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© Copyright 2000 Rogers Media. The following article first appeared in the February 2001 edition of
BENEFITS CANADA magazine.
Lessons in early retirement
The Ontario Teachers' Pension Plan's early retirement package has teachers leaving the profession
in droves. That has implications for the plan's surplus and the quality of education in the
province.
By Dian Cohen
Is it possible that a generous early retirement package could evoke such an avalanche of acceptances that
the unanticipated consequence is a shortage of workers and potential damage to the surplus position of the
pension plan?
This question arises from the revelation that the early retirement package of the Ontario Teachers' Pension
Plan, initiated in 1998, has resulted in 15,500 teachers leaving the profession in the province. Another
15,000 are eligible for early retirement by the end of next year.
"In total, 40% of Ontario's experienced teachers [will] leave the profession this decade . . . the reserve
pool [of former and occasional teachers] is now substantially depleted," says Frank McIntyre, human
resources consultant for the Ontario College of Teachers.
The Ontario government and the Teachers' Federation, which jointly oversee the pension plan, agreed several
years ago on how they would spend what they deemed to be an excessively large surplus. "They spent $8
billion paying off the Ontario government's unfunded liability, then another $2 billion on the early
retirement package that knocks five years off the standard formula of age plus years of service," says Lee
Fullerton, communications manager for the Ontario Teachers' Pension Plan.
The package was devised to deal with the large numbers of teachers hired in the 1960s to teach the baby
boomers, and was originally to be in effect only until 2002. However, the Teachers' Federation recently
adopted a policy to make the early retirement formula permanent--a move which has the potential to put the
pension plan's assets in peril, not to mention jeopardizing the educational system with a substantial
worker shortage.
Both Fullerton and McIntyre maintain the plan is more likely than not to remain healthy. McIntyre points
out that the current situation is not a crisis, nor is it unique to Ontario. "Many jurisdictions--in the
U.S. and U.K. as well as in other regions of Canada--have moved from a surplus of teachers three or four
years ago to a shortage today," he says. McIntyre adds that in Ontario, employment applications from
eligible teachers have risen from 8,000 in 1997 to 15,000 today. "Most of them will be plan members making
contributions to the plan for years before they are eligible to retire."
BUSINESS AS USUAL
Fullerton says a steady number of teachers is expected to retire each year for the next several years; then
the number will drop, because fewer teachers were hired in the 1970s. "Sixty per cent of people eligible to
retire, do retire. We're ready for them, we have a substantial surplus, and we don't see any problem. This
is business as usual--we make the money, and the trustees spend it," she says.
McIntyre adds that making the 85 factor (age plus years of service) permanent should have no effect on the
plan. "Many of the people retiring did not need a university degree when they became teachers. They became
active workers at a younger age than they do today. So people will reach the 85 factor about the same time
as they used to reach the 90 factor."
Still, this is a case to watch. In an age of instant access to information, classroom teaching has to
change a lot faster in Canada if children are to get the education needed to succeed in a global world. If
the pension plan creates a teacher shortage that, in turn, becomes a catalyst for action, then bravo. As
for the plan, the whimsy of capital markets represents a higher risk to the preservation and growth of the
assets. The skills of the asset managers should be able to offset the spending plans of the trustees.
Dian Cohen is an economics consultant with a special interest in pension issues.
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