Plan Upgrades: Metropolitan Toronto Pension Plan

and Metropolitan Toronto Police Benefit Fund

The Administration Committee recommends the adoption of the following report (September 23, 1999) from the Chief Financial Officer and Treasurer:

Purpose:

To report further to the Administration Committee, in accordance with both Council and Committee requests, with respect to recommendations for certain pension improvements previously submitted by the Board of Trustees of the Metropolitan Toronto Police Benefit Fund and The Board of Trustees of the Metropolitan Toronto Pension Plan.

Funding Sources, Financial Implications and Impact Statement:

Not applicable.

Recommendations:

It is recommended that

(1)By-law No. 181-81 (Metropolitan Toronto) as amended governing the Metropolitan Toronto Police Benefit Fund be amended so that:

(a)an employee and employer contribution holiday applies for the period January 1, 1999, to December 31, 2000; and

(b)the basic percentage for a spousal survivor pension be increased to 66 2/3 percent from 60 percent for all members, effective July 1, 1998,

and the Trustees be requested to review and report annually on the feasibility of extending such holiday;

(2)said By-law No. 181-81 and By-law No. 15-92 (Metropolitan Toronto) as amended governing the Metropolitan Toronto Pension Plan each be amended so that:

(a)member and employer contributions cease for each active member who has accrued 35 years of credited service;

(b)past member contributions made after the accrual of 35 years of credited service be refunded to each employee pensioner or, if deceased, the surviving spouse, if any;

(c)for members attaining age 65 on or after January 1, 1999, change the offset when Canada Pension Plan integration begins from a three-year average to a five-year average; and

(d)effective January 1, 1999, survivor benefits for a spouse and a dependent child or children be increased to the following percentages of the member's pension:

(i)Two survivors: 80 per cent;

(ii)Three survivors: 90 per cent; and

(iii)Four or more survivors: 100 per cent; and

(3)authority be granted for introduction of the appropriate Bills in Council to implement Recommendations Nos. (1) and (2).

Background:

The 1998 improvements to the Metropolitan Toronto Pension Plan (MTPP), effective as of July 1 of that year, included not only the usual cost-of-living increases for existing pensioners but also, in emulation of corresponding OMERS upgrades in late 1997, a reduction in the contribution rate and an increase in the spousal pension from 60 percent to 66 2/3 percent. Because police pension benefits for active members are collective bargaining issues, the same pension benefits for the Metropolitan Toronto Police Benefit Fund (MTPBF), although recommended by the Actuary in the valuation report for 1997, were implemented only insofar as they did not apply to active members, pending agreement by the Police Association and the Police Services Board.

In late 1998, following the contribution holiday declared by OMERS, a similar holiday was authorized for the MTPP for 1999, and was extended to the end of the year 2000 in conjunction with the 1999 cost-of-living increase for pensioners (Clause No. 28 of Report No. 6 of The Corporate Services Committee). A similar holiday requested for the MTPBF was at the same time referred back pending bargained consent.

In 1999, OMERS announced approval of their proposals to refund all employee contributions made after accrual of 35 years' service (OMERS stopped collecting such contributions in 1992), extend the CPP offset calculation once a member reaches age 65 in years after 1998 by averaging same over five years rather than three, reduce the offset itself by 1/28 and increase the maximum supplemented benefit for surviving spouses with dependent children from 75 percent of a deceased member's pension to 100 percent.

The Boards of Trustees obtained from the Actuary estimates of the cost of corresponding improvements in the MTPP and the MTPBF as follows:

	MTPBF	MTPP
Refund of Contributions after 35 years	$3.5M	$2.65M
CPP offset to 5 year average	$1.8M	$1.95M
Reduce offset .0675 percent	$4.4M	$6.15M
Extension of Survivor Benefits to 100 percent	$0.05M	$0.05M

The Actuary noted that the request to reduce the CPP offset calculation to .0675 from the current .07 percent would require a revision to the Municipal Act, recalculation of all benefits and the calculation of a Past Service Pension Adjustment for those who retired after 1990.

