Since enrolment began in 2019, 50 organizations from communities across Ontario have joined OPTrust Select – a defined benefit pension offering designed to enhance retirement security for employees who work at charitable, nonprofit and broader public sector organizations in Ontario.
“Workers in the nonprofit, charitable and broader public sectors play an important role serving our communities but have traditionally not had access to the security and stability of a defined benefit pension,” said Audrey Forbes, Senior Vice-President of Member Experience at OPTrust. “We now have over 1,700 members in OPTrust Select that have the peace of mind of a more secure retirement.”
Organizations that have joined OPTrust Select provide a range of critically important services including healthcare, community supports and senior services in communities across the province. Growth in OPTrust Select has continued throughout the COVID-19 pandemic with 19 of the 50 new employers joining since March 2020.
“OPTrust Select was established in a collaborative effort to provide more Ontarians with the predictable retirement income of a pension, rather than being susceptible to the day-to-day fluctuations of markets,” said Peter Lindley, President and CEO of OPTrust. “Amidst the market volatility of the pandemic, we continue to be focused on the long term, and it is encouraging to see so many employers seeking stability and security for their employees through OPTrust Select.”
OPTrust Select is the recommended pension plan of choice for the Ontario Nonprofit Network (ONN), the independent network of the nearly 58,000 organizations and one million nonprofit workers in Ontario. A list of employers that have joined OPTrust Select is available at optrustselect.com.
“ONN is thrilled to see that 50 employers in Ontario representing over 1,700 members have enroled in OPTrust Select,” said ONN Executive Director, Cathy Taylor. “We know that having a pension plan for Ontario's nonprofit workers, a majority of whom are women, is a game changer for our sector. A defined benefit pension plan is an effective and efficient way to support the retirement security for nonprofit workers and is a key decent work practice. Congratulations to all those who have enroled!”
ABOUT OPTRUST
With net assets of over $23 billion, OPTrust invests and manages one of Canada’s largest pension funds and administers the OPSEU Pension Plan (including OPTrust Select), a defined benefit plan with over 98,000 members. OPTrust was established to give plan members and the Government of Ontario an equal voice in the administration of the Plan and the investment of its assets through joint trusteeship. OPTrust is governed by a 10-member Board of Trustees, five of whom are appointed by OPSEU and five by the Government of Ontario.
This is an important milestone for OPTrust and the Ontario Nonprofit Network (ONN).
Earlier today, I had a chance to discuss this press release and the plan design for OPTrust Select with Dani Goraichy, OPTrust's Chief Risk Officer and Senior Vice President, Actuarial Services and Plan Policy.
Let me begin by thanking Dani for taking some time to discuss the latest developments at OPTrust Select and also thank Jason White, Senior Public Affairs Advisor, for setting up the Teams meeting and for sending me material.
Before I get to my conversation with Dani, it's really instructive to read an excellent older (2019) comment he wrote on bringing defined benefit to Ontario's nonprofit sector:
There was a time when defined benefit (DB) pension plans were common in Canada. In 1977, one in three Canadians working in the private sector were members of an employer-sponsored defined benefit pension plan. Now, only one in ten workers have a DB pension.Before becoming the head actuary at OPTrust, one of Canada’s largest defined benefit pension plans, much of my career was spent helping companies wind-up their pension plans as a consulting actuary, so I’ve seen the impact firsthand.
The shift has been gradual, but the trend is clear; fewer and fewer Canadians will have access to the security and stability of a defined benefit pension, and that has left a significant void to fill. For the nearly one million workers in Ontario’s nonprofit sector, the numbers are even more stark. The Ontario Nonprofit Network (ONN), the independent network of the 58,000 nonprofit organizations in Ontario, has been working for years to support Ontario's nonprofits, including exploring pension plan options for the sector.
Through their research, the ONN found that while employers in the nonprofit sector want to provide their employees with retirement security, DB pensions are often out of reach due to their cost, administrative burden, and most importantly, the impact of uncertain contributions on their budgets. This is especially true for smaller employers. It was with this fact in mind that we created OPTrust Select, the new defined benefit pension offering for workers in Ontario’s charitable, nonprofit and broader public sectors. OPTrust Select was designed to address the specific needs of these sectors, providing the security and stability of a defined benefit pension, but at a moderate and stable cost.
Achieving this, however, was no easy task. In order to meet the needs of contribution stability for employers, while providing workers with the lifetime retirement income of a DB pension, a tailored plan design was imperative.
Focusing on the core benefit
Because of budgetary constraints for employers, and more modest incomes for employees, we knew that the cost of a typical defined benefit plan was too steep and unpredictable for most nonprofits. Our research found that a contribution rate of 3% per side from employers and employees struck the right balance of making a meaningful contribution for retirement, without significantly impacting their monthly cost of living.
With the goal of providing the greatest level of retirement income at a lower contribution level, we focused our attention on the core benefit, removing valuable, but costly, ancillary features like early-retirement benefits and subsidized joint and survivor benefits. Ultimately, we were able to build a plan that produces approximately half of the lifetime benefit of our primary plan design, but at only a third of the cost.
