Teachers' turns in 14.3% rate of return, net assets hit $107.5 billion, but funding challenges remain

The Ontario Teachers' Pension Plan (Teachers')  announced that it earned the largest value-add dollar amount in its history in 2010. It ended the year with $13.3 billion in investment income, representing a 14.3% rate of return, which is $4 billion above its 9.8% benchmark. Net assets totaled $107.5 billion as of December 31, 2010.

"Our investment team remained true to our investment fundamentals, taking appropriate risks to earn solid returns, while seeking the best diversification to meet our plan's long-term needs," said Teachers' President and CEO Jim Leech. "Our Member Services team also had an exceptional year, scoring a 9-out-of-10 quality service rating from members, second against its peers around the world, and meeting its cost objectives."

"Our employees exceeded expectations this year, but the plan continues to face serious funding challenges," Mr. Leech noted. He explained that the plan is facing systemic funding problems. "The root cause of the $17.2 billion preliminary funding shortfall is a combination of factors: member longevity, retirement periods that exceed working years, low real interest rates, which reflect lower economic growth going forward, and the maturity of the plan, which now receives $1.8 billion less in contributions than it pays out annually," he said.

The fund's asset mix was modified in 2010, reclassifying some assets and adjusting certain target allocations. Full details of the fund's actual asset mix and the asset mix policy are available in the fund's annual report at www.otpp.com.

The fund's equities portfolio holdings totaled $47.5 billion, compared to $41.2 billion a year earlier. Fixed Income assets totaled $45.9 billion at 2010 year-end, compared to $35.3 billion in 2009.  The fund's allocation to commodities increased to 5% in 2010 from 2% in 2009 and was valued at $5.2 billion at year-end compared to $1.9 billion in 2009.

A new asset classification, Real Assets, comprises real estate, infrastructure, and timberland investments. The net value of the real estate portfolio totaled $16.9 billion at year-end, compared to $14.2 billion in 2009. The infrastructure portfolio grew to $7.1 billion in 2010 compared to $5.6 billion at 2009 year-end, while the timberland portfolio declined to $2.2 billion in 2010 from $2.3 billion at 2009 year-end.

The plan's sponsors, the Ontario Teachers' Federation and the Ontario government, must eliminate the preliminary shortfall and file a balanced valuation in 2012 at the latest; they currently are studying the merits of filing in 2011.

With $107.5 billion in assets as of December 31, 2010, the Ontario Teachers' Pension Plan is the largest single-profession pension plan in Canada. An independent organization, it invests the pension fund's assets and administers the pensions of 295,000 active and retired teachers in Ontario. For more information visit www.otpp.com

Note to editors: A funding valuation assesses the plan's long-term financial health by looking ahead more than 70 years. A funding shortfall means that projected plan liabilities are greater than projected assets.

Table 1

PRELIMINARY FUNDING VALUATION COMPARISON1

(as at January 1) ($ billions)

      2011       2010
             
Net assets           $107.5        $96.4
Smoothing adjustment1         3.3        12.7
Future basic contributions         28.0       26.7
Future special contributions         5.3       5.4
Actuarial assets          144.1        141.2
Cost of future pensions          (161.3)        (158.3)
Deficit            $(17.2)        $(17.1)

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1 Revised smoothing method used for 2011 funding valuation

Table 2

RATES OF RETURN COMPARED TO BENCHMARKS
(percent)


    1-Year 
Return        1-Year 
Benchmark       4-Year  
Return             4-Year
Benchmark
Equities          10.4%        7.5%        (0.3)%        (2.6)%
Canadian equities         14.6        13.8        2.2        3.2
Non-Canadian equities         9.4        5.9        (1.3)        (4.4)
Fixed income          9.9        9.5        7.3        6.3
Real Return Bonds         8.7        8.7        4.7        3.7
Bonds           11.3        10.7        9.1        7.6
Commodities          3.2        3.3        (7.0)        (7.0)
Real assets          13.9        5.5        6.3        5.3
Real estate          16.9        7.7        8.2        7.0
Infrastructure          13.0        4.0        2.8        2.8
Timberland          (3.1)        (0.2)        2.1        2.0
Total plan2          14.3%        9.8%        2.6%        2.5%

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2 Returns generated by absolute return strategies ($0.8 billion) and money market, previously included in fixed
income, are included in the total plan return and not attributed to an asset class.

 

on April 6, 2011