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The mature pension plan challenge
Plan maturity is a significant concern for the sponsors and management of this pension plan. Neither the plan sponsors nor Teachers’ management can control the demographic and economic factors that are putting pressure on this plan. The plan sponsors, however, are responsible for setting the contribution rate and benefit levels provided by the plan.
To achieve the plan sponsors’ long-term target of an 8% contribution rate, we must take on a level of risk that will deliver the required investment performance. However, the low ratio of working teachers to pensioners restricts our ability to increase returns by taking on more risk. If financial markets were to fall significantly, it would be difficult to make up any investment loss that might arise through higher contributions. We believe that the plan needs additional policy options (in addition to contribution rate increases) that can share the absorption of investment losses. The presence of such options would make the Funding Management Policy more flexible and allow the plan to keep its existing asset mix. Without additional policy options, we must reduce the risk within the investment program over time, which will lower the plan’s future investment return expectations.
We look forward to working with the plan sponsors on a clear set of measures that will guide the OTF and the Ontario government in decisions they must make in the future: when to increase and decrease contributions and when to address future benefits to keep the plan fully funded over the long term. |
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