OPB News
Special Edition for OPP Officers
Your Pension. Our Promise.
November 2008
Ontario Provincial Police (OPP) officers and their employer contribute an additional 2% of annual salary to fund
the cost of the 50/30 early retirement provision. As a result, the contribution increase is being phased in as follows:
• As of Jan. 1, 2009: 8.4% of salary below the Year’s Maximum Pensionable Earnings (set at $46,300 in 2009) plus
10.75% of salary above the YMPE
• As of Jan. 1, 2010: 8.4% of salary below the YMPE plus 11.5% of salary above the YMPE
The following chart shows what the total contribution rate increase means in dollars, at various salary levels for next
year and after the final phase-in on January 1, 2010 for OPP officers. Keep in mind, contributions are tax deductible
up to the Income Tax Act maximum of $15,980 in 2009 - so we have shown the pre- and post-tax deduction.
Pensionable Salary
2009
Contribution Under
Current Formula
Amount
Increase over Current Contribution Rate
with 8.4%/10.75% Contribution Rate
(Effective Jan. 1, 2009)
Amount
Amount after
Estimated Tax
Deduction
Increase over Current Contribution Rate
with 8.4%/11.5% Contribution Rate
(Effective Jan. 1, 2010)
Amount
85
Amount after
Estimated Tax
Deduction
$50,000
$
4,230
$
57
$ 39
$
$
58
$55,000
$
4,730
$
94
$ 65
$ 160
$ 110
$60,000
$
5,230
$ 132
$ 91
$ 235
$ 161
$65,000
$
5,730
$ 169
$116
$ 310
$ 213
$70,000
$
6,230
$ 207
$142
$ 385
$ 265
$75,000
$
6,730
$ 244
$164
$ 460
$ 308
$80,000
$
7,230
$ 282
$182
$ 535
$ 345
$85,000
$
7,730
$ 319
$182
$ 610
$ 345
$90,000
$
8,230
$ 357
$202
$ 685
$ 387
$95,000
$
8,730
$ 394
$224
$ 760
$ 430
$100,000
$
9,230
$ 432
$245
$ 835
$ 473
$110,000
$ 10,230
$ 507
$287
$ 985
$ 557
$120,000
$ 11,230
$ 582
$329
$1,135
$ 642
$130,000
$ 12,230
$ 657
$372
$1,285
$ 727
Notes: 1. 2009 Year’s Maximum Pensionable Earnings (YMPE) is $46,300;
2010 amounts have been estimated using the 2009 YMPE figure
2. Tax deduction has been estimated using 2008 tax rates
3. Maximum tax-deductible contribution of $15,980 in 2009
For information about what led to the increase in contributions, please read the enclosed Special Edition OPB News.
OPB News
Your Pension. Our Promise.
Special Edition for Members
November 2008
Protecting the Pension Promise
Important Information Regarding a Change in Contribution Rates
OPB conducted a Long-Term Funding Study which identified that, because of changing demographic and economic
trends, the cost of providing a dollar of pension benefit has increased. To address this, and maintain benefit levels, the
Plan Sponsor (Government of Ontario) has announced an increase in contribution rates for Public Service Pension
Plan (PSPP) members and employers.
• The contribution increase will be split evenly between members and employers and will be phased in over a 2-year
period beginning January 1, 2009 to make it more manageable for members and employers.
• The new contribution rate for members and employers is:
> 6.4% of a member’s salary below the YMPE (Year’s Maximum Pensionable Earnings set at $46,300 in
2009). The current rate is 8% of salary up to $3,500 plus 6.2% of salary between $3,500 and the YMPE.
> 9.5% of a member’s salary above the YMPE to be phased in over two years: 8.75% in 2009 and 9.5% in
2010. The current rate is 8% above the YMPE.
• The average Plan member will increase their contribution into the Plan by approximately 0.7% of salary per year.
The employer will match the increased contributions.
> For example, a member earning $46,300 will contribute approximately an additional $19 after tax per year.
A member earning $80,000 per year will contribute an additional $345 after tax per year once the new rate is
fully phased in, in 2010.
