Moving forward with pension modernization
In 2020, our pension modernization continued as planned. We selected vendors for the first phase of the program and moved to development and implementation.
Bringing our IT systems forward enabled OPB to meet the COVID-19 challenge. Except for production services, which will transition in 2021, all of our core software and services were located in the cloud in 2020. This helped make our move to work from home seamless: all the software, functionality and data staff needed to do their jobs was on the cloud.
Offering e-services features like digital signatures and secure document upload was part of our long-term modernization plan. We moved this forward to support clients, staff and employers during the pandemic. We also made significant progress in advancing our member and employer portals, particularly our member portal. To better understand user expectations, we reached out to members for input on what they wanted in terms of functionality and user experience. The completed member portal will be a secure, mobile-responsive platform, offering enhanced functionality, along with useful retirement planning tools and resources; the employer portal will meet the same level of security and mobile responsiveness.
What OPB is doing to secure the sustainability of PSPP
Despite pandemic-driven market volatility, OPB closed 2020 with a solid financial position.
Our year-end funded status was 90%.
Two variables drive most year-to-year changes in our funded status: the investment return for the year and the change in the long-term bond yield during the year.
To support Plan sustainability, we:
- Filed our 2019 valuation report with provincial pension regulator;
- Initiated a funding risk study to assess risks across various scenarios and develop recommendations to address funding challenges and related risks. Results will be available in 2021; and
- Undertook an asset/liability study to ensure our asset mix is properly aligned to the Plan’s liabilities. Approval of the SAA is expected in 2021.
These studies are an important part of managing Plan sustainability, and we expect to have these studies completed in 2021.
Two additional factors shape expectations for the Plan’s funded status.
First, we expect that investment returns will be markedly lower over the next five to 10 years than in the past 10 years.
Second, in 2018, new funding rules were introduced for single-employer pension plans, like the PSPP, that require us to add a margin for conservatism to our liabilities when determining our funded status. This additional margin, referred to as a Provision for Adverse Deviations (PfAD), is sensitive to changes in Government of Canada long-bond yields. COVID-19-related decreases in bond yields will add significantly to the Plan’s liabilities.
Before the PfAD, the current Plan shortfall would have been estimated at $700 million at December 31, 2020, a funded ratio of 98%. With the PfAD, the estimated shortfall would be estimated at $3.7 billion.
In 2020, we made progress on Responsible Investing and environmental, social and governance issues
We understand that Responsible Investing (RI) is important to our members, and we are committed to continuing to enhance our RI practices.
Early in 2020 we conducted a landscape review of environmental, social and governance (ESG) practices to determine steps we should take concerning RI, which helped us develop an RI Action Plan focused on Strategy, Governance and Communication & Advocacy. We have already implemented several aspects of the Action Plan, including rejoining the UN Principles for Responsible Investing (PRI) as an asset owner. Previously we had been a member as an asset manager, and IMCO has assumed that role and is also a PRI member.
Last summer, OPB sought input from our Board on a range of RI issues. The input gathered resulted in revisions to our Investment Beliefs that will guide our investment strategy and how we work with IMCO.
Included in our updated Investment Beliefs were a stronger position on active ownership and engagement, support for investments that have a positive effect on reducing greenhouse gas emissions and the integration of diversity and inclusion metrics into investment due diligence. All of these changes reflect current best practices and are aligned with OPB’s values as an organization.
OPB’s increased focus on ESG issues is matched by a corresponding re-prioritization at IMCO. Together, we are expanding the incorporation of ESG factors in the investment process to drive positive change across the portfolio; this includes taking investment and policy positions that help address and reduce the impact of climate change.