The respective Boards considered the information from the Actuary and decided to recommend to City Council that the respective plans be amended to reflect all the above-described OMERS improvements except the reduction of the offset to .0675 percent.

The Toronto Police Services Board has now advised that a memoranda of agreement with the Toronto Police Association has been entered into for all improvements recommended by the MTPBF Trustees and that these recommendations can now proceed.

Discussion:

As at January 1, 1999, the Actuarial Report reported the indexation Reserve Account for the respective funds was $52,657,000 for the Metropolitan Toronto Police Benefit Fund and $141,341,000 for the Metropolitan Toronto Pension Plan. The current balance of the indexation reserve account will be adjusted upon approval of the improvements discussed above as follows:

	MTPBF ($000)	MTPP ($000)
Opening Balance	52,657	141,341
Refund of Contributions after 35 years	(3,500)	(2,650)
CPP offset to 5 year average	(1,800)	(1,950)
Extension of Survivor Benefits to 100 percent	(500)	(500)
New Balance	46,857	136,241

The contribution holiday and increase of spousal benefits from 60 percent to 66 2/3 percent costs were already accounted for in the 1998 actuarial reports.

The policy of the Board of Trustees has been to use the indexation reserve account to pay for pension increases due to cost-of-living inflation and minor improvements in pension benefits. The revised balance indicates that there are sufficient funds in these accounts at this time to make these minor improvements.

The City Solicitor has been requested to prepare the necessary Bills to amend the governing by-laws.

Conclusion:

The pension benefits for this group of pensioners and employees are as similar to the OMERS plan as possible taking into consideration the ability of the funds to pay without additional contributions by the City.

Contact Name:

Ivana Zanardo

Director

Pension, Payroll and Employee Benefits

397-4143

The Administration Committee submits the following communication (June 1, 1999) from the Board Secretary, Board of Trustees, Metropolitan Toronto Police Benefit Fund and the Metropolitan Toronto Pension Plan:

The Board of Trustees of the Metropolitan Toronto Police Benefit Fund on May 28, 1999, had before it a communication (May 19, 1999), submitted by Mr. Robert Camp, William M. Mercer Limited, setting out the cost of possible plan upgrades, as requested by the Board of Trustees, for their information.

The Board of Trustees recommended to the Administration Committee that the following plan upgrades be considered:

(1)refund of Member Contributions made to the Fund after 35 years of service has been credited, for active members and retired members and spouses, for which the cost is expected to be $3.50 million, similar to what OMERS has proposed;

(2)change in the offset when Canada Pension Plan starts from a three-year average calculation to a five-year calculation, for active members and retired members and spouses under 65 years of age, for which the cost is expected to be $1.80 million, similar to what OMERS has proposed;

(3)extension of the survivor continuation percentage to 100 percent, as long as no current member is adversely affected, for which the cost is expected to be $0.05 million, as follows:

one survivor66.67 percent

two survivors80.00 percent

three survivors90.00 percent

four or more survivors100.00 percent; and

(4)the authority be granted for the introduction in Council of the necessary Bills to give effect to Recommendations Nos. (1), (2) and (3).

The Board of Trustees also:

(i)requested the City Solicitor to draft the appropriate amending by-law respecting Recommendations No. (1), (2) and (3), and submit such draft by-law directly to the Administration Committee for consideration with this matter; and

(ii)requested Mr. Robert Camp, William M. Mercer Limited, to provide a formal costing if the minimum pension was increased and include the figure for that costing in his Year 2000 Actuary Report.

The Administration Committee also submits the following communication (June 1, 1999) from the Board Secretary, Board of Trustees, Metropolitan Toronto Police Benefit Fund and the Metropolitan Toronto Pension Plan:

The Board of Trustees of the Metropolitan Toronto Pension Plan on May 28, 1999, had before it a communication (May 19, 1999), submitted by Mr. Robert Camp, William M. Mercer Limited, setting out the cost of possible plan upgrades, as requested by the Board of Trustees, for their information.