In total, an average member will contribute approximately 7.8% of their yearly salary towards their pension,
up from 7.1%.
• Contribution rates were set in 1990. The reality is that it costs more to provide a dollar of pension benefit than it
did 18 years ago. Even with the increase, PSPP contribution rates remain among the lowest of public service plans
in Ontario.
For complete details including information about the contribution increase that applies to you, please read
the following material.
Inside...
Background Information ...........................................
2 Value of your Pension Plan ............................
6
About the New Contribution Rate Formula ..............
3 Frequently Asked Questions ..........................
7-8
Calculating your Contribution Increase .....................
4-6
Special Edition OPB News - November 2008
p.1
Background Information
For everyone at OPB, protecting the long-term health
and vitality of your PSPP and delivering on the pension
promise is our top priority. We are committed to keeping
your Plan strong and affordable now and for generations
to come. Proactively managing the Plan’s funded status is
central to that effort.
To that end, OPB recently completed a Long-Term
Funding Study. The Study is one of many mechanisms
and review vehicles that we use to monitor and manage
the long-term health of your Plan. The Study took a look
at the future and examined whether current contribution
levels can adequately fund the pension benefits promised
by the Plan going forward.
Impact of Current Market Situation on Contribution
Rate Change
We want to emphasize recent market events should not be
confused with the Study’s findings. The need for increased
contributions has nothing to do with the recent market
turmoil. The Study addresses the longer-term picture and
looks at whether contribution rates are set adequately to
fund pension benefits going forward.
OPB has a solid track record of successfully navigating
through periods of market volatility. We are, of course,
invested in equities so we are not immune to the broad
market movements that may impact investment returns
and our funded status. However, the Plan’s portfolio is well
diversified across asset classes and investment holdings and
includes a significant portion of investments that provide a
stabilizing influence in periods of market downturn. (For
more details on the impact of recent market events on the
Plan, please click on Amid market turbulence, your pension
is secure under What’s New on our website www.opb.ca)
Highlights of Long-Term Funding Study Findings
Your Plan’s contribution rate was set in 1990 and has not
been adjusted since then. The Study shows that over the
past several years, there have been significant structural
shifts in the demographics of the Plan, as well as changes
in economic trends. Because of these trends, the value
of your pension has increased. People are living longer
and fewer people are terminating from the Plan. This
translates into a greater pension benefit that is paid out for
a longer period of time. This means greater value for you.
p.2
Special Edition OPB News - November 2008
It also means that it costs more to provide a dollar of this
valuable benefit than it did 18 years ago.
For example, one of the demographic shifts that has
increased costs is that people are living longer. Now, don’t
get us wrong - living longer is a good thing! However,
this increases the total amount of pensions to be paid out
and raises the cost of providing pension benefits over the
long term. We are also seeing fewer members leaving the
public service each year for reasons other than retirement.
This means that more members are expected to stay in
the Plan until they are eligible for the early retirement
benefits offered by the Plan. The more members who stay
and retire from the Plan, the greater the benefits paid from
the Plan, which increase the cost. On the economic trend
side, the amount of salary above the YMPE is increasing.
The Plan provides a higher benefit rate on salaries above
the YMPE (see p. 3 for details), so the average benefit rate
in the Plan is increasing. This higher benefit rate means
greater value for you. It also means, each dollar of pension
benefit costs more. Also, the interest rate picture has
changed dramatically over the years. Lower interest rates
translate into lower expected investment returns. With
a long-term outlook of continuing low interest rates, it
would be unrealistic to expect investment returns to cover
the increased costs of providing pensions.
Taking Action to Protect your Pension into the Future
The Study indicated that an increase in contributions
is required to address these economic and demographic
trends to maintain all of the valuable benefits you get
from the Plan now and for years to come.
After carefully reviewing a number of solution options,
the Plan Sponsor made an announcement on November
13, 2008, outlining the steps to be taken to strengthen
the Plan.
About the New Contribution Rate Formula
Contribution Rate Increase to be Split Evenly
Between Members and Employers
Contribution Rate Formula Adjusted to more closely
align Contribution Rates with Benefit Levels
To maintain the benefits and superior security you receive
from the Plan, the Plan Sponsor has decided to increase
contributions. The contributions will be split evenly
between members and employers.
