Annual Report

LEADING
THE WAY
2011 ANNUAL REPORT
TheOntarioTeachersPensionPlanhasearneda
reputationforleadershipandinnovationinpension
fundmanagementsinceitwasestablishedin1990.
Wenowfacearecurringfundingchallengeand,
togetherwithoursponsorsandmembers,wehave
anopportunitytoleadtheway
Theplansgovernancestructurehasalwaysbeenbasedonanindependent
board,equalfundingandrisksharing.Ourjoint-sponsorshipmodelisseenbymany
asacrucialfactorintheplanssuccessandisbeingexaminedandadoptedbyother
toppensionplansaroundtheworld.
Teachersunparalleledrecordofexcellenceiswidelyrecognized.Arecent
independentstudydeterminedthatourinvestmentperformancehasbeennumber
oneamongourinternationalpeerfundsduringthepast10yearsandourserviceto
membersissecondtononeamongourpeers.
Asdefnedbeneftpensionplanseverywhere
dealwitheconomicanddemographicchallenges,
Teachersboardandmanagementarecommitted
tohelpingoursponsorsremainattheforefront
withfair,realisticandsustainablesolutions.
AGAIN
ONTARIOTEACHERSPENSIONPLAN|2011ANNUALREPORT
1
TheOntarioTeachersPensionPlan,betterknownasTeachers,isCanadaslargestsingle-professionpensionplan.
Teachersisanindependentorganizationsetupbyitstwosponsors,theOntariogovernmentandOntarioTeachers
Federation(OTF).
OTFrepresentsallteachersintheprovincespubliclyfundedschools.TheMinistryofEducationandtheMinistryof
FinancejointlyrepresenttheOntariogovernment.
TheOntariogovernmentandOTFappointTeachersboardmembers.
Eachsponsorgetstoappointfourmemberstotheboard,andtogether
thesponsorsappointaninthmembertoserveasthechair.Teachers
managementreportstotheboard.
Thesponsorsalsoestablishwhatbeneftstheplanwillprovideandset
thelevelformembersandemployerscontributions.
Most importantly, the plan sponsors are responsible for ensuring that
theplan is appropriately funded that it has enough money to fulfll its
obligation tomembers.
TheboardandmanagementofTeachershavethreeprimaryresponsibilities:
1 MakingmoneytohelppaypensionsTeachersoversees,developsand
executesinvestmentsandinvestmentstrategiesdesignedtoincrease
thevalueoftheplansassets.
2 PayingoutbeneftsTeachersadministersthepensionplanandpays
beneftstomembersandtheirsurvivors.
3 ReportingontheStateofthePlanTeachersreportsontheplans
fundingstatus,whichitmonitorstohelpensurethattheplancanmeet
bothcurrentandlong-termobligations.
WhatdotheSPonSoRSdo?
WhatdoeSteacheRSdo?
tableofcontentS
4 ReportfromtheChair
8 ReportfromtheCEO
11 ManagementsDiscussion&Analysis
14 StateofthePlan
28 Investments
48 MemberServices
58 PlanGovernance
79 FinancialStatements
85 Notes
118 MajorInvestments
122 Eleven-yearReview
123 FundingValuationHistory
125 CorporateDirectory
About Ontario Teachers Pension Plan
ontaRioGoveRnMent
Teachers
ontaRioteacheRSfedeRation
2
2011 HIGHLIGHTs
state of the Plan
Wemeasureourassetsagainstourliabilitieslookingoutmorethan70yearstocalculatetheannualpreliminary
fundingvaluation.Despitechangestocontributionratesandbeneftsandstrongassetgrowth,fundingshortfallshave
beenrecurringforthepast10years.
The2012preliminaryfundingvaluationrefectsagapbetweentheplansassets(currentinvestmentsandfuture
contributions)anditsliabilities(costoffuturepensions).Bothsidesoftheequationarebeingnegativelyafectedby
economicanddemographicfactors:
Uncertainmarketsmean
wemustprojectmodest
investmentreturns
lowrealinterestrates
indicatelowfuture
economicgrowthand
requiretheplantoset
asidemoremoneyfor
futurepensions
increasedlongevityresults
inmanyteacherscollecting
pensionsformoreyears
thantheyworked
decliningratioofworking-
to-retiredmemberslimits
theamountofinvestment
riskthatcanbetakento
earnreturns
FortheJanuary1,2012,
fundingvaluation,the
planspreliminaryprojected
liabilitieswere$171.7billion
andactuarialassets(including
futurecontributions)were
$162.1billion,leavinga
shortfallof$9.6billion.
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$5
12 11 10 09 08 07 06 05 04 03
Sponsors led a funding valuation that brought the fund into balance through
contribution, benet and/or economic assumption changes
*
*
*
*
*
($9.6)
PReliMinaRyfUndinGvalUation
(asatJanuary1)($billions)
3
0
100
200
11 10 09 08 07 06 05 92 93 94 95 96 97 98 99 00 01 02 03 04 91 90
11 05 95 00 90
Active members
Pensioners
Active members
Pensioners
Investments
Ourinvestmentperformanceexceededexpectationsin2011,withan11.2%rateofreturngenerating$11.7billionin
investmentincomeandgrowingnetassetsavailableforbeneftsto$117.1billion.Investmentreturnsexceededthe9.8%
benchmarkandcreated$1.4billioninvalueadded.Ourongoingfocusonriskmanagementdirectlysupportsmembers
long-termretirementsecurity.
Member services
In2011,wecontinuedtoprovideoutstanding,personalizedservicetomembersata
reasonablecost.Morethanhalfofsurveyedmembersgaveusaperfect10outof10
forservicedelivery.
Activemanagement
hasadded
$53.0billiontothe
plansassetsize
sinceinception.
Thenumberof
pensionershas
tripledsince1990.
inveStMentaSSetGRoWth
(asatDecember31)($billions)
activeMeMbeRSandPenSioneRS
(asatDecember31)(thousands)
0
40
20
60
80
$120
100
90 95 00 05 11
Teachers

Benchmark

#1
Ourinvestmentand
serviceperformancehave
bothbeenrecognized
asworldleadersin
asurveybyCEM
BenchmarkingInc.,an
independentauthority
onpensionfund
benchmarking.
Theplans10-yeartotal
returnsarethehighest
amongglobalpeer
fundsstudiedbyCEM.
Andwewerealsonumber
oneinvalueaddedfor
theperiod.
Teachersrankedfrst
amongitsNorthAmerican
peersforexceptional
pensionservicethe
secondtimeweveplaced
frstinourgroup.
4
REPORT fROM THE CHAIR
Sinceitsinception,ourplan
hashadarecordofadapting
tochangeandleadingthe
wayinthepensionworld
throughinnovation.
eileenMeRcieR,Ma,Mba,ficb,f.icd
CHAIR
5
REPORT FROM THECHAIR
TheOntarioTeachersPensionPlanhadaverygoodyear
in2011,withtotalreturnsof11.2%.Thisisaparticularly
noteworthyfeat,giventheEurozonedebtproblemsthat
emergedlastsummerandthecrisisofconfdenceand
marketvolatilitythatensued.
WhilethismayhavecausedtheS&P500Composite
IndextolanguishandtheTSXtoplummet,Teachers
investmentteamincreasednetassetsavailableforbenefts
to$117.1billion.TheMemberServicesteamalsooutdid
themselvesonclientsbehalf,achievingyetanother9out
of10inmemberratings.
Suchsuccessdoesnotgounnoticedhereathomeor
internationally.Aleadingauthorityonpensionfund
performance,CEMBenchmarkingInc.,notedthatour
10-yeartotalfundreturnstotheendof2010arethe
highestofthepensionfundstheystudyaroundtheworld.
Evenwiththissuccess,however,andthesponsorshaving
raisedcontributionratesandloweredbeneftstobalance
theplanasofJanuary1,2011,thesystemicissuesoflow
realinterestratesanddemographictrendscontinuedto
challengetheplan.Theresultisapreliminary$9.6billion
fundingshortfall,asofJanuary1,2012.
Withmountingrisksandmarketvolatilitythroughoutthe
year,2011boreamorethanpassingresemblanceto2008.
InadditiontotheEurozonecrisis,othersignifcantand
complexproblemscontinuetostalktheglobaleconomy:
astubbornlysluggishrecovery,politicalgridlockinthe
U.S.,instabilityintheMiddleEastandsignsofslowing
growthinemergingmarkets.Noneofthesewillbe
solvedquickly,andtheycanbeexpectedtocontinueto
dampenprospectsforeconomicgrowth,particularlyin
developedeconomies.
Inthiseconomicenvironment,lowrealinterestratesare
expectedtocontinueimpactingthepensionplanforat
leastthenexttwoyears.Theseratesboosttheprojected
futurecostsofpensionsastheyareanindicatorofslow
economicgrowthintheyearstocome.Asweveseen,
evenourinvestmentresultsarenotenoughtoclosethe
gapbetweenprojectedliabilitiesandassets.Liabilities
continuetogrowfasterthanassets.
Thispreliminaryshortfallisallthemorefrustratingbecause
itdetractsfromtheresultsthatthefundsmanagement
andstafturnedin.Butitalsomakesthepointthatwe
cannotexpecttoclosethefundinggapsolelythrough
investmentearnings.
Planchangesforpensionsecurity
Thisleavesuswiththerealitythatthecostoffuture
beneftsmustberecalibrated.
Longerlifeexpectancyispushingfuturepensioncosts
higheratatimewhenlowinterestratesmakeitdifcult
toforecastsufcientreturnstocoverthecostoffuture
pensions.Longevityhasincreasedtothepointwhere
retiringmembersinthisplanareexpectedtocollecta
pensionforlongerthantheyworked.Typically,teachers
workfor26yearsandwillcollectapensionfor30years
plusasurvivorpensionmayalsobepaid.Ouroldest
pensionerattheendof2011was109,and2,600pensioners
were90orolder.
Insum,combinedeconomicanddemographicfactors
arehittingbothsidesofthepensionplansbalance
sheetatonce:weanticipatehighpensioncostsand
modestassetgrowthresultingincontinuedfunding
challenges.Defnedbeneftpensionplanseverywhere
arefacingthesamedilemma.
Teachersarealreadyscheduledtocontributeupto13%
oftheirsalariestotheirpensions,anamountmatched
bytheOntariogovernmentanddesignatedemployers.
Thereislikelyalimittohowmuchplanmembersandthe
governmentwillbewillingtopay.
Plansponsorsarenowaddressingthequestion:Whatare
themostacceptableandefectivechangestomakein
ordertomaintainafordabilityandtomoreappropriately
sharetheburdenforcoveringshortfallsbetweenworking
teachersandfutureretirees?Ifdoneproactivelyand
properly,thepossibilityofongoinganddisruptivechange
canbereduced.
Aspopulationsage,providingpensionsecuritytofuture
generationsofretireeshasbecomeabroadchallenge
indevelopedeconomies.Defnedbeneftplanssuch
asTeachershavebeenparticularlychallenged.Many
organizationshaveclosedtheirdefnedbeneftplansand
shiftedtheriskofretirementsecurityentirelytotheir
employees.Webelievethatthisisaregressivetrendand
fearitwillleadtomanyseniorsstrugglingtomakeends
meetintheirlateryears.
6
Defnedbeneftplansmustdemonstratethattheycan
adapttotheneweconomicandretirementrealities.Some
employeranduniongroupshaveadoptedahybridplan,
preservingthedefnedbeneftprinciplebutintroducing
risksharingbetweensponsorsandmembers.Eventhe
CanadaPensionPlanhasintroducedchangesencouraging
peopletoworklongerandhasincreasedthepenaltyto
receiveapensionat60insteadofwaitinguntil65,while
introducingincentivestodefercollectinguntil70.
TheFebruaryreleaseoftheDrummondReport,
commissionedbytheOntariogovernmenttostudy
howtoreformandthusreducepublicservicecosts,has
severalrecommendationsaboutpublicsectorpensions.
ForTeachers,itrecommendsthatfundingshortfalls
shouldbeaddressedwithbeneftchangesinsteadof
contributionincreases.
Fortunately,ourplansgovernancestructure,inwhichthe
fundingriskissharedequallybetweentheemployerand
employee,providesaforumfordiscussingfundingissues
andplanninghowtoaddressthem.Theplansponsors
havetakenappropriateactioninthepasttopreservethe
integrityofthisplan,andthiswillhavetocontinue.
Itisnottheboardsroletodeterminehowthatshouldbe
done;planchangesaredecidedbythetwoplansponsors,
whoarejointlyresponsibleforkeepingtheplanfully
funded.UnderthePensionBeneftsAct,thevalue
ofpensionbeneftsaccruedtoretireesandworking
teacherscannotbereduced.Thesponsorsmusttherefore
lookaheadtoensureallgenerationsarefairlysharingthe
plansrisk.
Wemeetregularlywiththeplansponsorstoupdate
themontheplanscurrentfundingstatusandoutlook,
andtodiscussfundingconcerns.Theplansponsors
recognizethechallengestheplanfacesandarestudying
potentialremedies.OurDemographicTaskForce,which
includesactuariesfromtheplanandbothsponsors,is
workingtobetterunderstandfutureretirementtrends.
Weareconductingsurveyswithplanmembersontheir
awarenessoftheplansfundingchallengesandtheir
preferencesforpotentialplanchanges.Thisongoing
preparationmeanstheplansponsorswillbewell
positionedtomakeinformeddecisionswhenthenext
flingoccurs.
adjustmentskeeptheplanhealthy
forfutureretirees
Thenotionofchangeneednotbeunsettlingforplan
members.Oursharedgoalwiththeplansponsors
continuestoberetirementsecurityforallgenerationsof
planmembers.Smalladjustmentstotheplantodaywill
haveabigimpactmanyyearsoutandwillkeepithealthy
forfutureretirees.
Ourplanmembershaveseenbeneftimprovements
duringpastperiodsofsurplus,aswellascontribution
increasesandotherplanchangestoaddressfunding
shortfalls.Membersshouldfeelreassuredthattheplan
sponsors,withtheadviceandcounseloftheboard,are
workingonyourbehalftoconsidersuitableoptionsto
ensureyourpensionswillbethereforyouatareasonable
cost.Inuncertaintimessuchasthese,retirementsecurity
ismoreimportantthanever.
boardandmanagementpriorities
Planfundingmatters,includingthevaluation
assumptions,absorbedasignifcantamountofboard
memberstimelastyear;however,asignifcantpartofour
roleistoensurethatmanagementfulfllsitsinvestment
andservicedeliverymandateefectively.Theboardsets
administrative,investmentandcompensationpolicies
andoverseesimplementationofthesepoliciesandplan
administrationbymanagement.Wemustalsoensure
thattheplanoperatesincompliancewiththelawsand
regulationsthatgovernit.
Teachershasatalentedandexperiencedmanagement
team.Ourinvestmenttrackrecordandmember
satisfactionratingsareconsistentlystrong.Board
memberssupportmanagementsefortstocontinue
beinganindustryleader.Todothis,wemustattract
andretainthebestpeopleandgivethemthetoolsthey
needtoworkefectively.Operationalexcellence,strong
riskmanagementandcost-consciousnessarekeyto
supportingtheorganizationsinvestmentandservice
deliverystrategiesanditsultimategoalpensionsecurity
forallgenerationsofplanmembers.
7
Webelievethattheclosureofdefnedbeneftplansisaregressivetrend
andfearitwillleadtomanyseniorsstrugglingtomakeendsmeetintheir
lateryears.
Boardmembers,too,mustbeequippedtomakegood
decisionsandprovideastutejudgment.Weinviteexperts
tospeaktotheboardmembersoneconomicand
investment-relatedtopicstoincreaseourunderstanding
ofkeyareasofimportance.Duringtheyear,weenhanced
ourboardprocesses:howweoperateandthetypeof
informationwereceive.Weshouldseethebeneftsof
thesechangesin2012,includingmoretimefordebate
andenablingevenbetteroversightanddecision-making.
Withthe2011retirementsofHelenKearnsand
LouisMartel,wewelcomedtwonewmemberstothe
boardinearly2012.PatriciaAndersonjoinsourboard
withabackgroundinfnanceandextensiveboard
experience.Shebringsusin-depthknowledgeofboard
governancebestpractice,gainedasamemberofseveral
boardsandaspastChairofSickKidsFoundationand
theCorporationofRoyThomsonHallandMasseyHall.
BarbaraPalkhasmorethanthreedecadesofbanking
andinvestmentexperience,andwasmostrecentlythe
PresidentofTDAssetManagementInc.Onbehalfofall
boardmembers,Iexpressourthanksandappreciationto
HelenandLouisforsharingtheirvaluableexpertiseand
fortheircommittedservicetotheboard.
leadingtheway
Theplansfundingchallengescanbeovercome.
Teacherscanbeamodelforthosewhoarecommitted
toprovidingdefnedbeneftplansthatarefair,realistic
andsustainable.Iamencouragedthatbothsponsorsand
membersunderstandtheneedtomatchthebeneftsof
thisplantoitsassetsoverthecomingyears.
Asyouseethestoriesinthemediaaboutthefunding
difcultiesfacedbypublicsectorpensionplansinthe
UnitedStatesandelsewhere,itisimportanttokeepin
mindthatthankstoaprocessofreformandmodernization
thatwasbeguninthe1980sandcontinuedunderthe
leadershipofallthreeofOntariosmajorpoliticalparties,
thesituationinOntarioisdramaticallydiferent.
Sinceitsinception,ourplanhashadarecordofadapting
tochangeandleadingthewayinthepensionworld
throughinnovation,beginningwithourjoint-sponsorship
model.Withthatfoundation,wehaveshownwecan
adapttochangingeconomicandpoliticalconditions.And
importantly,theboard,thesponsorsandmanagement
knowhowtoworktogethertomakedifcultdecisions.
WhileweatTeachersfaceourownsignifcantfunding
challengeschallengeswewillcomebacktorepeatedly
inthisreportitisimportanttokeepthesechallengesin
perspective.Frankly,therearepensionplansaroundthe
worldthatwouldlovetohaveourproblems.
Inchallengingtimes,trulyenlightenedleaderstakebold
steps,andtheydosocalmlyanddeliberatelybecause
theyareprepared.Thathasbeenourhistorytodate,and
Ilookforwardtoseeingitcontinueasweonceagainlead
thewaythistimetoasustainablefundingsolution.
eileenMeRcieR
CHAIR
8
REPORT fROM THE CEO
Wehaveearnedanaverage
of10%since1990and
havemaintainedquality
servicescoresinthe
9outof10rangefor
manyyears.
JiM leech,Mba,icd.d
PRESIDENT ANDCHIEFEXECUTIVEOFFICER
9
REPORT FROM THECEO
Wehadanimpressiveyearin2011.Weproduced
strongreturns,wellaboveindustryaverages,inatough
investmentclimate.Weimplementedarecordnumberof
planchangesandservedmoremembers.Andwehave
anumberofcomplex,multi-yearsystemandoperational
improvementprojectsunderwaytosupportthegoalof
pensionsecurityforallplanmembers.
Solidreturnsamidmarketchaos
Thefundearnedastrong11.2%return,increasingthe
plansnetassetsto$117.1billion.Investmentincome
totalled$11.7billionfortheyear.Takingalongerview,
wehaveearnedanaveragereturnof8.0%overthe
last10yearsand10.0%since1990.
The2011investmentgainswereachievedamiddifcult
marketconditions.Wewereoneofthefewpensionplans
globallytodeliverthislevelofperformance,whichis
notablegivenourrisktolerance.Growingsovereigndebt
risksandmountingeconomicuncertaintyshookinvestor
confdenceandmarketsacrosstheworldinthelasthalf
oftheyear.
Wecanattributepartofourperformancetobeing
betterpreparedformarketvolatilityin2011thanwewere
in2008,whenthatearlierfnancialcrisisstressedour
investmentsandrisksystems.Changeswehavemade
since2008arepayingoftoday.Werestructuredour
portfoliotobetterdiversifyriskacrossthetotalfund.
Morecollaborationandstrongerrisksystemshelpus
makethebestrisk-and-returndecisionsforthetotal
fund,ratherthanforindividualassetclassesinisolation.
SigningontotheUnitedNations-backedPrinciplesfor
ResponsibleInvestmentin2011will,overtime,makeour
investmentmanagersbetteratassessingtheimplications
ofsocialandenvironmentalrisks.Maximizingourreturns
ontheriskwecanafordtotakeremainsourpriority.
Iamalsopleasedtoreportthatourrateofreturn
exceededthefunds9.8%compositebenchmark,
generating$1.4billioninvalue-addedreturns.Balancing
assetgrowthwithstrongriskmanagementisboth
responsibleandnecessary,andourabilitytoconsistently
earnextrareturnssupportsourgoalofpensionsecurity.
Pensionservicesaresecondtonone
Inadditiontoinvesting,wedeliverpensionservices
directlyto300,000workingteachersandpensioners.
Webelieveourmembersdeservetimely,reliableservice
andpensioninformationthatisrelevanttothemat
diferentstagesoftheircareers.Wetrytoimproveevery
yearandtrackmembersatisfactionthroughregular
surveysconductedbyathirdparty.Thisfeedbackforms
ourQualityServiceIndex(QSI),whichmeasured9out
of10lastyear.Inaddition,anindependentsurveyby
CEMBenchmarkingInc.determinedthatourservicewas
thebestamongpeerfundsinitslatestreport.
WehavemaintainedhighQSIscoresforseveralyears,
eventhoughplancomplexityfromnewregulationsand
complianceandhenceourworkloadhasincreased.Ten
yearsago,therewere237,000planmembers;todaythere
are300,000.Wecompleted395,000clientinteractionsin
2011,a4%increaseovertheprioryear.Providingaccurate
andtimelyserviceinacomplexpensionplanisan
accomplishmentinitself,butwealsocontinuetofocuson
oferingexceptionalserviceatareasonablecost.
fundingshortfall
Theplanspreliminaryfundingvaluationshoweda
$9.6billionshortfallbetweenliabilities(thecostof
futurepensionsforallmembers)andprojectedassetsat
January1,2012.Asourmemberswillrecall,OTFandthe
Ontariogovernmentresolveda2011shortfallbut,with
liabilitygrowthcontinuingtooutpaceassetgrowth,the
planisonceagaininadefcitposition.
Asaresultofdecisionstoresolvethe2011shortfall,
workingteachersandthegovernmentarepayingmore
totheplanthisyear(andcontributionsarescheduled
togoupagainin2013and2014,by0.35%eachyear).
Retireeswithpensioncreditsubjecttoconditional
infationprotectionreceivedlessthan100%infation
protectionforthefrsttimethedollaramountissmall
nowbutwillgrowasmoreofthepost-2010credited
serviceissubjecttoconditionalindexingandwhilethis
measureremainsinefect.
10
REPORT FROM THECEO
Therearethreecausesofthecurrentfundingshortfall.
Thefrstisasharpdeclineintherealinterestrateusedas
abasistoprojectfuturepensioncosts.Whenrealinterest
ratesdrop,theplanneedsmoremoneyinvestedtoday
toearnenoughtofullycoverfuturepensions.Second,
weabsorbedanother$5.2billionofthe2008investment
loss.Thethirdcauseisdemographics.
AsourChairexplainsinhermessage,demographic
issuesprimarilyincreasinglongevityarecausing
pensioncoststoescalateandareexertingpressureon
theplanssustainability.Despiteourinvestmentportfolio
earningstrongreturns,westillhaveasystemicfunding
problem.Accordingly,theplansponsorswillhaveto
changebeneftsand/orcontributionstobringtheplan
intolong-termbalance.
Prioritiesalignedtopensionsecuritygoal
Inadditiontopursuingassetgrowthandexcellentservice,
wemadeprogresslastyearonthefollowingpriorities:
Enhancedriskmanagementsystems;
Operationalexcellence;and
Cost-efectiveoperations.
Thepensionbusinessisasmuchaboutmanagingrisk
asmanagingassets.Wehavecontinuallystrengthened
ourrisksystems,butthereismoretodo.Inthiscomplex
worldofinternationalfnancialmarkets,increased
investmentinoperationalriskmanagementisanecessity,
notachoice.Workingtogetherinacoordinated,efective
wayalsohelpsusunderstandandrespondtotherisks
facedbytheplan.OurenterpriseProjectManagement
Ofcecreatedin2010tooverseecross-departmental,
multi-yearprojectsisensuringthatlargecross-
functionalprojectsareproperlyplanned,resourcedand
managed.Wearemakingcostsmoretransparentacross
theorganization.Visibilityonexpensescreatesahigher
levelofcost-consciousnessandsupportsourdriveto
remaincostefective.
committedandfocusedteam
Thebiggestfactorinoursuccessistheexpertiseand
commitmentofouremployees.Iamproudoftheway
ouremployeesremainfocusedonourservicedelivery
andinvestmentstrategiesdespitethevolatileeconomic
environmentinwhichweoperate.Employeesare
encouragedtotakeanactiveroleinmanagingtheir
performanceanddevelopment.Weregularlyreviewthe
organizationstalentpooltoensurethatwehavethe
rightmixanddepthoftalenttomeetourcurrentand
futureneeds.
OurrecentemployeesurveyshowedthatTeachers
continuestobeanattractiveplacetowork.Wehada
90%participationrateastrongindicationofemployee
engagement.Furthermore,thetwothingsemployees
rankedthehighestweretheregardinwhichtheyhold
theircolleaguesandtheirprideinworkingatTeachers.
Finally,weappreciatethestrongsupportoftheboard
membersandtheplansponsors.Weremaincommittedto
doingthebestjobforplanmembersin2012andbeyond.
JiM leech
PRESIDENT ANDCHIEFEXECUTIVEOFFICER
MANAGEMENTs
DIsCUssION & ANALYsIs
ManagementsDiscussion&Analysis(MD&A)
presentsreaderswithaviewofthepensionplan
throughtheeyesofmanagementbyinterpreting
thematerialtrendsanduncertaintiesafecting
theresultsandfnancialconditionoftheplan.
Inadditiontohistoricalinformation,theMD&Acontainsforward-lookingstatements
regardingmanagementsobjectives,outlookandexpectations.Thesestatementsinvolve
risksanduncertaintiesand,assuch,theplansactualresultswilllikelydiferfromthose
anticipated.Keyelementsoftheplansfnancialstatementsshouldbereadinconjunction
withtheMD&A.
12
Mission
Outstandingserviceandretirement
securityforourmemberstoday
andtomorrow.
VisionandValues
Aswestrivetoachieveourmission,
ourvisionistobetheworlds
leadingpensionplanorganization.
Wearecommittedtobeing:
the best at what we do;
respectedasindustry
thoughtleaders;and
thepartnerofchoice.
Weareguidedbyourcorevalues:
recognizingthatourpeople
driveoursuccess;
promotingpersonal
development,collaboration
andinnovation;
communicatingopenly
andhonestly;
demandingthehighestlevel
ofintegrity;
championingaccountability
andriskconsciousness;and
embracingtalent,respecting
diversityandrecognizing
accomplishments.
