The Ontario Teachers’ Pension Plan reported a preliminary funding surplus of $5.1 billion at the beginning of the year, its first surplus in 10 years.
Teachers’ says a combination of continued strong investment returns and an increase in interest rates resulted in a surplus. The plan was 103% funded at the start of this year, based on current contribution and benefit levels.
The plan achieved a rate of return of 10.9% for the year ended Dec. 31, 2013, boosting net assets to a record $140.8 billion from $129.5 billion at the end of 2012. It exceeded its consolidated investing benchmark of 9.3% by 1.6 percentage points.
Much of the plan’s growth in 2013 was delivered by the equities portfolio, with a one-year return of 27.6%. Teachers’ Private Capital posted a 26.9% return for the year, the real estate portfolio returned 13.2%, and the infrastructure portfolio returned 16.8%. However, the fixed income portfolio had a negative return of 7.9%.
Teachers’ CEO Ron Mock credits the plan’s sponsors, Ontario Teachers’ Federation and the Ontario government, with taking positive steps in recent years to de-risk the plan and add flexibility to benefits, such as making inflation protection dependent on the financial health of the plan.
“Other plans and jurisdictions can look to our sponsors as among the most practical and prudent in adopting changes to sustain the plan’s strength in the face of a number of challenges,” he says.
If full inflation protection was restored and contributions were reduced to the 12% base level, the plan would be 91% funded.
“A preliminary surplus is good news; however, our plan continues to face demographic challenges as well as market uncertainty,” Mock explains.
As a group, teachers live longer than the general population, with the result that our average member is retired for five years longer than he or she contributed to the plan. The plan has 2,900 pensioners age 90 or older, including 126 who are 100 or more.
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