Contribution rates have been adjusted to make sure rates
are equitably aligned and proportional with the benefit
formula. The new contribution rate formula is as follows:
The average Plan member will increase their contribution
into the Plan by approximately 0.7% of salary per year. The
employer will match those increased contributions.
Even with this contribution increase, your rates remain
affordable and continue to provide excellent value for the
benefits earned. For example, a member earning $80,000
per year will contribute a total of approximately 7.8% of
salary on average toward their pension. The employer will
match that contribution.
Contribution Increase to be Phased-In Over 2-Years
In addition, the contribution increase will be phased-in over
a 2-year period so that the increase is gradual and
manageable for members and employers.
The first phase is effective on January 1, 2009 and your
contributions will be:
• 6.4% of your earnings up to $46,300 (the YMPE in
2009)
• 8.75% of your earnings above $46,300
The second phase is effective on January 1, 2010 and your
contributions will be:
• 6.4% of your earnings up to the YMPE
• 9.5% of your earning above the YMPE
The YMPE for 2010 will be announced by the federal
government in late 2009.
Contribution Rate Structure Simplified
The current three-level contribution rate structure has
been modified. The new two-level structure simplifies the
contribution rate that is applied to the portion of your salary
below the YMPE. See the chart on p. 4 for full details.
• 6.4 % of a member’s salary below the YMPE. This
blends the current rate of 8% of salary up to $3,500
plus 6.2% of salary between $3,500 and the YMPE.
For this portion of your salary, your contributions
remain essentially the same.
• 9.5% of a member’s salary above the YMPE - up
from the current rate of 8%. Applying a higher
contribution rate to the portion of earnings above
the YMPE ensures the contribution formula is better
aligned with the benefit rate formula.
The pension benefit rate on salary below the YMPE is
1.3%. The benefit rate on salary above the YMPE is 2%.
The more salary a member earns above the YMPE, the
more salary on which the 2% benefit rate applies. This
means the member’s average benefit rate - the combination
of the benefit rate below and above the YMPE - increases
as salary increases. The new contribution rate formula will
more closely align the average contribution rate with the
rate at which your benefit increases.
Protecting your Pension Promise
We support the Plan Sponsor’s decision. Because of the
changing demographic and economic trends mentioned
on p. 2, the value of your pension benefit has increased.
So, it now costs more to provide a dollar of that benefit.
Splitting the increase between members and employers is
a fair and equitable way to cover the increase in pension
costs, while maintaining the excellent benefits provided
under the Plan. The decision to share the increased
pension costs and maintain current benefit levels is a clear
demonstration of the Plan Sponsor’s commitment to the
value the Plan provides to members and employers.
Special Edition OPB News - November 2008
p.3
Calculating Your Contribution Increase
Given changes to contribution rates and structure, you really need to look at your salary and consult the following charts
to understand the increase that applies to you. These charts provide you with some guidance on the increase that will be
phased in over a 2-year period, compared to your current contribution rate.
Contribution Increase Matched by Employer
Phased-in over 2 years
Portion of your annual
salary
Your current (2008) PSPP
pension contributions
As of Jan. 1, 2009
As of Jan. 1, 2010
8%
Up to the YBE
(Fixed at $3,500 for 2008)
plus
You will contribute 6.4% on
the portion of your salary up
to the YMPE
You will continue to contribute
6.4% on the portion of your
salary up to the YMPE
plus
plus
You will contribute 8.75% of
your annual salary above the
YMPE
You will contribute 9.5% of
your annual salary above the
YMPE
6.2%
Between the YBE and the
YMPE
(YMPE is $44,900 for 2008
and is indexed each year by
the Government of Canada)
(You contribute to the CPP
based on this part of your
annual salary)
plus
Above the YMPE
8%
Note: The federal government sets the YMPE every year - the rate which determines your contributions to the CPP.
The YMPE is then used to calculate your contribution to the PSPP on earnings up to the YMPE.