PlanoveRvieW
TheOntarioTeachersPensionPlan(Teachers)administersthepension
beneftsofOntarios180,000elementaryandsecondaryschoolteachers
and120,000pensioners.ApensionplanwascreatedforOntarioseducators
in1917.ItwasadministeredbytheTeachersSuperannuationCommission
ofOntariountil1990.Atthattime,theOntariogovernmentestablishedthe
OntarioTeachersPensionPlanBoardasanindependentorganization.The
pensionplanwasprimarilyinvestedinnon-marketableProvinceofOntario
debenturesbefore1990.Theneworganizationwasgivenauthoritytodiversify
theplansholdingsandadministertheplan.Today,wehavemorethan
800employeesinToronto,Ontario,andLondon,England.
TeachersisgovernedbytheTeachersPensionActandmustcomplywiththe
PensionBeneftsActandthefederalIncomeTaxAct.TheTeachersPension
ActprovidesforthejointstewardshipofthepensionplanbytheOntario
government,throughtheMinisterofEducationandtheExecutiveofOntario
TeachersFederation(OTF).OTFandtheOntariogovernmentaretheplan
sponsors.Theymustensuretheplanremainsappropriatelyfundedand
jointlydecide:
thebeneftstheplanwillprovide;
thecontributionratepaidbyworkingteachers,whichismatchedbythe
governmentanddesignatedemployers;and
howanyfundingshortfallisaddressedandanysurplusisused.
Anine-memberboard,appointedbyOTFandthegovernment,overseesthe
administrationofthepensionplanandreportstheplansfundingstatustothe
plansponsors.Boardmembersarerequiredtoactindependentlyofboththe
plansponsorsandmanagement,andtomakedecisionsinthebestinterestsof
allbenefciariesoftheplan.
ManaGeMentS Role
Theemployeesofthepensionplanhavethreeresponsibilities:
investtheplansassetstohelppaypensions;
administerthepensionplanandpaybeneftstomembers
andtheirsurvivors;and
reportandadviseontheplansfundingstatusand
regulatoryrequirements.
Fulfllingourresponsibilitiesrequireshighlyskilledandexperienced
investmentprofessionalsandpensionexpertswhounderstandmyriadrisks
andhowtomanagethem.Wemustsettherightlong-termstrategiesthat
takepensiondemographicsandeconomicsintoaccount.
13
StRateGyandPRioRitieS
Weconsideranumberoffactorsaswesetourlong-termstrategiesfor
investmentsandmemberservices.Ourstrategiesandorganizationalpriorities
arebasedontheneedsofplanmembersandtheplansponsors.
Ourinvestmentstrategiesaredesignedtoearnstrongreturnsthatsupport
stablecontributionratesandpensionsustainabilityandhelpmeettheplans
long-termfundingneeds.Ourapproachistomanagefundingandinvestment
risktogether.Takingplandemographicsandfuturepensionobligationsinto
account,weaimtoearnthebestreturnpossibleatanappropriatelevel
ofrisk.Theneedforinvestmentreturnsmustbebalancedwithstrongrisk
managementpractices.
Ourmemberservicesstrategyisbuilttodeliveroutstanding,personalized
serviceatareasonablecost.Membershavecometoexpectexcellentservice
fromusandconsistentlyrateourservicesatthetopofthescale.
Wealsohavetoconsiderthegrowingnumberofplanmembersand
associatedworkvolume,thequalityofemploymentdatareceivedfrom
175schoolboardsanddesignatedemployers,ourrelianceonmorehighly
trainedITstaftodevelopandmanageelectronicservices,ourInternet
securityneeds,andthefrequentregulatorychangesthatafectoursystems,
workprocessesandstaftrainingneeds.Ourcommitmenttocost-efective
serviceexcellencekeepsusfocusedonthebestwaystomanagethese
variousfactors.
Strategyissupportedbysevenpriorities
1 Retirementsecurity
2 Outstandingservicetomembers
3 Riskmanagement
4 Informedplansponsors
5 Costefectiveness
6 Operationalexcellence
7 Engagedemployees
14
ONTARIOTEACHERSPENSIONPLAN
state of the Plan
Thepensionplanmusthave
sufcientassetstocover
futurepensionbenefts
stretchingaheadmore
than70years.
baRbaRaZvan,M.Math,fSa,fcia
SENIOR VICE-PRESIDENT,ASSET MIX AND RISK
AND CHIEF INVESTMENT RISK OFFICER
davidMcGRaW,fca,Mba,icd.d
SENIOR VICE-PRESIDENT AND
CHIEF FINANCIAL OFFICER
A1%changeinthe
interestrateassumption
hasanimpactofabout
$25billiononthefunding
valuation.Fallingratesare
causingplanliabilitiesto
growfasterthanassets.
GoveRnMentofcanadaReal-RetURnbondyieldS
(asatDecember31)(percent)
0
2
1
3
4
5%
93 91 95 97 99 01 03 05 07 09 11
0.45%
15
STATE OF THEPLAN
PRotectinG RetiReMentSecURity
Pension plan sustainability
Thegoaloftheplanistodeliverdefnedpensionbeneftstoretiredmembers
forlife.Achievingthisgoalrequiresongoingefort,collaborationand
consensusbetweenOTFandtheOntariogovernment,whoareresponsible
forallfundingdecisionsandfordeterminingtheplanscontributionrates
andbenefts.
Pensionsarefnancedwithinvestmentincomegeneratedbythepensionfund,
pluscontributionsfromworkingteachers,theprovincialgovernmentand
designatedemployers.
Thebiggestfundingriskfacingtheplanislowrealinterestrates,whichare
forecasttoremainlowforalongperiod.Lowrealinterestratesareaproxy
forcontinuingloweconomicgrowth.Lowereconomicgrowthreduces
theexpectedinvestmentreturns.Thismakesfundingfuturebeneftsmore
challenging.
Keeping pension benefts fully funded
Fundingvaluationsareconductedeachyeartoassesstheplanslong-term
fnancialhealth.Thevaluationshowswhethertheplanhasasurplus,shortfall
orsufcientassetstocoverfuturepensionsforallcurrentmembers.
Fundingvaluationsshowingthattheplanhassufcientassetstocover
theprojectedcostoffuturepensionsmustbefledwithOntariospension
regulatoratleasteverythreeyears.Ifafundingshortfallisprojected,OTFand
theOntariogovernmentmustaddressitbeforesubmittingafundingvaluation
totheregulator.(Ahistoryofplanfundingdecisionsisfoundonpage124.)
OTFandthegovernmentjointlydecidewhen,withinthethree-yeartime
frame,tofletheplansfundingvaluations.Thelastfundingvaluationwasfled
in2011(seepage18)andthenextisduein2014,althoughtheplansponsors
canelecttoflesooner.
contRibUtionSvS.benefitS Paid
(fortheyearendedDecember31)($billions)
Beneftpayments
exceededcontributions
frommembers,the
governmentand
designatedemployersby
$1.9billionin2011.This
gapreducestheassets
availabletoinvestfor
futurepensions.
Pnts paio
Contributions
2
4
3
$5
C C9 C8 C7 C6 C5 C4 C3 C2
$2.8
$4.7
16
STATE OF THEPLAN
funding policy guides decision-making
TheplansponsorsadoptedaFundingManagementPolicyin2003toguide
decisionsonwhentousesurplusfundsandhowtoaddressfundingshortfalls.
Ifplanassetsareequalto,orupto10%greaterthan,thecostoffuture
benefts,planchangesarenotrequired.The10%thresholdisintendedto
createabuferingoodtimestocushiontheplanwheneconomicconditions
arelessfavourable.Whenassetsexceedfuturebeneftsbymorethan10%,
thesurpluscanbeusedtolowercontributionrates,improvebenefts,ora
combinationofthetwo.Whenthecostoffuturebeneftsisgreaterthanplan
assets,theplanhasafundingshortfall.Toaddressashortfallandrebalance
theplan,thesponsorscan:
1. increasecontributionrates;
2. invokeconditionalinfationprotection;
3. reduceotherfuturebenefts;or
4. useacombinationofthesemeasures.
ThecurrentmaximumcontributionrateintheFundingManagementPolicy
is15%ofmembersbaseearningsabovetheCanadaPensionPlan(CPP)
limit,whichis$50,100in2012.Membercontributionsarematchedbythe
governmentanddesignatedemployers.
Fully Funded
Usable Surplus
Shortfall
Funding Management Policy
Lower contribution rates
Improve benets
Increase contribution rates
Invoke conditional ination protection
Reduce other future benets
110%
100%
Fully Funded
Surplus
Shortfall
Lower contribution rates
Improve benets
Increase contribution rates
Invoke conditional ination protection
Reduce other future benets
17
STATE OF THEPLAN
Conditional infation protection
Conditionalinfationprotection(CIP)providestheplansponsorswiththe
fexibilitytoadjustcost-of-livingincreaseswhenashortfallarises.Thegoalis
topay100%infationprotectionannuallyiftheplancanafordit.Ifafunding
shortfallisprojected,theplansponsorscansetcost-of-livingincreasesat50%
to100%oftheannualinfationratefortheportionofmemberspensioncredit
earnedafter2009.
Thismeasurehelpstodistributetheriskoffundingshortfallsbetweenworking
teachers(contributors)andretirees.Theprovisiondoesnotapplytopension
creditearnedbefore2010anddoesnotafectpensionerswhoretiredbefore
then.Anyreductionintheindexationpercentage(below100%)wouldremain
inefectuntilasubsequentfundingvaluationflingshowsthatthereare
sufcientfundstosupportahigherlevelofinfationprotection.
TheOntariogovernmentanddesignatedemployersmakeextrapayments
tothepensionplanequaltothetotalannualinfationincreasesthatretirees
forgo.Thesematchingpaymentshelpreducethefundingdefcitandaresimilar
tothegovernmentanddesignatedemployersmatchingregularandspecial
contributionsfromworkingteachers.
Real rate of return assumption
TheFundingManagementPolicyguidestheboardontherealrateofreturn
assumption(alsoknownasthediscountrate)usedtopreparethepreliminary
fundingvaluationpresentedintheannualreporteachyear;however,thefnal
decisionrestswiththeboard.
Theassumptionisbasedontherealinterestrate(thenominalrateless
infation)plusapremiumofeither0.5%or1.4%,dependingontheplans
fnancialhealth.Inordertoreducetheimpactofvolatilerealinterestrateson
theplansfundingstatus,in2010theboardbegansmoothingtherealrateof
returnoverthreeyears.The0.5%premiumisusedwhentheplanisinastrong
fnancialposition.Thishelpstobuildupanassetcushioningoodtimes.The
1.4%premiumisusedwhentheplanhasashortfall.Thishelpstheplanabsorb
short-termchangesinmarketreturns.
Theassumptionrefectstheexpectedafter-infationgrowthintheplans
assets.Theboardmayadjusttherealrateofreturnassumptioniftheplans
riskproflechangesasaresultofplanchangesmadebytheplansponsors
(e.g.,expansionofconditionalinfationprotectionprovisionsorotherbeneft
changesthatde-risktheplan).
Therealrateofreturnassumptionmustberealisticsoasnottomaskfunding
defciencies.Iftheassumptionistoohighandinvestmentsearnlessthan
expectedinthefuture,afundingshortfallwouldresult,forcingyoungerand
futureplanmemberstomakeevenhighercontributions,receivelowerfuture
beneftsorboth.Iftheassumptionistoolow,currentmemberswouldpay
morethannecessaryfortheirpensions.
Whatdoesinvoking
conditionalinfation
protectionmean?
PensionsforOntariosteachers
includeinfationadjustments
annualincreasestokeeppace
withthecostofliving.The
infationadjustmentteachers
receivefortheportionof
pensioncredittheyearnedafter
2009dependsontheplans
fnancialcondition.
Example:OTFandtheOntario
governmentinvokedconditional
infationprotectionat60%
becauseofthe2011projected
fundingshortfall.Thebase
infationadjustmentfor2012was
2.8%.Theindexationleveltobe
paidin2012ontheportionof
memberspensionsearnedafter
2009willbe1.68%(2.8%x60%).
Thegovernmentanddesignated
employersmatchtheamount
forgonebypensionersasa
resultofinvokingconditional
infationprotection.
18
STATE OF THEPLAN
fUndinGvalUationfiledin2011
OTFandtheOntariogovernmentjointlydecidedtofleafundingvaluationin
2011,oneyearsoonerthanrequired.Tocompletethefling,theplansponsors
resolveda$17.2billionpreliminaryfundingshortfallthatwasprojectedasat
January1,2011.Thisearlyflingprovedtobeastutebecauseinterestrateshave
continuedtodeclinesincethen.
Hearing Ofcer review
OTFandtheOntariogovernmentinitiatedaHearingOfcerreviewin2011to
determineifthediscountrateusedbytheplansboardcouldhavebeentoo
low,thuspotentiallyoverstatingthepensionplans2011preliminaryfunding
shortfall.Therealrateofreturnassumptionhashistoricallybeenthesubjectof
debatewiththeplansponsors.
Thesponsorsandtheboardjointlyappointedtheformerconsultingactuary
toOTFastheindependentHearingOfcertoconductthereview.
ThereviewconcludedinMaythatthe3.15%discountrateusedbytheboard
fortheplans2011preliminaryvaluationwaswithinareasonablerange.Italso
outlinedtheconditionstoincreasethediscountrate,includingde-riskingthe
planthroughfuturebeneftchanges.
How the 2011 funding shortfall was resolved
Theplansponsorsmadethethreechangesoutlinedbelowtoresolvea
$17.2billionpreliminaryshortfallprojectedatJanuary1,2011.
conditionalinfationprotectionsetat60%oftheannualinfationrate
startingJanuary1,2012;appliestopensioncreditearnedafter2009
1.1%specialcontributionrateincreasephasedinoverthreeyearsmatched
bygovernmentanddesignatedemployers
(asapercentageofannualsalary)
Year UptoCPPlimit
1
AboveCPPlimit
1
Increase
2011 10.4% 12.0%
2012 10.8% 12.4% 0.4%
2013 11.15% 12.75% 0.35%
2014 11.5% 13.1% 0.35%
Total 1.1%
1
TheCPPlimitisthemaximumearningsonwhichCPPcontributionsandbeneftsarebased.
Thelimit,whichchangesannually,is$50,100in2012.
basecontributionrateincreasedforfundingvaluations;futurecontributions
assumedatarateof10.4%ofearningsuptotheCPPlimit,plus12%of
earningsaboveit
Theincreasedbasecontributionrateadoptedbythesponsorspartiallyreduced
theplansfundingriskandallowedtheboardtoincreasetherealrateofreturn
assumption,consistentwiththeHearingOfcersfnding,to3.25%(from3.15%in
thepreliminaryvaluation)forthefnalvaluation.Thecombinationofthese
changesallowedthesponsorstofleabalancedfundingvaluation.
TheHearingOfcer
validatedthatthereal
rateofreturnassumption
wasreasonablegiventhe
plansriskprofle.
19
STATE OF THEPLAN
Thefollowingtablescomparethe2011preliminaryandfledfundingvaluations
andtheassumptionsusedforeach.
fUndinG valUation
2011 2011
Filed Preliminary
Netassets 107.5 107.5
Smoothingadjustment 3.3 3.3
Futurebasiccontributions 33.8 28.0
Futurespecialcontributions 3.8 5.3
Actuarialassets 148.4 144.1
Costoffuturepensions (158.4) (161.3)
Conditionalindexingadjustment 10.2 n/a
Surplus/(defcit) 0.2 (17.2)
fUndinG valUationaSSUMPtionS
(percent)
Rateofreturn 5.40 5.30
Infationrate 2.15 2.15
Realrateofreturn 3.25 3.15
Despitemeasurestakenbytheplansponsorstoeliminatethe2011shortfall,
thisyearspreliminaryfundingvaluationshowstheplanhasanother
$9.6billionshortfallasatJanuary1,2012.Thisdevelopmentwasanticipated,
andthefactorscontributingtotheplanspersistentfundingchallengesand
shortfallsaredescribedinthefollowingsection.
fUndinG RiSkSandchallenGeS
Themainrisktotheplanisfundingriskashortfallofassetstopayfuture
beneftstoallcurrentmembers.Duetoseveraldemographicandeconomic
factors,theplanhasexperiencedsuccessivefundingshortfallsbecauseplan
liabilities(theprojectedcostoffuturepensions)aregrowingfasterthan
planassets.
1. Historically low real interest rates
Long-termrealinterestrates(afterinfation)areusedtoestimatethecost
ofprovidingpensionsbecausetheyareapredictorofeconomicgrowth.
Wheninterestratesdrop,theplanneedstosetmoremoneyasidetoearnthe
amountrequiredtopayfuturepensions.
TheyieldonGovernmentofCanada30-yearReal-ReturnBonds(RRB)isthe
basisfortherealrateofreturnassumption.Thisratedeclinedto0.45%during
2011from1.1%atthestartoftheyear.Inordertoreducetheimpactofvolatile
realinterestrates,wesmooththerealrateofreturnusingthetrailing36-month
averageoftherealinterestrate.Smoothingthisassumptionsoftenstheefect
wheninterestratesarefalling,butwillcreatealagasratesincrease.
Whatisafundingvaluation?
An independent actuarys
assessmentoftheplanslong-
term(70+years)fnancialhealth
Usinganumberofassumptions,
itprojectswhetherthepension
planhassufcientassetsto
coverthecostoffuturepension
beneftsforallcurrentmembers
Theplansponsorsusefunding
valuationstosetcontribution
andbeneftlevels
20
STATE OF THEPLAN
aSSetS ReqUiRedfoRatyPical$40,000PenSion
RealInterestRate AmountRequired
1.0% $970,000
1.5% $900,000
2.0% $835,000
3.0% $730,000
4.0% $645,000
5.0% $575,000
2. 2008 investment loss
Theplanwillcontinuetoabsorbits2008investmentlossuntiltheendof
2012duetotheefectofsmoothinglossesonthefundingvaluation.In2011,
werecognized$0.6billioninnetlossesinthesmoothingadjustment,which
included$5.2billionofthe2008loss(asimilaramountwillberecognizedin
2012).Theselossesarenowbeingofsetbygainsin2009,2010and2011,which
arealsosmoothedoverfveyears(2009)orthreeyears(2010and2011).
3. Demographic factors
Increasinglongevityandplanmaturityafectthepensionplaninseveral
importantways,primarilythroughhigherpensioncostsandlessfexibilityto
manageassets.
Lifeexpectancyishighformembersofthisplan(attheaverageretirement
ageof59,lifeexpectancyisage90forfemalesand87formales)compared
tothegeneralpopulationandcontinuestoincrease.Itisimpossibleto
accuratelypredicthowlongpeoplewilllive.Despiteusingthemostup-
to-datelongevitydataavailablefortheteacherpopulation,planmembers
continuetooutliveouractuarialassumptions.
Thecombinedefectofearlyretirementrulesandincreasedlongevitynow
meansthatateachertypicallyreceivesapensionforagreaternumberof
yearsthanheorsheworked.Thistrendiscausedbyacombinationoflife
expectancyandtheageatwhichplanmembersareeligibletoretirewithan
unreducedpension(whentheiragepluspensioncreditequals85).
yeaRSonPenSioncoMPaRedtoyeaRS WoRked Teachersarelivinglonger
thantheydidinthepast.
Itcostsmoretoprovide
pensionsforlonger
retirementperiods.
0
20
10
30
40
2011 1970
Worked
Pension
Itcosts14%moreto
secureatypical$40,000
pensionwhenthereal
interestrateis2%than
whenitis3%.
21
STATE OF THEPLAN
80% Non-Canadian
20% Canadian
Theplangrowsmorematureeachyear.Thismeansthattheproportionof
workingmembersisdecliningrelativetothegrowingnumberofretired
members.Astheplanmatures,investmentmanagersmustcarefullyweigh
theamountofriskthatistakentogeneratereturns.Exposuretoriskierasset
classes,likeequities,mustbelimitedinfavouroflessriskyassetclasses,such
asbonds,whichtypicallyhavelowerreturns.
Theshrinkingratioofactivememberstoretireesmeansthatovercoming
fundingshortfallswithcontributionrateincreasesaloneismoredifcult
whenmarketsfallortheplansinvestmentsunderperform.Forexample,
compensatingfora10%declineinplanassetswouldcurrentlyrequirea
contributionrateincreaseofabout4%ofsalary,matchedbyasimilaramount
fromthegovernmentanddesignatedemployerstoclosethegap.In1970,the
same10%declinewouldhaverequiredacontributionrateincreaseofonly
0.6%ofsalary.
Thislong-termtrendisexpectedtocontinueandmustbemanagedaccordingly.
Withriskspreadacrossrelativelyfewercontributingmembers,riskmanagement
remainsanissue.Takinglessriskprotectsworkingteachersfromunduelosses,
butreducesthefundsearningpotentialoverthelongterm.
SiGnSofPlanMatURity
4. Modest investment returns expected
Planmaturityputstheinvestmentprogramunderincreasingpressuretoearn
sufcientreturnstocoverlonger,morecostlypensions;however,wemustuse
alower-riskassetmixthanlessmaturepensionplans.Furthermore,thecurrent
economicoutlookisnotconducivetoearningstrongreturns.Asaresult,we
mustprojectonlymodestinvestmentreturnsgoingforward.Itwouldnotbe
realistictoassumethatinvestmentsalonecanearnenoughtoensuretheplans
long-termsustainabilityatcurrentbeneftandcontributionlevels.
1970
Increase in contribution rate for a 10% decline in assets
Ratio of working-to-retired members
2011 1990
0.6% 4.4% 1.9%
Plan Maturity
Currently,thereare
1.5workingteachersfor
eachretireeintheplan.
Weexpectafurther
declineto1.3:1by2020.
Whenthereisalow
ratioofworking-to-retired
teachers,theadverse
impactoneach
contributingmember
tocoverpotential
shortfallsorinvestment
lossesisgreater.
22
STATE OF THEPLAN
Aseparatevaluation
thefnancialstatement
valuationconductedfor
accountingpurposes,is
discussedonpage25.
PlanfUndinG StatUS
Methods and assumptions used for the funding valuation
Achievingbalancebetweenplanassetsandthecostoffuturebeneftsisan
ongoingobjectiveforOTFandtheOntariogovernment.Toassessthefnancial
healthoftheplan,theboardcommissionsapreliminaryfundingvaluationeach
January,conductedbyanindependentactuary,andreportstheoutcometo
theplansponsors.Planmanagementalsooferstheplansponsorsadviceand
analyticalsupportonplanfundingissuesthroughouttheyear.
Thefundingvaluationdeterminesthefnancialhealthoftheplanlooking
aheadmorethan70yearsatcurrentscheduledcontributionratesby
calculatingbeneftsearnedtodate,plusprojectedfuturebeneftcostsand
contributions.ThesefactorsareusedbyOTFandtheOntariogovernmentto
setcontributionandbeneftlevels.
Thevaluationusesanumberofassumptionstoprojectthevalueoffuture
pensionplanliabilities.Assumptionsaremadeaboutthefutureinfationrate,
salaryincreases,ageatretirement,lifeexpectancyandotherfactors.The
valuationalsoincludesanassumptionfortherealrateofreturnontheplans
assets,whichincludesariskprovision.Thispreliminaryassumptionisguided
bytheFundingManagementPolicyestablishedbythesponsors.Thefnal
assumptionisapprovedbytheplansboardmembers.
Theactuarymustalsoprojectthecostofconditionalinfationprotection
forpensioncreditearnedafter2009.Theplanexpectstoprovide100%
infationprotectionifthereissufcientfundingtoallowit.Whenconditional
infationprotectionisinvoked(setatlessthan100%becauseofashortfall),
theactuaryassumesthelowerindexationlevelwillremaininefectforthe
remaininglifetimeofallcurrentplanmembersandpensioners.
smoothing
Investmentsandinvestment-relatedliabilitiesarestatedatfairmarketvalue.
Changesinthefairvalueofnetassetsaresmoothedtoevenouttheimpact
ofshort-termfuctuationsininvestmentreturnsontheplansfundingposition.
Smoothingisanacceptedpracticeforfundingvaluationsconductedby
pensionplans.Itmitigatestheneedtofrequentlychangecontributionrates
andbeneftlevelstokeeptheplaninbalance.Annualreturnsofthefundthat
areaboveorbelowtheassumedrateofreturnaresmoothedoverthreeyears.
Theassetsmoothingmethodologyforthefundingvaluationchangedin2010.
Previously,fxedincomereturnswereexcludedfromsmoothing,butgainsand
lossesforallotherassetclasses,comparedtotheConsumerPriceIndex(CPI)
plus6%,wereamortizedoverfveyears.Asatransitionmeasure,thegainsand
lossesexperiencedbefore2010willcontinuetobeamortizedoverfveyears.
Theinterestrateandinfationassumptionsusedtovaluetheplansliabilities
arebasedonthetrailing36-monthnominalandrealyieldsandarealigned
withthesmoothingperiodfortheassets.Smoothingwasintroducedforthese
interestrateassumptionsin2010inresponsetoconcernsraisedbytheplan
sponsorsaboutusingthespotinterestrateasatDecember31eachyear.
23
STATE OF THEPLAN
funding shortfall projected
Theplansfundingvaluationshowedapreliminaryshortfallof$9.6billion
atJanuary1,2012.Theprojectedcostoffuturebeneftswasestimatedat
$171.7billion,whileassets(includingsmoothingandfuturecontributions)were
estimatedat$162.1billion.Thepreliminaryvaluationdeterminedtheplanhad
94.4%oftheassetsrequiredtomeetfuturepensionliabilitiesatthestartof2012.
fUndinG valUationcoMPaRiSon
2012
1
2011Filed
Smoothingadjustment (3.0) 3.3
Valueofassets 114.1 110.8
Futurebasiccontributions 37.6 33.8
Futurespecialcontributions 3.6 3.8
FuturematchingofCIPbeneftreduction 6.8 5.1
Totalassets 162.1 153.5
Costoffuturepensions (178.5) (158.4)
ReductionincostduetoCIP 6.8 5.1
(Defcit)/surplus (9.6) 0.2
1
Preliminaryvaluation,basedonFundingManagementPolicyassumptionsnotfledwith
pensionregulator.
Thecurrentpreliminaryshortfallwasexpectedandemergeddespitethe
decisionmadelastJunetoincreasecontributionsandinvoke60%conditional
infationprotectiontoresolvethe2011fundingshortfall.Netassetsincreased
in2011,butplanliabilitiesincreasedmore,primarilyduetotheefectoffalling
realinterestrates.Thedemographicandeconomicfactorsexplainedabove,
aswellasthecontinuingimpactofabsorbingthe2008investmentloss,also
contributedtotheshortfall.
Fewerteachersthanexpectedretiredin2011,whichhadaslightlypositive
impactonthevalueoftheplansliabilities.Thisdiferencewas,however,ofset
byincreasinglongevity,whichcontinuestoexceedourmostup-to-dateand
advancedmortalityassumptionfgures.
24
STATE OF THEPLAN
Wecontinueworkingwith
oursponsorstoseekthe
bestsolutionstolong-term
fundingchallenges.
Theaccompanyingtableshowsassumptionsusedinthepreliminaryvaluation.
