(June 26, 2011) – New Jersey may be making headlines, but a major pension system to the north has also been moving to shore up its pension deficit.
The $108 billion Ontario Teachers’ Pension Plan – one of the world’s largest and most sophisticated institutional investors – had been operating with a $17 billion shortfall as of late. After a tentative deal reached between the provincial government and the union that represents teachers, however, changes made to the system will shrink the deficit going forward. The deal was reached a year before the system officially had to report to regulators on its funding status.
Similar to a bill passed last week in New Jersey, the pension deal will require teachers to contribute 1.1% more from their salaries into the plan, phased in over three years and matched by the government, according to the Globe & Mail. Unlike New Jersey, however, the deal was relatively uncontentious.
The head of the pension plan, Jim Leech, expressed pleasure with the deal. “They’re showing that a defined benefit plan can be flexible enough to accommodate changes in demographics,” he is quoted in the newspaper as saying. “It’s getting out ahead of the issue as opposed to having somebody impose a solution on them. They are being responsible.”
On the investment side of the pension equation, Ontario Teachers is considered world-class, epitomizing the Canadian model of large internal investment staff and the willingness to invest in illiquid and alternative assets. In a wide-ranging interview with aiCIO in April, chief investment officer Neil Petroff lauded the group’s returns and abilities. “If we were a passive fund, we’d be C$23.2 billion lower in value, with liabilities at the same level,” he told aiCIO at the time. “That really speaks to the value of active management – you add value when you pay for active management.”
<p>To contact the <em>aiCIO</em> editor of this story: Kip McDaniel at <a href='mailto:firstname.lastname@example.org'>email@example.com</a></p>