Ontario's New Non-Profit Pension Plan?
As many as one million Ontarians who work for registered charities and non-profit organizations will be eligible to join the provincial government pension plan under an agreement being announced Monday.Cathy Taylor is right, the value of a pension is huge and younger workers at Ontario's charities and non-profits are very lucky to gain access to OPTrust Select.
The Ontario Nonprofit Network, which advocates on behalf of the province’s 58,000 charities and non-profits, is recommending OPTrust as the sector’s first defined-benefit pension provider.
The new OPTrust Select plan will be available to every registered charity and non-profit in Ontario, whether it has one employee or hundreds, said the network’s executive director, Cathy Taylor.
Everything from non-profit arts and culture organizations, daycares, sports and recreation facilities to health and social service providers will be invited to participate.
“Hardly anyone in the sector has benefits or pensions, and our research has found this has become a significant recruitment and retention issue,” she said. “So this is a really exciting development that will help to create decent work and encourage the next generation of workers to build careers in the sector.”
OPTrust is “thrilled … to be helping those who do good, do well in retirement,” said Hugh O’Reilly, president and CEO of the organization that manages the pension for Ontario’s unionized public sector employees.
“People in non-profit organizations work tirelessly to support and strengthen communities, and they deserve to know their retirement is secure,” he said in a statement.
Although the network worked with OPTrust as it developed the pension, it won’t play any formal role in running the plan.
Taylor said the network is not recommending a retirement income plan for non-profit workers launched last spring because the money isn’t locked in and benefits aren’t determined in advance, as they are with a defined-benefit pension.
“But one size doesn’t fit all. The sector is very diverse — there are self-employed artists working for non-profits and charities and a whole bunch of small organizations and individuals for whom that plan might be the best route,” she said.
“But for most workers, a defined pension is the gold standard. And we’re happy to be recommending one that we think is affordable for both employers and employees.”
Under the plan, employees will contribute 3 per cent of their salary — about the price of a daily cup of coffee for most in the sector — and employers will match it.
The pension is portable, so workers who change jobs to another Ontario non-profit will be able to bring their pension with them. And both full- and part-time employees are eligible, Taylor added.
Ontario charities and non-profits employ an estimated 14 per cent of the province’s workforce, Taylor noted. And those who adopt the pension will demonstrate their leadership in the decent work movement, she added.
Taylor, 49, who has worked for various non-profit organizations and charitable foundations over the past 25 years, said she wishes this pension had been available when she was starting her career.
“I personally know the value of a pension because I never had one. So I’m very interested in making sure the next generation of workers has that option,” she said.
“And we certainly aim to be one of the early adopters,” Taylor said of the network, which has 10 employees.
Teshini Harrison, 27, a policy analyst with the network, said being able to belong to a workplace pension has made her parents more supportive of her career choice.
“For them it’s about me setting myself up for the future in a career that is sound,” said Harrison, who has a master’s degree in international affairs and joined the network six months ago.
“In the long run, I think it’s going to benefit a lot of younger people coming in who want to stay in the sector and want to do this type of work,” she said. “And it’s important for a sector that believes in decent work that we walk the talk.”
Charities and non-profits can learn more about the pension on the network’s website and at the sector’s annual meeting, on Oct. 10-11, when OPTrust Select representatives will be available to answer questions and help organizations sign up.
I've already discussed OPTrust's innovative new pension solution back in April.
Now OPTrust put out a press release, OPTrust Select recommended by Ontario Nonprofit Network (ONN):
OPTrust Select, the new defined benefit solution from OPTrust, has today been recommended by the Ontario Nonprofit Network (ONN) as the pension plan of choice for organizations in the nonprofit sector. It is the first and only ONN-recommended sector-wide pension plan for the 58,000 nonprofit organizations and over one million workers in Ontario. OPTrust Select, which launched in April of this year, was designed specifically for employers and employees in the charitable, nonprofit and broader public sectors.On its blog, ONN had a comment from Michael Kainer, How we developed a pension plan tailor-made for the nonprofit sector:
The ONN has been working for years to support Ontario's nonprofit sector by taking a leadership role in championing decent work, including exploring pension plan options for the sector. The ONN and its two pensions task forces held discussions with several plans between 2015 and 2018. In September 2018 the ONN's board of directors accepted the recommendation of the ONN pensions implementation task force and recommended OPTrust Select. ONN has no involvement in the management of OPTrust Select.
OPTrust Select, which offers a defined benefit pension at a moderate cost, will provide members with a steady stream of secure, reliable retirement income and includes the following features:
OPTrust Select is targeted to Ontario workplaces in the broader public sector, charitable and nonprofit groups that do not have a workplace defined benefit pension plan but may have a defined contribution plan, a group RRSP, or no retirement savings arrangement at all.
- Members contribute 3% of earnings and employers match the contributions
- An annual pension accrual rate of 0.6% of earnings;
- Benefit upgrades and cost of living increases, dependent on the Plan’s funded status and annual Board approval.
For more information about OPTrust Select, visit optrustselect.com. The ONN Pensions Task Force Report is available at theonn.ca/pension.
