Granting of Contribution Holiday

Metropolitan Toronto Pension Plan

The Corporate Services Committee recommends the adoption of the Recommendation of the Board of Trustees of the Metropolitan Toronto Pension Plan, embodied in the following communication (November 24, 1998) from the Interim Board Secretary, Metropolitan Toronto Pension Plan:

The Board of Trustees of the Metropolitan Toronto Pension Plan at its meeting held on November20, 1998, again had before it a communication dated October 8, 1998 from Mr.RobertCamp, Actuary, Senior Vice-President, Sedgwick Noble Lowndes, responding to the Board's request on August 28, 1998 for an accurate appraisal by employee group and age group of the cost of an OMERS-type contribution holiday; and advising that the cost of a one year holiday is $0.59million over and above the cost of the 2percent reduction previously recommended.

The Board of Trustees also had before it a communication dated November 3, 1998, from Mr.RobertCamp, Actuary, Senior Vice-President, Sedgwick Noble Lowndes, respecting benefit improvements for retired members; setting out the limitations imposed by the Income Tax Act regulations that apply to pensions, and the further limit established under the Ontario Municipal Act; advising that the only area of possible improvements available is full indexing to the Consumer Price Index; suggesting that a simple improvement to the indexation process be examined; and recommending to the Board of Trustees that it make a decision regarding the adoption of a complete contribution holiday for 1999, and whether the 1999 pension update is to be applied retroactive to January 1, 1998.

Recommendation:

The Board recommended to the Corporate Services Committee that a 100 percent contribution holiday be granted to members and employers for the period January 1, 1999, to December 31, 1999; and requested the City Solicitor to submit directly to the Corporate Services Committee, the appropriate draft amending by-law.

The Board reports, for the information of the Corporate Services Committee, having instructed the Actuary that any recommendation included in the 1998 Actuarial Report for an inflationary increase in 1999, be based on the increase in the Consumer Price Index for the period December 1997 to September 1998, and be effective as of January 1, 1999.

(Communication dated October 8, 1998, addressed to

the Trustees, Metropolitan Toronto Pension Plan, from Mr. Robert Camp,

Senior Vice-President, Sedgwick Noble Lowndes.)

We have calculated the impact of a one year, three year and five year contribution holiday on the Indexation Reserve Account of the Metropolitan Toronto Pension Plan in total and split by employer.

We have used the same assumptions in these calculations as are in our funding valuation reports. There were 180 active contributing members as of December 31, 1997.

In the 1997 valuation report, we recommend a reduction of employee and employer contributions by 2 percent of earnings for the period from July 1, 1998 to June 30, 2003, inclusive.

On the attached spreadsheets I have set out the present value as at December 31, 1998, of the future contributions assuming no reduction in contribution level and no early retirements occurred in 1998. That figure is $4.7 million for the group as a whole.

The 31.12.98 value of the 2 percent reduction is $1.57 million as only 4.5 years of the reduction would remain to be recognized for the total group.

Assuming that 1999 is the only year for which a holiday is to be granted, the Indexation Reserve Account will be reduced by an additional $0.59 million. Extending the holiday to three years would increase the reduction to $1.63 million while a full five year holiday would cost $2.49million.

In short, the cost of a one year holiday (i.e. to match the OMERS holiday period in length of time) is $0.59 million over and above the cost of the 2 percent reduction previously recommended.

We await the Trustees' decision as to whether they wish to implement the full contribution holiday.

180Metropolitan Toronto Pension PlanTotal

Present Value of Future Contributions (at 1997 levels)

Employee Contributions2,358,441

Employer Contributions2,358,441

Total4,716,882

Present Value of 2 percent reduction for four and one half years

Employee Contributions786,147

Employer Contributions 786,147

Total1,572,294

Present Value of Contribution Holiday

Employee Contributions295,987

Employer Contributions295,987

Total for 1999591,975

or

Employee Contributions815,348

Employer Contributions 815,348

Total for 1999, 2000 and 20011,630,696

or

Employee Contributions1,247,327

Employer Contributions1,247,327

Total for 1999 through 2003 inclusive2,494,654

56Metropolitan Toronto Pension PlanMetro

Present Value of Future Contributions (at 1997 levels)

Employee Contributions619,667

Employer Contributions 619,667

Total1,239,334

Present Value of 2 percent reduction for four and one half years

Employee Contributions206,556

Employer Contributions206,556

Total413,111

Present Value of Contribution Holiday

Employee Contributions72,595

Employer Contributions 72,595

Total for 1999145,189

or

Employee Contributions200,516

Employer Contributions200,516

Total for 1999, 2000 and 2001401,032

or

Employee Contributions311,897

Employer Contributions311,897

Total for 1999 through 2003 inclusive623,794

69Metropolitan Toronto Pension PlanNorth York

Present Value of Future Contributions (at 1997 levels)

Employee Contributions958,174

Employer Contributions 958,174

Total1,916,348

Present Value of 2 percent reduction for four and one half years

Employee Contributions319,391

Employer Contributions319,391

Total638,783

Present Value of Contribution Holiday

Employee Contributions123,019

Employer Contributions123,019

Total for 1999246,039

or

Employee Contributions342,065

Employer Contributions342,065

Total for 1999, 2000 and 2001684,131

or

Employee Contributions528,936

Employer Contributions 528,936

Total for 1999 through 2003 inclusive1,057,871

8Metropolitan Toronto Pension PlanNorth York Library

Present Value of Future Contributions (at 1997 levels)

