As at December 31, 2010, the surplus for financial statement purposes was $883 million (2009-$1,199 million), which comprised of rate stabilization funds of $820 million (2009-$811 million) and unallocated surplus of $63 million (2009-$388 million).
Changes in surplus result from differences between actual and expected investment return; differences between actual experience and that expected in accordance with the assumptions used in valuing the accrued pension benefits; differences between the actual contributions made to the Plan and the benefits accrued during the year; and the use of surplus to fund benefit improvements and contribution reductions.
Experience gains or losses related to investment return represent the difference between actual investment earnings, adjusted for the impact of smoothing and the expected investment earnings, based on the rate of return used to value the accrued pension benefit.
OPTrust defines capital as the funded position of the Plan, whether in surplus or deficit. Surplus is generated during periods of strong economic performance and drawn down during periods of poor economic performance in order to maintain the Plan’s capacity to pay its pension obligations without unduly affecting contribution levels. While there are no regulatory requirements for surplus there are limits imposed by the Income Tax Act (Canada). Deficits are required to be funded over a period not to exceed 15 years.
The generation of surplus is dependent on OPTrust’s ability to generate investment and other experience gains in excess of the amounts required to fund the pension obligations. Gains arise both from temporary positive variations in expected results from those assumed which in turn are offset by negative variations, and permanent gains which result from the use of conservative assumptions. Surplus assets are commingled with those investment assets supporting the pension liabilities.