Your Pension is Safe!

On June 3, 2011, The Ontario Teachers' Federation (OTF) and the Ontario government agreed to a three-part plan to address the projected $17.2 billion funding shortfall in the Ontario Teachers' Pension Plan. The plan, which is subject to final approval by OTF and the government, includes:

• A 1.1% contribution rate increase, phased in over the next three years
• Slightly smaller annual cost-of-living increases for teachers who retired after 2009
• Recognizing the current contribution rate as the permanent base rate

The pension plan board increased the rate of return assumption used in the 2011 funding valuation to 3.25% from 3.15%, a move that reduced the size of the shortfall.  This change was made possible by measures introduced to resolve the 2011 shortfall, which reduced the plan's funding risk.
The rate of return assumption, also called the discount rate assumption, plays a critical role in projecting whether or not the pension plan has enough assets to meet its future pension obligations.  A lower discount rate assumption increases the projected cost of pensions; a higher assumption lowers this cost.

In taking action now, OTF and the government addressed the current shortfall and will file a funding valuation with the provincial pension regulator one year earlier than required.  An earlier filing avoids potentially more dramatic changes that likely would be necessary if next year's valuation were filed, and provides time for possible improvements in factors, such as real interest rates, that affect pension costs.  A valuation filed with the regulator must show future assets and future liabilities are in balance - there cannot be a shortfall.
OTF, the government and the pension plan continue to work together to examine the plan's long-term funding challenges stemming from member demographics, plan maturity, uncertain economic conditions and other factors.  The three parties will continue to study ways to keep the Teachers' pension plan secure and affordable well into the future.
For more information, visit the plan funding section of http://www.otpp.com/