• YBE: Year’s Basic Exemption
• YMPE: Year’s Maximum Pensionable Earnings
YBE is $3,500 in 2008
YMPE is $44,900 in 2008
YMPE is $46,300 in 2009
Features of the New Contribution Rate Structure
Current Rate Structure
On the left-hand side of the chart (above) you’ll see that
your Plan currently has a three-step contribution rate
structure. Current contribution rates are listed in the
second column on the left.
New Rates & Structure
The two columns on the right show the total rate, phased
in over 2 years, that you will contribute starting January
1, 2009 and January 1, 2010. Your employer will match
these amounts.
p.4
Special Edition OPB News - November 2008
The rate structure has been simplified into two steps and
adjusted so that contribution rates more closely align with
benefits across all salary levels. For example:
• You will notice that there is virtually no change in the
contribution rate below the YMPE. The YMPE is set
by the federal government at $46,300 in 2009.
• The contribution rate above the YMPE has been set
so that rates are aligned and in proportion with the
salary level and benefits earned (see p. 3 for details).
What does the Contribution Increase mean in Dollars and Cents over the 2-year phase-in period?
The following chart shows what the total contribution rate increase means in dollars, at various salary levels for
next year and after the final phase-in on January 1, 2010. Again, your employer will match these amounts. Keep
in mind, contributions are tax deductible up to the Income Tax Act maximum of $15,980 in 2009 – so we have
shown the impact pre- and post- tax deduction. If you earn more than $200,000, please contact OPB for more
information.
Pensionable Salary
2009
Contribution Under
Current Formula
Amount
Increase over Current Contribution Rate
with 6.4%/8.75% Contribution Rate
(Effective Jan. 1, 2009)
Amount
Amount after
Estimated Tax
Deduction
Increase over Current Contribution Rate
with 6.4%/9.5% Contribution Rate
(Effective Jan. 1, 2010)
Amount
Amount after
Estimated Tax
Deduction
$40,000
$ 2,543
$
17
$ 12
$
17
$
12
$45,000
$ 2,853
$
27
$ 19
$
27
$
19
$50,000
$ 3,230
$
57
$ 39
$
85
$
58
$55,000
$ 3,630
$
94
$ 65
$ 160
$ 110
$60,000
$ 4,030
$ 132
$ 91
$ 235
$ 161
$65,000
$ 4,430
$ 169
$116
$ 310
$ 213
$70,000
$ 4,830
$ 207
$142
$ 385
$ 265
$75,000
$ 5,230
$ 244
$164
$ 460
$ 308
$80,000
$ 5,630
$ 282
$182
$ 535
$ 345
$85,000
$ 6,030
$ 319
$182
$ 610
$ 345
$90,000
$ 6,430
$ 357
$202
$ 685
$ 387
$95,000
$ 6,830
$ 394
$224
$ 760
$ 430
$100,000
$ 7,230
$ 432
$245
$ 835
$ 473
$110,000
$ 8,030
$ 507
$287
$ 985
$ 557
$120,000
$ 8,830
$ 582
$329
$1,135
$ 642
$130,000
$ 9,630
$ 657
$372
$1,285
$ 727
$140,000
$10,430
$ 732
$392
$1,435
$ 768
$150,000
$11,230
$ 807
$433
$1,585
$ 860
$160,000
$12,030
$ 882
$473
$1,735
$ 930
$170,000
$12,830
$ 957
$512
$1,885
$1,010
$180,000
$13,630
$1,032
$553
$2,035
$1,091
$190,000
$14,430
$1,107
$593
$2,185
$1,171
$200,000
$15,230
$1,182
$834
$2,335
$1,987
Notes: 1. 2009 Year’s Maximum Pensionable Earnings (YMPE) is $46,300;
2010 amounts have been estimated using the 2009 YMPE figure
2. Tax deduction has been estimated using 2008 tax rates
3. Maximum tax-deductible contribution of $15,980 in 2009
Special Edition OPB News - November 2008
p.5
Calculating Your Contribution Increase
Impact on Members with a Salary below the YMPE
As you can see in the chart on p. 5, a member whose
salary is close to $46,300 (the YMPE in 2009) will
contribute approximately an additional $19 after tax in
2009. There is no further change in 2010. So, for this
portion of your salary, your contributions essentially
remain the same.
