Differences between the two approaches are illustrated in the table below, which shows results based on the 2010 financial statement valuation and the 2010 funding valuation. As indicated, the financial statement valuation shows an unallocated surplus of $63 million at the end of 2010. This surplus contrasts with the unallocated funding deficit of $586 million identified in the funding valuation.
The difference of $649 million reflects the differences in the methodologies described above. One notable difference is that the 4.00% real rate of return assumption used for the funding valuation reflects a margin of conservatism, while the 4.25% used for financial statement purposes is a best estimate assumption. In addition, the funding valuation uses a mortality improvement assumption that is more conservative than the mortality improvement assumption used under the financial statement valuation.
Both valuation methods employ an actuarial asset value adjustment. This adjustment reduces the short-term impact of volatility in the Plan’s annual investment returns by deferring a portion of each year’s investment gains or losses, for recognition over the following four years. The funding valuation previously recognized a larger portion of the loss incurred in 2008 and the current balance of the actuarial asset adjustment is an unrecognized gain. The financial statement valuation previously recognized a smaller portion of the loss incurred in 2008 and the current balance of the actuarial asset adjustment is an unrecognized loss.
Commencing January 1, 2011, OPTrust will adopt IFRS and CICA Handbook Section 4600, after which investment gains or losses will no longer be deferred and amortized under financial statement valuations. All deferred gains/losses will be retroactively recognized [See Transition to International Financial Reporting Standards (IFRS) for further discussion].
The Plan’s financial statements reflect a $489 million actuarial adjustment as at December 31, 2010, which represents a net deferred loss that will be written off in 2011, as indicated above. On an unadjusted basis, the Plan was in a net surplus position at year-end.
Financial Statement vs. Funding Valuations – 2010
|As at December 31, 2010 ($ millions)||Financial||Funding||Difference|
|Actuarial asset value adjustment||489||(388)||877|
|Present value of future contributions||-||5,025||(5,025)|
|Accrued pension benefits||(12,738)||(17,497)||4,759|
|Provision for administration expenses||(185)||(200)||15|
|Rate stabilization funds||(820)||(843)||23|
unallocated surplus /