ConsistentwiththesponsorsFundingManagementPolicy,theboardapplied
arealrateofreturnassumptionforthepreliminaryfundingvaluationof2.85%
(withsmoothing).
fUndinG valUationaSSUMPtionS
(percent)
2012
1
2011Filed
Rateofreturn 5.05 5.40
Infation 2.20 2.15
1
Preliminaryvaluation,basedonFundingManagementPolicyassumptionsnotfledwith
pensionregulator.
Valuationassumptionschangeovertime.Whileactualexperiencetracks
mostassumptionsclosely,annualfundreturnstypicallyfuctuatesignifcantly
comparedtotheassumptions.
fUndinGoUtlookandPRioRitieS
Weexpectthecostoffuturepensionstocontinuegrowingfasterthanplan
assets,resultinginrecurringfundingshortfalls.Thenextdeadlinetoflea
fundingvaluationwiththepensionregulatoris2014.Anyshortfallexistingat
thetimeofthenextflingmustberesolvedbeforeitcanbesubmitted.
Thecurrent$9.6billionpreliminaryshortfallistoolargetoberesolvedusing
thefullextentofbothmeasuresincludedinthecurrentFundingManagement
Policy:theabilitytoincreasethecontributionrateto15%forearningsabove
theyearsmaximumpensionableearningsandtofurtherinvokeconditional
infationprotectionattheminimumof50%forpensioncreditearnedafter
2009.Giventhefundingrisksandchallengesdiscussedinthisreport,the
boardbelievesothersolutionswillbenecessarytoensurethatthefund
remainsviableandafordableinthefuture.
Theboardmembersandmanagementmeetwiththeplansponsorsregularly
toupdatethemonthefundingstatusanddiscussconcerns.Theplan
sponsorsrecognizethechallengestheplanfacesand,together,weare
undertakingimportantactivitiesbeforethenextflingisrequired,including:
i)studyingretirementtrendstounderstandhowtheyimpacttheplans
fundingstatus;andii)conductingsurveysin2012togaugeworkingmembers
awarenessoftheplansfundingchallengesand,separately,asurveyofretired
memberstohelpthesponsorsunderstandfactorsthatinfuencedecisions
onwhentoretire.In2013,workingmemberswillbesurveyedabouttheir
preferencesforpotentialplanchanges.Additionally,aDemographic
TaskForcewithsponsorandplanrepresentativesisworkingwiththe
UniversityofWaterlootoupdatemortalitytables,carefullyreviewother
non-economicassumptionsandproposepotentialplanchangestoaddress
demographicchallenges.
25
STATE OF THEPLAN
financialStateMentvalUation
Methods and assumptions used for the fnancial statement valuation
Thefnancialstatementvaluationispreparedbyanindependentactuary
foraccountingpurposes.Itisbasedonthebestestimatesprovidedby
managementandapprovedbyboardmembers.Ittakesintoaccountpension
creditaccruedtodatebyallplanmembersandcontributionsalready
receivedbytheplan.Unlikethefundingvaluation,itdoesnotassumefuture
contributionsorprojectthecostofbeneftsthatmemberswillearninthe
future.ThismethodisincompliancewiththeguidancefromtheCanadian
InstituteofCharteredAccountants(CICA).Useofestimatesandvaluation
techniquesaredescribedfurtherinNotes1dand1fandNote4tothe
fnancialstatements.
Planmanagementreviewedthedevelopmentandselectionofcriticalaccounting
estimateswiththeAudit&ActuarialCommitteeoftheboard.Actuarial
assumptionsusedindeterminingaccruedpensionbeneftsrefectbestestimates
offutureeconomicandnon-economicfactorsproposedbymanagementand
approvedbytheboard.Theprimaryeconomicassumptionsarethediscount
rate,salaryescalationrateandinfationrate.Thenon-economicassumptions
includeplanmembermortality,withdrawalandretirementrates.Theplans
actualexperiencetypicallydifersfromtheseestimates,andthediferencesare
recognizedasgainsandlossesinfutureyears.
Thebest-estimatediscountrateforthefnancialstatementvaluationisbased
onthemarketrateoflong-termGovernmentofCanadabonds,whichhave
characteristicssimilartotheplansliabilities,plusaspreadtorefectthe
creditriskoftheProvinceofOntario.CommencingDecember31,2011,the
spreadwaschangedfrom0.5%to0.9%,theprevailingspreadbetweenthe
GovernmentofCanadaandtheProvinceofOntariolong-termnominalbonds.
Forthisvaluation,accruedpensionbeneftsareassumedtoincludethe
minimuminfationprotectionbenefts,whichare60%forpost-2009credited
serviceuntilthenextrequiredflingin2014and50%fortheperiodthereafter.
Theindexationpercentageforcreditedserviceearnedbefore2010remains
at100%.
financial statement valuation as at December 31, 2011
Theplanended2011withafnancialstatementdefcitof$45.5billion.This
comparestoafnancialstatementdefcitof$39.4billionfor2010.Thedefcit
representsthediferencebetweenthecostofaccruedpensionsandnet
assetsof$117.1billion.Thediscountrateusedwas3.40%(4.05%in2010).The
fnancialpositionoftheplanissummarizedinthethreeaccompanyingtables.
26
STATEOFTHEPLAN
Astable1shows,netassetsavailableforbeneftstotalled$117.1billion,upfrom
$107.5billionin2010.Thefnancialstatementvaluationnolongerincludesa
smoothingadjustmentfornetassetsinaccordancewithCICASection4600,
adoptedin2011(seeNote1btothefnancialstatements).Accruedpension
beneftsonafnancialstatementbasiswere$162.6billion($146.9billion
in2010).
The$45.5billiondefcitrepresentsthediferencebetweenthecostof
pensionsearnedtodateandnetassets.
table1:yeaR-endfinancialPoSition
(asatDecember31)($billions) 2011 2010
netassets
Netinvestments $ 116.3 $ 104.7
ContributionsreceivablefromProvinceofOntario 2.7 2.6
Othernetassets/(liabilities) (1.9) 0.2
financialstatus
Accruedpensionbenefts (162.6) (146.9)
Defcit $ (45.5) $ (39.4)
table2notesthat2011investmentreturnstotalled$11.7billion,comparedto
$13.3billionin2010.Contributionsreceivedfromteachers,thegovernment
anddesignatedemployerstotalled$2.8billion,while$4.7billionwaspaidout
inpensionbenefts.Thiscomparestocontributionsof$2.7billionandbeneft
paymentsof$4.5billionin2010.
Thecontributionrateforteachersin2011was10.4%ofearningsuptothe
CPPlimitof$48,300,plus12.0%ofearningsabovethat.
table2:chanGeSinnetaSSetSavailablefoRbenefitS
(fortheyearendedDecember31)($billions) 2011 2010
income
Investmentincome $ 11.7 $ 13.3
Contributions 2.8 2.7
14.5 16.0
expenditures
Benefts 4.7 4.5
Administrativeexpenses 0.3 0.3
5.0 4.8
Increaseinnetassets $ 9.5 $ 11.2
27
STATEOFTHEPLAN
Beneftspaid,shownintable3,includetheadditionof4,300retirement
anddisabilitypensionsand760survivorpensionsduring2011,aswellasa
1.4%cost-of-livingincrease,efectiveJanuary1,2011.
table3:accRUedPenSionbenefitS
(fortheyearendedDecember31)($billions) 2011 2010
Accruedpensionbenefts,beginningofyear $ 146.9 $ 131.9
Interestonaccruedpensionbenefts 6.0 6.1
Beneftsearned 4.4 3.3
Beneftspaid (4.7) (4.5)
152.6 136.8
Changesinactuarialassumptions 9.8 10.4
Experiencelosses/(gains) 0.2 (0.3)
Accruedpensionbenefts,endofyear $ 162.6 $ 146.9
28
Investments
Wemanageinvestmentriskand
aby-productisasolidreturnover
thelongrun.Thisisthefoundation
ofourperformance.
neilPetRoff, Mba
EXECUTIVE VICE-PRESIDENT,INVESTMENTS AND CHIEF INVESTMENT OFFICER
netaSSetS
Netassetsreachedarecordhighattheendof2011,
ayearinwhichinvestmentgainswereachievedamid
difcultmarketconditions.
C
6C
4C
2C
8C
CC
$2C
92 9 9C 93 94 95 96 97 98 99 CC C C2 C3 C4 C5 C6 C7 C8 C9 C
$117.1
29
INVESTMENTS
obJectiveandStRateGieS
TheobjectiveofTeachersinvestmentprogramistohelptheplanmeet
itslong-termfundingneeds,whichinturncontributestopensionsecurity,
contributionratestabilityandlong-termsustainability.
Weseektoachievethisobjectiveby:i)maximizingreturnsatanappropriate
levelofrisk,takingintoaccountthepensionliabilitiesandchallenges
presentedbytheplansmaturemembershipprofle;andii)minimizingthe
diferencebetweenassetvaluesandpensionobligations,whichisthebest
waytoachievecontributionrateandbeneftstability.
Tomeetourobjective,weusestrategiesforrisk,assetmix,liquidityand
activemanagement.
Help meet
long-term
funding needs
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Activeriskmanagement
underpinsTeachers
investmentstrategies.
30
INVESTMENTS
Supplementary
investmentinformation
isavailableon
pages118to121and
atotpp.com.
determiningappropriaterisk
Weallocateconsiderableresourcestounderstandingandmitigatingrisks,
andtoensuringtheinvestmentriskswetakeareappropriateandproperly
diversifed.Insimpleterms,wemanageinvestmentriskandaby-productisa
solidreturnoverthelongrun.
Ourriskmanagementactivitiesarefocusedontheultimateriskfacingthe
plan:thattheplansassetswillfallshortofitsliabilities.
Werecognizethatfundingriskcancomefromassetsandliabilities.Both
typesofriskhaveasignifcantimpactontheplansfundingstatus,both
canbemeasuredand,tovaryingdegrees,bothcanbecontrolledand
managedstrategically.
Thelargestliabilityriskisadecreaseinrealorafter-infationinterestrate
projections.Whilefallingrealinterestrateshaveapositiveefectoncertain
assets,theyhaveanegativeandmoresignifcantimpactontheestimated
currentvalueoffutureliabilities.
Assetrisk,ontheotherhand,includestheriskthatthevalueofour
investmentsdeclines.Weuseriskbudgetingtospreadriskacrossthefunds
assetclassesandtogeneratesuperiorreturnsonarisk-adjustedbasis.In
otherwords,weexpectthefundtobepaidfortheriskstaken.Ourinvestment
managersarelimitedintermsofhowmuchactiverisktheycantaketo
generatereturnsandmustbeasconcernedaboutthepotentialforlossfrom
aninvestmentastheyareabouthowmuchmightbeearned.
Wemaintainacomprehensiveasset-liabilitymodeltounderstandlong-term
dynamicsforinvestmentplanningpurposes.Wemeasureriskagainstthe
plansliabilitiesandbenchmarks,andwemonitorandreporttheobservedrisk
valuesagainstthosebudgetedonadailybasisthroughtheplansrisksystems.
Proactive risk management
Proactivelymanagingrisksrequiressubstantialattentionbyourboard
membersandtheinvestmentdepartment.TheInvestmentCommitteeofthe
board,whichcomprisesallboardmembersandisscheduledtomeetsixtimes
ayear(andwillmeetmoreoftenasrequired),reviewsandapprovestherisk
budgetannually,monitorsoverallinvestmentriskexposureandreviewsand
approvesriskmanagementpoliciesthatafectthetotalportfolio,aswellas
newinvestmentprogramsthatintroduceincrementalrisk.
ManagementsInvestmentRiskCommittee,comprisinginvestment,
economics,fnanceandlegalprofessionals,andourInvestmentCommittee,
comprisingseniorinvestmentexecutivesonly,providethededicatedfocus
weneedtounderstandplanfundingrisksandtomanageinvestmentswithin
appropriaterisktolerances.Webelievethatthissegregatedapproachalso
allowsfori)betterportfolioconstructionandthefacilitationofimproved
investmentriskmanagementacrossthefundinordertoefectivelydiversify
riskacrossassetclasses;ii)theongoingmanagementoffund-wideliquidity;
andiii)improvedongoingassessmentofasset-mixdecisionstoenhanceour
long-terminvestmentsuccess.
31
INVESTMENTS
Adiscussionofrisk
managementpolicies
andproceduresrelating
tocredit,market
andliquidityrisks,as
requiredunderIFRS7,
FinancialInstruments
Disclosures,isincluded
inNote2ofthefnancial
statements.
Anumberofmanagementcommitteesmonitorandmanagefund-wide
riskexposureincludingliquidity,emerging-marketexposures,counterparty
creditexposuresandregulatorymatters.
Risk management tools and culture
Dailyriskmanagementisaidedbysophisticatedtoolsandprocessesthat
wehavedevelopedandadvancedoverthepast16years.Inrecentyears,we
updatedourdataandprocessingsystemstoimprovereportingaccuracy
anddevelopedamoreholisticapproachtodatagovernance.Thedatain
ourrisksystemisupdatedcontinuouslyandincludesrecentextreme
marketexperiences.
Integratedsystemsallowustobettermanagedata,morefullyreporttotal-
fundrisk,strengthenriskmodellingandprovideinvestmentmanagers
withusefulreportstoaidthemintheirdecision-making.Wehaveenhanced
ourabilitytocapturethetermsandconditionsrelatingtothecomplex
fnancialproductsinwhichweinvestandhavemadethisandother
informationreadilyaccessibletoanalystsandportfoliomanagersthrough
electronicdashboards.
Throughourrisksystem,whichprovidesconsolidated,coordinatedviewsof
theentirefundanditscomponentsandcollaborationacrossportfolios,weare
abletomeasurepotentiallossinseveralways:
withineachportfolioandseriesofportfolios;
acrossdepartments;
acrossassetclasses;and
atthetotal-fundlevel.
Ourorganizationhasarisk-consciousculture.Wechampionriskawareness
andaccountabilityacrossourinvestmentteams.Understandingthat
broaddiversifcationisourmostimportantriskmanagementtool,wefocus
onriskdiversifcationacrossthetotalfund,takingcarenottoduplicaterisks
inadvertentlyacrossportfolios.Wealsoputconsiderableefortintochoosing
anappropriateasset-mixpolicy.
Selectinganappropriateassetmix
Asset-mixselectionistheprimarydriveroftheplanslong-terminvestment
performance.Ourasset-mixpolicycallsforadiversifedportfolio,including
equities,fxedincome,commoditiesandrealassets(realestate,infrastructure
andtimberland).
Theboardapprovestheasset-mixpolicyatleastannually,making
modifcationswhenrequired.Theboardgivesmanagementlimiteddiscretion
toincreaseordecreasetheweightingtotakeadvantageofinvestment
opportunitiesastheyarise.
Absolute return strategies and money market
Theboardgivesmanagementthediscretiontouseabsolutereturnstrategies
togeneratepositivereturnsthatareconstructedtobeuncorrelatedtoour
otherassetclasses.
32
INVESTMENTS
Ourinternallymanagedabsolutereturnstrategiesgenerallylooktocapitalize
onmarketinefciencies.Externalhedgefundassetsareusedtoearn
uncorrelatedreturnsoraccessuniquestrategiesthataugmentreturns.
Byusingseveralhedgefundmanagers,wediversifyriskacrossmultiple
managers,strategiesandstyles.
Assetsemployedinabsolutereturnstrategiestotalled$12.3billionatyearend
comparedto$11.4billionatDecember31,2010,refectingstrongperformance
throughouttheyear.
Money-marketactivityprovidesfundingforinvestmentsinallassetclasses,and
iscomparabletoatreasurydepartmentinacorporation.Derivativecontracts
andbondrepurchaseagreementshaveplayedalargepartinourinvestment
programsincetheearly1990s.Forefciencyreasons,weoftenusederivatives
togainpassiveexposuretoglobalequityandcommodityindicesinlieuof
buyingtheactualsecurities.Weusebondrepurchaseagreementstofund
investmentsinallassetclassesbecauseitiscostefectiveandallowsusto
retainoureconomicexposuretogovernmentbonds.
netinveStMentSbyaSSetclaSS
Netinvestmentsaredefnedasinvestmentsof$156.6billionminusinvestment-relatedliabilities
of$40.3billion,asnotedinthestatementsoffnancialposition(page82).
44% Equities $5.7 billion
Canaoian uitis
2D11
$10.6
41.1
26.5
29.3
5.7
15.0
8.7
2.1
12.3
(35.0)
2CC
$9.3
38.2
22.7
23.2
Non-Canaoian uitis
Ponos
Ral-rat prooucts
Commooitis
Ral stat
lnrastructur
Timbrlano
/bsolut rturn stratgis
Mony markt
48% Fixed income $55.8 billion
22% ReaI assets $25.8 billion
-3C% Money market ($35.C billion)
% AbsoIute return strateQies $2.3 billion
5% Commodities $5.7 billion

0
40
80
120
160
5.2
16.9
2.2
7.1
11.4
(31.5)
$116.3 Total $104.7
actUalPoRtfolio
(asatDecember31,2011)
33
INVESTMENTS
Long-termpriorities
Theinvestmentdepartments
long-termprioritiesdirectly
contributetotheplansobjectives.
Earnvalue-addedreturnsabove
thepolicyasset-mixbenchmark
withreasonablerisktohelp
ensureretirementsecurity
formembers.
Fostergoodcommunication
withsponsors,board
membersandemployeesto
promoteanunderstanding
of,andcommitmentto,the
investmentprogram.
Continuebuildingacollaborative
planningprocessandimproving
coordinationamonginvestment
departmentsinordertorealize
synergiesandoptimizethe
total-fundportfolio.
Developenhancedrisk
managementtoolsand
processestosupport
continuedinnovationand
arisk-consciousculture.
Mitigateoperationalrisks
relatedtomanagingcomplex
cross-departmentalprojects
andimprovecostefectiveness.
ensuringanadequatelevelofliquidity
Liquidityriskisinherentintheplansoperationandrefersgenerallytothe
riskthattheplandoesnothavesufcientcashtomeetitscurrentpayment
liabilitiesortoopportunisticallyacquireinvestmentsinacost-efective
manner.Havingsufcientliquidityonhandisimportanttoallowtheplanto:
i)adjusttheassetmixinresponsetomarketmovements;ii)avoidsellinghigh-
qualitylong-termassetstomeetshort-termfundingneedsatinopportune
times;iii)meetshort-term,mark-to-marketpaymentsembeddedintheplans
derivativeexposure;andiv)facilitatetheallocationofrisktoilliquidassets
suchasrealestate,infrastructure,timberlandandprivateequity.
Thefundsliquiditypositionisgovernedbytheplansinvestmentpolicyand
isanalyzedandreportedregularlytotheboardsInvestmentCommittee.Our
policyistoholdatleast1%oftheplansassetsinunencumberedCanadian
treasurybills(increasedto1.25%asofJanuary1,2012).Tomeettheplans
short-termliquidityneeds,atyearendweheld$2.8billionintreasurybills
or2.5%ofassetsand$27.3billioninunencumberedgovernmentbonds,
comparedto$2.1billionand$18.5billionrespectivelyatyear-end2010.The
increaseinliquiditysupportsourlargerassetbaseandaddressesuncertainty
inglobalcreditandequitymarkets.Furthermore,thefundsliquidityposition
isperiodicallytestedthroughsimulationsofmajorcatastrophiceventssuchas
signifcantmovementsincapitalmarkets.
Lookingforward,weexpectthedeleveragingprocessunderwayinanumber
ofdevelopedcountrieswillleadtopublicassetprivatizationsandourliquidity
strategywillallowustoinvestopportunistically.
activelymanagingassetstoaddvalue
Activemanagementisahallmarkoftheplansinvestmentsuccess.Itinvolves
selectinginvestmentsthatwebelieveareundervaluedandemployingboth
fundamentalandquantitativestrategiestooptimizerisk-adjustedreturns.The
objectiveistoexceedthereturnsavailablefrompassivelyinvestinginindices
atasset-mixpolicyweights.Werefertosuchperformanceasvalueaddedand
therelevantindicesasbenchmarks.
Severalstrategiesareusedtomaximizereturnswithinourrisklimitsand
outperformthemarketsinwhichweinvest,startingwithourtotal-fund
managementapproach.Thisapproachencouragesinformationsharingand
movementofcapitalamongmanagersofthediferentassetclassesand
portfoliosinordertooptimizerisk-adjustedreturns.Value-addeddecisionsare
alsocoordinatedatthetotal-fundlevel,andportfoliomanagersarerewarded
formaximizingvalue-addedreturnswithintherisklimitontotalassets,not
justontheirownportfolios.
Thelargestactiveriskbudgetsarecurrentlyinpublicequities,privateequity
andrealestate.Theseassetshaveearnedsignifcantreturnsabovetheir
benchmarksovertime.
34
INVESTMENTS
ManaGinGinveStMentS
Thediligentapplicationofourcorestrategieshasresultedinstronglong-term
performanceforthefundandthedevelopmentofTeachersglobalreputation
asaninnovativeinvestor.Wecontinuetoadvanceourefortsonthefollowing
keyactivitiesthatdirectlysupportourabilitytoinnovateandperform.
Responsible investing
UndertheOntarioPensionBeneftsAct,wearerequiredtoexercisediligence
wheninvestingmembersmoneyandtodosointheirbestfnancialinterest.
Wehaveafduciarydutytotaketheutmostcareinourinvestmentdecisions,
toconsiderallinvestmentopportunitiesthatareappropriateforamatureplan
suchasoursandtoevaluateinvestmentsonanumberoflevels,includingrisk.
Whilewedonotselectorexcludeinvestmentssolelyonthebasisofnon-
fnancialcriteria,wehavelongrecognizedthatenvironmental,socialand
governance(ESG)risksandopportunitiescanhaveamaterialimpactonthe
investmentvalueofthecompaniesinwhichweinvest.
Consequently,wetakethesefactorsintoaccountwithinourapproachto
investingonbehalfofourmembers.Responsibleinvestingisanevolving
concept,withnosinglegenerallyaccepteddefnition.Toadvanceacommon
understandingofit,weareactivelyengagedwithotherglobalinstitutional
investorsandsupportenhanceddisclosureofrisksassociatedwithESG
activities.Enhanceddisclosurehelpsustounderstandtherisksthatcould
impactthevalueofthefundsinvestments,andenablesustomakethebest
possibleinvestmentdecisions.
Ingeneral,webelievethatproftablecompaniesthatarewellmanaged,
operatewithrespectfortheenvironmentandsupporthumanandlabour
rightsaregoodcandidatesforlong-terminvestment.
Inpractice,weaimtoimproveourtoolsforESGevaluations.Forexample,
climatechangeriskandinvestmentopportunityareassessedacrossasset
classesformateriality.Ifitisdeemedthatamaterialinvestmentriskexists,we
seektoquantifythatriskandtounderstandmanagementsplanformeeting
anystrategicchallengesposedbyit.
Consistentwithourresponsibleinvestingapproach,wesubscribetosocial
investmentmonitoringservicesthatcoverCanadian,U.S.andinternational
companiestoensurethatweareawareofemergingissuesandhow
corporationsareresponding.
Corporate governance
Ourresponsibleinvestingapproachfowsdirectlyfromourlegacyof
championingsoundcorporategovernancestandardsandpracticeswith
marketregulatorsandcompaniesglobally.Wedosobasedonourexperience
thatgoodgovernanceleadstolong-termvaluecreation.
TeacherssignsUnited
Nations-backedPrinciples
forResponsibleInvestment
In2011,webecameasignatory
totheUnitedNations-backed
PrinciplesforResponsible
Investmentinitiative(PRI).
PRIprovidesavoluntary
frameworkbywhichinvestors
canincorporateESGissues
intotheirdecision-making
andownershippractices.
Approximately900investment
institutionsandservice
providers,withassetstotalling
approximatelyUS$25trillion,have
becomesignatories.Ourinvesting
practicesarewellalignedwith
thePRIprinciples,andPRIis
consistentwithourcorevalues
ofchampioningaccountability
andriskconsciousness.
35
INVESTMENTS
Refectingtheglobal
natureofourinvestments
andashifttophysical,
directinvestingwithinour
indexportfolios,in2011we
votedinmoreshareholder
meetingsandmore
internationalmeetings.
In2011,wevoted99.9%ofourproxiesandabstainedonlyonceaswesoldour
investmentinacompanyshortlybeforeourvotewasrequired.Wevotedat
1,208shareholdermeetings,a24%year-over-yearincrease.Continuedgrowth
inourdirectholdingswithinindexedportfoliosaccountedfortheincrease,
andthisgrowthmanifesteditselfinourvotingatmorenon-NorthAmerican
companymeetings.Wealsocontinuedtoshareourviewswithexternal
investmentmanagerswhoarerequiredtoregularlysubmittheirvotingreports
tous,whichwereviewforconsistencywithTeacherspolicies.
PRoxyvotinG
(fortheyearendedDecember31)
Wevotefromatotal-planperspective,whichrequiresconsiderable
collaborationamongdepartments.Wetakeathoughtfulandwell-researched
viewandcontinuetobelievethattheelectionofqualifeddirectorsto
supervisecompanyactivitiesispreferabletoshareholdersdoingsodirectly.
In2011,wevotedagainst64%ofstockoptionplanspresentedtousforone
offvereasons:i)thetotalnumberofoptionsavailableforgrantwasgreater
than5%ofthetotaloutstandingcommonsharesofthecompany;ii)the
annualoptiongrantexceeded1%ofthecompanystotaloutstandingcommon
shares;iii)automaticvestingofoptionsonachangeofcontrol;iv)option
exchangeswhereout-of-the-moneyoptionsareexchangedfornewoptions;
andv)featuresthatallowforarollingmaximumofsharesavailableforgrant.
WecontinuedtosupportshareholderproposalstoseparatetherolesofChair
andCEO,installmajorityvotingfordirectorelection,andallowshareholders
representing10%ormoreoftheoutstandingsharestocallaSpecialMeeting.
Ouractiveapproachtochampioningsoundgovernancestandardshasearned
Teachersaninternationalreputationasacorporategovernanceleader.Along
withotherresponsibleinvestinginitiatives,webelieveitcontinuestosupport
ouroverallobjectiveofhelpingtheplantomeetitslong-termfundingneeds.
0
300
200
100
400
600
500
700
11 10 09 11 10 09 11 10 09
Canada United States International
36
INVESTMENTS
2011corporate
governanceactivities
Ourprogramisdesignedtoidentify
andmitigategovernanceriskin
thecompaniesinwhichweinvest.
Inadditiontovotingourproxies,
weactivelypromotegovernance
initiativesaroundtheworld.In2011,
thisincluded:
promotingourviewson
specifcgovernanceissues
tomorethan600ofthe
worldslargestcompanies
throughourannualdirect
communicationscampaign;
becomingthefrstinternational
investortocomplywiththe
Stewardship Codepublishedby
theFinancialReportingCouncil
intheUnitedKingdom;
continuingtosponsorresearch
attheClarksonCentreforBoard
EfectivenessattheUniversity
ofToronto;and
commentingpubliclyonavariety
ofregulatorymattersaroundthe
world,oftenincollaborationwith
otherinvestors.
