2017 Provincial Judges Pension Board annual report

The Provincial Judges Pension Board (the "Board" or "PJPB") was established in 1992 and is continued by Ontario Regulation 290/13 as amended (the "Regulation") under the Courts of Justice Act. The Board is the successor to the Provincial Judges Benefit Board established in 1984 by Ontario Regulation 332/84 under the Provincial Courts Act.

The Board is classified as a Trust Agency and operates at arm’s length from the Government. Treasury Board Secretariat (TBS) is responsible for Sponsor related activities such as regulatory reporting, plan expenses and the implementation of plan design changes. The Board reports to the President of Treasury Board.

Members of the Board are appointed by the Lieutenant Governor in Council.

For the period April 1, 2016 through March 31, 2017, the Board’s members were:

Members of the Board

The Board administers the Provincial Judges Pension Plan (the "Plan" or "PJPP"); overseeing pension payments and refunds from the fund ensuring they are made in accordance with the Regulation.

The Ontario Pension Board ("OPB") provided pension administration and secretarial services to the Board in accordance with the Service Level Agreement.

The Board formally met six times during the period April 1, 2016 through March 31, 2017, four of which were regular quarterly Board meetings, and two additional meetings were convened to develop the annual business plan and determine Board policy relating to implementation of the new Family Law rules.

Cost of administration

Administrative support cost for the operation of the Board was subsumed in the estimates of the Centre for Public Sector Labour Relations and Compensation at Treasury Board Secretariat.

The Chair and Board members are all private sector appointees and received per diem fees of $200 for the Chair and $150 for the members. Fees totalling a maximum of $5,000 for attendance at Board meetings and preparation time were chargeable as at March 31, 2017. The Board incurred no other direct costs.

Plan activity

Plan membership and pensioner changes - Members

Plan membership and pensioner changes - Pensioners

Plan membership and pensioner changes - Deferred Pensioners

Description of the year’s activities

The year’s activities are described in the Analysis of Operational Performance under Section IV.

Analysis of financial performance

Financial statement as at March 31, 2017 - Deposits

Financial statement as at March 31, 2017 - Payments

Financial statement as at March 31, 2017 - Net increase in the fund

Financial statement as at March 31, 2017 - Fund balance with the Minister of Finance

See accompanying notes to the financial statement.

Approved on behalf of the Board
D. A. Oakley
Chair

Notes to financial statement as at March 31, 2017

Description and administration of the fund

The Treasury Board Secretariat is responsible for overall oversight of the Provincial Judges Pension Fund [Fund] including administration of all contributions to the funds and interest earned. The Provincial Judges Pension Board [Board], as originally designated by Ontario Regulation 67/92 of the Courts of Justice Act, is responsible for the administration of pension payments and survivor allowances.

On Oct 31, 2013, Ontario Regulation 67/92 was repealed and was replaced by Ontario Regulation 290/13 under the same legislation. The new Regulation splits the Provincial Judges Pension Fund into two plans, the Provincial Judges Pension Fund and the Provincial Judges Supplementary Pension Account.

The Fund is registered for income tax purposes and provides for pension benefits up to the limit permitted under the Income Tax Act. The Provincial Judges Supplementary Pension Account provides for pension benefits above the limit prescribed by the Income Tax Act for post-1991 service.

On December 20, 2013, a Court Order was issued, based on an agreement among parties to the litigation challenging the constitutionality of the Provincial Judges Supplementary Pension Account, that effectively ordered management to administer the Fund as one plan with the same administrative practices as were in place under Ontario Regulation 67/92, until the litigation is resolved (Memorandum of Agreement called the "Standstill Agreement"). Parties to this process have until June 30, 2017 to resolve the status of the Divisional Court application, seek to schedule the Application or reach an agreement to extend the deadline. Pursuant to the direction of the Canada Revenue Agency, the administrative practices for the Provincial Judges Pension Plan were and continue to be to administer the Plan in a manner consistent with the requirements of the Federal Income Tax Act and related Income Tax Act Regulations.

As a result, this financial statement continues to be presented as one Fund.

The Fund is held within the Consolidated Revenue Fund of the Province of Ontario and is included as an employee future benefit liability within the consolidated financial statements of the Province.

