The OPSEU Pension Trust (OPTrust) reported an investment return of 5.6% in 2007, outperforming its weighted benchmark return of 4.2%. This marks the eighth consecutive year in which OPTrust has topped its benchmark.

OPTrust now expects an elimination of the plan’s current funding deficit and introduction of a surplus, based on double-digit returns from 2003 to 2006. The trust’s investment portfolio generated investment income of $659 million in 2007, contributing to an increase in the OPSEU Pension Plan’s net assets to $13.6 billion at year-end, up from $13.1 billion in 2006. “With returns exceeding the benchmarks for each of our major portfolios, OPTrust’s active management of the plan’s investments continues to add value for our members, pensioners and sponsors,” says David Rapaport, Chair of OPTrust’s board of trustees.

OPTrust’s investment portfolio has generated an average return of 12.6% over the past five years, exceeding both its benchmark and the 6.75% funding target return needed to pay for members’ and retirees’ pensions over the long-term. Lower returns for 2007 reflect the challenging international equity market environment and the impact of the rising Canadian dollar on the plan’s global investment returns, according to a press release.

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OPTrust’s global equities portfolio generated a return of 2.5% in 2007, significantly down from 23.8% in 2006. However, the trust’s global equity return still exceeded the plan’s weighted global equity benchmark of 0.7%.

“OPTrust’s elimination of the funding deficit—without either reducing benefits or raising contribution rates above the plan’s normal level—is a significant accomplishment,” Rapaport says. “This achievement reflects both careful investment and funding management by OPTrust and prudent decisions by OPSEU and the Government of Ontario, in their role as the plan’s sponsors.”

The trust hailed the decision in 2002 to set aside more than $440 million from previous funding gains into separate contribution rate stabilization funds for members and employers as particularly important. Since 2003, these reserves have covered payments against the funding deficit totalling $172 million, allowing OPTrust to avoid increasing member and employer contributions above the plan’s normal rates.

“The past year—and the prospect of continued market volatility—serves as a reminder that the plan must assume a level of investment risk to generate the returns needed to pay for members and retirees pensions over the long term.” Rapaport says. “We are therefore committed to maintaining OPTrust’s prudent approach to funding issues, to help maintain stable contribution rates and ensure the security of members’ pensions decades into the future.”

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