About OPTrust
With net assets of over $20 billion, OPTrust invests and manages one of Canada's largest pension funds and administers the OPSEU Pension Plan, a defined benefit plan with over 92,000 members and retirees. 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.
About ONN
ONN is the independent nonprofit network for the 58,000 nonprofits in Ontario, focused on policy, advocacy and services to strengthen Ontario's nonprofit sector as a key pillar of our society and economy. ONN works to create a public policy environment that allows nonprofits to thrive. We engage our network of diverse nonprofit organization across Ontario to work together on issues affecting the sector and channel the voices of our network to government, funders, and other stakeholders.
Let me start with an ending: I am pleased to share that ONN’s pensions implementation task force – created in 2017 to implement the first pensions task force’s recommendations – has brought its work to a close.Last week, I had a chance to speak to Hugh O'Reilly, President and CEO of OPTrust, but first I spoke with Dani Goraichy, Vice President Actuarial Services and Plan Policy who was kind enough to provide me with a note:
Our main proposal is that ONN recommend OPTrust Select as the pension plan for the sector. And the ONN Board has accepted that recommendation. It’s a big day for me and my colleagues from both task forces. (A couple of us were on both).
It’s been just shy of three years since ONN set the process in motion: a process to examine whether a pension plan is needed, as well as to look at how the sector should deal with the then-proposed Ontario Retirement Pension Plan (ORPP). Halfway through that task force’s mandate, the province scrapped the ORPP when the federal and provincial governments agreed on improvements to the Canada Pension Plan (CPP). (As an aside, I offer the view (mine, not ONN’s) that a much more enhanced CPP would have made a nonprofit sector plan, as well as many other pension plans, unnecessary, and that would have been a good thing. Alas, those finance ministers failed to ask what I think!) The CPP enhancement will replace about one-third of a retiree’s working income, up from about a quarter right now. The generation that turns 18 in 2025 will be the first to benefit from the full enhancement, with partial increases phased in for the current working generation.
Although the ORPP didn’t go ahead, the discussion around it brought much-needed attention to the issue of the woefully inadequate retirement security of many workers in Ontario, including those in the nonprofit sector. We concluded that even the enhanced CPP wasn’t nearly enough to eliminate the need for a pension plan. It also got us thinking about what kind of retirement vehicle would be best.
In the absence of any retirement plan whatsoever beyond Old Age Security and CPP, which is the case for so many sector workers, it becomes tempting to say, “just give them something, even a registered retirement savings plan- it doesn’t much matter what since it is better than what they have now.” We resisted that approach and instead recognized that there are different routes to take, some better than others. We concluded that being able to count on a monthly retirement benefit is a very significant factor for an employee’s retirement. That typically means a defined benefit (DB) pension.
But employers have been leery of the potential liability that goes with a single employer DB plan. So our task force recommended a pension plan structure that would minimize that risk to employers while providing a predictable monthly income.
And luck was with us. The first pensions task force report came to the attention of OPTrust, a large ($20B in assets), well-established and well-regarded public sector plan. OPTrust saw an opportunity to expand to the nonprofit sector. But it also recognized that its existing plan required contributions that are unrealistically high for most nonprofits (in the range of 10% by both employee and employer). They met with us and asked what a viable plan for the sector might look like, and they came up with OPTrust Select.
OPTrust Select is a DB plan. It is not a totally new plan but an adjunct to their main plan. Thus Select gets the benefit of the economies of scale, experience and expertise of the bigger plan.
Contributions are set at 3% and 3% of wages for both employer and employees. It has thoughtfully dealt with the issue of potential contribution increases that a DB plan raises by creating a modest core benefit which should be more than adequately covered by those contributions. In addition, it has built in conditional inflation protection which is only granted if the plan can afford to give it. Thus the risk of a need for increase in contributions becomes minimal. They have done projections which suggest that the inflation enhancements are also very likely to be granted over the long term without a change in contributions.
OPTrust Select will allow employers to merge assets from an existing plan and these then get translated into a higher monthly benefit that the employees enjoy when they retire. It will permit an employee to buy back past service, for example with any RRSP assets they have, meaning a better pension benefit that reflects their time with the employer before they enrolled in Select. And there is a role for Select plan members in the governance of the plan. All these were things both task forces had pointed out should be in a sector plan.
I am pleased that we came to this result: access to an affordable, sector-wide defined benefit pension plan. If the plan is widely adopted across the sector it will mean employees can move between employers and maintain the same pension. It will provide a benefit in keeping with ONN’s effort to create better working conditions for the sector, meaning happier employees, less turnover, and a greater ability for nonprofits to serve their communities well. All of which makes the nonprofit world a better place. And who could disagree with that?
Read more about the pension plan.
The ChallengeI thank Dani for his wise insights and thoroughly enjoyed our long conversation.
The defined benefit (DB) model is the most efficient model for retirement planning because it pools longevity and investment risk for its members. At scale a defined benefit plan is less expensive to operate than member-choice defined contribution plans. That said, DB pensions have been in decline for the past three decades. There are many valid reasons that have contributed to this decline. In brief, having a DB plan is generally perceived as a factor that makes a corporation less competitive in a cut-throat global economy. Canadian corporations and institutions have responded by eliminating these plans. As a result, very few DB plans that are open to new members and allow new accruals exist outside the public sector.