The Fund is not subject to the reporting requirements under the Pension Benefits Act and Regulations.

The following brief description of the Fund is provided for general purposes only. For more complete information, reference should be made to the Regulations.

General

The purpose of the Fund is to provide pension payments to retired Provincial Judges who are members of the Plan or survivor allowances to the eligible dependents of these Judges.

Funding policy

Participants are required to contribute 7% of their salary up to the earlier occurrence of either meeting their basic service requirement or attaining age 70 years.

The contribution required from the Province is determined by an actuarial valuation as described in note 4.

Pension payments

A pension payment is available based on the age and the number of years of full-time service for which the participant has credit upon ceasing to hold office and is based on the salary of a full-time judge of the highest judicial rank held by the participant while in office. The participant is entitled to these payments during his/her lifetime.

Disability pension payments

A full pension is available at age 65 for participants with a minimum of five years of full-time service who are unable to serve in office due to injury or chronic illness.

Survivor allowances

A survivor allowance equal to 60% of the qualifying judge’s pension payment is paid to the spouse during the spouse’s lifetime or to children who meet the age, custody, education or disability criteria defined by Regulation.

Death refunds

A death refund can be payable to the personal representative of a participant where there is no further entitlement to a survivor allowance. The amount of the refund is equal to the participant’s contributions in the Fund plus interest, less entitlements already paid out.

Withdrawal refunds

Upon ceasing to hold office for a reason other than death, participants not eligible to receive pension payments are entitled to receive a refund of their contributions to the Fund plus interest.

Annual inflationary escalation of entitlements

Judges Retired Before June 1, 2007:

The annual inflationary increase for judges who retired before June 1, 2007 is based on changes in the Average Weekly Earnings published by Statistics Canada and subject to a maximum of 7% in any one year, and is effective on April 1 in every year. In addition, the pensions are adjusted based on the salary increases of sitting judges as recommended by the Provincial Judges Remuneration Commission.

Judges Retired On Or After June 1, 2007:

The annual inflationary increase for judges who retired on or after June 1, 2007 and elected to be paid under the plan provisions effective on that date is based on changes in the Consumer Price Index, and is effective on January 1 in every year.

Interest revenue

Interest is credited to the account for the Fund, held in the Consolidated Revenue Fund of the Province of Ontario, at the average of the monthly Ontario Borrowing Rates for a 25-year maturity as follows:

• on the net monthly increases to the account accumulating during the fiscal year at the interest rate for the fiscal year; and
• on the net increases to the account for each of the preceding 25 years at the interest rates applicable to those years, providing the funds remain on deposit with the Consolidated Revenue Fund.

Significant Accounting Policy

Basis of accounting

The financial statement is prepared by management in accordance with the Memorandum of Agreement between the Ontario Conference of Judges and the Lieutenant Governor in Council, the then-Minister of Government Services and the Provincial Judges Pension Board (the Standstill Agreement). The basis of accounting prescribed by the Standstill Agreement is consistent with both the repealed Regulation 67/92 and the current Regulation 290/13 under the Courts of Justice Act and consists of contributions and money paid, transferred or credited to the Fund, less money paid out, except for the fact no Supplementary Pension Account was established.

The Standstill Agreement requires that the Provincial Judges Pension Plan be administered and solely funded through the Provincial Judges Pension Fund as it was on October 30, 2013, notwithstanding that Regulation 290/13 requires that the Provincial Judges Pension Plan be funded through the Provincial Judges Pension Fund and a separate Provincial Judges Supplemental Pension Account.

Administrative expenses

Administrative expenses are paid by the Province of Ontario and are not reflected in this financial statement.

Liability for Future Benefits

The Provincial Judges Remuneration Commission (Commission) was established under the Courts of Justice Act to conduct an independent review of the salary, pension and benefits for all provincial judges. The Commission’s salary and non-pension benefits recommendations are binding; recommendations on pension benefits are non-binding. The most recent report of the Commission was the Eighth Provincial Judges Remuneration Commission released on November 12, 2013, covering the period April 1, 2010 to March 31, 2014. The report did not recommend any salary increases in addition to the annual inflationary increases already received. A new Commission, once appointed, is expected to issue recommendations covering the period from April 1, 2014 to March 31, 2018.

