This is an archive of news stories and research from the National Union of Public and General Employees. Please see our new site - https://nupge.ca - for the most current information.
Plan facing a $12.7 billion shortfall, about 11 percent short of meeting current pension obligations.
Toronto (4 April 2008) – The pension plan for Ontario teachers is facing a $12.7 billion shortfall and must decide what to do about it before the fall. It was announced earlier this week that the $108.5 billion pension fund is about 11 percent short of meeting current pension obligations.
By Ontario law, the Board of Trustees that oversee the plan must reach a deal with the provincial pension regulator before October to close the gaping hole caused primarily by low investment returns and longer life spans of the plan’s members..
Ironically, the plan was among the top performers last year, but earned only 4.3 per cent compared with a 10-year average of about 9.7 per cent.
"A typical new retiree in 2007 will have worked for 26 years, and is expected to collect a pension for 36 years (including the pension paid to a survivor)," notes the plan's latest annual report.
Maureen Davis, President of the Ontario Teacher Federation was not prepared to speculate where pension talks would lead. She did acknowledge however that it is possible young teachers will collect a less-generous pension than today's retirees, although a mix of solutions may be tried to balance the books. "It is a reality that we are well aware of and it needs to be dealt with," Davis said in an interview.
Teachers have said they would rather accept fewer benefits than pay much more. A poll found most would prefer to gamble on having less inflation protection than see pensions cut 10 per cent from the start, or retire 2 1/2 years later.
The 108,000 retirees were paid about twice as much in 2007 as the 170,000 active members and provincial government contributed which has put a strain on pension reserves, and requires managers to take fewer risks.
Leech noted the average pension plan with a similar mix of assets would have earned only 2.3 per cent last year, while a plan like the one for Ontario's municipal employees could have earned 5.6 per cent with its much higher ratio of company shares to interest-bearing bonds.
Things have improved since three years ago, when the estimated shortfall was nearly $19 billion.
To balance the books, plan partners agreed to the quick fix of assuming higher future investment returns, and increasing contributions rates by 3 per cent of pay to a maximum of 12 per cent by 2009.
The newly appointed Plan President, James Leech said the Teachers' Plan did not invest directly in investments affected by subprime mortgages in the United States, but the upset in global credit markets did drive down the value of other traditional debt securities.