Ontario Teachers' Confounding Year?

Please read my latest entry and post your comments here:

http://pensionpulse.blogspot.com/2010/04/ontario-teachers-confounding-year.html

Thank you,

Leo Kolivakis

Comments

[A Man without Q...]

The effect of cutting interest rates to support asset prices always worsens the pension deficit owing to the fact that the interest rate delta of the liabilities is larger than that of the assets, and it also holds true for those will 401(k)s, the assets may be worth more but an annuity will pay a much lower amount (unless we all promise to die sooner.)

It is the dirty little secret of the central bankers, and the effect on unfunded pension obligations (as you have in most of Western Europe) is even worse.  

The taxpayer is on the hook for the absurd amount of borrowing the governments have taken in order to manufacture a quick recovery (which means they cannot ever let rates rise more than a couple of percent at most) and the amount of debt both on balance sheet and off is quite absurd.  

We know the plan is to pretend all will be well, but it won't. The day will come when they can't hide it anymore and it is going to be very ugly indeed. 

[Leo Kolivakis]

Excellent point on how lowering rates exacerbates pension deficits because the effect of a lower real rate on liabilities swamps the boost on asset values. Add to this QE, which really screwed pensions over, especially in the UK.

[wpw]

Thanks for this Leo.  Interesting as always. 

Leech is on with Howard Green right now.

[RowdyRoddyPiper]

Nothing to fear for our poor Ontario teachers. My daughter's s-k teacher "retired" after 30 years and still hangs around as a substitute and double dips the day along. Good luck getting hired if you are a rookie teacher.

[stkboy]

>>>>>Good luck getting hired if you are a rookie teacher.<<<<<

Exactly, they should put a stop to that. My sisters are teachers and have a few neighbours who are teachers and that is exactly what they all do. My sons friend is a rookie teacher and can't get a position. No way you are going to get any changes with the union and McGinty

[exportbank]

I think the Teachers plan is backed up with a guarantee from the provincial government (if the plan can't pay the benefit the government will). Ontario is the biggest train wreck in North America and the big plan is "When things get back to normal" we'll be OK..

Most pension plans in Canada have made large multiple investments in other countries and now have HUGE foreign exchange risks because the CDN$ has appreciated. The average house price in Vancouver has reached $1,000,000.- so maybe the correction will come. The Canadian Government has been supporting housing because of the jobs it creates (or saves) - this will (at some point) have to be born by the greater economy as the prices revert to a more affordable state (like in the US). I think the Bank of Canada may also be trapped in a low rate problem. You bump mortgage costs in Canada by a couple of points and you have the default train rolling.

Leo - keep shining the light on pensions - they and health care are the killer apps.

[hettygreen]

The Canadian Dollar strength and its implications for the scale of foreign exchange risks is the elephant in the room that very few seem to perceive. When things return to normal? I believe there is a better chance of seeing Dwight Duncan sprout wings and fly first.

Always enjoy the pension related articles Leo, especially those close to home in Canada's rustbelt. I find it interesting that with all the talk of inflation it was the inflation sensitive part of the portfolio that had the lowest returns, actually underperforming the benchmark, despite the number of eggs in this basket almost equalling those in equities and fixed income. 

[Leo Kolivakis]

OTPP, like many other pension funds, is betting heavily on inflation picking up in the future. Interestingly, while they see inlfation, they negotiatied to give up cost-of-living-adjustments (COLA) for retired teachers. Go figure.

[stkboy]

Didn't McGinty pump $85 million into the teacher's plan in 2008 when they were short? Like all other government plans I'm sure he will come up with something just like the $500 million that went into the PGIF for Nortel pensioners. McGinty has always favoured the teachers as his wife is a teacher and they represent a huge voting block for him. Every time you see him on TV he is in a class with a bunch of little kids.

[spyware-free]

Don't worry about OTPP Leo. When the Toronto Maple Leafs make the playoffs next year the plan will be bailed out. hahahaha

[Leo Kolivakis]

LOL, now that is funny! Maybe the Caisse should buy the Habs at a premium and bring back Kovalev!

[curbyourrisk]

Leo:  did the haircut on Arclin hurt them when they had to do a debt of equity swap on the bankruptcy filing????  That should have left a nice mark.

[Leo Kolivakis]

Don't know the details of that one but Teachers has had its share of investment blunders.

[Dixie Normous]

Too lazy to leave a comment at your site Leo, but I plan to register there soon because I believe this pension issue, north, south. east, west, is a huge pimple that everyone is covering with tons of make-up and you're doing a bang up job (un?)covering it.

That being said, what does parity mean for Canadian plans?

[Leo Kolivakis]

Post your comments here. Parity means that Canadian plans can buy more US commercial real estate and hold on to it for the long run.

[Yardfarmer]

I guess you must have heard the news. $500 billion in unfunded pension liabilities in Cali.

[Leo Kolivakis]

Yes, they too need to sit down with their plan sponsors and make some tough choices.

[Mr Lennon Hendrix]

They should corner the silver market.  That is what I would do.