The Province is responsible for the unfunded liability of the Provincial Judges Pension Fund and funds this liability in amounts recommended by periodic actuarial valuations of the Plan. The Provincially determined contribution for fiscal 2017 was $34,512,000, which maintained contributions consistent with recommendations in the March 31, 2011 actuarial funding valuation, as a current actuarial valuation had yet to be performed. Any required adjustments to contributions, as a result of performing a current actuarial valuation when the litigation is resolved, will be accounted for in the period the valuation is performed. Management has estimated that the amount of additional government contributions is approximately $52 million as at March 31, 2015. Estimates as at March 31, 2017 are not available due to the ongoing litigation.

Significant assumptions in the March 31, 2011 actuarial funding valuation, the most recent valuation conducted, are as follows:

Analysis of Operational Performance

Delivery of Pensions

• In the 12 months ending March 31, 2017, the PJPB continued delivering high quality cost effective services to 283 beneficiaries receiving pensions or survivor allowances from the PJPP.
• The Board conducted four regular meetings in that period to consider applications for approval of payments from the Fund. The Board also conducted two ad hoc meetings to address Board business and emerging issues with critical timelines (e.g. Family Law policy matters and preparation of the business plan).
• The Board monitors its service performance through reports on outstanding work at its regular meetings. This combined with summary presentation of facts supporting pension applications ensure timely and high quality service.
• The PJPB met or exceeded its client service standards over the period of this report which were that no application for pension or other benefit from the Plan, or pension estimates, take longer than 60 days in total to process.
• There were no requests for adjudication or appeals of decisions made during the reporting period.
• At its regular quarterly meetings, PJPB reviewed and approved 28^{footnote 3[3]} new annual pensions and survivor allowances, representing five additional applications when compared to the prior year.
• The corresponding annual value of new pensions approved for the year was just over $5 million.
• All pension payments commenced on time.
• The PJPB also approved payments totalling just over $137K representing a retroactive 1.2% cost of living increase under the "old plan" rules for Provincial Judges and slightly over $21.4K under a 1.3% CPI adjustment.

Accurate Payments and Entitlement Calculations

• Calculation materials and entitlement information were provided in a timely manner by OPB to PJPB for its review and approval at PJPB meetings.
• OPB staff was available at all PJPB meetings to clarify and explain payments when necessary. All calculations bear evidence of managerial review and verification by OPB staff.
• The Fund is audited annually by the Office of the Auditor General of Ontario (the Provincial Auditor). There were no findings in the current audit relating to either pension payment accuracy or entitlement calculations.

Strengthening Stakeholder Relations

• The Board continued to build on its earlier efforts to engage key stakeholders in discussion about issues affecting the Plan. During the 2016/2017 plan year the frequency of update meetings with senior leadership of the Sponsor increased. The Board also met with Ontario’s Chief Justice and the Association of Ontario Judges executive to obtain their on-going perspective on the service needs of sitting judges.
• For the first time in the Board’s history, the Chair attended a pre-retirement seminar for sitting judges in February, 2017 and responded directly to questions about the Board and Plan governance
• We firmly believe these interactions contributed to greater transparency around the Plan and its operations, and reinforced the Board’s status as a trust agency that performs its role independently and in the best interests of the Plan’s beneficiaries.
• Stakeholders are supportive of the Board’s efforts to build stronger relations and have grown even more receptive to the meetings in spite of the challenges of on-going litigation and leadership changes.

Communications with Pensioners and Stakeholders

• Either the PJPB or Chair continues to review and approve all Plan communications prior to distribution.
• The bulk of the Board’s communications with Plan beneficiaries are prepared to convey information about personal entitlements. Communication highlights for 2016/2017 include:
  • 379 letters describing annual escalation adjustments
  • 81 pension estimates
  • 24 initial communications to retiree
• The Board will continue to look for opportunities to improve communications to pensioners and advise on communications to other key stakeholders.

Performance Targets

The Board has established the following performance targets for the fiscal year 2016-2017.

