;

(2)the basic percentage for spousal survivor pensions be increased to 66 2/3 percent from 60 percent for all active members, effective July 1, 1998; and,

(3)The authority be granted for the introduction in Council of the necessary Bills to give effect to Recommendation No. (1).

As these improvements affect active police officers and could be deemed to fall within the collective bargaining process, the recommendations were deferred originally from the May 25, 1998 Corporate Services Committee until such time as consultation with the employer, the Police Services Board took place.

Staff and the Board of Trustees met with the Police Services Board and received their concurrence with the proposed changes.

The Boards of Trustees of the Metropolitan Toronto Police Benefit Fund at their meetings on April 30, 1999 considered recommendations made by the plans' Actuary arising out of the plans' annual actuarial valuations as at December 31, 1998.

The pension plan experienced actuarial gains in 1998 that contributed to an increase in the "Indexation Reserve". The Reserve represent the difference between actuarial liabilities and actuarial assets. These gains were generated by variations from actuarial assumptions in three areas:

lower wage growth

lower inflation

higher investment returns

The actuary's recommendations relating to this actuarial gain are as follows:

For Active Members:

the full contribution holiday for the employers and employees be continued for the calendar year 2000; and,

the mortality table be updated from the 1983 Group Annuity table to the 1994 Group Annuity table.

For Retired Members:

(i)the mortality table be updated from 1983 Group Annuity table to the 1994 Group Annuity table

(ii)an increase of 0.09% be granted on pension, effective January 1, 1999, to pensioners on benefit for more than one year with proportionate increase of .075 % for each month of pension payment made in 1998 be granted for pensioners who retired during 1998

(iii)effective January 1, 2000, an increase be granted to pensioners on benefit for more than one year equal to the increase in the Consumer Price index during the period from October 1,1998 to September 30, 1999

The Board of Trustees of the Metropolitan Toronto Police Benefit Fund at their meeting concurred with the Actuaries recommendations and forwarded them to the Corporate Services Committee with one amendment being that the increase on January 1, 2000 equal to the Consumer Price Index be limited to 6.0%.

Metropolitan Toronto Pension Plan

The Board of Trustees of the Metropolitan Toronto Pension Plan at their meeting on April 30, 1999 considered recommendations made by the plans' Actuary arising out of the plans' annual actuarial valuations as at December 31, 1998.

The pension plan experienced actuarial gains in 1998 that contributed to an increase in the "Indexation Reserve". The Reserve represent the difference between actuarial liabilities and actuarial assets. These gains were generated by variations from actuarial assumptions in three areas:

(i)lower wage growth

(ii)lower inflation

(iii)higher investment returns

The actuary's recommendations relating to this actuarial gain are as follows:

For Active Members:

i)the full contribution holiday for the employers and employees be continued for the calendar year 2000; and,

ii)the mortality table be updated from the 1983 Group Annuity table to the 1994 Group Annuity table.

iii)discount rate is changed from 7% to 6%, salary scale from 6% to 5% and the YMPE scale from 5% to 4%.

For Retired Members:

(i)the mortality table be updated from 1983 Group Annuity table to the 1994 Group Annuity table

(ii)an increase of 1.0% be granted on pension, effective January 1, 1999, to pensioners on benefit for more than one year with a proportionate increase of .083 % for each month of pension payment made in 1998 be granted for pensioners who retired during 1998;

(iii)effective January 1, 2000, an increase be granted to pensioners on benefit for more than one year equal to the increase in the Consumer Price index during 1999; and,

(iv)the discount rate be changed from 7% to 6%.

The Board of Trustees of the Metropolitan Toronto Pension Plan at their meeting concurred with the Actuaries recommendations except for the increase on January 1, 2000. They chose to recommend all recommendations on to the Corporate Services Committee except for the increase on January 1, 2000. This increase will be reviewed after the 1999 actuarial valuation has been completed.

