A 'total portfolio approach' has helped OPTrust remain fully funded for the 15th consecutive year
One of Canada's largest defined benefit pension plans is celebrating a personal milestone. OPTrust (OPSEU Pension Plan Trust Fund) has remained fully funded for the fifteenth consecutive year, according to their recent 2023 Funded Status Report, People. Purpose. Pensions. The funded status is the metric that matters, says OPTrust’s CIO James Davis.
“It is the best representation of the sustainability of the pension plan. We want to be able to pay pensions today and preserve pensions for tomorrow,” Davis says. “What our members are looking for is to know that they've got pension certainty and that they can rely on the pension income that they're going to get when they finally enter retirement. That, to me, is the most important thing.”
Just how did OPTrust manage to achieve such an achievement? Davis highlights it’s because they’re very focused on their pension promise and their plan liabilities.
“What separates a pension plan from a typical investment portfolio is the fact that you have specific liabilities you need to meet in the future,” Davis says. “Our investment program is built to deliver that. It's built in such a way that because investment environments are uncertain, economies are uncertain. We certainly saw that in 2023.”
OPTrust has a very deliberate purpose, noted Davis, and that is to deliver retirement income security for their members. “Peace of mind in retirement is top of mind for us.”
That purpose shows. According to the Funded Status Report (and their members), OPTrust continues to provide an exceptional service experience to members who rated their service satisfaction as 8.7 out of 10. OPTrust was also recognized among the top 10 pension plans for service by CEM Benchmarking Inc.'s global rankings.
“We have a member experience team, which is constantly working on new ways to serve our members,” Davis explained. “And what our members really want, what they hope for, is not just a good member experience, but they wanted to know that they're receiving predictable and steady pension income. Because they've got both of those things, I think, they're happy, and that makes us happy.”
For OPTrust’s members, investment returns account for more than 70 per cent of the benefits they receive in retirement, with more than $1.3 billion in entitlements paid in 2023, benefiting communities across Ontario. What matters most for their members, Davis highlighted, is that they can count on their pension in retirement.
“I think that understanding their pension, understanding their benefits, which our member experience team does a great job of doing, and knowing that their plan is fully funded and has been fully funded for the last 15 years, I think gives them a great degree of satisfaction and confidence.”
Additionally, OPTrust's Member-Driven Investing (MDI) strategy is designed to deliver the total return needed to keep the Plan sustainable over the long term, without taking excessive risk. OPTrust's average annual net investment return since inception is 7.9 per cent.
“We build a portfolio that is as resilient as possible, allowing us to weather any kind of storm that we might face, and to deliver on our pension promise over the long term,” Davis highlighted. “This portfolio resilience and pension certainty, retirement income security for our members, they're all linked and they're all part of what we call our Member Driven Investment (MDI) strategy. Driven investing strategy is all about keeping the plan fully funded, ensuring that you know we're able to pay pensions today and preserve pensions for tomorrow.”
Some of what that strategy looks like, Davis explains, is a “total portfolio approach”, where all the pieces work together. Accordingly, OPTrust invests in a lot of private market assets, because as Davis says, those are the assets “that offer the best potential for value creation.” Other asset classes include bonds, commodities, public equities, real estate, and other various types of strategies that “help to round out the overall portfolio, providing growth, income, inflation protection and that link to the plan liabilities,” Davis added.
“Our plan being inflation indexed helps to provide that inflation protection for our members in retirement, but that means we have to bear that risk, so we need to have assets that are able to perform well in that kind of an environment.”
“At any point in time, something could be underperforming and something could be outperforming, but it's how they all work together to deliver the long-term pension promise that we have and keep us fully funded,” he said.
