1. What is the plan's funding position?

At January 1, 2019, the plan had a preliminary surplus of $10.0 billion based on an average contribution rate of 11% and 100% inflation protection being provided on all pensions.

2. What's the role of the Funding Management Policy?

In 2003, the sponsors adopted a Funding Management Policy (FMP). The FMP is an important document that provides the sponsors with a guidance framework for decision making when there is a funding surplus or shortfall.

A key component in the FMP is the concept of funding zones, each defined by a range. The funding zones provide a point of reference for whether action is required by the sponsors, and if so, guidance is provided on how to use any surplus funds or resolve any shortfall – specifically, answering the question of when it is prudent to increase or decrease benefits, raise or lower contribution rates, or simply conserve assets for an uncertain time.

The FMP has important implications from an investment perspective, adding clarity to our strategic asset allocation decisions with a key focus being on the plan's ability to absorb risk. In the absence of the FMP, this level of clarity would be difficult to achieve.

Click image to enlarge.

For the past few years, the focus of the sponsors has been to return the plan gradually over time to be fully funded with base provisions – an average contribution rate of 11% and full inflation protection on all pension credit. As of January 1, 2019, the plan is providing base provisions to all members and the plan is in the "Conserve assets for an uncertain time" funding zone within the FMP. This means that any surplus funds are reserved to facilitate stability in contribution and benefit levels.

While the FMP outlines preferred mechanisms associated with its various funding zones, it's ultimately the sponsors' responsibility to decide which actions to take.

3. If there's a deficit in the future, can we use the surplus to balance things out?

A future deficit could occur if assets are outweighed by liabilities on a future valuation date. Reserving the $10.0 billion preliminary surplus in the fund at this time, and making it available for investing and earning returns, helps to protect the fund against future deficits. In other words, it's a preventative measure against future deficits occurring, not a cure should one occur in the future.

4. How do you determine how much inflation protection to provide?

When the plan has a funding shortfall, smaller cost-of-living increases help to bring the plan back into balance. When there's a funding surplus, inflation levels may be partially or fully restored.

Pension credit earned before 2010 is 100% protected against inflation. Annual cost-of-living increases for pension credit earned after 2009 are conditional and depend on three factors:

  1. Annual changes in the cost of living, as measured by increases in the Consumer Price Index (CPI).
  2. The plan's funding status, which is used to gauge how much of the CPI increase the plan can afford to provide.
  3. When you earned your pension credit.

Inflation Protection Levels

Pension Credit  Allowable Levels* Current Levels*
Earned before 2010 100% 100%
Earned during 2010-2013 50% to 100% 100%
Earned after 2013 0% to 100% 100%

* Percentage of annual cost-of-living increase, based on changes in the Consumer Price Index (CPI)

The current 100% inflation level will remain in effect at least until the next funding valuation is filed with the regulators. A funding valuation must be filed at least once every three years.

For more information, see How inflation increases affect your pension. (238KB PDF)

Impact on your pension

To see how inflation increases affect your annual pension each year, sign in to your Ontario Teachers' online account. The information will be available online in late October, shortly after the annual inflation rate is determined for the following calendar year.

5. Does the January 1, 2019 preliminary surplus mean the plan's funding shortfalls are over?

Shortfalls could happen in the future, however, levers available to the sponsors help manage the plan's funding status. Contribution rates and conditional inflation protection are working to keep the pension plan in balance.

That balance continues to be challenged by rising pension costs due to low interest rates, increasing longevity and long periods of retirement. There can be no assurance of high returns in this complex, rapidly changing and competitive investment environment.

For more details, read Funding Considerations.

6. Can a member make additional contributions to the plan?

No, the plan isn't set up to take additional contributions from members.

7. Why will some generations of members receive different benefits than others?

Pension plan provisions change over time and no generation of teachers has received exactly the same benefits as the one before or after it. For example, inflation protection wasn't provided automatically until the mid-1970s, and many older members didn't have an opportunity to retire at an 85 factor or receive a 10-year pension guarantee.

Keep in mind that Ontario's Pension Benefits Act protects the value of pension benefits already earned by working and retired members.

8. Is my pension secure?

Yes, you will receive a pension when you retire. That pension may look different than the pensions of today, just as today's pensions look different than those of 10 or 20 years ago. Keep in mind that the pension plan has $191.1 billion in assets and pays out about $6.1 billion annually in pensions.

See how the pension plan has evolved  (69KB PDF) over the years to adapt to changing member needs and the world's economic shifts.