OPTrust set to eliminate deficit as 2007 investment return beats benchmarkPosted: April 15, 2008
As a result, OPTrust expects its upcoming actuarial valuation to mark the elimination of the Plan’s current funding deficit and identify a surplus, based on double-digit returns from 2003 to 2006.
OPTrust’s diversified investment portfolio generated investment income of $659 million in 2007. This contributed to an increase in the OPSEU Pension Plan’s net assets to $13.6 billion at year-end, up from $13.1 billion in 2006.
“With returns exceeding the benchmarks for each of our major portfolios, OPTrust’s active management of the Plan’s investments continues to add value for our members, pensioners and sponsors,” said David Rapaport, Chair of OPTrust’s Board of Trustees.
Over the past five years, OPTrust’s investment portfolio has generated an average return of 12.6%, exceeding both its benchmark and the 6.75% funding target return needed to pay for members’ and retirees’ pensions over the long-term. The Plan’s lower returns for 2007 reflect the challenging international equity market environment and the impact of the rising Canadian dollar on the Plan’s global investment returns.
In 2007, OPTrust’s global equities portfolio generated a return of 2.5% in Canadian dollar terms, compared to 23.8% in 2006. While down from the previous year, OPTrust’s global equity return, which takes into account our currency hedging program, exceeded the Plan’s weighted global equity benchmark of 0.7%.
As part of a multi-year diversification strategy approved by its Board, OPTrust funded more than $225 million in new real estate investments, bringing the net market value of the portfolio to $992 million, or 7.3% of the total fund at year end. New investments in private equity and infrastructure more than doubled the size of OPTrust’s private markets portfolio to $466 million at year end. When fully implemented, this strategy will see OPTrust’s allocation to real estate increase to 10% of the total fund. Private equity and infrastructure investments will account for another 10% and 15% of the Plan’s assets respectively.
Despite lower returns in 2007, the Plan’s financial position continued to strengthen due largely to the recognition of deferred investment gains from 2003 to 2006, when OPTrust’s double digit returns exceeded the annual funding target. In 2007, the Plan’s most recent interim funding valuation showed that the Plan’s deficit had been reduced to $105 million at the end of 2006, down from $517 million the year before.
The Plan’s 2007 valuation is expected to mark the elimination of its remaining deficit and identify a funding surplus. The valuation for the three years ending December 31, 2007, will be completed and filed with the Ontario pension regulator by the end of September, 2008.
“OPTrust’s elimination of the funding deficit – without either reducing benefits or raising contribution rates above the Plan’s normal level – is a significant accomplishment,” Rapaport said. “This achievement reflects both careful investment and funding management by OPTrust and prudent decisions by OPSEU and the Government of Ontario, in their role as the Plan’s sponsors.”
Of particular importance was the sponsors’ decision in 2002 to set aside more than $440 million from previous funding gains into separate contribution rate stabilization funds for members and employers. Since 2003, these reserves have been used to cover payments against the funding deficit totalling $172 million. This has allowed OPTrust to avoid increasing member and employer contributions above the Plan’s normal rates.
“The past year – and the prospect of continued market volatility – serves as a reminder that the Plan must assume a level of investment risk to generate the returns needed to pay for members and retirees pensions over the long term.” Rapaport said. “We are therefore committed to maintaining OPTrust’s prudent approach to funding issues, to help maintain stable contribution rates and ensure the security of members’ pensions decades into the future.”
Detailed information on OPTrust’s investment and financial results for 2007 is available in our annual report.
About OPTrust With $13.6 billion in invested assets, the OPSEU Pension Trust (OPTrust) manages one of Canada's largest pension funds and administers the OPSEU Pension Plan. OPTrust serves more than 80,000 members and retirees, including employees of the Government of Ontario and certain other agencies represented by the Ontario Public Service Employees Union (OPSEU). OPTrust was established in 1995 to invest and manage the Plan’s assets, provide the finest service to members and pensioners, and ensure the long-term security of their pension benefits. The OPSEU Pension Plan is jointly sponsored by OPSEU and the Government of Ontario.