2021 Provincial Judges Pension Board annual report

Message from the Chair

Throughout 2021 the Provincial Judges’ Pension Board (PJPB or the Board) continued shaping its new governance structures and processes to best support our fiduciary and other responsibilities in respect of both the Plan’s administration and investment of the funds. Building trusted relationships with each of our stakeholders is critical to our success, and the Board’s shared commitment to the principles of transparency and accountability has underpinned our approach so far. Over the past 9 months the process has been demanding, taking longer than initially expected, but we appreciate that these are necessary discussions involving complex issues and relationships. We are investing time today to develop a collective understanding of roles and responsibilities among stakeholders to ensure that we continue to act in the best interests of the Plan’s beneficiaries long into the future.

Perhaps the most obvious development for the PJPB in 2021 was the change to our fiscal year end from March 31^st to December 31^st. The change was prompted by a request from the Office of the Auditor General during the prior year’s audit. PJPB supported the change since it would streamline the Plan's financial reporting process, making it more cost effective with no adverse effect on the Plan’s beneficiaries. The change was formalized in November 2021 when the Sponsor amended the Plan provisions to adopt the December 31^st fiscal year end. Going forward our financial statements will be prepared annually as at the calendar year end.

We remained focused on finalizing a long-term Investment Management Agreement (IMA) with Investment Management Corporation of Ontario (IMCO), but it is important that the Plan’s investment policies are aligned with the Board’s tolerance for risk and developed with input from both the membership and the Plan Sponsor, Treasury Board Secretariat (TBS). Final adoption of the Plan’s key policies, the Strategic Asset Allocation (SAA) and Statement of Investment Policies and Procedures (SIPP), has taken somewhat longer than originally expected due in part to important consultations between TBS, the Association of Ontario Judges (AOJ), and the Board. We are committed to getting this part of our governance obligations right and with the buy-in from our key stakeholders so we can make a smooth transition to the new funding environment and navigate an increasingly complex global financial environment.

Covid continued to shape the global workplace and the PJPB’s operations. During the reporting period the Board was able to avoid any disruption by conducting all its regular meetings through video conferencing. Both Ontario Pension Board (OPB) and IMCO, the two service agents, maintained their service levels, and continued to support the Board effectively in a “work from home” environment. In fact, OPB was able to successfully create and securely distribute just under 290 personalized digital annual pension statements to each active member of the Plan. The pandemic has certainly underscored the need to continue to shift toward digital communications and service delivery.

The last Board member of the newly constituted five-member Board, as recommended by the AOJ, was appointed in January 2021 and, over the balance of the year, the fully constituted Board was able to make sound progress implementing the Plan’s governance framework. Most notably, the Board was able to approve its Enterprise Risk Management (ERM) Framework and its Communication Policy. Adoption of the ERM Framework was a critical accomplishment for the Board since we were able to fulfill our commitment within the Business Plan in response to the Minister’s expectations within the mandate letter for 2021.

Communications is a significant activity for any pension plan and is also part of an effective pension governance system. Defining the Board’s expectations for delivery of the communications program within the policy is a major step toward delivering consistent, high-quality information to the membership and stakeholders as well as clearly delegating certain responsibilities to our service providers, where appropriate.

It has been my distinct pleasure to serve as PJPB Chair over the last 9 months. I especially want to thank my Board colleagues. Your passion, stewardship, and desire to share your expertise have helped to create the conditions for an excellent pension governance program. I also want to acknowledge the AOJ - your keen interest in pensions and insightful feedback have been invaluable in developing member communications and pension policy. On behalf of the Board, I likewise want to acknowledge the professionalism and support provided every day by the capable staff at Ontario Pension Board, Treasury Board Secretariat and the Investment Management Corporation of Ontario. Once again, there is still more work to do to complete the transition to a fully operational fund and I look forward to new initiatives and accomplishments in the coming year.

Deborah A. (Debbie) Oakley

Chair, Provincial Judges Pension Board
September 14, 2022

The year in review

Throughout 2021 the Board’s priority was to establish a sound governance framework for the administration of the Plan. Our steady progress over that period has been marked by the several achievements, including:

Documenting the governance framework

The Service Level Agreement (SLA) between the PJPB, TBS and OPB documents the administrative roles and responsibilities of each party and is a critical component of the Plan’s governance framework. Final adoption of the SLA has been affected by on-going discussions between the PJPB, TBS and the Association of Ontario Judges (AOJ). Discussion is focused on the AOJ’s role in the implementation of the redesigned Plan and whether the government has additional obligations to consult with them, either directly or under the Remuneration Commission process.

While PJPB does not have a direct role in the Remuneration Commission process, the Board is actively contributing by providing our insights, as the Plan’s Administrator, on the governance and operational requirements of the Plan. Given the complexity of the discussions, work on the agreements, including the SLA with OPB and the SAA within the Investment Management Agreement (IMA) with IMCO, was suspended in December 2021 until TBS and the AOJ reach a resolution.