The OPTrust Solution
Well-respected academics have spent much time researching the problem of retirement income security. Many have presented elegant solutions that cannot be implemented because of many constraints, such as regulatory limitations. OPTrust reviewed this in-depth research and the related recommendations, turning them into a reality by modifying the DB model. We were able to preserve the best elements of their proposals while implementing a new retirement income solution that suits today’s environment.
The result is OPTrust Select.
The Design
OPTrust Select is a defined benefit pension offering that allows for some element of risk sharing between the member and the retiree, where in traditional defined benefit pension plans the employers are justifiably concerned about their significant share of the risk. OPTrust Select was designed to provide an affordable, practical retirement solution for members while also providing a comfortable level of certainty to employers about the potential volatility of contribution rates.
The contribution rates for OPTrust Select is designed to be affordable at 3% for both the employee and the employer. We do not expect those contributions to change. The core pension benefit is a 0.6% career average earnings. Benefit upgrades prior to retirement and cost-of-living increases after retirement at the rate of the average increase in the consumer price index will be granted if the plan can afford it, subject to the board’s approval.
The ability to adjust for the level of benefit enhancements before and after retirement allows the Plan to absorb market shocks without the need to change contributions. While the potential for an increase to contribution rates can never be eliminated, it is highly unlikely they will need to increase. The design of OPTrust Select creates a cushion for employers because of the substantial levers or tools that insulate against potential contribution increases.
OPTrust offers a secure retirement income with modest, predictable and stable contribution requirements. As a pension expense for employers, it is accounted for as cash contributions in most circumstances and OPTrust assumes fiduciary responsibilities as the Plan administrator. Our existing, strong governance structure, in-house professional investment expertise and world-class administration operations ensure members and employers will be well served.
It's important to understand that OPTrust Select isn't exactly like the OPTrust DB plan but it was designed to be an affordable solution to provide lifetime income at a very affordable cost (think Dani told me at a third of the cost).
The average salary of people who will receive a pension from OPTrust Select is around $40,000 so having a pension for them is an important benefit.
This is what Hugh O'Reilly stressed, finding an affordable pension solution for people working at charities and non-profits at an affordable cost. There is also a funding policy which was designed with input from representatives of the Ontario Nonprofit Network and incorporated the latest research from academia and industry.
In fact, both Hugh and Dani told me this is a scalable solution to address the needs of other sectors looking to provide a DB pension for their workers but OPTrust is only focusing on Ontario's non-profit sector because it has one representative who was easy to work with while keeping the focus on current members which is their priority.
Still, OPTrust is open to provide their knowledge and expertise to others who want to set up a similar plan for their workers. Hugh even told me "the more competitors we have, the better because it shows more people will be covered by defined-benefit (DB) plans which is what we want to see to address the retirement needs of many people looking to retire in dignity and security."
Lastly, Hugh was in New York City today, calling for action to address climate change:
Hugh O’Reilly, President and CEO of OPTrust, one of Canada’s largest defined benefit pension plans, delivered a call for action to investors in a keynote address during a Climate Week NYC seminar today. The seminar, Accelerating the Path to Climate Action, was organized by MSCI in partnership with the UN supported Principles for Responsible Investing (PRI).I've already discussed OPTrust's approach to addressing the risks of climate change here.
During his address, O’Reilly detailed the steps OPTrust has taken on its journey to climate action, including the release of a Climate Change Action Plan in June. The plan contains eight areas for action, including building climate risk into OPTrust’s investment approach and pushing for increased disclosure of climate change-related information from portfolio companies. In 2017, OPTrust also became one of the first pension plans to report in accordance with the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD).
“Measurement matters,” said O’Reilly. “Accurately pricing risk in a world without commitments to proper climate-related disclosure from corporations is almost an impossible task. We are focused on developing and using measures and tools that accurately support pricing climate change-related risk. This is a quick, reliable way to set the stage for action and start gathering the critical data that we need for proper benchmarking and targets.”
OPTrust's Climate Change Action Plan, along with the 2017 Responsible Investing Report are available at optrust.com. The text of O’Reilly’s speech can be found here (check against delivery).
I recently discussed whether pensions are slow to move on climate change and made reference to a global ranking which showed no Canadian pension made the list.
Hugh told me he was surprised the Caisse didn't make the list since it has committed to reducing its carbon footprint by 25% by 2025 and Michael Sabia recently sounded the alarm on climate change.
He also told me OPTrust was considered "too small" for this ranking which tells me the people behind this ranking are a bit lazy and didn't really take Canadian plans seriously.
Anyway, OPTrust Select is the main focus of this comment and the latest development there is great news for people working at Ontario's charities and non-profits.
Below, Cathy Taylor, executive director of the Ontario Nonprofit Network, says while she is all for fair wages, a wage hike to $15 will undoubtedly hurt charities. Oh well, at least they can celebrate their new pension plan and attract more workers to their important sector.
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