OTPP suffers major shortfall of $12.7 billion

Plan may have to increase contributions or reduce benefits
By Sarah Dobson
|hrreporter.com|Last Updated: 05/04/2009

The preliminary funding valuation as of Jan. 1, 2008, shows a $12.7-billion shortfall between the assets and liabilities of the Ontario Teachers’ Pension Plan (OTPP).

A balanced funding valuation must be filed with the provincial regulator by Sept. 30, 2008, showing the plan is likely to have enough money to cover the cost of future pensions for all current members.

To bring the plan back into balance, the Ontario Teachers’ Federation and the government can increase contributions, reduce future benefits or use a combination.

Ongoing funding concerns are largely the result of continuing low real interest rates combined with the challenge of managing a mature plan — a challenge DB pension plans worldwide are facing, said a message from Jim Leech, president and chief executive officer of the OTPP.

This plan has a low ratio of working-to-retired members (1.6 to one) and pays out more money annually than it collects (the plan paid $4 billion in pension benefits and received $2.1 billion in contributions from teachers and the government in 2007).

“Seeking higher returns means assuming greater risk. However, the low ratio of working teachers to pensioners restricts our ability to increase returns by taking on more risk,” said Leech’s message. “If financial markets should fall significantly, it would be difficult, if not impossible, to make up the difference through higher contributions alone.”

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