In the meantime, the Board has remunerated OPB for performing the expanded services under plan redesign, at the rates proposed in the most recent draft of the SLA. Similarly, IMCO has also been remunerated according to the IMA which became effective in March of 2020 and has enabled investment in low-risk money market instruments until the Board can adopt a longer-term investment strategy.

Annual pension statement

Much of 2021 was focused on the development and deployment of the Plan’s inaugural Annual Pension Statement (APS). Delivery of the first ever APS was a key strategic objective for the Board in 2021. The APS represented the fulfillment of a commitment made by the Board and served to strengthen its credibility in front of its stakeholders.

The project was undertaken for a number of reasons:

1. Communicating pension as part of overall remuneration will help members understand the program's value and promote greater transparency between the Board, its stakeholders and members;
2. Production of the APS helps members gain control of a significant work-related asset and share accountability for their retirement outcomes; and
3. Improving communication with the membership helps position the Board as a trusted advisor and helps achieve higher levels of client satisfaction.

APS delivery was also completed using a digital format requested by the Board and favoured by the AOJ and TBS. While there were challenges, special steps were taken to ensure the security of members’ personal information and as a result there were no privacy incidents. Additionally, the Board is proud of the fact that project delivery was the result of extensive collaboration between the Board, the AOJ, and the Office of the Chief Justice and it was delivered on time and within budget.

A follow-up member satisfaction survey was completed in 2022 and confirmed the encouraging feedback the Board was receiving through informal channels. With the development of the underlying calculation tools and template communications, the Board is positioned to deliver a high- quality on-going APS program.

Enterprise risk management framework

The Board committed to documenting and then implementing its ERM framework as a means of understanding and managing its risks as a pension administrator and provincial agency. The Board worked diligently throughout 2021 to develop an ERM Framework that conformed to the Ontario Public Service (OPS) ERM Directive. By September there was consensus among the Board members regarding governance structure, including roles and responsibilities, the approach, and principles outlined to identify, assess, monitor and report on key risks. The ERM Framework was adopted by resolution at the September, 2021 quarterly Board meeting.

In the following quarter OPB began reporting on key risks noted in the risk registry and seeking Board feedback on the reporting process. For example, the risks will be reported initially on a quarterly basis, but the Board will need to consider whether that frequency is appropriate for the Plan’s experience. Regardless, any exceptions (e.g., new risks, large variation in risk assessment) will be reported as soon as the event is triggered.

We expect the Framework will continue to evolve and mature over time as risk management is implemented, and the Board will be able to use the results to assess performance, make adjustments as needed and track progress for future annual reports.

Communication policy

Communications is a significant activity for any pension plan and is part of an effective pension governance system. With the expansion of the Board’s mandate to include responsibility for communication, the Board identified development of a communication policy as a priority for the 2021/2022 plan year. The policy was adopted by the Board at its regular Quarterly Meeting on December 8, 2021.

The Communication Policy provides important basic guidance to OPB management and staff, as our agent, regarding the Board’s vision for how it wants to interact with the membership and stakeholders. It defines which communication responsibilities it is delegating to OPB and designates a list of documents that can be provided to members and stakeholders on request without having to consult the Board.

By approving the Policy, the Board adopted a basic communications governance framework to support efficient day-to-day operations. This is accomplished by confirming responsibilities that it is delegating to OPB and by approving a list of Plan documents that can be provided to members and stakeholders on request without seeking Board approval each time. This was an important achievement for the Board that will allow more time to focus on its strategic role and responsibilities.

Operational performance

Delivery of pensions

In 2021 PJPB continued delivering high-quality cost-effective services to the Plan’s membership. By the end of the year 343 beneficiaries were receiving either a pension or survivor allowance from the PJPP and 284 full time sitting judges.

In the nine months ending December 31, 2021 the Board conducted three regular quarterly meetings to consider regular business (e.g., approval of pension payments, operational updates) and special approvals mostly related to governance and redesign implementation. An additional 10 working meetings were convened to consider special business related to the implementation or facilitate briefings with key stakeholders. The number of meetings were down from the prior reporting period, but still reflects increased demands as the Board continued to refine its new governance structure and processes.

The Board monitors its service providers through regular reporting on pending and outstanding work at its regular meetings. The Board also relies on the quarterly presentation of the PJPP Call Activity Report to assess telephone service delivery performance. These reports facilitate Board oversight of service delivery relative to commitments within the service agreements.

The PJPB met or exceeded its client service standards over the period of this report: no application for pension or other benefit from the Plan, or pension estimates, took longer than 60 days in total to process.

Once again there were no requests for adjudication or appeals of decisions made during the reporting period.

