Financial statement and funding valuations

The financial position of the OPSEU Pension Plan is presented using two different methods: actuarial funding valuations and financial statement valuations.

Actuarial funding valuations

An actuarial funding valuation presents the Plan’s financial information in a manner prescribed by regulatory authorities. Its purpose is to determine whether the Plan’s assets, together with investment earnings and current members’ expected future contributions, are sufficient to fund the members’ promised benefits at retirement.

This valuation approach is known as the aggregate method. The aggregate method identifies any gains and losses that have occurred since the previous funding valuation and establishes the overall contribution requirements until the next valuation. The funding valuation includes margins of conservatism in the setting of economic assumptions, particularly with respect to the rate of return.

Ontario regulations require an actuarial funding valuation to be filed with provincial authorities at least once every three years. OPTrust filed its most recent funding valuation in 2009, for the year ended December 31, 2008. The next funding valuation is expected to be filed in 2011, for the two-year period ended December 31, 2010.

Financial statement valuations

The Plan’s financial statements rely on an actuarial valuation prepared in accordance with Canadian generally accepted accounting principles. The financial statement valuation is prepared using “best estimate” assumptions and does not incorporate margins of conservatism.

A formal valuation is prepared in conjunction with the filed funding valuation and then “rolled forward” to the financial reporting date. The roll-forward recognizes the increase in value of future obligations over time, and pension-related receipts and disbursements. Experience gains or losses on investment activities are recognized in the year incurred. Experience gains or losses related to other assumptions are recognized in conjunction with the filed funding valuation.

In a financial statement valuation, the determination of future benefits payable is based solely on the pension credit that members have built up as of the valuation date, with no projection of their future service. Similarly, the assets available to make those payments do not include the present value of expected future contributions. This approach is known as the projected unit credit method, prorated on service.