Financial Statement Valuations
Ontario Teachers' Pension Plan conducts two different actuarial valuations. One is for funding purposes, as discussed in the Role of a funding valuation section. The second is for financial statement purposes and is referred to as a financial statement valuation.
These different valuations have different purposes. The funding valuation assesses the long-term health of the plan and informs future contribution and benefit rates. The Plan’s financial statement valuation is a mark-to-market, current snapshot view of the financial position of the Plan where assumptions and methodology are outlined by Section 4600 of CPA Handbook.
A key reason for the different results between the two valuations is how the discount rate is set. The lower the discount rate, the higher the liability.
Our funding valuation determines the discount rate by reference to what the Plan’s assets can reasonably be expected to earn over the long run less expenses and less provisions for adverse deviation (PfADs). For the January 1, 2021 funding valuation, the nominal discount rate was 4.5% with an underlying real return of 2.45%.
Our financial statement valuation discount rate (2.0% nominal, 0.5% real) is based on market rates, as at the valuation date, of bonds issued by the Province of Ontario, which have characteristics similar to the Plan’s liabilities. The discount rate was determined by applying a weighted average discount rate that reflects the estimated timing and amount of benefit payments.