Impact on Members with a Salary above the YMPE
Members whose salaries are above the YMPE will
contribute amounts aligned with the benefits they
are earning in the Plan (see p. 3 for details). This
contribution rate mirrors the rate at which your benefits
increase and more fairly aligns the benefits you earn
with the contributions you make.
For instance, on average, a member earning $80,000
will contribute an additional total of $345 after tax per
year once the new rate is fully phased in, in 2010. That
translates to a 0.7% contribution increase per year. A
member earning $150,000 per year will contribute an
additional $860 after tax or 1.07% of salary.
Again, the increase will be phased-in starting in 2009.
The total contribution increase will become effective
starting in 2010.
Next Steps - Transitioning to the New Contribution
Rates and Structure
Phase 1 of the contribution rate increase becomes
effective on January 1, 2009. Your PSPP contributions
will continue to be itemized and deducted from your
pay.
In the meantime, OPB is committed to making the
transition to the new contribution rate and structure
as smooth as possible for you.
A special Response Team is available to answer
any questions you may have or provide additional
information on your specific situation. Please contact
our Communications team at 416.364.5035
or 1.800.668.6203 (toll free), or by email at
[email protected]
The Value of your Pension Plan
Your PSPP is a valuable benefit, and the cost of providing a dollar of that benefit has increased. Splitting this
increase between Plan members and the employer is a prudent, fair and responsible course of action. The change
in contribution rate is a proactive measure to set contribution levels at an adequate level to fund the valuable
benefits and superior security your receive through this Plan. For example:
• 100% Inflation Protection - Your Plan continues to provide 100% guaranteed indexing, a benefit that has
been reduced by some other Plans
• Certainty - Your PSPP pension is payable for life. There is no chance you or your spouse will outlive your
pension
• Building Adequate Retirement Income - Mandatory participation in your Plan ensures that you build an
adequate retirement income over time. Your pension is based on a set formula and you have the security of
knowing what your monthly pension will be so you can plan for retirement accordingly
• Survivor Benefits - Your Plan provides survivor benefits for your eligible spouse for life
• Investment Expertise - Important investment decisions aren’t left to you. They’re managed by investment
experts who have the knowledge, expertise and experience to generate - over the long term - the returns that
are needed to help fund the pension promise
• Affordable Contribution Rates - Even after the contribution rate increase, your rates remain affordable and
continue to provide excellent value for the benefits earned. The new rates remain among the lowest of public
service plans in Ontario
p.6
Special Edition OPB News - November 2008
Frequently Asked Questions
Why do contribution rates need to go up?
What does this mean for my take home pay?
OPB recently completed a Long-Term Funding Study.
The Study is one of many mechanisms and review
vehicles that we use to monitor and manage the longterm health of your Plan. The Study took a look at the
future and examined whether current contribution levels
can adequately fund the pension benefits promised by
the Plan over the long term.
To understand what this means for your take home
pay, please refer to our chart on p. 5, which provides
a breakdown of the annual dollar impact for different
salary levels, before and after tax.
The Study shows that over the past several years, there
have been significant structural shifts in the demographics
of the Plan, as well as changes in economic trends that
are increasing the cost of pensions.
Your Plan’s contribution rate was set in 1990 and has not
been adjusted since then. But the bottom line is that it
costs more today to provide a dollar of pension benefit
than it did 18 years ago. A contribution increase for
members and employers is required to maintain benefit
levels and cover the increased cost of providing your
pension going forward.
Even with this increase, your rates remain among the
lowest of public service plans in Ontario and the Plan
continues to provide excellent value for the benefits
earned.
Why is the cost of pensions going up?
The Study shows that over the past several years, there
have been significant structural shifts in the demographics
of the Plan as well as changes in economic trends that
are increasing the cost of providing a dollar of pension
benefit.
These demographic and economic trends include:
• People living longer
• Fewer members leaving the public service each year
for reasons other than retirement
• The amount of salary above the YMPE is increasing
• A long-term outlook of continuing low interest rates,
which translates into lower expected investment
returns
For more details about demographic shifts and economic
trends, see Highlights of Long-Term Funding Study
Findings on p. 2.