Discussion:

As at December 31, 1998 the Indexation Reserve Account for the Metropolitan Toronto Pension Plan had increased to $216,596,000 from $154,434,000 a year earlier. For the Metropolitan Toronto Police Benefit Fund the amount is up to $80,182,000 from $68,706,000 a year earlier.

As can be seen these funds are in good actuarial shape. The recommendations for the use of these Indexation Reserve amounts are for two different improvements.

The recommendation to update the mortality table from the 1983 Group Annuity Table to the 1994 Group Annuity table and the changes to the discount rate, salary scale and YMPE scale will control the risk of experience losses in the future.

Recommendations for pension increases for 1999 are slightly different between the two funds. The Metropolitan Toronto Police Benefit Fund has taken the step this year to change the method of calculating increases to be the same as OMERS. The increase of 0.9% was the rate of inflation for the period December 31, 1998 to September 30, 1999. They also requested that the increase for 2000 be approved at this time.

The Metropolitan Toronto Pension Plan has chosen not to change at this time and to continue to calculate pension increases based on the Consumer Price Index change from December 31, 1997 to December 31, 1998, which was 1.0%. They have, like the Metropolitan Toronto Police Benefit Fund, requested that the increase be effective January 1, 1999.

The draft by-law prepared by City Legal Services to implement the recommended changes for the Metropolitan Toronto Pension Plan is appended to this report. Section 1 of the draft provides for several "housekeeping" amendments to eliminate inconsistencies in the wording of the prior amendments. Section 2 provides for same-sex spousal benefits in accordance with another report by the Chief Financial Officer & Treasurer to your Committee on that topic for consideration at the same meeting at which this report is to be considered. Section 3 expands the existing provision for the 1999 contribution holiday to include the year 2000. Section 4 puts in place the recommended pensioner increases for 1999, and Section 5 stipulates the dates of coming into force of the various amendments.

A draft by-law prepared by City Legal Services to implement the recommended changes to the Metropolitan Toronto Police Benefit Fund is also appended to this report. These recommended changes include a contribution holiday for 1999 and an increase in spousal benefits to 66 2/3% with respect to members who have not yet retired. Section 1 of the draft provides for two "housekeeping" amendments to eliminate inconsistencies in the wording of the 1997 and 1998 amendments implementing the pensioner increases for those years. Section 2 provides for same-sex spousal benefits in accordance with a separate report by the Chief Financial Officer and Treasurer to your Committee for consideration at the same meeting. Section 3 puts in place the recommended pensioner increases for 1999 and 2000. Section 4 stipulates the dates of coming into force of the various amendments.

Conclusion:

The Metropolitan Toronto Pension Plan and the Metropolitan Toronto Police Benefit Fund are in good actuarial shape as at the end of 1998. The use of the Index Reserve Fund to give pensioner increases for the years 1999 and 2000 is appropriate and the changes in actuarial assumptions provide a greater degree of conservatism which will serve to stabilize the funds actuarial experience in the future.

The contribution holiday and survivor benefit improvements for active members of the Metropolitan Toronto Police Benefit Fund are now similar to the OMERS plan provisions. This would now bring the provisions of the Metropolitan Toronto Police Benefit Fund in line with those approved by Council for the Metropolitan Toronto Pension Plan, the Toronto Civic Employees' Pension and Benefit Fund and the Toronto Fire Department Superannuation and Benefit Fund.

Contact Name:

Ivana Zanardo

Director

Pension, Payroll & Employee Benefits

397-4143

Chief Financial Officer & Treasurer

D R A F T

CITY OF TORONTO

BY-LAW No. -1998

To amend further By-law No. 15-92

of the former Municipality of Metropolitan Toronto

respecting pensions and other benefits.

The Council of the City of Toronto HEREBY ENACTS as follows:

1.(1)Section 6 of By-law No. 80-92 of the former Municipality of Metropolitan Toronto, a by-law "To further amend By-law No. 15-92 respecting pensions and other benefits", is amended by adding thereto the following subsection:

"6.(1.1)Subsection 22(3) of said By-law No. 15-92 is amended by striking out "(2)(b)" in the first line thereof and substituting therefor "(2)(c)"."

