2015 will mark the 25th anniversary of OPB’s role as administrator of the Public Service Pension Plan. It’s been a quarter century of change, challenge and achievement. During that time we’ve:

• deployed a prudent and effective investment strategy, with an emphasis on capital preservation, which has successfully guided the Plan through a series of market ups and downs;
• built a first-rate Investments team capable of delivering superior risk-adjusted returns;
• provided members and retirees with world-class service;
• created a progressive and robust governance framework that meets, and in many cases exceeds, industry best practices;
• earned the role of “trusted advisor” by providing stakeholders with balanced recommendations that reflect our commitment to the long-term sustainability and affordability of the Plan; and
• protected the defined benefit pension model by ensuring decision-makers understand its many advantages and socio-economic value.

At the 25-year mark, it also seems appropriate to reflect on the positive impact that OPB’s long-term performance has had on the financial health of the PSPP. In 1990, the Government of Ontario made the decision to outsource pension administration, and OPB was formed. At that time, there was a $2.5 billion shortfall in the PSPP, and a payments schedule was put in place to discharge that shortfall. According to the original schedule, at the end of 2014, the PSPP was expected to have a shortfall of $3.5 billion. In actuality, at the end of 2014, the PSPP was more than 98% funded, with an estimated shortfall of only $332 million. This is a significant achievement – one that was accomplished despite periods of extremely challenging investment markets and changing demographic trends (such as life-expectancy improvements). In addition, the Plan faced funding pressures that weren’t anticipated in those original projections – such as temporary contribution reductions and temporary early retirement provisions that were introduced in the 1990s by the government to manage the workforce. The result is that, during a period when most pension plans experienced significant funding challenges, in the PSPP, benefit levels have been maintained and contribution rates remain reasonable and affordable for both members and employers.

Keeping our eye on the future

As a pension plan, we operate over a long time horizon. Protecting the long-term sustainability of the Plan is our priority. The PSPP funded status is strong, and improved over last year. With investment returns of 8.4% in 2014, the Plan is now more than 98% funded. In 2014, we conducted a long-term funding study to determine whether the funds flowing into the Plan today are sufficient to meet future pension obligations. The study concluded that for this funding cycle, contribution rates are sufficient. We will conduct a follow-up study in conjunction with our next triennial valuation in 2016.

We also moved forward with discussions aimed at creating an investment management entity to invest the assets of both OPB and the Workplace Safety and Insurance Board. We believe that this will support the long-term sustainability of the Plan. Creating a larger pool of capital will give OPB access to a broader range of quality investments capable of generating higher returns at a lower cost.

On the client services front, we formally launched Advisory Services – a unique program aimed at providing our members and retirees with access to advisors who are certified in both pension administration and financial planning. Supported by our suite of e-services, our Client Services Advisors support clients in making sound decisions about their pension entitlements, within the context of their broader financial circumstances. To the best of our knowledge, OPB is the only defined benefit pension plan in Canada to offer its clients full advisory services.

Making good governance better

OPB’s Board of Directors has embraced a governance-risk-compliance (GRC) model. This model integrates governance, compliance and risk management functions into one program – ensuring that risks and opportunities are viewed and assessed through a variety of lenses.

A key component of good governance is, of course, risk management. In 2014, OPB took a number of steps designed to better manage risk going forward. For example, we adapted and enhanced our Enterprise Risk Management (ERM) policy, which better integrates the management of strategic, operational and financial risks. We also created a separate Investment Risk & Compliance group headed by an experienced investment risk executive whom we hired during the year. And we drafted a series of “risk appetite statements” that specify acceptable levels of risk (and corresponding metrics) for specific business priorities.

We accomplished a great deal in 2014. For that, I would like to thank OPB’s dedicated management team led by Mark Fuller and all the talented employees who have helped us accomplish so much. I’d also like to thank my fellow Board members for their careful and considered direction. Two Board members – Urban Joseph and Tony Wohlfarth – completed their terms in 2014. Both Urban and Tony provided me, the Board and executive management with thoughtful advice and exemplary service over many years. We thank them and wish them well. At the same time, I want to welcome Sean Hanley and Geri Markvoort to the Board. Both bring a wealth of knowledge and experience to their new positions, and I look forward to working with them.

Rigorous due diligence, prudent decision making, careful management, and a commitment to continuous improvement have brought the PSPP to its sound position today. Those same attributes, combined with a Think Forward approach, will ensure that the Plan remains sustainable and affordable in the future.

M. Vincenza Sera
Chair