Pension funding highlights

In 2012, OPTrust:

  • Implemented the last of three annual 1% increases in members’ and employers’ contribution rates, as part of our strategy for managing the Plan’s 2008 investment loss
  • Strengthened the Plan’s actuarial assumptions to reflect members’ 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 Plan’s rate stabilization reserves of $852 million

Meeting our funding objective

OPTrust’s overarching funding objective is to ensure that money is available to pay current and future retirees’ 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 Plan’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 Plan’s going-concern deficit of $818 million at year-end, at the sponsors’ discretion.

The valuation also showed an increase in the Plan’s “smoothed,” 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 Plan’s funded status over the next four years.

Sponsors’ funding agreement

In October 2012, the sponsors established a five-year funding framework agreement to ensure the stability of members’ and employers’ 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 OPTrust’s retirees.
  • The maximum reduction in the value of members’ 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.
By prohibiting contribution increases for five years, subject to certain limits, the agreement supports the sponsors’ objectives of ensuring stable contribution rates, but reduces the sponsors’ options for maintaining pension benefits prospectively, should the Plan experience a funding loss during the freeze period.

Funding Surplus/(Deficit)
 
Net Assets Available for Benefits
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 Plan’s total funding surplus was $34 million at December 31, 2012, down from $51 million in 2011.

Funding Update

  2012 2011 INTERIM
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
TOTAL ASSETS 19,095 18,661
     
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
1 Includes the full 3% increase in contribution rates approved by the Plan’s sponsors in 2009.