OE News Special Edition June 2014

Administrator’s ReportBetter ValuationsInherent in the OEPP’s investment strategy, and in the Asset-Liability Matching Policy thatgoverns it, is a careful and consistent assessment of the current value of both our assets andliabilities.On the liability side, we are concerned with future cash payments to members, in the years anddecades ahead. On the asset side, we therefore also need to be concerned with the long-termcash flows that will be generated.As the investment policy of the Plan is to hold revenue producing properties indefinitely andto not sell any of these properties unless an investment of better value can be obtained, thePlan values these properties using an assigned value method. The assigned value method isbased on the present value of the net future cash flows using a discounted cash flow method.The cash flows are discounted at an interest rate equal to the actuarial assumption rate used todetermine the value of the liabilities of the Plan.Greater Certainty, But Not CompleteThe Trustees believe they have achieved the most advantageous match possible between thePlan’s existing assets and liabilities.It is important to note, however, that our plan is not completely protected from the negativeeffect of interest rate changes. Our asset pool is simply not large enough, even in light of thevaluation of our real estate holdings, to put us in that position.We continue to rely on a portion of future contributions from members to pay for benefitsalready earned, a situation common to many pension plans, and largely a function of theimpact that interest rate declines and stock market volatility have already had on our plan.Looking AheadYour Trustees have determined that our investment strategy is prudent and appropriate forour plan at this point in time. They will continue to closely monitor economic and financialtrends, and the health of the Plan so that any necessary adjustments can be made in a timelyfashion.The Trusteesbelieve they haveachieved the mostadvantageous matchpossibly between thePlan’s existing assetsand liabilities.Implications of Low Interest RatesThere have been a number of articles in the media about the funded status of pension plans.Many pension plans have gotten into trouble for a variety of reasons. Most of these reasons canbe traced back to the lack of adequate investment performance based on the investment policiesbeing followed by many plans. This has resulted in plans having insufficient assets to covertheir liabilities for benefits earned to date by plan members.We are pleased to report that based on the most recent actuarial valuation of the OperatingEngineers’ Pension Plan, the total assets of the Plan are more than sufficient to cover the liabilitiesfor all benefits currently being paid and benefits earned to date by active members.Your Board of Trustees adopted an investment strategy that was designed to select assets of thePlan which would be sufficient to provide all benefits earned to date with a high degree of certainty,no matter if long term interest rates went up or down or stayed the same. The strategyinvolved investing a large portion of the Plan’s assets in a portfolio of long duration bonds.In recent years, long term interest rates have fallen significantly. However, because of ourinvestment strategy, the value of the Plan’s assets has increased at a faster rate than the value ofthe earned pension benefits. The strategy has worked well and has provided for the reductionand over time the elimination of our past under funding.10 News Special Edition Fall 2014