(2)Section 1 of By-law No. 74-97 of the former Municipality of Metropolitan Toronto, a by-law "To amend further By-law No. 15-92 respecting pensions and other benefits" is amended by striking out the text "1996" at the end of subsection 42.6(1) of said By-law No. 15-92 as enacted by said section 1 and substituting therefor "1995".

(3)By-law No. 279-1998, a by-law "To amend further By-law No. 15-92 of the former Municipality of Metropolitan Toronto respecting pensions and other benefits", is amended by

(a)inserting the text "per cent." in the second line of clause 4(2)(a) thereof, immediately following the text "66" and preceding the closing quotation marks;

(b)striking out the text "1997" at the end of subsection 42.7(1) of said By-law No. 15-92 as enacted by subsection 5(1) thereof and substituting therefor "1996".

2.Clause 1(1)(ee) of By-law No. 15-92 of the former Municipality of Metropolitan Toronto, a by-law "To provide pensions for employees, their spouses and children of the Metropolitan Corporation and other participating employers", as such clause was amended by By-law No. 279-1998, is further amended by

(a)striking out the words "a man and woman" in the first line thereof and substituting therefor "two persons";

(b)adding at the end of subclause (ii) immediately following item (B) thereof the text "provided that this subclause shall apply with respect to a member and a person of the same sex only if the member has died on or after the 5th day of June, 1998"

3.Subsection 13(1.2) of said By-law No. 15-92, as such subsection was enacted by By-law No. 892-1998, is repealed and the following substituted therefor:

"Contribution Holiday 1999 and 2000

13.(1.2)During the calendar years 1999 and 2000, subsection (1) shall be interpreted as if the contributory rates specified therein were all zero."

4.The said By-law No. 15-92, as heretofore amended, is further amended by adding thereto the following section:

"General Pensioner Increase (1999)

42.8(1)Save and except for those pensions increased pursuant to subsection (2), the amount of pension payable under this By-law is hereby increased by 1.0 per cent effective the 1st day of January, 1999, in respect of

(a)each pensioner in receipt of a pension; and

(b)each employee member entitled to a deferred pension under clause 28(1)(a) and, if applicable, clause 28(4)(b), or predecessors thereof,

on or before the 31st day of December, 1997.

Adjusted Pensioner Increases (1999)

Effective the 1st day of January, 1999, the amount of pension

(a)payable

(i)to each employee pensioner in receipt of a pension; and

(ii)to each pensioner under section 29 or a predecessor thereof in respect of a deceased employee member who died prior to retirement; and

which commenced on a date shown in Column I;

(b)payable to each pensioner under section 31 or any predecessor thereof in respect of a deceased employee pensioner whose retirement commenced on a date shown in Column I;

(c)payable to each employee member entitled to a deferred pension under clause 28(1)(a) and, if applicable, clause 28(4)(b), as a result of termination of employment which took place after December 1, 1997, on a date shown in Column I, treating any such termination which occurred on any day of a month other than the first as if it had occurred on the first day of the next following month,

is hereby increased by the percentage set out opposite such date in Column II:

5.(1)Subsection 1(1) shall be deemed to have come into force on the 1st day of January, 1992.

(2)Subsection 1(2) shall be deemed to have come into force on the 18th day of June, 1997.

(3)Subsection 1(3) and section 2 shall be deemed to have come into force on the 5th day of June, 1998.

(4)Sections 3 and 4 shall come into force on the date of enactment and passing of this by-law.

ENACTED AND PASSED by an affirmative vote of at least two-thirds of the Members of Council present and voting this th day of June, A.D. 1999.

_____________________________

MayorCity Clerk.

D R A F T

CITY OF TORONTO

BY-LAW No. -1999

To amend further By-law No. 181-81

of the former Municipality of Metropolitan Toronto

respecting pensions and other benefits.