Implement Feasible Automation Solution

The Board has been exploring a range of options for automating its pension calculations which are currently supported largely by manual processes. The Board believes that automation could reduce risk, improve operational efficiency.

One of the options we are considering involves becoming a "tenant" within OPB's administration systems. If the systems could be leveraged to accommodate the PJPP, the Board could take advantage of economies of scale and proven IT infrastructure to support plan administration at a fraction of the cost when compared to developing its own systems. Other advantages include avoiding wasteful duplication of effort, simplifying on-going system maintenance and facilitating the delivery of high value services to members and pensioners, as well as stakeholders.

OPB has advised the Board that it will begin the modernization of its pension information technology systems in 2018. This is a large multi-year project but their plans for pension modernization hold promise for the Board to benefit from a more complete and efficient approach to pension administration. However, several factors require clarification including, cost and the possibility that plan design changes could emerge from the 9^th Provincial Judges Remuneration Commission.

There is no practical administrative urgency for the Board to commit to deploying an alternative automation solution at this time. We believe that deferring a decision until more information becomes available is the better approach. That said, we will continue to pursue this opportunity through regular dialogue with OPB.

Improve Service and Reduce Cost

In October 2016, the Board successfully launched a new telephone system developed by OPB that offers improved service to clients by providing a direct line so the caller has direct access to trained staff and does not have to be redirected. The system is also capable of producing status reports on individual calls that can be used to inform the Board’s assessment of telephone service delivery by OPB.

In addition, as part of the roll out of the new service, the Board approved a communication plan that specifically ensured that the Association of Ontario Judges and Chief Justice Office (the stakeholders) received early notification. Our stakeholders have advised in the past that they appreciate these gestures as they allow them to anticipate questions from their constituency. This was an opportunity for the Board to demonstrate our commitment to both improved service and strong relations with stakeholders.

Governance Framework

By defining roles and responsibilities, the Board’s administrative policies provide clear direction to our service provider and ensure consistent administration of pension plan. The Board is committed to documenting its policies and decisions on an on-going basis and during the Plan year the Board adopted 3 new policies relating to Family Law and pension credit. We expect the Family Law policies in particular will contribute to the efficient and consistent discharge of our responsibilities.

Governance and compliance demands on the Board have steadily increased over the years as the government takes steps to improve accountability of its Agencies Boards and Commissions. Filling these gaps and responding to increasing service expectations of our clients and stakeholders requires additional expertise and resources. In October 2016, a new schedule of services was formally adopted between the Board, the Sponsor and OPB, our service provider. The new schedule not only modernizes the list of administrative and secretarial services the Board requires, it also includes OPB commitments to service standards. For the Board, this represents important progress toward improving our ability to assess service delivery and performance of the Board and its agent in the future.

An important part of plan administration is records management and a review of the Board’s compliance with provincial standards should occur periodically. The Board relies on OPB practices for satisfaction of its responsibilities and in 2017 work commenced to review its retention schedules and develop a revised function-based Records Retention Schedule (the "RRS") to align with its business processes. The RRS complies with the Information, Privacy and Archives of Ontario (IPA) requirements and industry standards and best practices. The Board expects this work to be completed later in the current year.

General pension plan governance principles recommend a plan administrator conduct a regular review of its plan governance. The Board is committed to selecting and completing an appropriate governance self-assessment and expected to complete this work by the end of 2016/2017 fiscal year. Due to the Board’s unique governance structure it became clear that the Board could not easily adapt existing self-assessment tools developed by the Canadian Association of Pension Supervisory Authorities. Our efforts to acquire a high quality cost effective self-assessment tool for the Board will continue in the coming plan year.

TBS regularly offers opportunities for its public appointees to receive training on principles of good public sector governance. We are fortunate that our Board is composed of highly qualified individuals with relevant industry experience who also have each served at least one term. While TBS training may be intended to assist new appointees, we are pleased to report that at least one Board member attended a TBS governance training session in November 2016. The Board is committed to taking advantage of relevant training opportunities that will contribute to improved plan governance.

Implement Income Tax Act (ITA) Compliant Plan Provisions

Shortly after the Plan provisions were amended in October 2013, the Association of Ontario Judges began court proceedings to revert to the former Plan provisions. The Board has retained independent legal counsel to represent it in the matter.