Internal asset management reduces costs
ThesuccessoftheInvestmentDivisionisdependentonouremployees
continuouslyadvancingandapplyingourstrategies.Asalearningorganization,
Teachersisaleaderindevelopingpensioninvestmentmanagersandiswidely
consideredaglobalpioneerinourfeld.Thisrequiresongoinginvestmentin
talentandtherecognitionthattalentdevelopmentisitselfakeystrategy.
DevelopingourtalenthasenabledTeacherstocreatearepeatableinvestment
processandhasgivenustheintellectualcapitalandexpertisethatare
fundamentallyimportantingeneratingfundreturnswhilecontainingcosts.
AsoneofCanadaslargestpensionfunds,weprovideourpeoplewiththe
resources,trainingandcareeropportunitiesneededtomeetthehighest
professionalstandards.Theseareimportantfactorsinourabilitytoattract
andretainleadinginvestmentprofessionals.Ourpeoplearepassionate
abouttheirwork,innovativeanddeeplyengagedwithtotal-fundstrategies
andactivities.
Nevertheless,therearemarketsinwhichitismoreadvantageousforusto
investthroughexternallymanagedfunds.Weuseexternalmanagementto
targetinvestmentsthatrequirelocalorspecializedexpertisethatwehave
strategicallydecidednottodevelopin-house.
Identifying market trends
Ourcoreinvestmentstrategiesmustworkinthecontextofdynamic
globalmarkets,soitisincumbentuponustoengageinarobustannual
investmentplanningprocess.Thisprocessfocusesonidentifyingboth
long-termtrendsandmedium-termrisksthatwillimpactthefundsfuture
investmentperformance.
Whileoutlooksarebynaturesubjecttoahighdegreeofimprecision,the
processofreviewingtrendsandprojectingpossibleoutcomesisanimportant
partofourapproachtoriskmanagementandasset-mixpositioning.
fiScalconditionS2011
-110
0
D
e
b
t
D
e
c
i
t
-30
-70
70
30
110
-10
0
-5
5
10
Emerging
Markets
Developed
Markets
Debt-to-GDP (%)
Decits-to-GDP (%)
37
INVESTMENTS
Forexample,inourmostrecentreview,weobservedasignifcantdiference
betweentheoutlookfordevelopedmarkets(DMs)andemergingmarkets
(EMs).Developedeconomiesandmarketscontinuetosuferthelingering
impactoftheglobalfnancialcrisisandremainchallengedwithhighdebt
andfscaldefcits.Thishasresultedintheirweaker-than-normaleconomic
recoveryfollowingtheglobalfnancialcrisis.Furthermore,efortsto
simultaneouslyreducedebtinboththeprivateandpublicsectorsraisethe
riskofcontinuedslowgrowthoverthemediumterm.
Alternatively,manyEMcountrieshaverecoveredwellfromthefnancialcrisis
duetostrongerbalancesheets,undervaluedcurrenciesandmorefexibility
ontheeconomicpolicyfront.FactorssupportingeconomicgrowthinEMs
overthelongertermaretheirmorefavourabledemographicsandstronger
productivitygrowth.However,EMcountriescannotbeviewedasbeing
homogenous;eachcountryhasuniquerisksthatmustbecarefullyassessed.
Forexample,anunwillingnessofsomeEMcountriestoallowtheircurrencies
toappreciateincreasestheirriskofexperiencinginfationandcouldleadto
assetpricebubbles.Animportantpartofourinvestmentprocessistoidentify
theserisksandensurewehaveadequatediversifcationacrossalleconomies
andassetclasses.
PeRfoRMance
Measuring performance
Wearelong-terminvestors,andthereforethemostrelevantmeasureofour
performanceisovermultipleyears.Inthisannualreport,wediscloseourtotal-
fundrateofreturnonanactualbasisandagainstabenchmarkonaone-,
four-andten-yearbasis,aswellassince1990whenwebeganourinvestment
program.Investmentreturnsarecalculatednetoftradingcosts,investment
managementexpensesandexternalmanagementfees,andarecalculatedin
Canadiandollars.
WemeasuretotalplanreturnagainstaCanadiandollar-denominated
compositebenchmark,whichiscalculatedbyaggregatingresultsfromeach
ofthepolicyasset-classbenchmarksandweightingthosebenchmarkssothat
theyarethesameastheplansasset-mixpolicyweightings.
Benchmarkingisimportanttoourboardmembers,employeesandplan
membersinthatitenablesustoevaluatetheefectivenessofourinvestment
strategiesandactivitiesrelativetotheriskstaken.Ineachcase,westriveto
exceedthebenchmark,andwhenwedo,thisisdescribedasvalueadded.
Establishingappropriatebenchmarksisacomplextask,andforthatreason
wehaveabenchmarkingcommitteechairedbytheCEOthatprovides
oversight.Thecommitteeusesarigorousprocessforrecommendingand
adjustingbenchmarks.Onlyourboardmemberscanapprovechangesto
fundbenchmarks.
38
INVESTMENTS
benchMaRkS USedtoMeaSURePlanPeRfoRMance
benchmark
canadianequities S&P/TSX 60
Custom Long Term Canadian Equity
non-canadianequities S&P 500
MSCI EAFE+EM
MSCI All Country World ex Canada
MSCI Emerging Markets
MSCI Emerging Markets ETF
Custom Non-Canadian National Indices
Custom Global Private Capital Benchmark
Custom Long Term Non-Canadian Equity
fixedincome Custom Canada Bond Universe
Custom Canada Long Bond Universe
Custom Provincial Long Bond
Custom Ontario Debentures
Custom Canada Real Return Bond
Custom U.S. Treasury Infation Protected Securities
DEX 91 Day T-Bill
commodities S&P GSCI
S&P GSCI 3-Month Forward
Custom Commodities Hedge
Realassets CPI plus 5.0% plus IPD Canada Capital Growth
(Real Estate)
DEX BBB Real Estate Debt
Local CPI plus 4% plus country risk premium
(Infrastructure and Timberland)
totalplan Custom Canadian CDOR Index
Custom U.S. LIBOR Index
Custom Canadian OIS Index
Custom U.S. OIS Index
RateSofRetURncoMPaRedtobenchMaRkS
1Year 4Year
(percent) Actual Benchmark Actual Benchmark
equities (0.8)% (5.1)% (0.3)% (3.4)%
Canadianequities (5.0) (9.1) (2.3) (1.6)
Non-Canadianequities 0.2 (4.4) 0.2 (4.1)
fixedincome 19.9 19.5 9.8 9.5
Real-returnproducts 21.7 21.7 10.5 8.8
Bonds 18.0 17.2 9.6 9.4
commodities (2.3) (1.5) (10.3) (10.0)
Realassets 13.1 13.3 7.1 7.8
Realestate 18.2 21.8 9.1 10.4
Infrastructure 7.7 6.1 4.9 5.1
Timberland 0.8 10.2 0.5 6.8
totalplan
1
11.2% 9.8% 4.2% 4.4%
1
Returnsgeneratedbyabsolutereturnstrategiesandmoneymarketareincludedinthetotal
planreturnandnotattributedtoanassetclass.
Benchmarkingenables
ustoevaluatethe
efectivenessofour
investmentstrategiesand
activitiesrelativetothe
riskstaken.
39
INVESTMENTS
Investment costs
Managingasuccessfulinvestmentprograminvolvescostsinareassuch
assalariesandbenefts,feesandcommissionsandresearch.Theplanis
committedtocostefectivenessandviewscertainexpendituresasnecessary
toachievelong-termperformancerequirements.In2011,totalinvestment
costswere$289millionor27centsper$100ofaveragenetassets,compared
to$290millionor30centsper$100in2010.Thisprimarilyrefectsadecrease
inincentivepaymentsin2011.
2011 Markets in review
Whileeconomicgrowthisakeydriverofassetreturnsandbondyieldsover
thelongterm,shorter-termperformanceislargelyinfuencedbychangesin
marketsentiment.Overmuchofthepasttwoyears,fnancialmarketshave
oscillatedbetweenboutsofoptimismandpessimism.Theselargeswings
insentimenthavebeenprimarilydrivenbythehighlyuncertaineconomic
conditionsinapost-fnancialcrisisenvironment.Thestrongrallyintheearly
partof2011wastriggeredbyasecondroundofquantitativeeasinginthe
U.S.However,thiswassoonovershadowedbypessimisminthethirdquarter
duetotheintensifcationoftheEurozonesovereigndebtcrisisandfearsof
anotherglobalrecession.InlateNovember,marketsentimentturnedonce
againasaresultofbetter-than-expectedeconomicperformanceintheU.S.
andaggressivepolicyactionsfromtheEuropeanCentralBank.
Overall,sectorsandregionsmostsusceptibletothesovereigncrisis,suchas
Europeanequitiesandthefnancialsector,underperformed.U.S.andCanadian
bondmarketsperformedwell,andCanadianbondyieldscontinuedtodecline,
reachingnewrecordlows.Thiswasconsistentwithourmuddling-through
thesisthatbondyieldscanstaylowforaprolongedperiodoftimeinabelow-
trendgrowthenvironment.Wenotethatcentralbanksinmostdeveloped
marketsarenotexpectedtoraisetheirpolicyinterestratesuntil2014.
SincewemeasurethefundsperformanceinCanadiandollars,itisimportant
tonotehowourcurrencyfaredagainstothercurrenciesinwhichwehave
signifcantexposures.Weactivelymanagethesecurrencyexposures.
netcURRencyexPoSURe
(asatDecember31,2011)($billions)
Currencyexposuresare
activelymanaged.
$22.88
$5.76
$4.68
$0.72
$2.54
$1.89
$3.02
$1.97
U.S. Dollar
Brazilian Real
Chilean Peso
Japanese Yen Chinese Renminbi
British Pound
Sterling
Euro
Swedish Krona
$4.92
Other $1.50
Australian Dollar
$1.01
South Korean
Won
40
INVESTMENTS
Total return
Theplanpostedan11.2%returnin2011,generating$11.7billionininvestment
income.Investmentincomewasproducedmainlybyprivateequity,realestate,
fxedincomeandinfrastructure.Netassetswere$117.1billioncomparedto
$107.5billionattheendof2010.
Asdetailedintheaccompanyingtable,thetotalreturnexceededthe
compositebenchmarkreturnof9.8%by1.4percentagepoints.Thisadded
$1.4billioninvalueabovethebenchmark.Value-addedreturnsresulted
mainlyfromprivateequity,fxedincomeandinfrastructure.Thetotalplan
hasanannualgrowthof4.2%overthepastfouryears,underperformingthe
compositebenchmarkby0.2percentagepointsfor-$0.4billioninvalue
addedprimarilyduetorecognitionof2008losses.
inveStMentPeRfoRMance
Since
(percent) 2011 2010 4-year 10-year Inception
Totalreturn 11.2 14.3 4.2 8.0 10.0
Benchmark 9.8 9.8 4.4 6.0 7.8
Returnabove
benchmark($billions) $1.4 $4.0 $(0.4) $16.5 $24.6
inveStMentincoMeeaRned
(fortheyearendedDecember31)($billions)
-5
C
$5
C9 C7 C5 C3 C 99 97 95 93 9
$11.7
41
INVESTMENTS
aSSet-claSSRevieW
equities
Theplanusesequitiestodeliverinvestmentgrowthfortheplan.Thisasset
classincludespublicequities(companieslistedonastockexchange)and
privateequities,whicharelessliquidandbestsuitedforpatientinvestors
willingtoparticipateforlong-termgains.
Thevalueoftheplansequityinvestments(bothpublicandprivate)totalled
$51.7billionatyearendcomparedto$47.5billionatDecember31,2010,as
additionalcapitalwasdeployedtomaintainourpolicyasset-mixweightingat
approximately45%.
Onaone-yearbasis,equitiesreturned-0.80%comparedtoabenchmark
returnof-5.1%fortotalvalueaddedof$2.0billion.Ourequityportfolioearned
$1.2billionindividendsin2011.Onafour-yearbasis,equitiesgenerateda
-0.3%compoundannualreturncomparedtothefour-yearbenchmarkof
-3.4%fortotalvalueaddedof$4.8billion.Theasset-classbenchmarkis
acompositeofCanadianandinternationalindicesandglobalprivate
equitybenchmarks.
Mostequitymarketsperformedpoorlyin2011.Wedeliveredvalue-added
performanceineachofourequitysegments,asdescribedbelow.Atyearend,
equityvaluationsremainedattractiverelativetohistoricalnorms,anddividend
yieldsinNorthAmericawerewellaboveinfation.
Non-Canadian equities
Non-Canadianequities(bothpublicandprivate)totalled$41.1billionatyear
endcomparedto$38.2billionatDecember31,2010,andreturned0.2%
comparedtoabenchmarkreturnof-4.4%fortotalvalueaddedof$1.6billion.
Onafour-yearbasis,non-Canadianequitiesgenerateda0.2%compound
annualreturncomparedtothefour-yearbenchmarkreturnof-4.1%fortotal
valueaddedof$5.3billion.
Equitymarketperformanceinmajoreconomieswasgenerallyweakdueto
fearsofaEurozone-ledrecession.ExpressedinCanadiandollars,ourreporting
currency,theFTSE100wasdown-0.4%ontheyear,theDAXwasof-15.4%
andtheCAC40andtheHangSengweredown-13.8%and-15.2%respectively.
Brazilrepresentsourlargestemergingmarketexposure.Itsmainindexclosed
down-25.3%atyearend,alsoexpressedinCanadiandollars.
TheU.S.equitymarketwastheoutlierduring2011and,forthefrsttimein
severalyears,outperformedtheS&P/TSXComposite.MeasuredinCanadian
dollars,theS&P500wasup4.6%yearoveryear.OurincreasedU.S.holdings
contributedtovalue-addedperformance.
Directholdingsincreasedin2011,althoughderivativesremainaprimary
waytogaincost-efectiveexposuretoglobalpublicequitymarkets.This
approachalsoallowsustofocusonasmalleruniverseofstocksforourmore
concentratedactiveandRelationshipInvestingportfolios.
WaynekoZUn,
Mba,cfa
SENIORVICE-PRESIDENT,
PUBLICEQUITIES
42
INVESTMENTS
Non-Canadianequitiesareoverseenbybothinternalandexternalmanagers
usingacombinationofactivestrategiesandindexfunds.Wecontinuetobuild
internalcapacitiestodirectlymanageemergingmarketstocks.
10-yeaR canadian/U.S.MaRketindexcoMPaRiSon
(percent)
Canadian equities
Canadianequities(bothpublicandprivate)totalled$10.6billionatyearend
comparedto$9.3billionatDecember31,2010,andreturned-5.0%comparedto
abenchmarkreturnof-9.1%fortotalvalueaddedof$0.4billion.Onafour-year
basis,Canadianequitiesgenerateda-2.3%compoundannualreturn,compared
tothefour-yearbenchmarkof-1.6%forunderperformanceof-$0.5billion.
Canadianequitymarketsareheavilyweightedtoextractiveindustries,
whichperformedpoorlyin2011.Performanceagainstthebenchmarkduring
theyearrefectedoutperformanceofCanadianprivateequities,whichis
discussedbelow.
Teachers Private Capital
TheperformanceofprivateequitiesmanagedbyTeachersPrivateCapital
(TPC)isconsolidatedwiththeCanadianandnon-Canadiansegmentsnoted
above.However,duetotheuniqueriskandliquidityprofleofprivateequities,
TPCresultsaresegregatedhereforreference.
Formedin1991,TPCinvestsdirectlyinprivatecompanies,eitheronitsownor
withpartners,andindirectlythroughprivateequityandventurecapitalfunds
managedbythirdparties.Today,itisoneofthelargestinvestmentpoolsof
itskindintheworldandwasinductedin2011intoThePrivateEquityHallof
FameaschosenbytheeditorsofDowJonesPrivateEquityAnalystfor
exemplaryandenduringcontributionstoventurecapital,buyoutandrelated
privateequitydisciplines.Sinceitsinception,TPCscoreportfolio(direct
investments,co-directinvestmentsandprivateequityfunds)hasgeneratedan
internalrateofreturnof19.3%.
TSX ($C)
S&P 500 ($C)
-20
-40
20
0
40%
11 10 09 08 07 06 05 04 03 02
JaneRoWe,Mba,icd.d
TEACHERSPRIVATECAPITAL
43
INVESTMENTS
Privateequityinvestmentstotalled$12.2billionatyearendcompared
to$12.0billionatDecember31,2010,andreturned16.8%comparedtoa
benchmarkreturnof-0.2%for$1.6billioninvalueadded.Onafour-yearbasis,
theseassetsgenerateda4.2%compoundannualreturncomparedtothefour-
yearbenchmarkreturnof-1.0%for$1.4billioninvalueadded.
TPCsextraordinaryvalue-addedperformancein2011refectedasignifcant
numberofmonetizationsandvaluationadjustmentswithinitsportfolio
holdings.Additionally,TPCredeployedapproximately$1.7billionofcapital
tonewprivateequityinvestmentsduringtheyear.Threesignifcantdirect
investmentsweremadealongwithinvestmentsintwonewfundsand
reinvestmentswithfveexistingfunds.TPCcontinuestoexpanditsglobal
reachbyworkingwithprivatefundsaroundtheworld.
tPcPoRtfolio
(asatDecember31,2011)(percent)
fixedincome
Ourfxedincomeinvestmentsareusedtoprovideinvestmentsecurityand
steadyincomeand,moregenerally,tostabilizefundreturnsandcounteract
theimpactofinterestratechangesonplanliabilities.
WeownadiversifedportfolioofGovernmentofCanadabonds,Ontario
debentures,provincialbonds,real-returnbondsandinfation-linkedbonds.
Real-returnbondsprovidereturnsthatareindexedtoinfation,asmeasured
bytheconsumerpriceindex,andincludedebtissuedprimarilybythe
CanadianandU.S.governments,andthemanagerofHighway407inOntario.
Fixedincomeassetstotalled$55.8billionatyearendcomparedto$45.9billion
atDecember31,2010,andreturned19.9%comparedtoabenchmarkreturn
of19.5%for$163.4millioninaddedvalue.Onafour-yearbasis,fxedincome
generateda9.8%compoundannualreturn,outperformingthebenchmarkby
0.3%for$345.7millioninvalueadded.
49% U.S.
20% Europe
l3% Canada
l2% Asia & Other

6% Venture Capital
RonMock,Mba
FIXEDINCOMEAND
ALTERNATIVEINVESTMENTS
44
INVESTMENTS
Thevalueofourbondportfolioincreasedin2011asinterestratesfelland
globalinvestorsrespondedtotheEurocrisisandfearsofrecessionbymoving
capitaltogovernmentbondsthatareperceivedtobemorecreditworthy.
Thishadtheimpactofincreasingbondprices.Sincethe2008recession,
wehaveincreasedfxedincomeinvestmentsaspartofourtotal-fundrisk
managementstrategy.
GoveRnMentbondyieldS
(percent)
commodities
Weinvestincommodities,suchasenergyandagriculturalproducts,asa
hedgeagainstthecostofpayinginfation-protectedpensions.Intheshort
term,commoditypricesrefectsupplyanddemandimbalancesinglobal
marketsaswellasshort-termchangesininfation.Overthelongterm,
commoditypricesrefectinfationexpectations.
Investmentsincommoditiestotalled$5.7billionatyearendcomparedto
$5.2billionatDecember31,2010.Theportfolioreturned-2.3%comparedto
abenchmarkreturnof-1.5%.Onafour-yearbasis,theseassetsgenerateda
-10.3%compoundannualreturncomparedto-10.0%forthebenchmark.
Forourcommoditiesportfolioandthebenchmark,2011wasanotheryear
ofsignifcantpricevolatilityandlowinfation.Infact,infationhasremained
benigninCanadaformostofthepastdecade.Ascommoditiesaregenerally
alonger-terminvestmentatTeachers,10-yearreturnsareamorerelevant
measureofperformance.
Realassets
Investmentsinthiscategoryrealestate,infrastructureandtimberland
aregoodlong-terminvestmentsforthepensionplanbecausetheyprovide
returnsthatarelinkedtochangesininfationandthereforealsoactasa
hedgeagainstthecostofpayinginfation-protectedpensions.Overthepast
10years,theseinvestmentshaveplayedanincreasinglyimportantrolein
helpingustomeetourperformanceobjectivesandminimizerisk.
3C-Yar Canaoa Nominals
3C-Yar US TlPS
3C-Yar Canaoa RRPs

2.49%
0.78%
0.45%
C
3
2
4%
2/ C8/ C9/ C/ / C7/ C6/ C5/ C4/ C3/ C2/ C/ 2/C
MichaelWiSSell,Mba,cfa
TACTICALASSETALLOCATION
45
INVESTMENTS
Inaggregate,realassetstotalled$25.8billionatyearendcomparedto
$26.2billionatyear-end2010andreturned13.1%comparedtothebenchmark
returnof13.3%forvalueaddedof-$474.0million.Onafour-yearbasis,real
assetsgenerateda7.1%compoundannualreturncomparedtothebenchmark
returnof7.8%forvalueaddedof-$1.4billion.
RealaSSetS
Real estate
Realestateftsourplanbecauseitprovidesstrong,predictableincome.
OurportfolioismanagedbyTheCadillacFairviewCorporationLimited.
Thiswhollyownedsubsidiarymaintainsawell-balancedportfolioofretail
andofcepropertiesdesignedtoprovidedependablecashfows.Portfolio
highlightsin2011includedthedispositionoftheinvestmentinHammersonplc,
aU.K.realestatecompany,andthedispositionofHillcrestMallinToronto.In
addition,therewasmajorprogressonanumberofsignifcantdevelopment
projectsincludingextensiverenovationstotheTorontoEatonCentreandthe
ongoingrevitalizationoftheToronto-DominionCentreofcecomplex.
Anewfnancingvehicle,CadillacFairviewFinanceTrust,wasestablishedin
2011anditissued$2.6billioninnewAAA-rateddebtguaranteedbyTeachers.
Thisfnancingactivityloweredborrowingcostsforrealestateandloweredthe
costofcapitalforTeachers.
Therealestateportfolioearnedoperatingincomeof$1.0billionin2011,primarily
fromretailandofceproperties.Atyearend,theretailoccupancyratewas94%
(93%in2010),whiletheofceoccupancyratewas92%(91%in2010).
Thenetvalueoftherealestateportfoliototalled$15.0billionatyearend
comparedto$16.9billionatDecember31,2010.Thenetdecreaseisprimarily
duetotheissuanceofnewdebtanddispositionofourinvestmentin
Hammersonplc,ofsetbyanappreciationinvalueofourrealestateassets.
Therealestateportfolioreturned18.2%comparedtoabenchmarkreturn
of21.8%for-$0.4billioninvalueadded(anewrealestatebenchmarkwas
adoptedfor2011).Onafour-yearbasis,therealestateportfoliogenerateda
9.1%compoundannualreturn,comparedtothefour-yearbenchmarkof10.4%
forvalueaddedof-$0.8billion.
% Real Estate ($15.0 billion)
% Infrastructure ($8.7 billion)

% Timberland ($2.1 billion)
JohnSUllivan,Mba
PRESIDENT&CEO,
CADILLACFAIRVIEW
46
INVESTMENTS
Realestatemarketsoverallperformedstronglyin2011.Investordemandforretail
andofcepropertiescontinuedtoberobust,aidedlargelybylowerinterest
rates,whichdrovedowncapitalizationratesinNorthAmerica.Qualityretailand
ofcepropertiesalsohadhigherrevenueandoccupancygrowthin2011.
RealeStatePoRtfolio
(asatDecember31,2011)(basedontotalassets)
Infrastructure
Webeganinvestingdirectlyininfrastructurein2001becausetheseassets
generallyoferstablelong-termcashfowslinkedtoinfation.Ourportfolio
includesinvestmentsinairports,electricalpowergeneration,waterandnatural
gasdistributionsystems,containerterminals,pipelinesandahigh-speedrail
link.ThemajorityoftheseassetsarelocatedoutsideCanadaasopposed
toourrealestateportfolio,whichispredominantlyCanadian.Thismeans
currencyfuctuationshaveagreaterimpactoninfrastructureportfoliovalue
andreturnswhentranslatedintoCanadiandollars.
Infrastructureinvestmentstotalled$8.7billionatyearendcomparedto
$7.1billionatDecember31,2010,duetonewinvestmentsinEuropeanairports
andChileanutilities,andtovaluationadjustments,netofthesaleofour
SydneyAirportinterest.Infrastructureassetsreturned7.7%comparedtoa
benchmarkreturnof6.1%for$176.9millioninvalueadded.Onafour-year
basis,theseassetsgenerateda4.9%compoundannualreturn,comparedto
thefour-yearbenchmarkof5.1%.
Overallweseektobuildaportfoliowhichwillsteadilyincreaseinvalue,
providepredictablecashfowandcorrelatetoinfation.Wesegmentthe
portfoliointothreegeneralcategories:GDP-linkedassetswhosefundamentals
aretiedtoacountrysrealmacroeconomicfows;regulatedcompanieswhose
revenuesareexplicitlylinkedtoformalregulatoryregimes;andcontracted
assetswithasignifcantpercentageofrevenuestiedtolong-termcontracts.
Regulatedandcontractedassetsgenerallyperformedwellin2011,whileGDP-
linkedassetscontinuedtheirslowrecoveryfromthe2008-09recession.
infRaStRUctURePoRtfolio
% Canadian Retail
% Canadian Oce

% U.S. Retail/Oce

% U.K. Oce

% Other (condos and hotel)

% Investments
% GDP Linked
% Regulated
% Contracted
StePhendoWd,Mba,icd.d
INFRASTRUCTUREAND
TIMBERLAND
47
INVESTMENTS
Timberland
Timberlandinvestmentscorrespondto,andarecompatiblewith,theplans
lengthyinvestmenthorizonbecausetheyarelong-livedassetsandserve
asahedgeagainstlong-terminfation.Whilethevalueoftimberlandassets
changeswiththedemandforwoodandpaper,ifleftintheground,trees
continuetogrow,noticeablyincreasingtheiryieldandvalueovertime,unlike
otherextractiveindustryassetssuchasmetalsandminerals.Tocontrolrisk,
weinvestsolelyinmanagedplantationsthatuseproventechniquestogrow,
maintain,harvestandregeneratestock.
Timberlandinvestmentstotalled$2.1billionatyearend,comparedto
$2.2billionatDecember31,2010.Theseholdingsreturned0.8%comparedto
abenchmarkreturnof10.2%forvalueaddedof-$194.5million.Onafour-year
basis,timberlandgenerateda0.5%compoundannualreturncomparedto
thefour-yearbenchmarkof6.8%forvalueaddedof-$575.2million.
OurtimberpropertiesareprimarilylocatedintheUnitedStates,andharvests
havebeendelayedduetolowhousingstartsanduncertainnear-termU.S.
housingprospects.OurpropertiesinNewZealandhavefoundstrongexport
marketsinChina,whileourBraziliantimberlandispositionedforthelong-
termgrowthofthisdevelopingeconomy.
