Staff Report #1
September 25, 2024
To All Commissioners
Re: 2023 Audited Pension Plan Statements
Recommendation
That the Commission CONFIRM the following which was previously approved by email:
- APPROVE the draft financial statements, as set out in Enclosure I, relating to the non-insured pension fund as at December 31, 2023; and
- DIRECT the administration to forward the 2023 Pension Statements to the Financial Services Regulatory Authority (FSRA) as required under the Pension Benefits Act.
Background
The audit of the pension fund applying to the pre-February 1, 1989 pension plan benefits and the preparation of the related report and financial statements are in accordance with the requirement of the Pension Benefits Act 1987. These financial statements deal with one of three parts of the funding program for the Commission’s pension plan.
As indicated in Note 1 (see Enclosure I) of the notes to the financial statements, the fund’s net assets provide defined benefits in respect of services rendered on or after January 1, 1987, up to and including January 31, 1989, by employees of the London Transit Commission. The financial statements solely reflect this portion of the pension plan. The benefits to be provided also include the liability relating to the provisions of a 60% surviving spouse option.
Pension benefits accrued prior to December 31, 1986 are covered under a fully insured group annuity policy with the value of this annuity contract not reflected in these financial statements. Post-January 31, 1989 pension benefits for active members are provided by OMERS. Changes by OMERS to the plan since January 31, 1989 apply to service after January 31, 1989 only. The liability and related assets for post-January 31, 1989 service are not reflected in these financial statements.
The statements attached have been updated retroactively for 2022, and now include the value of annuity contracts purchased upon retirement for each pensioner’s January 1, 1987 to January 31, 1989 service at a value of $4.4 million (2022 – $4.4 million). Both KMPG (financial audit) and Manulife (actuarial valuation) had been excluding this asset from the respective reporting given a fully insured annuity was being purchased and administered separately from the plan at the time of an employee’s retirement. Financial Services Regulatory Authority of Ontario (FSRA) however, confirmed that because the annuity has not been discharged, or obligations are not fully relieved from the plan, the plan is still required to report this as an asset. The adjustment within both the audited financial statements and the tri-annual actuarial valuation is purely an accounting one, with FSRA noting that the solvency of the plan is not impacted.
In October 2022, Manulife completed the most recent actuarial valuation for funding purposes of the plan as at January 1, 2022. This valuation showed the fund as having an excess going concern surplus of approximately $5.2 million with $5.6 million calculated as the solvency excess. Since the ratio of solvency assets to solvency liabilities is more than 85%, the next actuarial valuation of the plan will be required no later than January 1, 2025 or in the event of a prior plan change affecting the cost of the plan, in accordance with the minimum requirements of the Ontario Pension Benefits Act. The report validates the stability of the plan and its ability to meet its future obligations to retirees.
2023 Pension Fund Audit
As discussed in Staff Report #2 – 2023 Pension Audit and Plan Enhancements, dated March 27, 2024, the annual Pension Plan Statements, which are traditionally presented by KPMG at the March meeting, were delayed given uncertainty with respect to how the amended treatment of annuity contracts are to be applied for the LTC Pension Plan. Once it was determined that the annuity contracts should be included, and that an audit was required, KPMG was asked to proceed with the audit and Manulife applied for an extension to the June 30 filing date with the FSRA and an extension was granted to August 29th. Unfortunately, due to further reporting and sampling requirements identified during the audit, the statements were not able to be finalized in time to be presented at the August Commission meeting.
Manulife applied for a second extension but was denied, with FSRA advising that the 2023 Pension Statements were required to be submitted by September 18, 2024 in order to avoid a potential penalty for late filing. KPMG and Manulife worked diligently toward this new date and provided draft statements for Commission approval prior to the deadline. As the next available Commission meeting (September 25, 2024) was subsequent to the deadline, approval was sought and confirmed through electronic polling (email) on September 17, 2024. The recommendation above was approved 7-0.
Summary
Copies of the audit report were provided to Manulife and subsequently submitted to FSRA. A meeting with the Pension Advisory Committee will be scheduled to review the attached.
Enclosure
Recommended by:
Mike Gregor, Director of Finance
Joanne Galloway, Director of Human Resources
Concurred in by:
Kelly S. Paleczny, General Manager