Methods for meeting policy goals

The policy also spells out the tools that will be employed to meet these objectives, including:

Margins of conservatism - establishing appropriate margins of conservatism will help ensure that actuarial gains should exceed actuarial losses over time, thereby contributing to the security of benefits. As mentioned above, however, the margins should not be so large that they result in member and employer contribution rates that substantially exceed the Plan’s normal funding requirements. Investment return assumptions used for the Plan’s funding valuations are explicitly set 25 basis points (0.25%) lower than the Plan expects to achieve over time with our current asset mix.

Actuarial methods - the Plan will use actuarial asset value adjustments to smooth any gains or losses over a period of five years. This helps offset the volatility inherent in investment markets and helps achieve contribution rate stability. In years when the Plan experiences large losses (such as 2008), the Trustees will determine, in consultation with the Plan's actuaries, whether or not to cap the amount of loss that can be deferred in order to deal with the loss within the deferral period.

Rate stabilization funds - these funds are a powerful tool for moderating or avoiding contribution rate increases that would otherwise be required as a result of the short-term investment losses that can be expected from time to time. The stabilization funds represent a portion of past gains that the sponsors have set aside as a reserve. The sponsors can use these reserves to moderate the impact of a funding loss on members’ and employers’ contribution rates and/or the value of members’ future pension benefits. OPTrust’s funding policy sets out principles and guidelines that shape OPTrust’s advice to the sponsors on both the size and the use of the stabilization reserves, within limits established by the Income Tax Act (Canada).

The policy also lays out explicit principles for the use of any surplus that develops as a result of investment gains to guide the Board's recommendations to the sponsors.