Notabletransactionsin2011
In2011,Teachersboughtandsoldmanyinvestmentsaspartofouractive
approachtocreatingvalueandmanagingrisk,includingthetransactions
below,whicharenotablefortheirsizeand/orpublicprofle.
MapleLeafSports&Entertainment(MLSE):InDecember,wereached
anagreementtosellour79.53%ownershipshareinMLSEtoBelland
RogersCommunicationsInc.for$1.32billion,basedonanenterprise
valueofmorethan$2billion.MLSEisoneofTeacherslongeststanding
andmostsuccessfulinvestments.Thedivestitureefortwasledby
TeachersPrivateCapitalandisexpectedtocloseinmid-2012following
regulatoryandleagueapprovals.
ImperialParkingCorporation(Impark):Wecompletedtheacquisition
ofBabcock&BrownGatesParkingInvestmentsLLC,whichincludes
Impark,oneofthelargestparkingmanagementcompaniesin
NorthAmerica.Imparkleasesormanagesmorethan2,000parking
locations,consistingofmorethan400,000parkingspaces,inover
25marketsinCanadaandtheUnitedStates.Thetransactionwasled
byTeachersLong-TermEquitiesgroup,whichisfocusedondirect
investmentsthathavesteadycash-fowgrowthpotentialoveralong-
termhorizonandalowtomoderatelevelofrisk.
Airports:WeexchangedourinterestinSydneyAirportplusacash
paymentforMApAirportsinterestsintwoEuropeanairports.Asa
result,TeachersInfrastructureGroupaddedtoourcurrentairport
holdingswithownershipof39%ofBrusselsAirportand30%of
CopenhagenAirport.Wewillworkwithfellowstakeholders,including
theBelgianandDanishgovernments,todevelopthefullpotentialof
theseproperties.
48
Member services
Wemustbalanceservicewithcosts,
membershipgrowthwithweband
systemoptimizations,andstrategy
withregulation.
RoSeMaRieMcclean, Mba,cMa,icd.d
SENIOR VICE-PRESIDENT,MEMBER SERVICES
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Outstanding, personalized
service at a reasonable cost
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Membersareincreasingly
optingtogoonlinefor
services.Thegrowthin
webusage,balancedby
continuedgrowthacross
otherchannels,underlines
ourservicedeliverystrategy.
0
100
200
300
400
05 06 07 08 09 10 11
Self-service interactions
Personal interactions
clientinteRactionS
(thousands)
49
MEMBERSERVICES
obJectiveandManaGeMentStRateGieS
TheMemberServicesDivisiondeliverspensionservicesdirectlytoplan
membersandinteractswithschoolboardsanddesignatedemployers.This
teamtakesinandprocessesbillionsofdollarsofcontributionsandmillionsof
piecesofpersonalinformationeveryyearwhileadministeringoneofCanadas
largestpayrolls$4.7billioninannualpensionandlump-sumbenefts
paymentsto120,000retireesandtheirsurvivors.
Ourobjectiveistodeliveroutstanding,personalizedservicetoallplan
membersatareasonablecost.Weconsistentlyearnhighserviceratingsfrom
planmembersandbelieveourmembersdeservetimely,reliableservicesand
thepensioninformationthatisaccurateandrelevanttothematdiferent
stagesoftheircareers.
Tomeetourobjective,wehaveastrategycallede=(mc)
3
.Inthisstrategy,
estandsforexcellencereachedbyoferingmorecustomization,more
choiceandmorecounsellingtomembers.
Excellence=morecustomization
morechoice
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50
MEMBERSERVICES
customization:Theserviceandinformationrequirementsofmemberschange
throughouttheircareers.Theirexperienceswithotherserviceorganizations
infuenceexpectations,astheygetmoreandmoreusedtoimmediate
supportmodelsandreal-timecommunication.Wemustfndtherighttriggers
anddeliverymethodstoensurethatourmessageresonates.Todothis,
weanticipatemembersneedstoprovidethemwithpersonalizedservice.
Currently,weusedatabasetechnologyandemploymentdatatobettertarget
ourservicesandcommunication.
choice:Thisrefectsourcommitmenttoproperlyservemembersthrough
theirpreferredchannel.Whilethemajorityofmembersprefertheconvenience
ofonlineservices,othermembersprefertobeservedoverthetelephoneor
bymail.Weoferservicesinavarietyofwaysandcannotepreferenceson
eachmembersfle.
counselling:Wecombinetheexpertiseofourfront-linepensionbeneft
specialistswithourevolvingtechnologycapabilitiestohelpmembersmake
informeddecisions.Ourdecisiontoprovideguidance,ratherthanmerely
discloseinformation,allowsustomeetademandthatmembershavelong
requested.Thebeneftsandrulesofthepensionplanarecomplex,and
decisionsmadebyindividualscanhaveramifcations,notonlyfortheir
lifetimebutfortheirsurvivorslifetimesaswell.
Asweintegratebroaderemploymentdataintooursystems,newopportunitiesto
counselmemberswillemergebasedonourdeeperunderstandingofindividual
situations.Increasingourproactiveoutreachtomembersenablesthemtomake
consistentandoptimalchoicesaboutavarietyofpension-relatedmatters.
2011 priorities and initiatives
Tomoveourlong-termstrategyforward,in2011weexpandedourservicesto
ofermorechoice,counsellingandcustomization.Specifcally,weundertook
thefollowingmajorinitiatives:
Weincreasedourlevelofproactiveservicesignifcantlybyinforming
24,000planmembersofopportunitiestobuybackcreditintheplanfor
leavesofabsence.
Wedevelopedthreenewcounsellingtoolstohelpmembersdecide
amongvariousoptionsforbuybackpaymentsandtomakemore
informedsurvivorbeneftdecisions.Thesetools,oferedoverthe
telephoneandonline,integratememberspersonalinformationtoguide
themtothechoicesbestsuitedtotheirindividualcircumstances.
WeimprovedouriAccess
TM
Webfacilitybyredesigningourpension
calculatorandupgradingotherservices.Wealsomadeitpossiblefor
pensionerstoestimateinfationadjustmentsontheirpensions,takinginto
accounttheconditionalinfationprotectioncomponentforpensioncredit
earnedafter2009.WhenmemberssignintoiAccess
TM
Web,theycan
usetheirpersonalpensioninformationtocalculatepensionandbuyback
estimates,forexample,andobtainmanyotherservices.
51
MEMBERSERVICES
Thetotalnumberof
pensionersgrewby
3,000andthenumber
ofactivemembers
(teachers)increased
by2,000from2010.
Webegandeliveringnewselectronicallytoteachersandpensionersasit
happens,insteadoffollowingaquarterlynewsletterschedule.Wearealso
incorporatingmorevideocontenttoincreaseunderstandingofpension
rulesandprovisions.Wesendrelevantnewsandinformationtospecifc
segmentsofthemembershipwhentheyneedit,andbundlenewsinto
newslettersthreeorfourtimesayear.
Oftheseinitiatives,thebuybackprojectwasthelargest.Usingemployer
datathatshowedaleaveofabsencehadoccurred,wereachedoutto
24,000memberswithbuybackinformation.Manyofthesememberswould
nototherwisehaveknownthatbuyingbackcreditintheplanwasanoption.
(Previously,buybackestimatesandtransactionswereinitiatedonlywhen
amembercontactedus,usuallyforamaternityorpaternityleave.)
Membersreactedpositivelytothisnewserviceand,consequently,wesaw
afve-foldincreaseinrequestsforcostestimatestobuybackcredit.Atotal
of35,700requestsforestimateswerecompletedin2011,comparedto5,700
requestsintheprioryear.Itisstilltooearlytoknowhowmanymemberswill
decidetocompleteabuyback;ourobjective,however,wastoensurethey
werefullyinformedoftheirbuybackopportunityandspecifcrepayment
options,whichweachieved.
Thisexperienceillustratesthevaluetomembersofourapproach.Obtaining
morecompleteemploymentdatafromschoolboardsanddesignated
employersshowedusthatmanyteachersweretakingleaveswithoutlearning
abouttheoptiontobuybackcredit.Closingtheinformationgapgives
membersthechoiceandopportunitytomakeinformeddecisionstomaximize
theirpensions.
Thevolumeofactualleavesofabsencewashigherthananticipated,and
dealingwiththeresultingrequestswasachallenge.Useofouronlinebuyback
service,releasedin2010,almostdoubledandweoptimizedinternalsystems
tohelpmanagetheaccumulatedrequests.Furthersystemoptimizationsare
plannedfor2012.
Theseinitiativesaregivingmembersbetterserviceandguidanceon
pensiondecisionsandaclearerpictureoftheirpersonalfnancialsituation
inretirement.
MeMbeRShiPfactSandtRendS
Plan membership grows every year
Thenumberofpensionershasgrowneveryyearsince1917,whenthisplanwas
frstcreated.Consequently,thetotalmembershipreached368,000members
attheendof2011,includingworkingteachers,pensionersandinactive
members(formerteacherswhohaveanentitlementinthepensionplanbut
arenotcurrentlycontributingorreceivingbenefts).
MeMbeRPRofile
180,000+68,000+120,000=368,000
ACTIVE MEMBERS INACTIVE MEMBERS PENSIONERS TOTAL MEMBERS
49% 18% 33%
52
MEMBERSERVICES
Theaverageteacheris
42yearsofage.
Theaverageageof
pensionersis69.
102pensionersare
100yearsofage
orolder.
Quickfacts
Number of pensioners has
tripledsince1990
60% of pensioners are under
age70
Oldest pensioner was 109 at
theendoftheyear
Average annual pension for new
unreducedpensionsstartingin
2011was$45,500
tRendS
Averageageofteachers Averageageatretirement
retiringlastyear
59
isincreasingslowly
Numberofretirements Retirementshavebeen
lastyear(retirementand lowerthanexpectedsince
disabilitypensions)
4,300
thefnancialcrisiserupted
in2008
Numberofteacherswho Newandreturningteachers
enteredorreturnedto havebeendecliningslightly
theteachingprofession
7,900
overthepastfveyears
Averageyearsretirees
areexpectedto
collectpensions
30years
Lengthofatypical
teachingcareer
26years
teacheRSandPenSioneRSbyaGe
ManaGinG SeRvicecoMPlexitieS
Ouroperatingenvironmentiscontinuallychangingandinvolvesmany
factorsthatafectourperformance.Planmembershipisdynamic,andnew
pensionregulationsandplanchangesareincreasinglybeingintroduced.
Wemustbalanceserviceswithcosts,membershipgrowthwithweband
systemoptimizations,andstrategywithregulation.Werelyheavilyon
highlytrainedstaf,evolvingtechnologyanddataqualityfromemployers
tomeetourserviceobligationsandexecuteourstrategy.
180,000 ACTIVE MEMBERS
UNDER 30
23,900
3039
59,500
4049
52,800
5059
36,100
60+
7,700
UNDER 60
11,500
6069
60,700
7079
32,800
8089
12,400
90+
2,600
120,000 PENSIONERS
Membersaretypicallyretired
forlongerthantheyworked
53
MEMBERSERVICES
Balancing services and costs
Membersconsistentlyrateourservicesveryhighly,andthemajorityofservice
requestsarecompletedwithinoneday.Wehavetoraisethebareveryyearto
maintainthishighratingasexpectationsandworkvolumesincreasedueto
thegrowingmembership.Becausewearecostconscious,weaimtostrikethe
rightbalancebetweenservicesandcosts.Weconsiderimprovementsthatare
costefectiveandvaluableformembers,suchastheintroductionofpension
counsellingandwebenhancements,andconcentrateonimprovingour
internalprocessesandsystemsinordertohandlethegrowingworkvolume.
Webelievethereturnoninvestmentforexpendituresrelatedtoservice
improvementscreateslong-termvalueforourmembers.
SeRviceSatiSfactionMeMbeR SURvey
(yearendedDecember31,2011)(percent)
Expansion of service channels
Thenumberofpensionersincreaseseveryyear,asdoesthetotalnumberof
membersweserve.Theirexpectationsalsochangeovertime.Forexample,
thereislesstolerancefordelayintheeraofinstantaneouscommunicationand
onlinecommercialtransactions.Severalyearsago,webeganexpandingour
serviceplatformstokeeppacewithgrowthandtomeetmemberschanging
expectationswhilemaintainingservicequalityacrossallchannels.
Weoferservicesbytelephone,bymailande-mail,inperson,andelectronically
throughoursecurememberwebsite,iAccess
TM
Web.Membersusageofonline
servicesgrowseveryyear,andweregularlyaddnewwebcapabilities.Ofering
serviceselectronicallyaddscostsforthehighlytrainedITstafandInternet
securitymeasuresneededtoprotecttheprivacyofmemberspersonalfnancial
information.Oursystemsandpersonnelnowhandle1,000memberinteractions
aday,365daysayear.Beforetheintroductionofonlineservices,ourcontact
centrecouldnothavehandledthisvolumeofinteraction.Byenablingmembers
toupdatepersonalinformation,applyforpensionsandobtainpensionand
otherestimatesonline,wefreeupourfront-linepensionbeneftspecialiststo
counselmembersonpensiondecisionsandchoicesakeypartofour
value-addedservicestrategy.
% 10/10 Extremely Satised
% 9/10 Very Satised
% 78/10 Satised

% 6 and Under Neutral or Not Satised
54
MEMBERSERVICES
Alargerproportionof
ourannualbudgetis
nowallocatedto
complianceactivities.
Receivingaccurate
employmentdataallows
ustoprovidemore
completeandproactive
servicestomembers.
Employment data quality
Ourabilitytoprovideoutstandingservice,andtocarryoutourstrategy,is
largelydependentongettingaccurate,up-to-dateemploymentinformation
from175schoolboardsanddesignatedemployers.Theyhavevaryingsystems
andresources,andweworkwiththemcloselytoimprovethequalityand
breadthofemploymentdatawereceive.Weusethisinformationtocalculate
benefts,respondtomembersrequestspromptly,andanticipatetheirneeds
forservice.
Weoferemployershands-onassistancetounderstandpensionreporting
requirementsandouronlinereportingtechnology.Eachemployerhasa
designatedcontactonourEmployerInformationServicesTeamwho
understandstheemployerspayrollsystemandcanshareknowledgewithour
developmentteams.WeconductedsevenworkshopsthroughoutOntariolast
yearinEnglishandFrench,attendedby150pensionreportingstafmembersat
schoolboardsandotheremployers.Annually,weaskschoolboardfnance
ofcerstocertifythatthecontributionsandserviceinformationdeliveredtous
arecorrect.Thishasproveninvaluableinreceivingaccuratedata.
Plan and regulatory compliance
Mandatoryregulatoryandplanchangesmustbeimplementedand
understood.Theyafectoursystems,processesandstaftrainingneeds,and
challengeustofndwaystokeepmembersinformedwithinformationthatis
relevanttothem.Forexample,wehadtoadaptoursystemstoaccountfor
thesponsorsdecisiontoinvokeconditionalinfationprotectionatthe60%
levelforpensioncreditearnedafter2009andincreasecontributionrates
efectiveJanuary1,2012,2013and2014.Wemustalsointegratethenew
pensiondivisionrulesformaritalbreakdown,neweligibilityrequirementsfor
breaksinserviceandotherlegislativechanges.
Wearedealingwithanunprecedentednumberofplanandregulatory
changes.Alargerproportionofourannualbudgetisnowallocatedto
complianceactivities.Inaddition,changesprescribedinregulationsare
frequentlyatoddswithourstrategytocustomizeinformationandmakeit
easyformemberstoobtainservicesthroughavarietyofchannels.Often
thesechangesmaketheplanmorecomplex,whichincreasestheneed
tosimplifyandtailorinformationformemberssothatitisrelevantand
understandable.Itisanongoingchallengetobalanceregulatoryrequirements
withourstrategicdirection.
Training
Wehave45pensionbeneftspecialistswhointeractdirectlywithplan
membersthroughourcontactcentre.Inordertomeetthecomplexservice
needsofourclients,newspecialistsgothroughintensive,personalized
trainingforthefrstyearofemployment.Tounderscoreourcommitment
toservicequality,ourinternaltrainingstafperiodicallyreviewinteractions
betweenourfront-lineagentsandplanmembersandprovidecoachingand
feedback.Anindependentsurveycompanywillalsointerviewasampleof
memberswithin24hoursofcompletedservice.Pensionbeneftspecialists
receivefeedbackthenextday.
55
MEMBERSERVICES
PeRfoRMance
Wetakeacomprehensiveapproachtomeasuringourperformanceusingkey
servicesatisfactionandfnancialresults,keyperformanceindicatorsandother
measurementsofouroverallservicedeliverylevels.
hoWWeMeaSURePeRfoRMance
Quality service Index
TheQualityServiceIndex(QSI)isaprimaryperformancemeasurement.We
regularlyaskmemberstorateourservicesthroughathird-partysurvey.
Weengageanindependentcompanytosurveyastatisticallyvalidmembership
sampleinordertogaugethequalityofourserviceandcommunications
severaltimeseachyear.Wedevelopedthesurveyprotocolintheearly1990s
andcontinuallyreviewandrefneittorefectcurrentservicesand
communications.Allemployeesfromnewrecruitstoexecutivesreceivea
variablecomponentofcompensationbasedonthelevelsofsatisfaction
expressedintheseQSImeasurements.Compensationalsorefectsthesuccess
achievedinmanagingcostsandmeetingorganizationalgoalsthatareset
annuallytodrivecontinuousimprovement.
OuroverallQSIscorewas9.0ona10-pointscale,and54%ofrespondents
awardedus10outof10.Asshowninthetableonpage56,membersrateusin
termsofdirectserviceandcommunications,withdirectservicerepresenting
85%oftheoverallscore.
WehavemaintainedahighQSIscoreoverthelastfveyears,evenas
contributionsincreasedandothermeasureswereintroducedtodealwith
fundingshortfalls.Werealizethatitisdifculttoimproveonthesealready
highratings.
Other performance indicators
Key performance indicators
Key results
QSI remained high at 9/10
Cost per member decreased to $143 and
was within budget
CEM Benchmarking ranked rst for
service in peer group
Same-day service 63%
Right the rst time 89%
Straight-up service 86%
Member interactions 395,000
Average phone response time 24 seconds
Employer response rate 2.5 days
Measure Performance
TheQSIisameasurement
ofservicesatisfaction.
Our9.0ratingisbased
onmembersurveys
conductedbyathird
partyusingascaleof
zeroto10.
56
MEMBERSERVICES
qUalitySeRviceindex
(onascaleof0to10)
2011 2010
TotalQSI 9.0 9.0
ServiceQSI(85%) 9.0 9.0
CommunicationsQSI(15%) 8.8 8.8
service cost and expense management
Ourtotalcostsareincreasingduetoseveralfactors,including:
increasingnumberofplanmembers;
expansionofservices;
increasingsalarycostsandtheneedformorehighlyskilledITstaf;
regulatoryandplanchangesthatafectsystems,requirestaftrainingand
morecommunicationwithplanmembers;and
operationandreplacementcostsoflegacysystems.
Wemeasureourannualservicecostpermembertomanagecostsefectively.
Thecostpermemberin2011was$143comparedto$146in2010.We
maintainedcostswithinourallocatedbudgetwhilecomplyingwithplan
changesandinvestinginthetechnologyandpeoplerequiredtobuildand
maintaintheincreasinglyautomatedenvironmentneededtoevolveour
servicemodel.
coStPeR MeMbeR SeRved
(fortheyearendedDecember31)(dollars)
CEM Benchmarking Inc.
Wemeasureourservicesagainstthoseofleadingpensionplansworldwideby
participatinginsurveysconductedbyCEMBenchmarkingInc.,whichcarries
outindependentevaluationsof47majorpensionplans.Thisevaluationhelps
usbetterunderstandwhetherwearestrikingtherightbalancebetween
servicesandcosts.
For2010,werankedfrstoutof13peerpensionplansandplacedsecond
overallforservice.Our2011rankingwillbereleasedin2012.
C
3C
6C
2C
9C
$5C
C C9 C8 C7
$143
9
OUT
Of 10
57
MEMBERSERVICES
ceMbenchMaRkinG ReSUltSSeRvicelevelScoRecoMPaRiSon
2010 2009 2008 2007
Ontario Teachers Pension Plan 86 86 85 86
CEM world average 74 74 73 71
CEM Peer group average 77 78 78 74
CEM Canadian participants average 70 69 70 68
Sources:CEMBenchmarkingReports,CEMBenchmarkingInc.
Key performance indicators
Performanceindicatorschangetorefectevolvingservicedelivery
approaches.Forexample,theSame-DayServiceindicatorwilllikely
becomelessimportantasuseofonlineservicespredominates.Ourresults
demonstratethatweareimprovingperformancefortargetedaspectsof
servicedeliveryeveryyear.
Other performance indicators
Wemonitorseveralotherperformanceindicatorstohelpusunderstand
howwellwearemeetingmembersexpectationsandincreaseddemandfor
services.Otherdataindicateswhichservicesmembersareusingandhow
wellourbroadstrategiesareworking.Asourinteractionswithmembersgrow
acrossourserviceplatforms,weuseanumberofmeasurementstoensure
thatservicequalityisnotonlymaintained,butcontinuouslyimproved.
Memberinteractionstotalled395,000lastyear,up4%fromtheprioryear.
Wecompleted181,000personalmemberrequests,comparedto177,000inthe
prioryear,andrespondedto63%withinoneday(65%in2010).Ourcontact
centreanswerscallswithinanaverageof24seconds.
Theproportionoftotalserviceprovidedtomembersthroughoursecure
iAccess
TM
Webfacilitycontinuestogrow.Membersloggedonfor218,000web
sessionslastyear,comparedto205,000in2010.Pensionestimatesandupdates
topersonalinformationwerethemostfrequentlyaccessedonlineservices.
Self-SeRviceactivitieSoniaccess
tM
Web
(fortheyearendedDecember31,2011)
97,200 Pension Estimates
46,700 Changes in Personal Information
35,500 E-statement Interactive Viewings

3,900 Pension Applications
Plan Governance
Governancelinksdecision-makingauthoritywith
accountability,andensuresthatthosemanagingthe
organizationarecapableandfairlycompensatedand
thatmanagementinterestsareproperlyalignedwiththe
interestsofthosetheyserve.
MeliSSakennedy,icd.d MaRciaMendeS-dabReU,M.Sc.
GENERALCOUNSEL,CORPORATESECRETARYAND VICE-PRESIDENT,HUMANRESOURCES
SENIORVICE-PRESIDENT,CORPORATEAFFAIRS
59
PLANGOVERNANCE
Asaninvestor,webelievethatgoodgovernanceisgoodbusinessbecauseit
helpscompaniesdeliverlong-termshareholdervalue.Asaplanadministrator,
wemeasureourselvesagainststandardsforgovernance,internalcontrols
andEnterpriseRiskManagementthatrefectcorporatebestpracticesand
highstandardsofstewardship.
Governanceinvolvesasystemofchecksandbalancestohelpensurethatan
organizationpursuesitsmissioninalegal,responsibleandefectivemanner.
Itlinksdecision-makingauthoritywithaccountability,andensuresthatthose
managingtheorganizationarecapableandfairlycompensatedandthat
managementinterestsareproperlyalignedwiththeinterestsofthosethey
serve.Governancealsoensuresthattheorganizationidentifesandaddresses
themyriadrisksitmightface.
StRonG GoveRnancePRacticeS
Teachersgovernancestructureplaysacrucialroleintheorganizations
success.Sinceitsinceptionin1990,Teachershasbeenoverseenby
independentboardmemberscomprisingprofessionalswhohave
demonstratedacommitmenttothebeststewardshippracticesinevery
areaofplangovernance.Theboardmembershaveconsistentlysetthetone
fromthetopforaninnovativeandsuccessfulinvestmentprogramandhave
supportedacommitmenttoexcellenceinservicedelivery.
Board member composition and independence
Thepensionplanisoverseenbynineboardmembers.Fourboardmembers
areappointedbyeachoftheplanstwosponsorstheOntariogovernment
andOntarioTeachersFederation(OTF).Bothsponsorsjointlyappointthe
boardschair.Boardmembersareappointedforstaggeredtwo-yearterms
andcanserveuptoamaximumoffourconsecutiveterms.Thisprocess
ensuresthattheplansponsorsconsiderthequalifcationsandefectiveness
ofindividualboardmembersonanongoingbasis.
The
Pension Fund
Ontario
Teachers
Federation
Ontario
Government
Board
Members
Management
and Sta
Theplansgovernance
structureassignsroles
totheplansponsors
andtheindependent
boardmemberswhoare
appointedtooversee
managementsdecisions
andactions.
60
PLANGOVERNANCE
Boardmembersactindependentlyoftheplansponsorsandmanagement
tomakedecisionsinthebestinterestsofallbenefciariesoftheplan.The
structureoftheboard,andtheprocessforappointingitsmembers,ensures
thatboardmembersareabletooperateindependentlyofmanagement.
Forexample,therolesofthechairandtheChiefExecutiveOfcer(CEO)
areseparatedandnomemberofmanagementcanbeaboardmember.The
boardmembersmeetregularlywithoutmanagementpresentand,when
needed,obtainadvicefromexternaladvisorsinordertofosterindependent
viewsonkeyboarddecisions.Theboardisrequiredtoretainexternalactuarial
andauditexperts.
Board member qualifcations
Boardmembersaredrawnfromthefeldsofbusinessmanagement,fnance
andinvestmentmanagement,actuarialscience,economics,education
andaccounting.Theypossessextensiveexperienceinawiderangeofthe
disciplinesnecessarytooverseeacomplexpensionplan.Teachersisa
foundingsponsorandstrongsupporteroftheDirectorsEducationProgram,
whichwasjointlydevelopedbytheInstituteofCorporateDirectors(ICD)and
theRotmanInternationalCentreforPensionManagement(ICPM),University
ofToronto,toimproveboardgovernanceinCanada.Enrolmentisoferedto
boardmembersaspartoftheireducationprogram.ThenewICPMpension
directorscourseisalsooferedtoallboardmembers.BoardChairEileen
MercierisaleaderinCanadascorporategovernancecommunityandisa
FellowoftheICD.TheICDannuallyconfersFellowshipAwardsonindividuals
whobringexceptionalcorporategovernanceleadershiptoboardrooms
throughoutthecountry.
Efective oversight
Theboardmembersarehighlyengagedinallaspectsofplanoversight.Board
membershavehighattendancelevelsandarriveatmeetingswellprepared
toprobeandengageinvigorousdiscussions.Theboardmembersoverseeall
aspectsoftheplanthroughfvecommittees:Investment,Audit&Actuarial,
HumanResources&Compensation,GovernanceandBeneftsAdjudication.All
boardmembersserveontheInvestmentCommittee.
Theboardsmandate,committeestructureandtermsofreference,aswell
asTeachersCodeofConduct,areavailableonourwebsite.Boardmember
remunerationisdiscussedonpage76.