As a result of the Standstill Agreement (the Agreement) between the parties, the Board is not able to fully implement new administrative arrangements to support the revised provisions. The terms of the Agreement have been extended with our agreement on several occasions and are currently set to expire at the end of 2017. While the Agreement has been in effect the Board has protected the Plan’s registered status by ensuring pensions continue to be paid in accordance with the Canada Revenue Agency’s requirements until the litigation is resolved.

While we are coping with increasing administrative complexity due to the current situation, we continued to ensure pensions and other Plan entitlements were paid in accordance with applicable legal and regulatory requirements and that the Plan was administered in the interim in accordance with the Agreement. During the review period the Board also monitored its legal costs and the status of litigation through regular updates with independent counsel.

Implement Family Law Amendment

The 8^th Remuneration Commission completed its hearings and made its recommendations to the government in late 2013. The only remaining recommendation to be implemented required the Sponsor to amend the plan to provide for the division of asset on marital breakdown.

In March, 2016 the Board was advised that the Plan was amended by O.Reg. 57/16 to introduce new rules for Family Law. Shortly afterward, the Board adopted its own administrative policy for administering Family Law applications. Related communications including template letters and an informational announcement were also approved for use by OPB as our agent. Later in 2016, the Board was required to address a transitional actuarial issue with the help of the Plan’s actuary. The Board continues to closely monitor emerging Family Law issues within the Plan, seeking legal and/or actuarial advice when necessary to ensure we properly discharge our obligations as plan administrator.

Chair’s Comments

The Board is responsible for administering the pension and survivor allowance benefits provided under the Provincial Judges Pension Plan. As a trust agency of the Crown, the PJPB oversees the delivery of an annual pension payroll that now exceeds $40.8 million. As a board, we are committed to delivering cost effective high quality service to the plan’s beneficiaries. A summary of some of last year’s operational achievements appears in Section IV.

The Board wishes to express its appreciation for the assistance rendered to the Board by the management and staff of the Total Compensation Strategies Branch of Treasury Board Secretariat, the Pay and Benefits Operations Branch of the Ministry of Government and Consumer Services, and the Ontario Pension Board and staff.

Appendix A: Independent Auditors Report

To the Provincial Judges Pension Board and to the Minister of Finance

I have audited the accompanying Statement of Changes in Fund Balance of the Provincial Judges Pension Fund as at March 31, 2017, and a summary of significant accounting policies and other explanatory information (together the "financial statement"). The financial statement has been prepared by management in accordance with the financial reporting provisions prescribed by the Memorandum of Agreement between the Ontario Conference of Judges and the Lieutenant Governor in Council, Minister of Government Services and the Provincial Judges Pension Board (the Standstill Agreement) dated December 20, 2013.

Management’s Responsibility for the Financial Statement

Management is responsible for the preparation of this financial statement in accordance with the financial reporting provisions prescribed by the Standstill Agreement, and for such internal control as management determines is necessary to enable the preparation of a financial statement that is free from material misstatement, whether due to fraud or error.

Auditor’s Responsibility

My responsibility is to express an opinion on this financial statement based on my audit. I conducted my audit in accordance with Canadian generally accepted auditing standards. Those standards require that I comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statement is free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statement. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statement, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation of the financial statement in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statement.

I believe that the audit evidence obtained is sufficient and appropriate to provide a basis for my audit opinion.

Opinion

In my opinion, the financial statement of the Provincial Judges Pension Fund as at March 31, 2017 is prepared in accordance with the financial reporting provisions of the Standstill Agreement.

Emphasis of Matters

Without modifying my opinion, I draw attention to Note 2 and Note 4 to the financial statement.

Note 2 describes the basis of accounting. The financial statement is prepared to assist the Provincial Judges Pension Fund to meet the reporting requirements of the Standstill Agreement, and as a result the financial statement may not be suitable for another purpose.

Note 4 to the financial statement indicates that the Province is responsible for the unfunded liability of the Fund.

Susan Klein, CPA, CA, LPA
Assistant Auditor General
June 14, 2017
Toronto, Ontario