At its regular quarterly meetings, PJPB reviewed and approved 19 new annual pensions and survivor allowances, all under the new plan provisions that require calculation of the three-tiered pension benefit entitlement. In the reporting period ending December 31, 2021, there was one application for lump sum payment in respect of a family law settlement, and the Board also approved 3 refunds of contributions on resignation.

The corresponding annual value of new pensions and survivor allowances approved by the Board for payment was $3.485 million. All pension payments commenced on time and within service commitments.

Annual cost of living adjustments

The Plan provides for annual cost of living increases calculated using two different methods. Depending on the judge’s eligibility, they may receive either a Consumer Price Index (CPI) adjustment every January 1^st or an adjustment based on the Industrial Aggregate Index (IAI)(Canada) given to sitting judges each April 1^st. These payments are approved each year by the Board and there are usually two adjustments made in the fiscal year. The PJPB only made the IAI payment adjustment during the reporting period.

In October 2021, the Board made escalation adjustments to 142 pensions and survivor allowances to reflect the annual IAI salary adjustments under the Framework Agreement on Judges’ Remuneration. Effective April 1^st, pensions for affected retired provincial judges or their survivors were increased by 7.00%.

In addition to the immediate effect on pensions and survivor allowances in pay, the change required recalculation of 9 new pensions for individuals retiring after April 1^st effective date and 99 earning limits for judges continuing to serve in retirement. In total 250 personalized notifications explaining the changes were delivered to affected members.

This year the salary adjustments were communicated to PJPB later than previous years; however, the adjusted pensions and retroactive amounts were paid as expected on October 22, 2021.

Sensitivity of judges data

Personal information belonging to sitting and retired judges is extremely sensitive and if accidentally disclosed could have a serious effect on the privacy and personal safety of the individual judge. The Board recognizes the special circumstances that apply to judges and requires that OPB ensure personal information is adequately secured, and especially prior to transmission by mail or electronic means. Member communications containing personal information (e.g., Annual Pension Statement) have been deployed according to OPB’s well-established privacy and disaster recovery policies, as a result the Board was able to successfully mitigate the risks associated with a privacy breach.

Financial performance

Since its inception, the Provincial Judges’ Pension Plan (PJPP or the Plan) has operated as an unfunded Plan, with contributions held by, and pension payments made from the Province’s Consolidated Revenue Fund (the CRF). With the Fund redesign in 2020, two components of the Plan, the Registered Pension Plan (“RPP”) and the Retirement Compensation Arrangement (“RCA”) became funded pension arrangements, with assets being held and invested under newly created trusts. In effect, the funds became entities separate from the Province and require financial statements, which are audited by the Auditor General of Ontario. The third component of the Plan, the Supplementary Plan (SUPP) is funded from the Province’s CRF.

The RPP’s assets continue to be invested in Canadian Treasury Bills until the Board can formally adopt its strategic asset allocation. The strategy is consistent with the interim provisions established within the Board’s IMA. The purpose of the approach is to maintain safety and liquidity until the strategic asset allocation can be implemented. As expected, Fund returns are reflective of the conservative strategy.

Regular member contributions equal to 7% of salary continued to flow into the RPP and RCA during the reporting period. Member contributions that exceed the maximum amount permitted for an RPP are remitted to the RCA. Province contributed just under $3M per month to the RCA as combined special funding and member matching payments. Fifty percent of these payments, along with the member contributions are sent to a Refundable Tax Account with the Canada Revenue Agency. No money is currently being contributed to the Supplemental Pension Plan by the Province.

An initial actuarial valuation was prepared for the Provincial Judges Registered Pension Plan as at January 1, 2020, for the purpose of establishing the Plan’s contribution requirements in accordance with the Income Tax Act, until the next actuarial valuation is performed. The valuation was filed with Canada Revenue Agency (CRA) and the actuary’s recommendations for employer contributions to the Plan were approved.

Since then, the Board has adopted the practice of preparing annual valuations to monitor the funding framework of the Plan on a regular basis. However, the Plan’s lack of invested assets meant an appropriate discount rate could not be established for use in the valuation. Setting a realistic discount rate is vital to achieving the long-term financial health of the Plan and the Board necessarily deferred preparation of the valuation into 2022.

Under the provisions of the Income Tax Act a plan valuation report must be filed with CRA within 4 years of the most recently filed valuation, unless there’s a plan amendment affecting funding. The Board does not intend to file a valuation in respect of the 2021 fiscal year but will need to file a valuation with Canada Revenue Agency by December 31, 2023.

The Board is responsible for the administration of the Plan and investment of its funds but has no employees to carry out its responsibilities. Both OPB and IMCO have personnel, facilities, systems, and processes in place to administer all aspects of a pension plan and fund. OPB and IMCO have been named to play key roles in supporting the Board and are providing defined services to the Board on a cost recovery basis. Plan expenses related to RPP and RCA administration are paid from the respective funds. Expenses relating to the SUP are paid directly by the Province.