61
PLANGOVERNANCE
boaRdMeMbeRS
Boardandcommitteemeetingattendancewas97%in2011.Formoreinformationonboardmembersandboard
committees,pleaseseeourwebsite(otpp.com).
TwonewmembersjoinedtheboardaftertheretirementofHelenKearnsandLouisMartel,whohadservedsince2005
and2007respectively.Ms.KearnswasVice-ChairoftheBeneftsAdjudicationCommitteeandMr.Martelchairedthe
HumanResources&CompensationCommittee.PatriciaAndersonandBarbaraPalkwereappointedtotheboardin
January2012.Somecommitteeresponsibilitieswerere-assignedasaresultofthesechanges.
Eileen
Mercier
Boardmember,severalpubliccompanies;
Fellow,InstituteofCanadianBankersand
theInstituteofCorporateDirectors
Chair
Appointed2005;Chairsince2007
Attendance94%
Hugh
Mackenzie
Principal,HughMackenzieandAssociates;
Chair,AtkinsonFoundation;ICD.D
Human Resources & Compensation* and
Governance Committees
Appointed2007
Attendance100%
David
smith
FormerChairandSeniorPartner,Pricewater-
houseCoopers;FormerPresidentandCEO,
CanadianInstituteofCharteredAccountants;
Chair,GovernmentofCanadasAudit
Committee;FCA,ICD.D
Audit & Actuarial* and Human Resources &
Compensation Committees
Appointed2009
Attendance100%
Rod
Albert
FormerPresident,
OntarioTeachersFederation
Benefts Adjudication* and Audit & Actuarial
Committees
Appointed2010
Attendance100%
Barbara
Palk
Boardmember,TDAssetManagement
USAFundsInc.;FormerPresident,TDAsset
ManagementInc.;FormerGovernanceChair,
CanadianCoalitionforGoodGovernance;
ICD.D,CFA
Benefts Adjudication**, Audit & Actuarial and
Appointed2012
Attendancen/a
Daniel
sullivan
FormerConsulGeneralofCanadain
NewYork;FormerDeputyChairman,
ScotiaCapital;ICD.D
Human Resources & Compensation and
Appointed2010
Attendance92%
Patricia
Anderson
Member,Arts&ScienceAdvisoryCouncil,
QueensUniversity;Chair,Aldeburgh
Connection;FormerChair,SickKids
Foundation,andtheCorporationof
RoyThomsonHallandMasseyHall
Audit & Actuarial and Governance Committees
Appointed2012
Attendancen/a
sharon
sallows
Partner,RyegateCapitalCorp.;FormerSenior
Vice-President,BankofMontreal;Board
member,ChartwellSeniorsHousingREITand
RioCanRealEstateInvestmentTrust;ICD.D
Human Resources & Compensation and
Governance* Committees
Appointed2007
Attendance96%
Jean
Turmel
President,PerseusCapitalInc.;Former
President,FinancialMarkets,Treasuryand
InvestmentBank,NationalBankofCanada
Investment*, Audit & Actuarial and Human
Resources & Compensation Committees
Appointed2007
Attendance96%
*CommitteeChair**CommitteeVice-Chair
62
PLANGOVERNANCE
boaRdMeMbeR ReSPonSibilitieS
Boardmembersareresponsibleforoverseeingthemanagementofthe
pensionplan.Theydelegatetheday-to-dayinvestmentoftheplansassets
totheCEO,whohastheauthoritytosub-delegate.Theboardmembers
andplanmanagementareresponsibleforinvestmentdecision-making.The
plansponsorsarenotinvolvedininvestmentdecisions.Boardmembersare
responsibleforapprovingstrategicplansandbudgets,investmentpolicies,
riskappetiteandassetmix,benchmarks,performanceandcompensation,
successionplanningandmonitoringenterprise-widerisks.Inaddition,they
overseeannualperformanceobjectivesfortheinvestmentportfolioand
reviewtransactionsthatexceedlimitssetbytheboardformanagement.
Thecollectivewisdomofagroupthatisexpertinfnancialmatters,and
yetremovedfromtheday-to-dayclamourofthemarkets,isaninvaluable
resourceinthedecision-makingandapprovalprocessforstrategic
recommendationsandsignifcantinvestments.
Finally,theboardmustconductregularfundingvaluationsforthepension
plantoassessitslong-termfnancialhealth.Theboardsetskeyactuarial
assumptionsforthesevaluations(withinputfromtheplansponsorsandplan
actuary)andconsiderstheFundingManagementPolicythatguidesthe
plansponsorsdecisionsonwhentousesurplusfundsandhowtoaddress
fundingshortfalls.Theboardisresponsibleforreportingtheplansfunding
statustotheplansponsors.Theboardmembersreviewandapprove
ManagementsDiscussion&Analysisintheannualreportandapprovethe
auditedfnancialstatements.
Board member activities
Boardmembersmet13timesin2011forboardandInvestmentCommittee
meetings.Inaddition,theGovernanceCommitteemetthreetimes;theHuman
Resources&CompensationCommitteemeteighttimes;theAudit&Actuarial
Committeemetseventimes;andtheBeneftsAdjudicationCommitteeheld
threegeneralmeetings.Boardmembersalsospentconsiderabletimeworking
withtheplansponsorstofleabalancedfundingvaluationwiththepension
regulatorin2011.Allregularlyscheduledmeetingsoftheboard,theAudit&
ActuarialCommitteeandtheHumanResources&CompensationCommittee
includedsessionswithoutmanagementpresent.
TheGovernanceCommitteerevisedtheCEOevaluationprocessduring2011,
andasubcommitteeoftheboardisworkingontheCEOsuccessionplan.
Aspartofitscommitmenttoefectivegovernanceandbasedonfeedback
garneredinthe2010boardself-assessmentsurvey,theboardmembershave
enhancedtheirmeetingprocesses.Boardmembersreviewedthetypeand
quantityofinformationneededtofulflltheiroversightfunction,howoften
theymet,howmeetingswereorganized,howmuchtimewasavailablefor
in-depthdiscussionofstrategicmatters,andboardmembereducation.
Inlightoftheincreasingcomplexityofthefundsportfolio,boardmembers
receivetimelyinvestmentstatusreports.Forexample,reportsonenterprise
risksinformboardmembersofrapidlygrowingorcriticalrisks.
63
PLANGOVERNANCE
Expertsonkeyinvestment-andeconomic-relatedtopicswereinvitedtospeak
toboardmemberslastyeartoensuretheywerewellbriefedonmattersof
keyimportance,suchasemergingmarkets.Additionalspeakersareplanned
in2012.BoardmemberswillconductanofsitemeetingnextSeptemberas
anintegralpartofthe2013planningprocessandwillconsiderbroadstrategic
directionandpensionstewardshipissuesoutsidethedemandsofregular
boardmeetings.
TheboardalsoreviewedandadoptedanewCodeofConductforthepension
planlastyear.Teachersthreeexistingcodesofconduct,whichapplied
todiferentgroups,werecondensedintoasingle,four-pagedocument
thatappliestoboardmembersandallemployees.(Afurtherthree-page
appendixappliestothosesubjecttotradingrestrictions.)Thenewcodeis
easiertounderstandandencouragesapplicationofthehigheststandardsof
businessconduct.Long-standingemploymentpolicies,suchasrespectinthe
workplace,arenowcodifedinthisdocument,makingitamoreholistic,yet
concise,expressionofthebehaviourTeachersexpectsfromitsemployees
andboardmembers.Allboardmembersandemployeeshavesignedofon
thenewcode,whichtookefectatthebeginningof2012andisavailableon
ourwebsite.
effectiveoveRSiGhtandcontRolS
Managementisresponsibleforestablishingcorporatestrategy,objectives
andanannualfnancialplan.Boardmembersreviewprogressagainst
managementsstatedobjectivesandconfrmthatmanagementsstrategies
anddecisionsareinthebestinterestsofallpensionbenefciaries.Theyalso
helpensurethatmanagementcanattractandretainthebestavailablestaf.
Themoreseniorthemanagementposition,themoredirectlyinvolvedthe
boardmembersareintheirrecruitment.
Boardmembersmustensurethattheorganizationsstandardsarerespected
andthatitspoliciesandproceduresareappropriateandcompliedwith.
Supportingtheseresponsibilitiesisaninternalauditfunctionthatreports
directlytotheAudit&ActuarialCommittee.TheplansEnterpriseRisk
Managementframeworkandinternalcontrolsarealsoimportantelementsof
itsgovernancestructure.
Enterprise Risk Management (ERM)
Thepensionplanisexposedtoanumberofrisksthathavethepotentialto
causelossesorotherundesirableoutcomes.ThepurposeofERMistoensure
thatrisksaremanagedasefectivelyaspossible.Itprovidesaframework
toidentifyandassessrisks(investmentandnon-investment)facingthe
organizationandtoemployriskmitigatingstrategies,whenappropriate,to
addressthem.
TheimportanceofriskawarenessisembeddedinTeachersMission,
VisionandValuesstatement,whichhighlightsaccountabilityandrisk
consciousnessasoneofsixcorevaluesforallemployees.TeachersERM
Policyrecognizesthatriskispresentinallofouractivitiesandstatesour
commitmenttoensurethatriskmanagementisacorefocusacrossthe
organization.Thepolicyestablishesaprocessthroughwhichemployees
identify,manage,measureandreportrisks,anditservesasthedecisive
governancedocumentforallat-riskactivities.
Accountabilityandrisk
consciousnessarecore
valuesforouremployees.
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PLANGOVERNANCE
TheERMframeworkisimplementedbyanexecutive-levelcommitteethatis
chairedbytheCEOandmadeupoftheheadsofalldivisionsandcorporate
supportdepartments.Across-organizationalworkingcommitteesupports
theERMCommitteebyimplementing,documentingandcommunicating
TeachersERMactivitiesinaconsistentmannerthroughouttheorganization.
Aformalannualriskassessmentoftheorganizationsrisksisdeliveredto
boardmembers,withamid-yearupdateontoprisks.Toprisksarealso
reportedinternallytoallemployeesthroughTeachersintranetinorderto
increaseriskawarenessandencourageemployeestothinkactivelyaboutthe
potentialrisksthatcouldemergeintheirdepartments.
WehavestrengthenedourERMframeworkinrecentyears.Weimprovedour
assessmentprocesstoidentifyriskeventsmoreprecisely,andaddedspecifc
tolerancelevelsforescalatingissuestotheERMCommitteeandboard
members.WehavealsodevelopedtheOperationalExcellenceprograma
multi-yearprogramaimedatimprovingourorganizationalcoordinationand
datagovernance,strengtheningourriskmanagementandadoptingamore
disciplinedapproachtoprocessimprovement.Theprogramconsistsofsome
15projects,whichwillbecompletedoverthenextfouryears.In2012,our
programincludesprojectstoreplaceakeyinvestmentrisksystem,improve
datagovernanceandinvestmentsystemsarchitecture,andstreamlineand
automatekeyprocesses.Thesearedesignedtoimprovethefoundational
businessarchitectureofTeachersandultimatelyreduceoperationalrisk.
OurRiskCultureSurvey,conductedbyathirdparty,analyzedourcurrent
environmentbyexploring11dimensionsofrisk.Thesurveyidentifedspecifc
areasofriskconsciousnesstofocuson.Asof2011,questionsaboutrisk
consciousnessarenowincludedinbiennialemployeesurveys.Thisprovidesa
measureofhowwellthisvalueisinstilledinemployeesandwhetheritneeds
tobestrengthened.Basedonthesurveyresults,in2012,wehaveanobjective
ofimprovingtwo-waycommunicationtoencourageemployeestodiscuss
issuesandmitigaterisks.Everyemployeeateverylevelwillincludeatleastone
objectiveontheirperformanceplantoimprovetwo-waycommunication.
Disclosure controls and procedures, and internal control
over fnancial reporting
TheplanisnotrequiredtocomplywithNationalInstrument52-109,
CertifcationofDisclosureinIssuersAnnualandInterimFilings,issuedbythe
CanadianSecuritiesAdministrators,butwehavevoluntarilychosentomeet
thesestandardsaspartofourcommitmenttogoodgovernancepractices.
ThePresidentandCEO,andtheSeniorVice-PresidentandChiefFinancial
Ofcer(CFO),areresponsibleforestablishingandmaintainingdisclosure
controlsandprocedures,andinternalcontroloverfnancialreporting.We
havedesigneddisclosurecontrolsandprocedurestoprovidereasonable
assurancethatmaterialinformationrelatingtotheplanisgatheredand
reportedtomanagementinordertoallowtimelydecisionsregardingpublic
disclosure.Wehaveevaluatedtheefectivenessofourdisclosurecontrolsand
proceduresandconcludedasatDecember31,2011,thattheyareefective.
65
PLANGOVERNANCE
Wehavealsodesignedinternalcontroloverfnancialreporting,usingthe
IntegratedFrameworkissuedbytheTreadwayCommissionsCommitteeof
SponsoringOrganizations(theCOSOFramework),toprovidereasonable
assuranceregardingthereliabilityoffnancialreportingandthepreparation
offnancialstatementsforexternalpurposesinaccordancewithCanadian
generallyacceptedaccountingprinciples.Wehaveevaluatedtheefectiveness
oftheplansinternalcontrolsoverfnancialreportingandconcludedthey
areefectiveasatyearend.Therewerenochangesinourinternalcontrol
overfnancialreportingin2011thatmateriallyafected,orarereasonably
likelytomateriallyafect,ourinternalcontroloverfnancialreporting.The
implementationofCICAHandbookSection4600in2011didnotmaterially
changetheplansinternalcontroloverfnancialreporting.
Protecting audit integrity
Teachersandothercorporategovernanceadvocateshaveexpressedconcern
overtheyearsaboutaccountingfrmsthatauditpubliccompaniesandalso
earnsubstantialrevenuefromthosecompaniesfornon-auditconsulting
services.Webelievethatsuchconsultingfeescancompromise,oratleast
appeartocompromise,theintegrityoftheauditfunction.Assuch,wehave
apolicyforgoverningthenatureandextentofnon-auditconsultingfees
fortheplan,itssubsidiariesandjointventureswithoversightbytheAudit&
ActuarialCommittee.
Westrivetominimizeourownuseofconsultingservicesinvolvingtheplans
auditors,andwealwaysdisclosethetotalamountpaidforsuchservices.
In2011,feespaidtoDeloitte&ToucheLLP,theplansauditors,totalled
$7.7million($7.2millionin2010),ofwhich$5.3millionwasforauditactivities
and$2.4millionwasfornon-auditservices.Ofthe$2.4millionpaidfor
non-auditservices,$0.1millionrelatedtotheplan,andthebalancewasfor
someoftheplanssubsidiaries.
Transparent reporting
Teachersboardmembersreceiveregularreportsfrommanagementon
thefnancialandfundingpositionsoftheplan,investmentperformance,
regulatorycompliance,risklevels,clientsatisfactionratingsandkey
MemberServicesstatistics.Theyalsoreceiveregularreportsconcerningthe
performanceofeachinvestmentdepartment,internalcontrols,enterpriserisk,
enterpriseprojectsandallothersignifcantevents.
Wealsostrivetokeepstakeholdersfullyinformedabouttheplansservices,
investments,fundingstatusandchallengesbyundertakingthefollowing
communicationactivities:
Inadditiontopublishingthisannualreport,anannualperformance
summaryforplanmembersandannualpensionstatements,Teachers
deliverspension-relatednewselectronicallytomembersasithappens
andprovidesregularnewsletterstoactiveteachersandpensioners.
AseparatewebsiteFundingYourPension.comwasdevelopedin
partnershipwiththeplansponsorstoexplaintheplanspersistentfunding
challengesthroughaseriesofwebcasts,presentations,factsheets,
reportsandquestionsandanswers.
Throughthesechannels,weinformmembersofplanprovisionsand
services,andupdatethemonplanchanges,fundingchallenges,
investmentnewsandotherimportantinformation.
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PLANGOVERNANCE
Teacherscorporatewebsite(otpp.com)detailsplangovernancepractices
andfactsaboutourinvestmentstrategyandmajorportfolios,aswellas
serviceinitiativesandrecentnews.Anewsectionofthesitededicatedto
theplansapproachtoresponsibleinvestingwasexpandedin2011.
EachApril,Teachersholdsanannualmeetingthatisopentotheplan
sponsorsandallplanmembers.ItwillbeheldinTorontoonThursday,
April12,2012,at5p.m.Awebcastwillbeavailable(liveandarchived
forlaterviewing)fortheconvenienceofmemberswholiveoutsidethe
Torontoarea.Videohighlightsoftheannualmeetingandquestionsfrom
planmemberswillbepostedonotpp.comafterthemeeting.
TheboardChairaddressestheOTFBoardofGovernorsthreetimes
annually.ManagementhasregularmeetingswiththePartnersCommittee
andthePartnersConsultativeCommittee,andtakespartindiscussions
withtheplansandsponsorsactuaries.ThePartnersConsultative
Committeewasreconstitutedwithbroaderrepresentationafterthe
SustainabilityWorkingGroupconcludeditsworkin2010.Thischange
keepsrepresentativesofbothplansponsorsbetterinformedofthe
plansevolvingfundingstatusthroughouteachyear.TheFunding
EducationGroupworkswiththePartnersConsultativeCommitteeto
ensureconsistentcommunicationaboutfunding.TheDemographicTask
Forceisatri-partygroupthatisreviewingandproposingchangesto
thedemographicassumptionsoftheplan.TheTechnicalGroup,which
consistsoftheboardsexternalactuary,andactuarialandothertechnical
stafandconsultantsidentifedbythesponsors,discussesbest-estimate,
non-economicassumptionsrelatedtothepreliminaryvaluation.
Adoption of CICA Handbook section 4600
EfectiveJanuary1,2011,TeachersimplementedCICAHandbookSection
4600,whichprovidesspecifcaccountingguidanceonpensionobligations,
fairvaluemeasurementofinvestmentsandriskmanagementdisclosure.
Foraccountingpoliciesnotrelatedtoinvestmentsorpensionobligations,a
pensionplanisrequiredtoelectconsistentlyeitherInternationalFinancial
ReportingStandards(IFRS)orCanadianaccountingstandardsforprivate
enterprises.TeacherselectedtoapplyIFRS.IFRSismandatoryforallpublic
companiesinCanada.Althoughtheplanisnotapubliclytradedentity,our
auditedfnancialstatementsarepostedonourwebsiteandaccessibleby
thepublic.ThroughtheadoptionofIFRS,ourfnancialstatementswillbe
comparablewithotherCanadianpensionfundsthathaveadoptedIFRS,with
currentandfutureinvesteecompanies,andwithinvestmentpartnersthat
haveadoptedIFRS.FurtherinformationisprovidedinNotes1aand1btothe
fnancialstatements.
67
PLANGOVERNANCE
coMPenSationdiScUSSionandanalySiS
TheCompensationDiscussion&AnalysisexplainsTeachersapproach
tocompensation,thevariouselementsofourpayprogramsandthe
remunerationpaidtoournamedexecutiveofcers.Infscal2011ournamed
executiveswere:
JimLeech,PresidentandCEO;
DavidMcGraw,SeniorVice-President(SVP)andCFO;
NeilPetrof,ExecutiveVice-President(EVP),Investments;
RonMock,SVP,FixedIncomeandAlternativeInvestments;and
WayneKozun,SVP,PublicEquities.
ourcompensationframework
Compensation philosophy and objectives
Teacherscompensationframeworkhasbeendevelopedonafoundationof
pay-for-performance.Ourcompensationprogramsconsistofbasesalary,
annualincentives,andlong-termincentivesandarestructuredtoensurethat
thereisdirectalignmentbetweenTeacherstotal-fundnetvalueadded(after
expenses)andthecompensationpaidtoseniormanagement.
Ourphilosophyandpaypracticesarebaseduponthefollowingkeyobjectives:
attractingandretaininghigh-calibreemployees;
motivatingandrewardingtopperformance,encouragingteamwork,
aligningpersonalandorganizationalobjectivesandrewardingsuccessful
performanceoverthelongterm;
measuringandmonitoringourinvestmentincentivecompensation
frameworkrelativetoourriskbudgetandensuringourcompensation
programsdonotencourageexcessiverisk-taking;and
targetingtotaldirectcompensation(basesalary,annualincentive,and
long-termincentive)atthemedianofourpeers.Exceptionalperformance
atthetotal-fund,asset-class,divisionalandcorporatelevelwillresultintop-
quartilepayrelativetoourpeers,whileperformancebelowboard-approved
fnancialandoperationaltargetsresultsinpaybelowmedianlevels.
68
PLANGOVERNANCE
Benchmarking process
GiventhevariedemploymentopportunitiesatTeachers,executiveand
non-executivepositionsarecomparedagainstrelevantjobgroupsand
incentiveprogramsinlikemarkets.Ourobjectiveistobecompetitivewith
thoseorganizationsagainstwhichwecompetedirectlyfortalent.These
organizationsincludeothermajorCanadianpensionfunds,banks,insurance
companies,andinvestmentmanagers.Forcertainpositions,wealsocompare
tothegeneralfnancialindustryinCanadaaswellasU.S.andU.K.investment
managementorganizations.
Design principles
Thekeydesignprincipleimpactingeachemployeesincentivepay,atvarying
degrees,isourriskbudget.Atthebeginningofeachyear,boardmembers
approvetheactiveriskallocationsforthetotalfundandeachinvestment
department,whichinturnestablishexpectedannualdollarvalue-added
performancegoals(i.e.,dollarsearnedversusbenchmarkdollarsearned)forthe
year.Thegreatertheriskallocationforadepartment,thegreaterthevalue-
addedtargettobeachieved.Actualinvestmentperformanceatthetotal-fund
anddepartmentallevels(measuredindollarsofvalueaddedafterexpenses)
iscomparedagainstthetargetforaddingvalueabovethebenchmark.The
AnnualIncentivePlan(AIP)isbaseduponthisvalue-addedperformance
measuredovertwoconsecutiveyears.TheLong-termIncentivePlan(LTIP)
measurestheannualtotal-fundnetvalueadded(afterexpenses),apercentage
ofwhichisallocatedtorewardemployeesovertime.Additionalmeasuresused
tomonitor,assessandmitigateriskinourincentiveprogramsinclude:
settinganupperlimitonannualincentivepayments;
modellingandtestingourAIPandLTIPundermultipleperformance
scenariosinordertoensurethatthepayoutsalignwithexpected
performanceoutcomes;
comprehensivebalancedscorecardsthatmeasureprogressagainst
strategicobjectivesacrosseachdivision/departmentincludingrisk
managementinitiatives;and
clawbackprovisionsstatingthatemployeescommittingwillfulactsof
dishonesty,fraudortheftshallberequiredtopaybacktoTeachersall
amountspaidtotheparticipantundertheAIPorLTIP.
Independent advisors
In2011,boardmembersretainedtheservicesofMcLagan,anindependent
compensationconsultant,andEcklerLtd.,anindependentactuarialand
pensionconsultant,toadvisetheboardonexecutivecompensationand
pensionsrespectively.
69
PLANGOVERNANCE
elementsofourcompensationprogramoverview
ThetablebelowsummarizestheelementsofTeacherscompensationprogram
1
.
Primary variabilitywith
element Purpose Performancedrivers Performance applicability
baseSalary Compensatesemployees Positiondescription Low Allemployees
commensuratewiththeir andindividual
demonstratedskills, profciency
knowledgeandlevel
ofperformance
annualincentive Rewardsemployeesfor Teachers,divisional, Moderate Allemployees
theircontributiontothe andindividual
achievementofTeachers performance
results,divisionalresults,
andtheirindividuallevel Investmentvalue- High Investmentemployees
ofperformance addedperformance
long-termincentive Designedtoreward Total-fund High Investmentemployees
participatingemployees value-addedand attheassistant
forthedeliveryoftotal- actualreturns portfoliomanager
fundnetvalue-added levelandabove
(afterexpenses)and
positiveactualreturns, Corporateand
netofcosts,overthe MemberServices
longterm employeesatthe
directorlevel
andabove
1
Compensationstructuresforbargainingunitstafhavebeennegotiatedintothecollectiveagreement.Thefour-yearagreementrunsthrough
toDecember31,2013.
Mix of pay
Investment,Corporate,andMemberServicesemployeeshavediferent
percentagesoftheircompensationtiedtoourvariablepayprograms.
Recognizingtheirdirectinfuenceoninvestmentresults,investment
professionals,includingourCEO,haveagreaterpercentageoftheirtotal
directcompensation(basesalary,annualincentive,andlong-termincentive)
tiedtoourvariablepayprograms.Detailedbelowisthetargettotaldirect
compensationmixforournamedexecutiveofcers.Theactualpaymix
realizedmaybediferentdependinguponTeacherscorporateandinvestment
performanceandthenamedexecutiveofcersindividualperformance.
variable
%oftargettotal
annual long-term compensation
Position baseSalary incentive incentive Whichisvariable
President and CEO 25% 37.5% 37.5% 75%
SVP and CFO 45% 27.5% 27.5% 55%
EVP, Investments 25% 37.5% 37.5% 75%
SVP, Investments 27% 33% 40% 73%
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PLANGOVERNANCE
Base salary
Basesalariescompensateemployeesforfulfllingtheirday-to-day
responsibilities.EachemployeeatTeachersisassignedajoblevelwitha
correspondingsalarygradethatisdesignedtoprovidemarket-competitive
paycommensuratewiththeemployeesresponsibilities,demonstratedskills,
knowledgeandtrackrecordofperformance.
Basesalariesarereviewedannually,andsalariesforvice-presidentsandabove
areapprovedbytheboardmembers.
Annual Incentive Plan (AIP)
OurAIPrewardsemployeeswithcashawardsbasedonbusinessandindividual
performanceresultsrelativetopre-approvedfnancialandnon-fnancial
measures.Allnon-unionemployeesparticipateintheAIP.Weightingsforeach
elementvaryforInvestment,CorporateandMemberServicesemployees.
Detailedbelowarethecomponentsbywhichournamedexecutiveofcers
performancesaremeasuredwithintheAIP:
PerformanceMeasure Presidentandceo SvPandcfo evP,investments SvP,investments
teachersPerformanceMeasured
annuallybasedonacompany-wide
scorecardthatincludesinvestment
andnon-investmentmeasures
division/departmentPerformance
Measuredannuallybasedonspecifc
divisionalscorecards
two-yeartotal-fundPerformance
Value-addedperformance(after
expenses)measuredovertwofull
calendaryearsrelativetoreturnon
risktargets
two-yearinvestmentdepartment
PerformancePoolofincentive
dollarsdeterminedbynetvalue-added
dollars(afterexpenses)earnedrelative
tothereturnrequiredonthetwo-year
riskallocationforthatdepartment;
discretionaryallocationbasedon
individualperformance
individualPerformanceBasedon
theemployeesperformanceagainst
specifcobjectivesestablishedatthe
beginningofthecalendaryear
Deferred Incentive Plan (DIP)
EmployeescanchoosetoallocatealloraportionoftheirAIPpaymenttoeither
aTotal-FundPlanoraPrivateCapitalPlan,oracombinationofthetwo,forup
totwoyears.Thedeferredamountwillincreaseordecreaseinvalueoverthe
two-yeardeferralperiodbasedonactualratesofreturnoftherespectiveplan.
