Commission on the Reform of Ontario's Public Services

Health of the Plans
There are two types of actuarial valuations that public-sector plan sponsors are required to
prepare: a funding valuation and an accounting valuation. Each valuation employs different
methods and assumptions.
The funding valuation is prepared in accordance with the Pension Benefits Act and actuarial
standards, and is intended to secure the benefits provided by the pension plan. The funding
valuation also determines the contributions necessary to fund the benefits being earned.
The funding valuation is used to determine whether a pension plan is actuarially sound.
However, the contributions determined by funding valuations do not represent the province’s
pension expense for budgetary purposes. Pension expense is based on actuarial valuations
that are prepared on an accounting basis. These valuations are prepared in accordance with
recommendations of the Public Sector Accounting Board (PSAB), and are based mainly on
the present value of benefits earned by plan members, not the cash contributions.
Three of Ontario’s largest public-sector pension plans currently have funding shortfalls. These
include the three pension plans that are directly sponsored or co-sponsored by the province
(i.e., PSPP, OPSEUPP and TPP). These shortfalls are largely the result of investment losses
during the financial crisis in 2008 as well as the low level of long-term interest rates.
The following summarizes the current funded status of the three plans that are directly
sponsored or co-sponsored by the province:
� The TPP is a jointly sponsored, defined benefit pension plan, with assets of about
$107.5 billion as at Jan. 1, 2011. The TPP’s preliminary Jan. 1, 2011, funding valuation
revealed an unfunded liability of $17.2 billion. A balanced Jan. 1, 2011 valuation was
filed with the Financial Services <strong>Commission</strong> of Ontario (FSCO) in June 2011, which
(1) reduced benefit indexation for future service to 60 per cent of the annual changes in
the consumer price index; and (2) increased the contribution rate for both the province and
plan members by 1.1 percentage points for the next 15 years.
� The PSPP is a defined benefit pension plan solely sponsored by the province. It had
assets of about $17.4 billion as at Dec. 31, 2010. The PSPP’s Dec. 31, 2010, funding
valuation had a $1.19 billion unfunded liability, which the province is eliminating over
15 years.
� The OPSEUPP is a jointly sponsored defined benefit pension plan with assets of about
$13.3 billion as at Dec. 31, 2010. The plan had an unfunded liability of about $586 million
in the Dec. 31, 2010, funding valuation. Retirement of the OPSEUPP shortfall is being
shared equally between the government and the plan members. Their respective Rate
Stabilization Funds, composed of reserves that were set aside during years of surpluses
and are now being drawn down to finance shortfalls, are sufficient to cover this deficiency.
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