OPB is compensated on a fixed fee basis for managing the day-to-day pension administration services required to maintain the Plan’s operations. The SLA between PJPB, OPB and TBS, considers the possibility that OPB may be asked to perform additional services in addition to those specified in the agreement. Recent examples include the data validation project and the Annual Pension Statement. These additional expenses may appear as additional expense allocated among the Funds.

Mandate achievements

The Minister’s mandate letter was received in September of 2020. The Board was asked to focus on the following four priorities:

1. Continue development of governance and operations structure and processes that support and measure effective administration and performance of the redesigned Plan and its funds.

Comments

Part of the PJPB’s expanded mandate was to take responsibility for plan communications with members, pensioners, and survivors. Among the Board’s priorities for the 2021/2022 plan year was a commitment to establish a communication policy. The PJPB’s Communication Policy was approved at its Quarterly Meeting in December 2021.

This is a new responsibility for the PJPB, so the policy was needed to provide important basic guidance to OPB management and staff on the Board’s vision for how it wants to interact with the PJPP membership and stakeholders. OPB proposed the policy to establish a basic communications governance framework that supports more efficient day to day operations through a reduction in process complexity. OPB specifically asked the Board to confirm the responsibilities that it was prepared to delegate at this time and to approve a list of plan documents that can be provided to members and stakeholders on request.

The policy documents the current state of the Board’s Communication program. Over time, the Board will need to reevaluate the policy to address more complex issues emerging from the increased use of digital delivery.

2. Provide effective oversight of the operational, strategic, legal, and financial risks encountered by PJPB and the PJPP, including managing and mitigating any impacts or associated risks of the COVID 19 pandemic.

Comments

In September, 2021 the PJPB achieved another important milestone by adopting its Enterprise Risk Management Framework. The framework further defines its governance structure including, roles and responsibilities, the processes and principles outlined to identify, assess, monitor, and report on key risks.

Our approach to creating an effective ERM framework for the Board is now aligned with the OPS ERM Directive and informed by international standards for risk management such as COSO and ISO-3100. The Framework describes key principles, processes and responsibilities that will guide the Board to ensure that the most critical risks are identified, prioritized, and addressed.

The framework is expected to support the Board governance by:

• Contributing to the achievement of the Boards’ objectives and improving performance;
• Making risk management an integral part of decision-making and business practices;
• Providing greater risk oversight;
• Demonstrating commitment to integrity and ethics; and
• Enforcing accountability.

The Framework will continue to evolve and mature over time as risk management is implemented and will represent Board’s strong commitment to ERM implementation, alignment, and integration.

3. Provide strong governance in respect of the Investment Management Corporation of Ontario’s (IMCO) role in managing assets the PJPB is accountable for.

Comments

PJPB’s relationship with IMCO is defined within the IMA that took effect March 17, 2020. At that time the Board adopted an interim schedule of permitted investments and restrictions to be in place until a strategic asset allocation could be established with the input of the fully represented Board. As a result, the assets were invested in Canadian Treasury Bills to maintain safety and liquidity and there was no change by the end of the fiscal year. Governance structures and processes needed to oversee IMCO’s role in managing the assets exist and are sufficient for the time being while discussions between the Sponsor and the AOJ concerning implementation issues continued through 2021. The Board will need to reassess its approach to investment governance once the new strategic asset allocation is adopted.

4. Deliver superior client service to help members understand their pension entitlements, rights, and responsibilities under the PJPP, this includes development and implementation of an annual pension statement for sitting judges.

Comments

An Annual Pension Statement (APS) is an important communication tool that provides pension plan members with personalized information about their plan and their current and future entitlements. In Ontario, more than 2 million members of provincially registered pension plans routinely receive an APS as required by law. Among the PJPB’s priorities for the 2021 fiscal year was a commitment to introduce an Annual Pension Statement program for active members of the PJPP.

Over the years the Board had strongly supported a proposed initiative that would give PJPP members access to information about their pension entitlements in the form of a regular statement. In September of 2021, publication and delivery of 286 APS’s and accompanying guides, to sitting judges across the province of Ontario was completed by OPB on behalf of the PJPB. This was a significant milestone for the PJPB since it marked not only the inaugural production of an APS, but also the first- time personalized PJPP pension information would be securely delivered using a digital format.

After the deployment The Board received very positive feedback from both the recipients and stakeholders, not only on the product but also on the consultation process, which we believe has helped solidify relations with our stakeholders. An anonymous follow up survey of the membership yielded consistent results and seemed to support earlier client reactions.

Board of directors

Financial statements

April 1, 2021 to December 31, 2021