Board responds to 2012 Discount Rate Review

August 21, 2012

The pension plan began 2012 in a shortfall position. That is, although 2011 investment returns were solid, a preliminary funding valuation showed the cost of future pensions is projected to exceed plan assets.

Projected pension costs are based on a number of assumptions. An important one is the rate of return, also called the "discount rate," which plays a critical role in projecting whether or not the pension plan will have enough assets to meet its future pension obligations. A lower rate of return assumption increases the projected cost of pensions; a higher rate lowers this cost.

A Hearing Officer mutually selected by the OTPP Board, Ontario Teachers' Federation and Ontario government has reviewed the discount rate used by the Board in its preliminary valuation and concluded that it is within a reasonable range. The review recommended a real (after inflation) discount rate no higher than 2.95% for the pension plan's 2012 funding valuation, in light of plan characteristics.

Some other pension plans may use a higher rate of return assumption, but those plans tend to be far less mature than Teachers' and have members with shorter life expectancies.

The recent review of the discount rate does not affect your current pension, or the benefits you have accrued.

An executive summary of the Hearing Officer's report and the Board's Response are now posted. You can find additional funding information in the Plan Funding section of this site and on www.FundingYourPension.com.