Employee Contributions71,230

Employer Contributions 71,230

Total142,460

Present Value of 2 percent reduction for four and one half years

Employee Contributions23,743

Employer Contributions23,743

Total47,487

Present Value of Contribution Holiday

Employee Contributions8,226

Employer Contributions 8,226

Total for 199916,452

8Metropolitan Toronto Pension PlanNorth York Library

or

Employee Contributions24,449

Employer Contributions24,449

Total for 1999, 2000 and 200148,897

or

Employee Contributions36,359

Employer Contributions36,359

Total for 1999 through 2003 inclusive72,718

10Metropolitan Toronto Pension PlanScarborough

Present Value of Future Contributions (at 1997 levels)

Employee Contributions146,863

Employer Contributions146,863

Total293,726

Present Value of 2 percent reduction for four and one half years

Employee Contributions48,954

Employer Contributions48,954

Total97,909

Present Value of Contribution Holiday

Employee Contributions19,034

Employer Contributions19,034

Total for 199938,068

or

Employee Contributions56,569

Employer Contributions 56,569

Total for 1999, 2000 and 2001113,139

or

Employee Contributions91,269

Employer Contributions91,269

Total for 1999 through 2003 inclusive182,538

21Metropolitan Toronto Pension PlanEast York

Present Value of Future Contributions (at 1997 levels)

Employee Contributions220,082

Employer Contributions220,082

Total440,164

21Metropolitan Toronto Pension PlanEast York (cont'd)

Present Value of 2 percent reduction for four and one half years

Employee Contributions73,361

Employer Contributions73,361

Total146,721

Present Value of Contribution Holiday

Employee Contributions44,227

Employer Contributions44,227

Total for 199988,453

or

Employee Contributions105,897

Employer Contributions105,897

Total for 1999, 2000 and 2001211,793

or

Employee Contributions134,957

Employer Contributions134,957

Total for 1999 through 2003 inclusive269,915

16Metropolitan Toronto Pension PlanCivilian Police

Present Value of Future Contributions (at 1997 levels)

Employee Contributions342,425

Employer Contributions342,425

Total684,850

Present Value of 2 percent reduction for four and one half years

Employee Contributions114,142

Employer Contributions114,142

Total228,283

Present Value of Contribution Holiday

Employee Contributions28,887

Employer Contributions28,887

Total for 199957,773

or

Employee Contributions85,853

Employer Contributions85,853

Total for 1999, 2000 and 2001171,705

or

Employee Contributions143,576

Employer Contributions143,576Total for 1999 through 2003 inclusive287,151

(Communication dated November 3, 1998, addressed to

the Trustees, Metropolitan Toronto Pension Plan, from Mr. Robert Camp,

Senior Vice-President, Sedgwick Noble Lowndes.)

I was asked to comment on what improved benefits could be granted to pension plan members. I have briefly set out on the attached spreadsheet the limitations imposed by the Income Tax Act Regulations (ITAR) that apply to pensions. I have also set out the further limit established under the Ontario Municipal Act (OMA).

The only area of possible improvement available for retired members is full indexing to the Consumer Price Index (CPI).

Under the indexing permitted under ITAR, a pension benefit can be increased by the change in CPI from the month of first pension payment to the current date.

Another spreadsheet comparing Metropolitan Toronto Pension Plan (MTPP) updates with 100percent of CPI change for various retirement years on an initial pension of $1,000.00 per month is attached.

With the above information, it would be my suggestion that a simple improvement to the indexation process be examined. Currently, when the valuation report is submitted, the recommendation involving indexation increases is applied at July 1. Application of the recommended increase retroactively to January 1 would cost an additional .5 percent of total annual pensions (currently about $70 million) or $350,000.00. This is an amount somewhat comparable to the City saving on the contribution holiday report of last month.

You will note that, although the MTPP has granted updates equal to the Consumer Price Index increase since 1987, there is a shortfall for retirees from before 1982 (there were extras granted in the mid 1980's to catch up some previous shortfalls).

Action Required:

This is a follow-up to the request for a determination of the cost of a contribution holiday to active Members. The Trustees of MTPP must decide:

-if the complete contributions holiday for 1999 will be adopted; and

-whether the 1999 pension update will be applied retroactively to January 1.

Pension Plan Summary

________

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 Municipality of Metropolitan Toronto HEREBY ENACTS as follows:

1.(1)Subsection 13(1) 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 heretofore amended is further amended by striking out the words "Subject to subsection (1.1)" at the beginning thereof and substituting therefor "Subject to subsections (1.1) and (1.2)".

(2)Subsection 13(1.1) of said By-law No. 15-92 as enacted by By-law No. 279-1998 of the City of Toronto is amended by striking out the word "During" at the beginning thereof and substituting therefor "Except as specified in subsection (1.2), during".

(3)Section 13 of said By-law No. 15-92 is further amended by adding thereto the following subsection:

"Contribution

Holiday

1999

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

2.This by-law shall come into force on the date of its enactment and passing.

ENACTED AND PASSED by an affirmative vote of at least two-thirds of the Members of Council present and voting this ^th day of December, A.D. 1998.

MayorCity Clerk.