The Board of Trustees recommended to the Administration Committee that the following plan upgrades be considered:

(1)refund Member Contributions made to the Fund after 35 years of service has been credited, for active members and retired members and spouses, for which the cost is expected to be $2.65 million, similar to what OMERS has proposed;

(2)change the offset when Canada Pension Plan starts from a three-year average calculation to a five-year calculation, for active members and retired members and spouses under 65 years of age, for which the cost is expected to be $1.95 million, similar to what OMERS has proposed;

(3)extend the survivor continuation percentage to 100 percent, for which the cost is expected to be $0.05 million, as follows:

one survivor 66.67 percent

two survivors 80.00 percent

three survivors 90.00 percent

four or more survivors100.00 percent; and

(4)the authority be granted for the introduction in Council of the necessary Bills to give effect to Recommendations Nos. (1), (2) and (3).

The Board of Trustees also requested that:

(i)the City Solicitor draft the appropriate amending by-law respecting Recommendations Nos. (1), (2) and (3), and submit such draft by-law directly to the Administration Committee for consideration with this matter; and

(ii)the Actuary, Mr. Robert Camp, of William M. Mercer Limited, obtain the approval of the Financial Service Commission of Ontario, for the authority to pay a one-time lump sum payment to retirees equal to an active member's contribution holiday in a calendar year, through the distribution of pension fund surplus, for which the cost is expected to be $11.80 million, prior to submitting a recommendation to Administration Committee.

The Administration Committee also submits the following communication (June 9, 1999) from the President, Toronto Police Association:

As you know, the Toronto Police Association has tabled a pension proposal requesting that the Pension Benefit Fund be amended to provide for mandatory indexation of pension benefits. The Trustees of the Police Benefit Fund are proposing various initiatives, including a contribution holiday for active members of the Fund and an increase in the spousal benefit. We have been informed that the initiatives being proposed by the Trustees cannot be implemented while the Association's indexing proposal remains on the bargaining table.

Please be advised that at the last bargaining meeting on May 25, 1999, the Association told the Police Services Board's bargaining committee that it would withdraw its proposal, subject to the contribution holiday and other improvements in fact being implemented. In other words, the proposal has been withdrawn. If, however, the contribution holiday and other initiatives are for some reason not implemented, the Association will retable its indexation proposal.

I trust that the above explains the Association position to the satisfaction of Council.

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The Administration Committee reports, for the information of Council, having also had before it the following communications:

(1)(August 24, 1999) from the Manager, Compensation and Benefits, Toronto Police Service, addressed to Mr. Ron Coopman, Metropolitan Toronto Police Benefit Fund, advising that the Toronto Police Service Board and the Toronto Police Association have reached a memorandum of understanding dealing with the Police Benefit Fund issues on their 1999 Collective Bargaining table; and that the parties agree that they support changes to By-law No. 181-81 as requested by the Trustees of the Metropolitan Toronto Police Benefit Fund, namely:

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

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

(2)(October 4, 1999) from the Manager, Compensation and Benefits, Toronto Police Service, addressed to Mr. Ron Coopman, Metropolitan Toronto Police Benefit Fund, providing a further update to his communication dated August 24, 1999, dealing with the Metropolitan Toronto Police Benefit Fund.

(A copy of the following was distributed to all Members of Council with the October 5, 1999, agenda of the Administration Committee, and a copy thereof is also on file in the office of the City Clerk:

(i)the confidential communications (May 19, 1999) from Robert G. Camp, William M. Mercer Limited, entitled "Cost of Possible Plan Upgrades - Metropolitan Toronto Police Benefit Fund" and "Cost of Possible Plan Upgrades - Metropolitan Toronto Pension Plan", which were attached to the communication (June 1, 1999) from the Board Secretary, Metropolitan Toronto Police Benefit Fund and Metropolitan Toronto Pension Plan; and

(ii)Clause No. 28 of Report No. 6 of The Corporate Services Committee, entitled "Actuarial Valuation Results - The Metropolitan Toronto Pension Plan and the Metropolitan Toronto Police Benefit Fund" which was attached to the communication (June 9, 1999) from the Toronto Police Association.)