The Ontario Teachers’ Pension Plan is projecting future funding shortfalls because the cost of future pensions continues to grow faster than plan assets.

A funding shortfall is the gap between what the pension plan expects to pay in pension benefits over the next 70 years and what it expects to have in assets during the same period.

Future shortfalls are likely to recur despite good long-term investment returns and action taken to eliminate a $17.2 billion funding deficit in 2011. The action included a contribution rate increase, phased in over three years, and slightly smaller inflation adjustments for teachers who retired after 2009. Both changes went into effect Jan. 1, 2012.

Increased life expectancy, longer retirements and low interest rates are pushing up future pension costs faster than the expected growth in plan assets.

At least every three years, the pension plan must show it will have sufficient assets to cover future pension payments stretching out approximately 70 years. When there is a projected shortage, the Ontario Teachers’ Federation and the Ontario government, which jointly sponsor the Teachers’ pension plan, must eliminate it by:

• Increasing contribution rates;
• Invoking conditional inflation protection for pensions earned after 2009;
• Reducing pension benefits members will earn in future years; or
• Adopting a combination of these options.

Under current Ontario law, the value of pension benefits already earned by working and retired members cannot be reduced.

Members to be surveyed

OTF and government are committed to making responsible decisions to keep the pension plan viable and affordable. They, along with pension plan management, have hired an independent firm to survey randomly selected members over the next two years to gather information on members’ awareness of funding challenges and their preferences for future changes that may be required to keep the plan healthy.

No action is required before 2014 when the plan’s next funding valuation is required by the provincial pension regulator.

For more information on two surveys taking place this winter, see Members Being Surveyed.

Information for working members

• 2011 shortfall addressed with rate increases and change in inflation protection (517 KB PDF)
• Top Plan Funding Q&As

Information for retired members

• 2011 shortfall addressed, conditional inflation protection to be invoked (517 KB PDF)
• Top Plan Funding Q&As