Commission on the Reform of Ontario's Public Services

Containing Costs of Retirement Benefits
The province’s involvement in public-sector pension plans varies from sector to sector. It is a
sponsor or co-sponsor for some pension plans, and an indirect contributor through transfer
payments to others. Most of the large plans are consolidated in the government’s financial
statements even though the province has no direct control over benefits or contributions in
some of these plans. One plan in which the province plays a major role is the Ontario
Teachers’ Pension Plan (TPP).
The province co-sponsors the TPP with the Ontario Teachers’ Federation (OTF), so the
province is jointly responsible with working teachers for funding the plan. Both parties also
share in financing any shortfalls that may occur. The Province matches the contributions of the
178,000 active members even though teachers are employed by school boards, not the
province directly. The province’s matching contribution was about $1.3 billion in 2010–11.
In recent years, as equity markets have become increasingly volatile and often negative, and
as long-term interest rates have been low, TPP’s funding valuations have revealed deficits.
Ontario’s pension legislation requires all pension plans in Ontario, including those in the
public sector, to file a “balanced” actuarial valuation with the regulator; a filed funding valuation
must indicate how a shortfall is being addressed — through higher contributions, lower
prospective benefits, or a combination of the two.
The province’s matching contribution rate to TPP remained unchanged from 1990 to 2006.
In 2005, the plan revealed an unfunded liability and the sponsors of the plan decided to
increase the contribution rate gradually over three years — from 8.9 per cent on income above
the Year’s Maximum Pensionable Earnings under the Canada Pension Plan to 12 per cent
(the contribution rate on earnings under the YMPE also changed). Both the province and the
plan members contributed 12 per cent respectively. In 2011, the sponsors approved a further
temporary increase in the contribution rate to 13.1 per cent by 2014 to eliminate an unfunded
liability. This latest increase was accompanied by a reduction in future indexation benefits for
certain plan members. While the Plan need not file a valuation until 2014, depending on
circumstances at the time, it may be necessary to further adjust either contribution rates or
benefit provisions to bring the plan back into balance.
We note that TPP’s contribution rate is already in the upper range of what other major Ontario
public-sector pension plans require. Further increases in contribution rates would affect both
parties’ ability to pay. For the province, it would mean fewer financial resources to fund other
programs. For individual teachers, it would mean lower disposable income and more personal
financial resources to fund current benefits.
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