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PLANGOVERNANCE
Long-Term Incentive Plan (LTIP)
OurLTIPisdesignedtorewardparticipatingemployeesfordeliveringtotal-
fundnetvalueadded(afterexpenses)andpositiveactualreturns,netof
costs,overthelongterm.Whentotal-fundnetvalueadded(afterexpenses)
ispositive,participantsshareinthepositivegains;conversely,whentotal-
fundnetvalueadded(afterexpenses)isnegative,participantsshareinthe
loss.Eachyear,asmallpercentageoftheyearstotal-fundnetvalueadded
(afterexpenses)willfundanLTIPpool,whichisallocatedtoparticipating
employeesnotionalaccounts.Forthesepurposes,annualtotal-fundnetvalue
added(afterexpenses)canbepositiveornegative.Thereisnoupperorlower
limitontotal-fundnetvalueadded(afterexpenses).Inyearswhentotal-fund
netvalueadded(afterexpenses)isnegative,participatingemployeeaccounts
willbereducedaccordingly;individualemployeeaccountscannotbereduced
belowzero.IndividualLTIPaccountsareadjustedinDecemberbasedonthe
total-fundactualrateofreturn.Foremployeeswhoparticipateinaprevious
LTIP(pre-2010),paymentsfromthatplanwillalsobetransferredintothe
individualaccountastheycrystallizeattheendofeachperformancecycle.
EachApril,followingtheallocationrelatedtothepreviousperformanceyear,
25%ofindividualaccountbalancesarepaidtoeligibleemployees.
Benefts and other compensation
Teachersprovidesacompetitivebeneftprogramthatincludeslifeinsurance,
disability,healthanddentalbenefts,vacationandotherleavepoliciesandan
EmployeeAssistanceProgram.Teachersretirementbeneftforemployeesisa
defnedbeneftpensionplandescribedonpage75.
Executive employment contracts
Therearenoexecutiveemploymentcontractsorseveranceguaranteesinplace.
compensationdecisionsmadein2012refecting2011
How decisions are made
Eachyear,theHumanResources&CompensationCommitteeoftheboard
reviewscompensationpolicies,includingincentivecomponentslinked
tocorporate,investmentandtotal-fundperformance.Inaddition,the
committeereviews:
theachievementoftheperformancemeasuresforthePresidentandCEO
andotherseniorofcers;
thetotaldirectcompensationofthePresidentandCEOandrecommends
totheboardmembersforapproval;and,
thetotaldirectcompensationforotherseniorofcersasrecommended
bythePresidentandCEOandrecommendstotheboardmembers
forapproval.
Totaldirectcompensationprovidesaviewtocompensationdecisionsthat
relatedirectlytotheperformanceperiod.
Thecommitteesreviewissupportedbytotaldirectcompensationmarketdata
forsimilarinvestmentandnon-investmentpositionsinourpeergroup.As
previouslynoted,Teachersboardmembersapproveatthebeginningofeach
yeartheannualdollarvalue-addedperformancegoals(i.e.,dollarsearned
versusbenchmarkdollarsearned)usedtomeasureanddetermineinvestment
incentivecompensationfortheyear.
72
PLANGOVERNANCE
2011performanceresults
Teachers overall performance Annual Incentive Plan
Eachyear,theexecutiveteamestablishesenterpriseanddivisionalobjectives
fortheyear.Allemployeesarealignedwithindividualobjectivestosupport
theenterpriseand/ordivisionalobjectives.Theenterpriseobjectives,whichare
approvedbyboardmembers,includeameasureoftherateofreturn,dollarsof
valueadded(i.e.,dollarsearnedaftercostsversusbenchmarkdollarsearned)and
servicequalityinrelationtoexpensesaswellassignifcantstrategicinitiatives.
Quarterly,performanceagainstenterpriseanddivisionalobjectivesisassessed
andascorecardisprepared.Thescorecardprovidesavisualsnapshotofthe
overalllevelofperformanceachieved.
Asillustratedinthescorecardbelow,for2011,wewereabletomeetorexceed
targetgoalsforeachoftheenterpriseobjectives.Theresultisabove-target
performancewithanincentivemultiplierof1.78outof2.
objective Measure actual Goal achieved
customers Outstanding QualityService 8.98 >8.6 Abovetarget
serviceto Index
members
Retirement Value-added $1.21billion
1
$720million
1
Abovetarget
security returns
Absolutereturns >10% 3.75%realreturns Abovetarget
Desensitizingto 24% 20%to28% Abovetarget
realinterestrates real-rateexposure
Informedpartners Executive Complete Completeplan Abovetarget
assessment
againstplan
financial Costefectiveness Actualversus Meets Meetapproved Target
budget budget
Approvedcost Complete Improvecost Abovetarget
allocationand transparencyand
process allocationprocess
internalProcesses Operational Plannedinitiatives Complete Completeplan Abovetarget
excellence
Manage EnterpriseRisk 25%riskreduction Reducegapof Abovetarget
enterpriserisk Management toprisksby20%
assessmentscore
learning&Growth Engaged Employeesurvey Complete Developplanto Abovetarget
employees results respondto
thesurvey
Leadership Complete Developefective Abovetarget
program leadershipprogram
1
Netofexpenses.
73
PLANGOVERNANCE
Two-year total-fund investment performance
Thetablebelowsummarizes,atthetotal-fundlevel,thenetvalue-added
performance(afterexpenses)for2010and2011relativetothereturnonrisk
targetslesscostallowance.For2010and2011weoutperformedourtarget
total-fundnetvalueadded(afterexpenses)of$1.45billionby$3.55billion,
resultinginthemaximumperformancemultiplierof2.0xtarget.
total-fund
year netvalueadded target
1
abovetarget
2
Multiplier
2010 $3.79billion $0.73billion $1.47billion 5.16x
2011 $1.21billion $0.72billion $1.44billion 1.67x
2010and2011 $5.00billion $1.45billion $2.91billion 2.0x(maximum)
1
Targettotal-fundinvestmentperformancefor2011is9.6%returnonrisklessacostallowanceof17basispoints.
2
Above-targettotal-fundinvestmentperformancefor2011is19.2%returnonrisklessacostallowanceof34basispoints.
Two-year investment department performance
Thetablebelowsummarizesperformanceintermsofnetvalue-addeddollars
(afterexpenses)earnedrelativetothereturnrequiredonthetwo-yearrisk
allocationforeachoftherespectiveinvestmentdepartmentslistedbelow:
infrastructureand fixedincome tacticalasset
year Publicequities Privatecapital timberland andalternatives allocation
2010and2011 Belowtarget Signifcantly Abovetarget Signifcantly Belowtarget
exceededtarget exceededtarget
Investment performance Long-Term Incentive Plan
In2011,thetotal-fundnetvalue-addedperformance(afterexpenses)wasequal
to$1.21billion,resultinginanaggregateLTIPpoolfordistributionof$33.1million.
NotionaldepositsweremadetoeligibleparticipantsefectiveJanuary1,2012.
aggregateltiP
year total-fundnetvalueadded Performance notionaldeposits
2010 $3.79billion Signifcantlyexceededtarget $74.8million
2011 $1.21 billion Abovetarget $33.1million
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PLANGOVERNANCE
executivecompensation
Thecompensationtablerepresentsdisclosureofbasesalary,annualincentive,
long-termincentiveandothercompensationearnedin2009,2010and2011by
theCEO,theCFOandthethreeothermosthighlycompensatedexecutives,
excludingsubsidiarycompanies.
long-term
nameand annual incentive long-term changein totaldirect total
PrincipalPosition year baseSalary incentive allocation incentivePaid
1
other
2
Pensionvalue compensation
3
compensation
4
a b c d e a+b+c a+b+d+e
Jim Leech 2011 $523,077 $1,470,800 $1,350,000 $2,381,000 $2,938 $217,900 $3,343,877 $4,377,815
President and CEO 2010 500,000 1,400,000 3,500,000 2,011,900 10,440 5,400,000 3,922,340
2009 500,000 706,300 2,800,000 1,098,200 10,455 4,006,300 2,314,955
David McGraw 2011 311,538 315,000 290,000 477,700 466 96,700 916,538 1,104,704
SVP and CFO 2010 300,058 285,000 670,000 394,700 7,075 1,255,058 986,833
2009 285,000 144,600 580,000 169,700 7,612 1,009,600 606,912
Neil Petrof 2011 419,231 1,180,000 1,250,000 1,896,000 627 305,900 2,849,231 3,495,858
EVP, Investments 2010 400,192 1,120,000 3,000,000 1,645,200 651 4,520,192 3,166,043
2009 350,000 581,000 2,400,000 751,200 592 3,331,000 1,682,792
Ron Mock 2011 295,385 743,400 800,000 1,405,300 442 152,000 1,838,785 2,444,527
SVP, Fixed Income and 2010 280,192 696,400 2,400,000 1,232,800 449 3,376,592 2,209,841
Alternative Investments 2009 230,000 460,000 1,750,000 537,300 9,239 2,440,000 1,236,539
Wayne Kozun 2011 305,769 509,500 700,000 1,465,600 458 (16,300) 1,515,269 2,281,327
SVP, Public Equities 2010 300,216 729,200 2,300,000 1,296,700 480 3,329,416 2,326,596
2009 243,800 487,600 1,950,000 581,100 417 2,681,400 1,312,917
1
AnewLTIPprogramwasintroducedin2010.Amountspayablerelatingtothepreviousprogramwillbetransferredtotheparticipantsnotional
accountbalanceunderthenewprogramastheycrystallizeattheendofeachperformancecycle.EfectiveJanuary1,2012,amountspayable
fortheperformancecycle20082011wereaddedtonotionalaccountbalancesforparticipatingindividuals.Eachparticipantiseligiblefora
paymentequalto25%ofhisorheraccountunderthenewprograminApril2012.
2
Othercompensationincludesoneormoreofthefollowing:grouptermlifeinsurance,automobileallowanceandunusedvacationcashout.The
automobileallowancewasdiscontinuedinApril2011.
3
Whenmakingcompensationdecisions,theboardandmanagementfocusonTotalDirectCompensation(TDC)whichrefectsbasesalary,annual
incentiveandlong-termincentiveallocation.
4
Changeinpensionvalueisnotincludedintotalcompensation.
75
PLANGOVERNANCE
Notional account balances
Thetablebelowoutlinesthenotionalaccountbalancesforeachofour
namedexecutives.
notionalaccountactivity
nameand opening 2011Rate January1,2012 transferfrom
PrincipalPosition balance ofReturn allocation PriorltiP 2012Payment balance
Jim Leech $6,035,600 11.2% $1,350,000 $1,460,800 $2,381,000 $7,143,000
President and CEO
David McGraw 1,183,900 11.2% 290,000 303,900 477,700 1,433,000
SVP and CFO
Neil Petrof 4,935,800 11.2% 1,250,000 844,000 1,896,000 5,688,000
EVP, Investments
Ron Mock 3,698,200 11.2% 800,000 707,700 1,405,300 4,215,800
SVP, Fixed Income and
Alternative Investments
Wayne Kozun 3,889,900 11.2% 700,000 835,600 1,465,600 4,396,700
SVP, Public Equities
Retirement benefts
TeachersemployeesparticipateinthePublicServicePensionPlan(PSPP),
OPSEUPensionPlan,andthePublicServiceSupplementaryPlan(PSSP).
Combined,theseplansprovideindexedpensionbeneftsequalto2%ofthe
employeesbestfve-yearaverageannualbasesalaryforeachyearofservice,
lessaCanadaPensionPlan(CPP)integrationformula.Beneftsunderthese
combinedplansarecappedbythebasesalaryreachedatthemaximum
pensioncontributionpermittedunderIncomeTaxAct(ITA)regulations.
Employeeswith2011pensionableearningsinexcessof$191,100alsoparticipate
inanon-registered,unfundedSupplementalEmployeeRetirementPlan
(SERP).Thisplanprovidesnon-indexedretirementbeneftsequalto2%ofthe
employeesaveragepensionableearningsforeachyearofservice,lessthe
initialannualpensiontowhichtheemployeeisentitledunderthePSPPand
PSSP,combined.Forrolesatthevice-presidentlevelorabove,aportionoftheir
annualincentivemaybeincludedaspensionableearnings.
In2011theboardcompletedareviewoftheSERPandmadecertainadjustments
thatwillafectparticipantsgoingforwardandwillmanagetheSERPexpense.
76
PLANGOVERNANCE
ThetotalliabilityfortheSERPincreasedbyanetamountof$3.4millionin2011
foratotalaccruedSERPliabilityof$27.3millionasatDecember31,2011.
Thetablebelowoutlinestheestimatedpresentvalueofthetotalpensionfrom
allsources(PSPP,PSSPandSERP)andestimatedannualpensionbeneftsat
age65fortheCEO,theCFOandthethreeothermosthighlycompensated
executives,excludingsubsidiarycompanies.
2011 2011non-
estimated Presentvalueof compensatory compensatory
1
Presentvalueof
Projected totalannual totalPensionat annual annual totalPensionat
nameand yearsofService Pensionbeneft January1, changein changein december31,
PrincipalPosition atage65 atage65 2011 Pensionvalue Pensionvalue 2011
Jim Leech 11 $260,300 $3,260,200 $482,600 $(264,700) $3,478,100
President and CEO
David McGraw 17 170,400 716,000 123,500 (26,800) 812,700
SVP and CFO
Neil Petrof 32 837,200 4,323,100 350,600 (44,700) 4,629,000
EVP, Investments
Ron Mock 17 195,400 1,444,400 220,200 (68,200) 1,596,400
SVP, Fixed Income and
Wayne Kozun 36 685,400 2,371,900 121,700 (138,000) 2,355,600
SVP, Public Equities
1
Non-compensatorychangesincludeinterestonliabilitiesandimpactofanyassumptionchanges.
Thevaluesshownaboveareestimatedbasedonassumptionsandrepresent
entitlementsthatmaychangeovertime.
boardandcommitteememberremuneration
Eachboardmemberreceivesanannualretainerof$12,000,plus$12,000as
amemberoftheInvestmentCommittee.TheChairoftheBoardreceivesan
additionalretainerof$100,000,andtheChairsoftheInvestment,Governance,
HumanResources&Compensation,andAudit&ActuarialCommitteesreceive
additionalretainersof$5,000each.
Feesforcommitteeandothereligiblemeetingsare$1,200.Boardmeetingfees
arecombinedwithInvestmentCommitteefeesat$1,500perday.TheChair
oftheBeneftsAdjudicationCommitteereceivesanadditionalfeeof$1,000
foreachBeneftsAdjudicationCommitteemeetingorhearingattendedtoa
maximumoffveperyear.
77
PLANGOVERNANCE
Boardmembersarereimbursedfornormalexpensesforeducationprograms,
travel,mealsandaccommodation,asrequired.For2011,theseexpenses
totalled$64,500.
Retainerand board committee 2011total
boardMember chairfee Meetings Meetings Meetingfees Remuneration
Eileen Mercier Chair of the Board $124,000 9 28 $47,100 $171,100
Rod Albert 24,000 9 26 44,700 68,700
Helen Kearns Vice-Chair, Benefts 24,000 9 22 39,900 63,900
Adjudication Committee
Hugh Mackenzie Chair, Benefts 25,000 9 22 39,900 64,900
Adjudication Committee
Louis Martel
1
Chair, Human Resources & 21,750 7 19 33,300 55,050
Compensation Committee
sharon sallows Chair,
Governance Committee 29,000 9 25 43,500 72,500
David smith Chair,
Audit & Actuarial Committee 29,000 9 30 49,500 78,500
Daniel sullivan 24,000 8 23 39,600 63,600
Jean Turmel Chair, Investment Committee 29,000 9 24 42,300 71,300
1
LouisMartelresignedinSeptember2011.
TheGovernanceCommitteeretainedtheHayGrouptoreviewandbenchmark
boardcompensation.Arevisedstructurewillbeinplacefor2012.
leGiSlativeUPdate
Thepensionplanmustcomplywithprovincialandfederallegislationand
investmentregulationsthatgovernandapplytoregisteredpensionplansin
Ontario.Theplanwasafectedbyarecordnumberofamendmentsapproved
bytheplansponsorsandotherpensionreformsproposedorpassedin2011.
Planandregulatorychangeshavebecomemorefrequentduetosignifcant
changestoOntariospensionlegislation,whichhasincreasedourmandatory
complianceactivities.
Changes to the Teachers Pension Act and Pension Benefts Act
Schedule1oftheTeachersPensionAct(TPA)wasamendedin2011torecognize
planchangesmadetoaddressthe2011fundingshortfall,andtocomplywiththe
OntarioPensionBeneftsAct(PBA)andthefederalIncomeTaxAct(ITA).
Toaddressthe2011fundingshortfall,theplansponsorsmadechangestothe
pensionplanthataredetailedonpage18.
TheOntariogovernmentproclaimedamendmentstothePBAandtheOntario
FamilyLawActrelatingtothedivisionofpensionassetsformaritalbreakdowns
(Bill133),efectiveJanuary1,2012.Thisreformisimportantforplanmembersand
willimpactouroperationssignifcantly.Wesupportthegovernmentsefortsto
simplifythecomplexrulesforpensiondivisionandharmonizeaspectsofthePBA
andtheFamilyLawAct.WerevieweddraftregulationsforBill133atlengthand
submittedcommentsseekingclarifcationsforsomeprovisionsthatwouldmake
thenewpensiondivisionregimeeasiertoadministerforplanmembers.
78
PLANGOVERNANCE
Furthercomplianceactivitiesincludedchangesrelatedtotheadministration
ofsurvivorbenefts(includingsame-sexsurvivorbeneftsformemberswho
diedpriortoApril23,1998),eligibilityrequirementstobuybackcreditfor
breaksinservice,andclarifcationofplanrulesformembersonlong-term
incomeprotection.
Pension reform
Westronglysupportongoingefortsatthefederalandprovinciallevelsto
achieveneededandproductivepensionreformsinCanada.Continuingits
pensionreforminitiatives,theOntariogovernmentreleasedregulationslast
yearrelatingtoasolvencyexemptionforJointlySponsoredPensionPlans
(containedinBill120,passedin2010).Whilethepensionplanisnowexempt
fromfundinganydefciencyonasolvencybasis,newregulationsincluded
additionaldisclosureandcertifcationrequirementsthatafecttheplanand
ourcommunications.
Bill236,passedinMay2010,primarilyaddressedgeneraladministrative
issuesforpensionplans,includingbetterdisclosuretopensioners,immediate
vesting,grow-inbeneftsandotherchanges.Thislegislationwillafectour
operationssubstantially,andwewillreviewregulations,expectedsometimein
2012,todeterminetheimpacts.
During2011,theFinancialServicesCommissionofOntario(FSCO)proposeda
newrisk-basedframeworkforregulatingregisteredpensionplansinOntario.
Wesupporttheinitiativeandexpecttoworkwiththeregulatortoconsider
oursubmission.
Investment regulations
TheOntariogovernmentincludedinits2011budgetanewrequirementfor
registeredpensionplansinOntariotofletheirStatementofInvestment
PoliciesandProcedureswiththeFSCOandtodisclosewhetherthepolicy
addressesenvironmental,socialandgovernancefactors.Wewerealreadyin
compliancewiththisnewrequirementwhenitcameintoforce.
TeacherswasanintervenorintheSupremeCourtofCanadasreferenceon
theproposedSecuritiesActthatsoughttoestablishanationalsecurities
regulator.Asasignifcantparticipantinglobalcapitalmarkets,Teachers
supportedtheproposedAct,contendingthatCanadaneedsmoreefcient
andtransparentcapitalmarketsandthatthecurrentfragmentationofthe
Canadianregulatorysystemshouldbeaddressed.WhiletheCourtfoundin
December2011thattheproposedlegislationwasunconstitutional,wewill
continuetoadvocateformoreconsistencyinCanadianregulatorypolicyand
legislation,throughaworkableandconstitutionalregulatorymodel.
79
Managements Responsibility for financial Reporting
ThefnancialstatementsoftheOntarioTeachersPensionPlanhavebeenpreparedbymanagement,whichisresponsible
fortheintegrityandfairnessofthedatapresented,includingthemanyamountswhichmust,ofnecessity,bebasedon
estimatesandjudgments.Theaccountingpoliciesfollowedinthepreparationofthesefnancialstatementsconform
toCanadiangenerallyacceptedaccountingprinciples.Financialinformationpresentedthroughouttheannualreportis
consistentwiththefnancialstatements.
Systemsofinternalcontrolandsupportingproceduresaremaintainedtoprovideassurancethattransactionsare
authorized,assetssafeguardedandproperrecordsmaintained.Thesecontrolsincludequalitystandardsinhiringand
trainingofemployees,acodeofconduct,theestablishmentofanorganizationalstructurethatprovidesawell-defned
divisionofresponsibilitiesandaccountabilityforperformance,andthecommunicationofpoliciesandguidelines
throughtheorganization.
UltimateresponsibilityforthefnancialstatementsrestswiththemembersoftheBoard.TheBoardisassistedinits
responsibilitiesbytheAudit&ActuarialCommittee,consistingofsixBoardmemberswhoarenotofcersoremployees
oftheplanadministrator.Inaddition,thecommitteereviewstherecommendationsoftheinternalandexternalauditors
forimprovementsininternalcontrolandtheactionofmanagementtoimplementsuchrecommendations.Incarrying
outitsdutiesandresponsibilities,thecommitteemeetsregularlywithmanagementandwithboththeexternaland
internalauditorstoreviewthescopeandtimingoftheirrespectiveaudits,toreviewtheirfndingsandtosatisfyitself
thattheirresponsibilitieshavebeenproperlydischarged.Thiscommitteereviewsthefnancialstatementsand
recommendsthemforapprovalbytheBoard.
ThePlansexternalauditors,Deloitte&ToucheLLP,aredirectlyaccountabletotheAudit&ActuarialCommitteeand
havefullandunrestrictedaccesstothecommittee.Theydiscusswiththecommitteetheirauditandrelatedfndings
astotheintegrityofthePlansfnancialreportingandtheadequacyofinternalcontrolsystems.ThePlansexternal
auditorshaveconductedanindependentexaminationofthefnancialstatementsinaccordancewithCanadian
generallyacceptedauditingstandards,performingsuchtestsandotherproceduresastheyconsidernecessaryto
expresstheopinionintheirReporttotheAdministrator.
JiM leech davidMcGRaW
PRESIDENT ANDCHIEFEXECUTIVEOFFICER SENIORVICE-PRESIDENT ANDCHIEFFINANCIALOFFICER
MARCH2,2012
80
Auditors Report to the Administrator
WehaveauditedtheaccompanyingfnancialstatementsoftheOntarioTeachersPensionPlanBoardwhichcomprise
thestatementsoffnancialpositionasatDecember31,2011,December31,2010andJanuary1,2010,andthestatements
ofchangesinnetassetsavailableforbenefts,statementsofchangesinaccruedpensionbenefts,andstatementsof
changesindefcitfortheyearsendedDecember31,2011andDecember31,2010,andasummaryofsignifcant
accountingpoliciesandotherexplanatoryinformation.
ManagementsResponsibilityforthefinancialStatements
Managementisresponsibleforthepreparationandfairpresentationofthesefnancialstatementsinaccordancewith
AccountingStandardsforPensionPlans,andforsuchinternalcontrolsasmanagementdeterminesarenecessaryto
enablethepreparationoffnancialstatementsthatarefreefrommaterialmisstatement,whetherduetofraudorerror.
auditorsResponsibility
Ourresponsibilityistoexpressanopiniononthesefnancialstatementsbasedonouraudits.Weconductedour
auditsinaccordancewithCanadiangenerallyacceptedauditingstandards.Thosestandardsrequirethatwecomply
withethicalrequirementsandplanandperformtheaudittoobtainreasonableassuranceaboutwhetherthefnancial
statementsarefreefrommaterialmisstatement.
Anauditinvolvesperformingprocedurestoobtainauditevidenceabouttheamountsanddisclosuresinthefnancial
statements.Theproceduresselecteddependontheauditorsjudgment,includingtheassessmentoftherisksof
materialmisstatementofthefnancialstatements,whetherduetofraudorerror.Inmakingthoseriskassessments,the
auditorconsidersinternalcontrolsrelevanttotheentityspreparationandfairpresentationofthefnancialstatements
inordertodesignauditproceduresthatareappropriateinthecircumstances,butnotforthepurposeofexpressingan
opinionontheefectivenessoftheentitysinternalcontrols.Anauditalsoincludesevaluatingtheappropriatenessof
accountingpoliciesusedandthereasonablenessofaccountingestimatesmadebymanagement,aswellasevaluating
theoverallpresentationofthefnancialstatements.
Webelievethattheauditevidencewehaveobtainedinourauditsissufcientandappropriatetoprovideabasisfor
ourauditopinion.
opinion
Inouropinion,thefnancialstatementspresentfairly,inallmaterialrespects,thefnancialpositionoftheOntario
TeachersPensionPlanBoardasatDecember31,2011,December31,2010andJanuary1,2010,anditsfnancial
performanceandchangesinitsnetassetsavailableforbenefts,changesinaccruedpensionbeneftsandchangesin
defcitfortheyearsendedDecember31,2011andDecember31,2010inaccordancewithAccountingStandardsfor
PensionPlans.
chaRteRedaccoUntantS
LICENSEDPUBLICACCOUNTANTS
MARCH2,2012
TORONTO,ONTARIO
81
Actuaries Opinion
Mercer(Canada)LimitedwasretainedbytheOntarioTeachersPensionPlanBoard(theBoard)toperforman
actuarialvaluationoftheassetsandthegoingconcernliabilitiesoftheOntarioTeachersPensionPlan(thePlan)as
atDecember31,2011,forinclusioninthePlansfnancialstatements.Aspartofthevaluation,weexaminedthePlans
recentexperiencewithrespecttothenon-economicassumptionsandpresentedourfndingstotheBoard.
ThevaluationofthePlansactuarialliabilitieswasbasedon:
membershipdataprovidedbytheOntarioTeachersPensionPlanBoardasatAugust31,2011;
methodsprescribedbySection4600oftheCanadianInstituteofCharteredAccountantsHandbookfor
pensionplanfnancialstatements;
realandnominalinterestratesonlong-termCanadabondsattheendof2011;
assumptionsaboutfutureevents(forexample,futureratesofinfationandfutureretirementrates)which
havebeencommunicatedtousastheBoardsbestestimateoftheseevents;and
informationobtainedfromtheOntarioMinistryofLabourandotherpublisheddataonnegotiatedwage
settlementsinthe2011/2012schoolyear.
TheobjectiveofthefnancialstatementsistofairlypresentthefnancialpositionofthePlanonDecember31,2011
asagoingconcern.Thisisdiferentfromthestatutoryvaluation(theactuarialvaluationrequiredbythePension
Benefts Act (Ontario)),whichestablishesaprudentlevelforfuturecontributions.