Minimizing contribution rate volatility
One of the primary concerns voiced by the nonprofit sector was the risk of rising contribution rates. In a typical DB arrangement, if a plan is underfunded, the only options are future benefit reductions, or contribution rate increases. For a sector dependent on precarious funding sources, this risk is prohibitive. With OPTrust Select, we added additional levers to minimize volatility of contributions.
Under our primary schedule of benefits, members receive automatic indexation upgrades annually.Under OPTrust Select however, cost of living upgrades both before and after retirement are dependent on the funded status of the plan. This means if we are ever not fully funded, a proportion of cost of living upgrades will be paid depending on the level of funding of the plan. While the intention is to pay the upgrade in full every year, this conditionality leads to a significant reduction in the risk of contribution rate increases for employers and employees alike, addressing one of the greatest concerns we heard from the sector.
Increasing portability of pension
In September 2018, following years of research, the ONN’s Pensions Task Force recommended OPTrust Select as the pension plan of choice for organizations in the nonprofit sector. Their goal in recommending one plan was to maximize pension portability across the sector, and the response has been incredible.
As of writing this, 21 nonprofit organizations from across the province have joined OPTrust Select, resulting in close to 800 new members and a nearly two per cent increase in OPTrust’s total plan membership. We’ve heard interest from hundreds of additional employers, and there are a further 60 organizations currently in our application process. It is our hope that one day, workers in the nonprofit sector will be able to move throughout their careers with the security and stability of a defined benefit pension.
Replicating the model
OPTrust Select didn’t happen overnight. In fact, it’s an idea that was nearly 25 years in the making, but the lessons we’ve learned can be applied elsewhere. By focusing on the needs of our target market and leveraging our existing size and scale, OPTrust Select is able to provide the stability and security of a defined benefit pension, but at a moderate and stable cost. This is a model that can be replicated by others across the country.
A recent study by the Canadian Public Pension Leadership Council found that DB pensions “are not just better for Canadian workers, but for the Canadian economy overall” and they resulted in “lowered job stress, improved worker health and lower use of government funded assistance programs.” We are advocates of the defined benefit pension plans as the most efficient method to achieve financial security at retirement, and we stand ready to help those looking to replicate, and indeed, improve on our model.
This is a truly excellent comment written by an actuary who understands plan design and public policy.
Like Barb Zvan, Claude Lamoureux, Derek Dobson, Bernard Dussault and Malcolm Hamilton, Dani is an actuary with tons of experience and it shows.
The reason why I posted his comment above is because it covers in detail the important aspects of OPTrust Select and why its' so important to expand DB coverage to Ontario's nonprofit sector and broader public service.
But here I'd like to really focus on Ontario's nonprofit organizations and their tireless employees.
Most (85%) are women and most are being paid modest incomes and most have no access to a safe, secure retirement plan.
That's where OPTrust Select comes in, it was designed specifically to cover the retirement needs of nonprofit organizations and their employees.
In our conversation, I began by commending Dani and the OPTrust team for enrolling 50 employers to OPTrust Select.
I asked them if the pandemic slowed things down but Dani told me "not really, there was a shock that hit the nonprofit sector in Q1 2020 but they kept onboarding employers who had enrolled the previous year and by the second half of the year, things really picked up as more employers joined the plan."
I believe Jason said 19 employers joined since March 2020 which is excellent given the decimation that occurred in Ontario's nonprofit sector.
Dani spoke at length about the key elements of success behind OPTrust Select, namely, its plan design:
- 3% contribution rate makes it palatable and affordable to both employers and employees
- It's predictable because it's a DB plan which offers lifetime benefits
- The focus is on stabilizing the contribution rate
I can't overemphasize the importance of plan design, OPTrust Select is really tailored to Ontario's nonprofit sector.
Like I said, most nonprofit organizations are made up of women receiving modest incomes, the organizations receive transfer payments from the government, introducing a DB plan into the mix isn't exactly straightforward.
And yet it has been done and many members now enjoy the security and peace of mind that comes with well-governed DB pension.
More importantly, the elements of success behind OPTrust are scalable and Dani and his team are open to sharing their plan design with others looking to bolster their defined benefit plan.
Dani's own experience working in as a consultant before joining OPTrust also shaped his thinking as he winded up many DB pensions and as he admitted to me "that's part of the reason why I left consulting".
OPTrust and all its members (old and new) are lucky to have someone of his caliber working for them.
Before I forget, a couple of slides Dani and Jason shared with me:
The first one is interesting because as shown, with upgrades before retirement and COLAs after retirement, and together with CPP, OAS, etc,, they can achieve 60% replacement income to these employees for retirement at a very modest cost.
That's of course depending on the plan being fully funded, which it is and it's doing very well.
Lastly, Dani and Jason told me prior to launching OPTrust Select, only 10% of Ontario's nonprofit employees had access to a workplace pension.
Their mission is to change that and even though there's s "a long way to go" to cover everyone in Ontario's nonprofit sector, they're on their way there.
Still, 50 is an important milestone and I look forward to seeing 100, 1,000 and more employers joining OPTrust Select in the future.
Once again, I thank Dani Goraichy for another very insightful discussion.
Below, what does your pension mean to you? Does it mean security and stability in retirement? For most members and retirees, a pension from the OPSEU Pension Plan is one of their biggest assets and a valuable pillar of their financial future.
Hopefully one day soon, we can say the same thing for most employees in Ontario's nonprofit sector.