With the new contribution rates, there is virtually no
change to the contributions you make to the Plan on
your salary up to the YMPE ($46,300 in 2009). The
contribution rate change will be noticeable on the
portion of your salary that is above the YMPE. The
rate changes were designed this way to better align the
contribution rate with the benefit formula. For the
portion of your salary below the YMPE, you accrue a
benefit at a rate of 1.3%. For the portion of your salary
above the YMPE, you accrue a benefit at a rate of 2%.
The benefit accrual rates are different above and below
the YMPE because of CPP integration (note: for more
information about CPP Integration, please refer to our
booklet). So, the more salary you earn above the YMPE,
the more salary on which the 2% benefit rate applies.
What this means is: your average benefit rate (the
combination of the benefit rate below and above the
YMPE) increases as your salary increases. This means
a greater pension benefit. With the new contribution
formula, the average contribution rate (the combination
of the contribution rate below and above the YMPE)
will more closely mirror the rate at which your benefit
increases. So, the new rates properly align the benefit
you are earning in the Plan with the contributions you
make to the Plan.
Will I have to pay for the increase all at once?
The contribution rate increase will be phased in over
a 2-year period to make the increase gradual and
manageable for members and employers. The first phase
of the contribution increase becomes effective January
1, 2009. Phase 2 commences on January 1, 2010.
• Starting January 1, 2009, members will contribute:
6.4% of their earnings below $46,300 (the YMPE in
2009); and 8.75% of their earnings above $46,300
• Starting January 1, 2010, members will continue to
contribute: 6.4% of their earnings below the YMPE;
and 9.5% of their earnings above the YMPE
Special Edition OPB News - November 2008
p.7
Will my employer continue to match my
contributions?
Yes – all regular contributions will be matched by your
employer.
You’ve gone from a 3-level contribution formula to a
2-level contribution formula. Why?
We recommended to the Plan Sponsor that the first two
levels of the contribution formula be blended to create a
simpler formula. Now, there is simply one contribution
rate below the YMPE and one contribution rate above
the YMPE.
Is this increase a reaction to the current market
volatility?
No. The need for increased contributions has nothing
to do with the recent market turmoil. In fact, we began
work on the Long-Term Funding Study a year ago. The
Study looks at whether contribution rates are adequately
set to meet the pension promise in the future. What
the Study showed is that it simply costs more today to
provide a dollar of pension benefit than it did in 1990,
when the Plan’s current contribution rate was set.
It is understandable that members may have concerns
about the impact of current market events on the Plan.
OPB has a solid track record of successfully navigating
through periods of market volatility. Our cautious, longterm investment approach, well diversified portfolio
and investment holdings in instruments that provide a
stabilizing influence in periods of market downturn all
help support the Plan’s investment objectives. For more
information on the impact of recent market events,
please see the What’s New section on our website, www.
opb.ca
Given the current markets and the projected
recovery time could there be a long-term impact?
We are, of course, equity investors – just like other
pension plans – so we are not immune to broad market
movements that may impact investment returns and our
funded status. If these market conditions persist over
the long term, all investors will be affected. This may
translate into higher costs for the Plan if it becomes a
structural, long-term issue. We will continue to monitor
and review the situation.
p.8
Special Edition OPB News - November 2008
Why can’t the Plan Sponsor just pick up the cost?
An increase in contribution levels is required to
address the increased costs of providing a dollar of
pension benefit going forward.
It is therefore reasonable for the Plan Sponsor to
view the increased costs of providing future pension
benefits as a cost that should be shared by employees
and the employer. This is a fair and equitable way to
address increased costs and maintain benefit levels.
In fact, even with the contribution increase, PSPP
contribution rates for members and employers
continue to be competitive and affordable while
providing excellent value.
How to contact us
If you have questions or require additional information
about the contribution increase, please contact the
Response Team.
By phone...
416.364.5035 or 1.800.668.6203 (toll free) and ask for
the Communications team
By email...
[email protected]