But even as pension managers from around the world come to study how Teachers’ delivers its steady returns, the plan still faces a preliminary $9.6 billion funding shortfall, as of Jan. 1, 2012.
Persistent low interest rates and changing demographics are to blame for the shortfall that can be seen as a harbinger for other pension plans.
“The cost of pensions, obligations and liabilities continue to grow faster than our assets notwithstanding the great investment returns,” said Jim Leech, Teachers’ president and CEO, at a media briefing Tuesday.
The Teachers’ pension plan has 180,000 active members, but the number of pensioners is now 120,000. With retirees living longer, their retired years now exceed years worked.
“Obviously, pensions were never designed to earn enough money for members to be retired longer than they actually worked,” said Rosemarie McClean, senior vice-president, member services.
She added the Teachers’ plan is seeing the impact of demographics sooner than many pension funds due to the large number of teachers hired to educate Baby Boomers.
“We’re probably 20 years ahead of many other plans in this country, in terms of maturity,” McClean said.
The ratio of working-to-retired teachers has changed dramatically. In 1970, it was 10 to 1. That narrowed to 4 to 1 in 1990. But in 2011, it was 1.5 to 1.
“The impact for us is there are fewer contributors to bear the brunt of a major market event,” she said. “We have to adjust our risk appetite.”
The fund has been doing just that. In 1996, 72 per cent was invested in equities, but by 2011 it was 44 per cent, reflecting a low-risk balance.
It has made investments in everything from airports to the U.K. national lottery, to fashion retailer Michael Kors as well Impark, which leases and manages parking spots across North America.
In December, Teachers’ announced it was selling its stake in Maple Leaf Sports and Entertainment to Bell and Rogers Communications for $1.32 billion. The deal is scheduled to close in mid-2012.
“This is not a crisis,” Leech said of the shortfall. “It isn’t something that’s new. This is our 10th year that we have faced a preliminary deficit.”
He pointed to similar shortfalls in previous years, which were made up by the Ontario Teachers’ Federation and the provincial government, which share liabilities on a 50-50 basis. Options include increasing contributions, modifying benefits or a blend of both.
They are not required to act until 2014, but Leech said they have previously chosen to act in the short term.
Last year, a $17.2 billion preliminary funding shortfall was dealt with through rate increases and slightly smaller annual cost-of-living increases for teachers who retired after 2009.
Under current rules, teachers contribute 12.4 per cent of salary toward their pensions, and it is scheduled to go to 13.1 per cent in 2014. In the event of a deficit, it could be boosted to 15 per cent, with equal employer contributions, as well as adjusting inflation protection, but Leech said those measures alone will not resolve the shortfall.
In last week’s provincial budget, the Liberals made it clear it wants to see future benefits cut before boosting government contributions in public pensions.
Its private capital arm — Teachers’ Private Capital — enjoyed a 16.8 per cent rate of return in 2011. At Dec. 31, 2011, private equity investments added up to $12.2 billion, compared with $12 billion a year earlier.
It has slowly been boosting its investments in emerging markets, now estimated at 15 per cent, and may still expand.
As well, the recent eurozone crisis may result in investment opportunities as certain European assets are sold off, from infrastructure to lotteries.
Original Article
Source: Star
Author: Vanessa Lu
No comments:
Post a Comment