Ontario Teachers’ Pension Plan Board Case

Ontario Teachers’ Pension Plan Board Case - Analysis

OTPPB History

The OTPPB was created in 1990 as an independent organisaton to manage pension assets of Ontario schoolteachers.

Main co-sponsors of OTPPB are Ontario Teacher’s Federation (OTF) and Minesdtry of Education and Traning of the Province of Ontario. Acturial valuation of liabilities execeeded the value of assets by almost $ 8bln, as sponsor the Province of Ontario agreed to make up this funding shortfall over 40-year period through a series of special payment. Only in 1993 the partnership agreement was amended in the way that each parner would share the resposability in funding any future shortfalls if they materialize.

The fund's aim is to secure and deliver expected benefits at current or lower levels of contributions (as percentage of earnings) withig acceptable range of costs (range of contribution rates). Focusing on surplus of assets and liabilities.

One of main priorities in 1990 was to diversify the fund’s economic exposure. Higher allocation to equities would likely increase returns and reduce economic exposure to any single issure or single component of the market.

The OTPP is a difined benifit plan with both the Province and Teachers contributing equally. Post-retirement benefits were based on a predetermined formula. Benefits were calculated as 2% of average annual salary (calculated using 5highest earning years) multiplied by the number of years in service. Benefits were then indexed to inflation. Given the nature of the plan there was a possibility that assets would be insufficient to cover the promised benefits.

Initially, the fund was limited to investing only into fixed-income illiquid debentures, but since 1990 the restriction was eliminated and the fund had to develop a strategy of investing into an asset mix that will coply with aims of the fund. The fund had engaged in the recommended strategy of the consultant firm, which advised to allocate as much as 80% of funds into...