The Council of the City of Toronto HEREBY ENACTS as follows:

1.(1)Section 1 of By-law No. 73-97 of the former Municipality of Metropolitan Toronto, a by-law

To amend further By-law No. 181-81 respecting pensions and other benefits?, as such section was amended by By-law No. 149-97 of that Municipality, is further amended by striking out the text ?1996? at the end of subsection 32r(1) of said By-law No. 181-81 as enacted by said subsection 1(1) and substituting therefor ?1995?.

(2)Subsection 2(1) of By-law No. 278-1998, a by-law ?To amend further By-law No. 181-81 of the former Municipality of Metropolitan Toronto respecting pensions and other benefits?, is amended by striking out the text ?1997? at the end of subsection 32s(1) of said By-law No. 181-81 as thereby enacted and substituting therefor ?1996?.

2.Clause 1(1)(z) of By-law No. 181-81 of the former Municipality of Metropolitan Toronto, a by-law ?To provide pensions and death benefits to members of the Metropolitan Police Force?, as such clause was re-enacted by By-law No. 86-89 of that Municipality, is amended by adding immediately following subclause (ii) thereof the text ?provided that this clause shall apply with respect to a member and a person of the same sex only if the member has died on or after the 5th day of June, 1998?.

3.The said By-law No. 181-81, as heretofore amended, is further amended by adding thereto the following section:

"General

Pensioner

Increase

(1999)

32t.(1)Save and except for those pensions increased pursuant to subsection (2), the amount of pension payable under this By-law is hereby increased by 0.9 per cent. effective the 1st day of January, 1999, in respect of

(a)each pensioner in receipt of a pension; and

(b)each member entitled to a deferred pension under section 18 or a predecessor thereof,

on or before the 31st day of December, 1997.

Adjusted

Pensioner

Increases

(1999)

(2)Effective the 1st day of January, 1999, the amount of pension

(a)payable

(i)to each member in receipt of a pension; and

(ii)to each pensioner under section 17 or a predecessor thereof in respect of a deceased member who died prior to retirement; and

which commenced on a date shown in Column I;

(b)payable to each pensioner under section 17 in respect of a deceased pensioner member whose retirement commenced on a date shown in Column I;

(c)payable to each member entitled to a deferred pension under section 18 as a result of termination of employment which took place after December 1, 1997, on a date shown in Column I, treating any such termination which occurred on any day of a month other than the first as if it had occurred on the first day of the next following month,

is hereby increased by the percentage set out opposite such date in Column II:

Adjusted

Pensioner

Increases(2000)

(3)Save and except for those pensions increased pursuant to subsection (4), the amount of pension payable under this By-law shall be increased effective the 1st day of January, 2000, in respect of

(a)each pensioner in receipt of a pension; and

(b)each member entitled to a deferred pension under section 18 or a predecessor thereof,

on or before the 31st day of December, 1998, by the percentage increase, not in excess of 6 per cent., in the Consumer Price Index for Canada (All Items) between September, 1998, and September, 1999.

Adjusted

Pensioner

Increases

(2000)

(4)Effective the 1st day of January, 2000, there shall be increases in the amounts of certain pensions in the manner described in subsection (2), as if that subsection had been re-enacted with the following modifications:

(a)replacement of the text '1997' in the fourth line of clause (c) thereof with '1998';

(b)replacement of the two lines of text immediately following clause (c) thereof with 'is hereby increased case by the percentage pension increase provided for in subsection (3) multiplied by the adjustment factor set out opposite such date in Column II:'; and

(c)replacement of Columns I and II thereof with the following:

4.(1)Subsection 1(1) shall be deemed to have come into force on the 18th day of June, 1997.

(2)Subsection 1(2) and section 2 shall be deemed to have come into force on the 5th day of June, 1998.

(3)Section 3 shall come into force on the date of enactment and passing of this by-law.

ENACTED AND PASSED by an affirmative vote of at least two-thirds of the Members of Council present and voting this day of June, A.D. 1999.

MayorCity Clerk.