Pension funding highlights
In 2012, OPTrust:
- Implemented the last of three annual 1% increases in membersâ€™ and employersâ€™ contribution rates, as part of our strategy for managing the Planâ€™s 2008 investment loss
- Strengthened the Planâ€™s actuarial assumptions to reflect membersâ€™ increased life expectancy and other economic and demographic trends
- Remained fully funded, with a total surplus of $34 million at year-end after accounting for the Planâ€™s rate stabilization reserves of $852 million
Meeting our funding objectiveOPTrustâ€™s overarching funding objective is to ensure that money is available to pay current and future retireesâ€™ lifetime pensions decades into the future. Other key funding goals include maintaining stable pension benefits for active members over their careers and sustainable contribution rates for both members and their employers.
Our most recent funding valuation shows that the Plan remained fully funded as of December 31, 2012, with a total funding surplus of $34 million. This surplus reflects the Planâ€™s $852 million in rate stabilization reserves, which the sponsors had prudently set aside from previous funding gains. These reserves are sufficient to cover the Planâ€™s going-concern deficit of $818 million at year-end, at the sponsorsâ€™ discretion.
The valuation also showed an increase in the Planâ€™s â€śsmoothed,â€ť or deferred, investment gains to $528 million at the end of 2012, up from $189 million the previous year. The recognition of these gains will strengthen the Planâ€™s funded status over the next four years.
Sponsorsâ€™ funding agreementIn October 2012, the sponsors established a five-year funding framework agreement to ensure the stability of membersâ€™ and employersâ€™ contribution rates. The agreement took effect on December 31, 2012, and remains in effect until December 30, 2017.
Under the funding framework agreement:
- Pension contribution rates for members and employers cannot be increased above 2012 levels for the duration of the agreement.
- If a funding valuation filed with the pension regulator identifies a funding shortfall, the shortfall must first be addressed by reducing the pension benefits that active members will earn for their future service. There will be no impact on the benefits members have earned for their past service or on the pensions paid to OPTrustâ€™s retirees.
- The maximum reduction in the value of membersâ€™ future benefits under this agreement is 20%. If this limit is reached, any further shortfall may be made up through contribution increases and/or further future benefit reductions.
The Plan had a funding valuation deficit of $818 million at the end of 2012 and rate stabilization reserves of $852 million. After accounting for the stabilization reserves, the Planâ€™s total funding surplus was $34 million at December 31, 2012, down from $51 million in 2011.
|At December 31 ($ millions)||VALUATION||VALUATION|
|Net assets available for benefits||$ 14,705||$ 13,703|
|Actuarial smoothing adjustment||(528)||(189)|
|Present value of future contributions1||4,918||5,147|
|PRESENT VALUE OF FUTURE PENSIONS||(19,061)||(18,610)|
|Rate stabilization reserves||852||847|
|Funding valuation surplus/(deficit)||(818)||(796)|
|TOTAL SURPLUS/(DEFICIT)||$ 34||$ 51|