Ontario Teachers' Plan CEO Calls for Benefit Cuts

March 16, 2006 (PLANSPONSOR.com) - The CEO of the Ontario Teachers' Pension Plan (OTPP) is calling for benefit cuts and an increase in member contributions to reduce the plan's $31.9 billion shortfall.

According to the Canadian Press, the shortfall is up from $19.4 billion at the start of last year.   Future pension benefits are 77% funded, down from 84% last year.

A return on investments of $14.1 billion or 17.2% was not enough to maintain the plan’s funding status, which has been hurt by a substantial drop in interest rates, according to the CP.   Last year’s contributions from active teachers were matched by the Ontario government and other employers and totaled $1.6 billion, while the plan paid out $3.6 billion in pension benefits.

“The issue of plan funding remains our primary cause for concern,” CEO Claude Lamoureux said in an interview, according to the CP. While benefits improved in the 1990s, contributions never changed, he said. “They should have been increased a number of years ago.”

Lamoureux noted that the pension fund is “under considerable pressure to find investments with the returns that can meet the fund’s growing needs,” while long-term interest rates are as low as they have been.   The fund’s asset mix was largely unchanged in 2005: 49% in equities, 19% in fixed-income assets and 13% in real estate.

The Ontario government and the Ontario Teachers’ Federation (OTF) together set benefit and contribution levels. The Teachers’ Pension Plan is not responsible for changes to the plan. The government and OTF are required to file a plan for addressing the shortfall with regulators this year.