WhiletheactuarialassumptionsusedtoestimateliabilitiesforthePlansfnancialstatementsrepresenttheBoards
bestestimateoffutureeventsandmarketconditionsattheendof2011,andwhileinouropiniontheseassumptionsare
reasonable,thePlansfutureexperiencewillinevitablydifer,perhapssignifcantly,fromtheactuarialassumptions.Any
diferencesbetweentheactuarialassumptionsandfutureexperiencewillemergeasgainsorlossesinfuturevaluations,
andwillafectthefnancialpositionofthePlan,andthecontributionsrequiredtofundit,atthattime.
Wehavetestedthedataforreasonablenessandconsistency,andwebelieveittobesufcientandreliablefor
thepurposesofthevaluation.Wealsobelievethatthemethodsemployedinthevaluationareappropriateforthe
purposesofthevaluation,andthattheassumptionsusedinthevaluationareinaccordancewithacceptedactuarial
practice.Ouropinionshavebeengiven,andourvaluationhasbeenperformed,inaccordancewithaccepted
actuarialpracticeinCanada.
ScottclaUSen,f.c.i.a. MalcolMP.haMilton,f.c.i.a.
MARCH2,2012
82
statements of financial Position
asatdecember31 asatDecember31 asatJanuary1
(Canadian$millions) 2011 2010 2010
netassetsavailableforbenefts
assets
Cash $ 435 $ 432 $ 493
ReceivablefromtheProvinceofOntario(note3) 2,717 2,627 2,524
Receivablefrombrokers 39 101 93
Investments(note2) 156,563 136,194 108,086
Premisesandequipment 37 41 43
159,791 139,395 111,239
liabilities
Accountspayableandaccruedliabilities 542 250 181
Duetobrokers 1,847 137 79
Investment-relatedliabilities(note2) 40,305 31,473 14,577
42,694 31,860 14,837
netassetsavailableforbenefts $ 117,097 $ 107,535 $ 96,402
accruedpensionbeneftsanddefcit
Accruedpensionbenefts(note4) $ 162,587 $ 146,893 $ 131,858
Defcit (45,490) (39,358) (35,456)
accruedpensionbeneftsanddefcit $ 117,097 $ 107,535 $ 96,402
OnbehalfofthePlanAdministrator:
ChairoftheBoard Chair,Audit&ActuarialCommittee
83
statements of Changes in Net Assets
Available for Benefts
fortheyearendedDecember31(Canadian$millions) 2011 2010
netassetsavailableforbenefts,beginningofyear $ 107,535 $ 96,402
investmentoperations
Investmentincome(note6) 11,735 13,269
Administrativeexpenses(note11a) (289) (290)
Netinvestmentoperations 11,446 12,979
MemberServiceoperations
Contributions(note9) 2,823 2,697
Beneftspaid(note10) (4,663) (4,500)
Administrativeexpenses(note11b) (44) (43)
Netmemberserviceoperations (1,884) (1,846)
increaseinnetassetsavailableforbenefts 9,562 11,133
netassetsavailableforbenefts,endofyear $ 117,097 $ 107,535
84
statements of Changes in Accrued Pension Benefts
accruedpensionbenefts,beginningofyear $ 146,893 $ 131,858
increaseinaccruedPensionbenefts
Interestonaccruedpensionbenefts 5,944 6,057
Beneftsaccrued 4,409 3,354
Changesinactuarialassumptionsandmethods(note4a) 9,819 10,440
Changesinplanprovisions 6
Experiencelosses(note4c) 179
20,357 19,851
decreaseinaccruedPensionbenefts
Beneftspaid(note10) 4,663 4,500
Experiencegains(note4c) 316
4,663 4,816
netincreaseinaccruedpensionbenefts 15,694 15,035
accruedpensionbenefts,endofyear $ 162,587 $ 146,893
statements of Changes in Defcit
defcit,beginningofyear $ (39,358) $ (35,456)
Increaseinnetassetsavailableforbenefts 9,562 11,133
Netincreaseinaccruedpensionbenefts (15,694) (15,035)
defcit,endofyear $ (45,490) $ (39,358)
85
Notes to financial statements
fortheyearendedDecember31,2011
deScRiPtionofPlan
ThefollowingdescriptionoftheOntarioTeachersPensionPlan(thePlan)isasummaryonly.Formorecomplete
information,referenceshouldbemadetotheTeachers Pension Act (Ontario)(theTPA)asamended.
(a)General
ThePlanisgovernedbytheTPA.Itisacontributorydefnedbeneftpensionplanco-sponsoredbytheProvinceof
Ontario(theProvince)andPlanmembers,representedbyOntarioTeachersFederation(OTF)(theco-sponsors).The
termsofthePlanaresetoutinSchedule1oftheTPA.
ThePlanisregisteredwiththeFinancialServicesCommissionofOntario(FSCO)andundertheIncome Tax Act (Canada)
(theITA)(registrationnumber0345785)asaRegisteredPensionPlanwhichisnotsubjecttoincometaxesinCanada.
ThePlanmaybeliablefortaxesinotherjurisdictionswherefulltaxexemptionsarenotavailable.
ThePlanisadministeredandtheinvestmentsaremanagedbytheOntarioTeachersPensionPlanBoard(theBoard).
UndertheTPA,theBoardisconstitutedasacorporationwithoutsharecapitaltowhichtheCorporations Act (Ontario)
doesnotapply.
(b)funding
Planbeneftsarefundedbycontributionsandinvestmentearnings.Contributionsaremadebyactivemembersof
thePlanandarematchedbyeithertheProvinceordesignatedemployers.Thedeterminationofthevalueofthe
beneftsandrequiredcontributionsismadeonthebasisofperiodicactuarialvaluations.
(c)Retirementpensions
Aretirementpensionisavailablebasedonthenumberofyearsofcreditedservice,theaverageofthebestfveannual
salariesandtheageofthememberatretirement.Amemberiseligibleforareducedretirementpensionfromage50.
Anunreducedretirementpensionisavailableatage65orifthesumofamembersageandqualifyingserviceequals85.
(d)disabilitypensions
Adisabilitypensionisavailableatanyagetoadisabledmemberwithaminimumof10yearsofqualifyingservice.The
typeofdisabilitypensionisdeterminedbytheextentofthedisability.
(e)deathbenefts
Deathbeneftsareavailableonthedeathofanactivememberandmaybeavailableonthedeathofaretiredmember.
Thebeneftmaytaketheformofasurvivorpension,lump-sumpaymentorboth.
(f)escalationofbenefts
PensionbeneftsareadjustedinJanuaryeachyearforinfation,subjecttoanupperlimitof8%andalowerlimitof
0%inanyoneyearwithanyexcessaboveorbelowthoselimitscarriedforward.Forcreditedserviceearnedupto
December31,2009,infationprotectionis100%ofthechangeintheConsumerPriceIndex.Creditedserviceearned
afterDecember31,2009issubjecttoconditionalinfationprotectionwithaguaranteedlevelofinfationprotection
setat50%ofthechangeintheConsumerPriceIndex.DependingonthePlansfundedstatusasatthenextfling,
100%infationprotectionispossibleandanyyearsthatdidnotreceivefullinfationprotectioncanberestoredtobe
fullyindexedbytheco-sponsorsonago-forwardbasis.
86
NOTESTOTHEFINANCIALSTATEMENTS
(g)Retirementcompensationarrangement
RestrictionsintheITAanditsregulationsonthepaymentofcertainbeneftsfromtheregisteredpensionplan
forperiodsofserviceafter1991mayimpactsomePlanmembers.Toaddressafectedmembers,theRetirement
CompensationArrangement(theRCA)wasestablishedbyagreementbetweentheco-sponsorsasasupplementary
plantoprovideforthesebenefts.Examplesofthesebeneftsinclude:(1)membersofthePlanwhoretiredwith
averageearningsabove$137,979(CPP-exemptmembers$127,611)in2011and$134,811(CPP-exemptmembers$124,722)
in2010;and(2)memberswhosepensionswouldrequirealargerreductionforearlyretirementtocomplywiththeITA
limitationsthanthePlanwouldimpose.BecausetheRCAisaseparatetrust,thenetassetsavailableforbeneftsand
accruedbeneftsanddefcitoftheRCAarenotincludedinthesefnancialstatements.
note1.
SUMMaRyofSiGnificantaccoUntinGPolicieS
(a)basisofpresentation
ThesefnancialstatementsarepreparedinCanadiandollars,thePlansfunctionalcurrency,inaccordancewiththe
accountingstandardsforpensionplansinPartIVoftheCanadianInstituteofCharteredAccountants(CICA)Handbook
(Section4600).Section4600providesspecifcaccountingguidanceoninvestmentsandpensionobligations.For
accountingpoliciesthatdonotrelatetoeitherinvestmentsorpensionobligations,thePlanmustconsistentlycomply
witheitherInternationalFinancialReportingStandards(IFRS)inPartIoraccountingforprivateenterprisesinPartIIof
theCICAHandbook.ThePlanhaselectedtocomplywithIFRSinPartIoftheCICAHandbookcommencingJanuary1,
2011.TotheextentthatIFRSinPartIisinconsistentwithSection4600,Section4600takesprecedence.
InvestmentholdingcompanieseitheracquiredorcreatedbythePlanarerecognizedasinvestmentassets.Under
Section4600,investmentassets,includingthoseoverwhichthePlanhascontrolorhassignifcantinfuence,are
presentedonanon-consolidatedbasis.
ThefnancialstatementsfortheyearendedDecember31,2011wereauthorizedforissuethrougharesolutionofthe
BoardonMarch2,2012.
(b)changesinaccountingpolicies
ThesefnancialstatementsarethePlansfrstincompliancewithSection4600andIFRS.Thecomparativesasat
January1,2010andfortheyearendedDecember31,2010havebeenrestatedaccordingly.Priorto2011,thefnancial
statementswerepreparedinaccordancewithCICAHandbookSection4100PensionPlansandPartVofthe
CICAHandbook.
ThePlanhaselectedtoearlyadoptIFRS13,FairValueMeasurement,onaprospectivebasis,commencingJanuary1,
2010.ThemeasurementrequirementsunderIFRS13wereappliedconsistentlytothefairvalueofallinvestmentassets
andinvestment-relatedliabilitiesintheperiodspresentedinthefnancialstatements.Thedefnitionoffairvaluehas
beenamendedtocomplywithIFRS13.Thereisnoimpactonthevaluesofeitherinvestmentassetsorinvestment-
relatedliabilities.AsperSection4600,thePlanisnotrequiredtocomplywiththedisclosurerequirementsprescribed
inIFRS13.
ThefollowingaccountingpolicieshavebeenreviseduponimplementationofSection4600andIFRS:
Non-consolidation
PriortotheimplementationofSection4600,thePlanpreparedconsolidatedfnancialstatements.Inaccordancewith
Section4600,thePlanpresentsinvestmentsonanon-consolidatedbasis.Asaresultofthisrequirement,investments
andinvestment-relatedliabilitiesbothdecreasedwithnoimpactonnetassetsavailableforbenefts.
Elimination of actuarial asset value adjustment
InaccordancewithSection4100,theactuarialassetvalueadjustmentwasincludedinthedeterminationofthe
fnancialstatementsurplusordefcit.AsperSection4600,theactuarialassetvalueadjustmentisnolongerpermitted.
ThetablesonthefollowingpagesshowtheimpactoftheserevisedaccountingpoliciesonprioryearsStatementsof
fnancialpositionandStatementsofchangesindefcit.
87
StateMentoffinancialPoSition

Adjustments
AsPreviously ActuarialAsset Revisedpercica
asatDecember31,2010(Canadian$millions) Reported Non-consolidation ValueAdjustment Section4600
assets
Cash $ 432 $ $ $ 432
ReceivablefromtheProvinceofOntario 2,627 2,627
Receivablefrombrokers 101 101
Investments 155,360 (19,166) 136,194
Premisesandequipment 41 41
158,561 (19,166) 139,395
liabilities
Accountspayableandaccruedliabilities 250 250
Duetobrokers 137 137
Investment-relatedliabilities 50,639 (19,166) 31,473
51,026 (19,166) 31,860
netassetsavailableforbenefts $ 107,535 $ $ $ 107,535
Actuarialassetvalueadjustment 6,655 (6,655)
actuarialvalueofnetassets
availableforbenefts $ 114,190 $ $ (6,655) $ 107,535
Accruedpensionbenefts $ 146,893 $ $ $ 146,893
Defcit (32,703) (6,655) (39,358)
accruedpensionbeneftsanddefcit $ 114,190 $ $ (6,655) $ 107,535
StateMentofchanGeSindeficit
Adjustments
(Canadian$millions) Reported Non-consolidation ValueAdjustment Section4600
defcit,January1,2010 $ (22,752) $ $ (12,704) $ (35,456)
Increaseinnetassetsavailableforbenefts 11,133 11,133
Changeinactuarialassetvalueadjustment (6,049) 6,049
Increaseinactuarialvalueofnetassets
availableforbenefts 5,084 6,049 11,133
defcit,december31,2010 $ (32,703) $ $ (6,655) $ (39,358)
88
oPeninGStateMentoffinancialPoSition
Adjustments
asatJanuary1,2010(Canadian$millions) Reported Non-consolidation ValueAdjustment Section4600
assets
Cash $ 493 $ $ $ 493
ReceivablefromtheProvinceofOntario 2,524 2,524
Receivablefrombrokers 93 93
Investments 123,900 (15,814) 108,086
Premisesandequipment 43 43
127,053 (15,814) 111,239
liabilities
Accountspayableandaccruedliabilities 181 181
Duetobrokers 79 79
Investment-relatedliabilities 30,391 (15,814) 14,577
30,651 (15,814) 14,837
netassetsavailableforbenefts $ 96,402 $ $ $ 96,402
Actuarialassetvalueadjustment 12,704 (12,704)
actuarialvalueofnetassets
availableforbenefts $ 109,106 $ $ (12,704) $ 96,402
Accruedpensionbenefts $ 131,858 $ $ $ 131,858
Defcit (22,752) (12,704) (35,456)
accruedpensionbeneftsanddefcit $ 109,106 $ $ (12,704) $ 96,402
StateMentofchanGeSindeficit
Adjustments
(Canadian$millions) Reported Non-consolidation ValueAdjustment Section4600
defcit,January1,2009 $ (11,184) $ $ (19,524) $ (30,708)
Increaseinnetassetsavailableforbenefts 8,969 $8,969
Changeinactuarialassetvalueadjustment (6,820) 6,820
Increaseinactuarialvalueofnetassets
availableforbenefts 2,149 6,820 8,969
defcit,January1,2010 $ (22,752) $ $ (12,704) $ (35,456)
TheimplementationofSection4600hasnoefectoneitherthestatementsofchangesinnetassetsavailablefor
beneftsorthestatementsofchangesinaccruedpensionbeneftsfortheyearendedDecember31,2010.
89
(c)futurechangesinaccountingpolicies
TheInternationalAccountingStandardsBoardhasissuedanumberofnewandamendedstandardsthatarenotyet
efectiveasatDecember31,2011.TherelevantnewguidancenotyetadoptedbythePlanincludes:
IFRS12,DisclosuresofInterestsinOtherEntitiesandIAS27,SeparateFinancialStatements.Thenewstandards
setouttherequireddisclosuresforinterestsinsubsidiaries,jointarrangements,associatesandunconsolidated
structuredentities.ThenewstandardsareefectiveforannualperiodsbeginningonorafterJanuary1,2013and
earlyapplicationispermitted.
IFRS9,FinancialInstruments.ThenewstandardwillreplaceIAS39,FinancialInstruments:Recognitionand
Measurementandincludesguidanceonrecognitionandderecognitionoffnancialassetsandfnancialliabilities.
ThenewstandardisefectiveforannualperiodsbeginningonorafterJanuary1,2015andearlyapplication
ispermitted.
ManagementdoesnotexpectanysignifcantimpactoneitherthePlansfnancialpositionorperformancewhen
adoptingthesenewstandards.
(d)investments
Valuation of investments
InvestmentsareeitherdirectlyorindirectlyownedbythePlan.Investment-relatedliabilitiesareincurredbythe
Plandirectly.Detailsofinvestmentsandinvestment-relatedliabilitiesarepresentedinnote2aandarestatedatfair
value.Fairvalueisthepricethatwouldeitherbereceivedtosellanassetorpaidtotransferaliabilityinanorderly
transaction(i.e.,anexitprice)betweenmarketparticipantsatthemeasurementdate.Inanactivemarket,fairvalueis
bestevidencedbyanindependentquotedmarketprice.Intheabsenceofanactivemarket,fairvalueisdeterminedby
valuationtechniquesthatmakemaximumuseofinputsobservedfrommarkets.
Fairvaluesofinvestmentsaredeterminedasfollows:
a. Short-termmoney-marketsecuritiesarevaluedusingeitherquotedclosingmid-marketpricesordiscountedcash
fowsbasedoncurrentmarketyields,whenquotedclosingmid-marketpricesareunavailable.
b. Bonds,includingbothnominalandrealreturn,arevaluedonthebasisofquotedclosingmid-marketprices.If
quotedclosingmid-marketpricesarenotavailable,estimatedvaluesarecalculatedusingdiscountedcashfows
basedoncurrentmarketyieldsandcomparablesecurities,asappropriate.
c. Securitiessoldunderagreementstorepurchaseandsecuritiespurchasedunderagreementstoresellarevalued
usingdiscountedcashfowsbasedoncurrentmarketyields.
d. Publicequitiesarevaluedatquotedclosingmid-marketprices.Whenthemarketforapublicequityisnotactive,
managementassessesifthequotedpricesrepresentfairvalue.Ifnot,managementadjuststhequotedpricesor
estimatesthefairvaluebyusingappropriatetechniquesincludingvaluationmodels.
e. Realestate,privateequities,infrastructureandtimberlandarevaluedbasedonestimatedfairvaluesdetermined
byusingappropriatetechniquesandbestestimatesbyeithermanagement,appraisers,orboth.Whereexternal
appraisersareengagedtoperformthevaluation,managementensurestheappraisersareindependentand
comparestheassumptionsusedbytheappraiserswithmanagementsexpectationsbasedoncurrentmarket
conditionsandindustrypracticetoensurethevaluationcapturesthebusinessandeconomicconditionsspecifc
totheinvestment.
Atleast70%ofthevalueoftherentalpropertyportfoliocoveringallproducttypesandgeographicregionsis
independentlyappraisedannually.Ataminimum,90%oftherealestateportfoliowillbevaluedbyindependent
appraisersatleasteverythreeyears.Thesameappraisalfrmisnotpermittedtovaluethesamepropertymore
thanthreeyearsinarow.
f. Derivativefnancialinstrumentsarerecordedatfairvalueusingmarketpriceswhereavailable.Wherequoted
marketvaluesarenotreadilyavailable,appropriatealternativevaluationtechniquesareusedtodeterminefair
value.Indeterminingfairvalue,considerationisalsogiventothecreditriskofthecounterparty.
90
g. Alternativeinvestments,comprisedofhedgefundsandmanagedfuturesaccounts,arerecordedatfairvalue
basedonnetassetvaluesobtainedfromeachofthefundsadministrators.Thesenetassetvaluesarereviewed
bymanagement.
ThePlanusesanumberofvaluationtechniquestodeterminethefairvalueofinvestmentsforwhichobservable
pricesinactivemarketsforidenticalinvestmentsarenotavailable.Thesetechniquesinclude:valuationmethodologies
basedonobservablepricesforsimilarinvestments;presentvalueapproacheswherefuturecashfowsgeneratedby
theinvestmentareestimatedandthendiscountedusingarisk-adjustedinterestrate;andoption-pricingmodels.The
principalinputstothesevaluationtechniquesarelistedbelow.Valuesbetweenandbeyondavailabledatapointsmay
beobtainedbyinterpolationandextrapolation.
Bondpricesquotedpricesaregenerallyavailableforgovernmentbonds,certaincorporatebondsandsome
otherdebt-relatedproducts.
Creditspreadswhereavailable,creditspreadsarederivedfrompricesofcreditdefaultswapsorothercredit-
basedinstruments,suchasdebtsecurities.Forothers,creditspreadsareobtainedfrompricingservices.
Interestratesprincipallyderivedfrombenchmarkinterestratessuchasquotedinterestratesfromcentralbanks
andinswap,bondandfuturesmarkets.Benchmarkinterestratesareconsideredwhendeterminingdiscountrates
usedinthepresent-valueapproaches.
Foreigncurrencyexchangeratesthereareobservablemarkets,bothspotandforward,andinfuturesinall
majorcurrencies.
Publicequityandequityindexpricesquotedpricesaregenerallyreadilyavailableforequityshareslistedonthe
stockexchangesandforindicesonsuchshares.
Commoditypricesmanycommoditiesareactivelytradedinspot,forwardandfuturesmarkets.
Pricevolatilitiesandcorrelationsvolatilityisameasureofthetendencyofaspecifcpricetochangeovertime.
Correlationmeasuresthedegreetowhichtwoormorepricesorothervariablesareobservedtohavemoved
togetherhistorically.Volatilityisaninputinvaluingoptionsandcertainproductssuchasderivativeswithmore
thanoneunderlyingvariablethatiscorrelation-dependent.Volatilityandcorrelationvaluesareeitherobtained
frombrokerquotations,frompricingservicesorarederivedfromquotedoptionprices.
Forecastsonoperatingcashfowsofrealestate,privateequities,infrastructureandtimberlandforecastsinclude
assumptionsonrevenue,revenuegrowth,expenses,capitalexpenditure,andcapitalstructure.Theyaregenerally
providedbyeithermanagementofthecompaniesinwhichthePlaninvestsorexternalmanagers.Additional
assumptionsfromexternalparties,forexample,externalappraisers,mayalsobeusedintheforecast.
ThePlanrefnesandmodifesitsvaluationtechniquesasmarketsandproductsdevelopandthepricingforindividual
productsbecomesmoretransparent.
WhilethePlanbelievesitsvaluationtechniquesareappropriateandconsistentwithothermarketparticipants,the
useofdiferenttechniquesorassumptionscouldresultindiferentestimatesoffairvalueatthebalancesheetdate.
Managementhasassessedanddeterminedthatusingpossiblealternativeassumptionswillnotresultinsignifcantly
diferentfairvalues.
91
Fair value hierarchy
Investmentassetsandinvestment-relatedliabilitiesareclassifedanddisclosedinoneofthefollowingcategories
refectingthesignifcanceofinputsusedinmakingthefairvaluemeasurement:
Level1quotedprices(unadjusted)inactivemarketsforidenticalassetsorliabilities;
Level2inputsotherthanquotedpricesincludedwithinLevel1thatareobservablefortheassetsorliabilities,
eitherdirectlyorindirectly;and
Level3unobservableinputs.
Ifdiferentlevelsofinputsareusedtomeasurethefairvalueofaninvestment,theclassifcationwithinthehierarchyis
basedonthelowestlevelinputthatissignifcanttothefairvaluemeasurement.
Trade-date reporting
Purchasesandsalesofinvestmentsandderivativecontractsarerecordedasofthetradedate.
Investment income
Dividendincomeisrecognizedbasedontheex-dividenddate,andinterestincomeandrealestateincomeare
recognizedontheaccrualbasisasearned.Investmentincomealsoincludesbothrealizedandunrealizedgainsand
losses.Unrealizedgainsandlossesarerecognizedonlywhenthefairvalueoftheinvestmentisbasedonaquoted
marketpriceinanactivemarketoravaluationusingappropriatevaluationtechniquesisperformedandapproved
bymanagement.
Transaction costs
Transactioncostsareincrementalcostsdirectlyattributabletotheacquisition,issueordisposalofafnancialassetor
fnancialliability.Transactioncostsincurredareexpensedandrecordedastransactioncosts.Anytransactionamounts
receivedbythePlanthataredirectlyattributabletotheacquisitionofaninvestmentarenettedagainsttransaction
costspaid.
Direct management fees
Directmanagementandperformancefeesforexternalinvestmentmanagersandadministratorsareexpensedasincurred.
(e)foreigncurrencytranslation
AssetsandliabilitiesdenominatedinforeigncurrenciesaretranslatedintoCanadiandollarsattheexchange
ratesprevailingontheyear-enddate.IncomeandexpensesaretranslatedintoCanadiandollarsattheexchangerates
prevailingonthedatesofthetransactions.Therealizedandunrealizedgainsandlossesarisingfromthesetranslations
areincludedwithinnetrealizedandunrealizedgainsoninvestmentsininvestmentincome.
(f)accruedpensionbenefts
Thevalueofaccruedpensionbeneftsandchangesthereinduringtheyeararebasedonanactuarialvaluation
preparedbyMercer(Canada)Limited,anindependentfrmofactuaries.Thevaluationismadeannuallyasat
September1andthenextrapolatedtoyearend.Itusestheprojectedbeneftmethodpro-ratedonserviceand
managementsbestestimate,asatthevaluationdate,ofvariouseconomicandnon-economicassumptions.
Asdescribedinparagraph(f)oftheDescriptionofPlannote,theinfationprotectionbeneftsforcreditedservice
earnedafterDecember31,2009willvarybetween50%and100%ofthechangeintheConsumerPriceIndex.Forthe
fnancialstatementvaluation,thePlanaccruestheminimumguaranteedinfationprotectionbeneftsanddisclosesthe
maximumamountsofpotentialinfationprotectionbeneftsatthe100%levelinnote4b.
92
(g)contributions
Contributionsfromthemembers,theProvinceanddesignatedemployersarerecordedonanaccrualbasis.Cash
receivedfrommembersforcreditedserviceandcashtransfersfromotherpensionplansarerecordedwhenreceived.
(h)benefts
Beneftpaymentstomembersandothers,commutedvaluepaymentsandrefundstoformermembers,andtransfer
paymentstootherplansarerecordedintheperiodinwhichtheyarepaid.Anybeneftpaymentaccrualsnotpaidare
refectedinaccruedpensionbenefts.
(i)Premisesandequipment
Premisesandequipmentarerecordedatcostandamortizedonastraight-linebasisovertheirestimatedusefullives.
(j)Useofestimates
Inpreparingthesefnancialstatements,managementusesestimatesandassumptionsthatprimarilyafectthe
reportedvaluesofassetsandliabilities,andrelatedincomeandexpenses.Estimatesandassumptionsarecontinually
evaluatedandarebasedonhistoricalexperienceandotherfactors,includingexpectationsoffutureeventsthatare
believedtobereasonableandrelevantunderthecircumstances.Theefectofachangeinanestimateorassumption
isrecognizedintheperiodinwhichtheestimateandassumptionisrevisediftherevisionafectsonlythatperiod.
Signifcantestimatesandassumptionsareusedprimarilyinthedeterminationofaccruedpensionbeneftsandthefair
valueofinvestmentsandinvestment-relatedreceivablesandliabilities.Note4explainshowestimatesandassumptions
areusedindeterminingaccruedpensionbeneftsandnote1dexplainshowestimatesandassumptionsareusedto
derivethefairvalueofinvestmentsandinvestment-relatedreceivablesandliabilities.
(k)contingencies
Acontingentliabilityisapossibleobligationthatdependsontheoccurrenceornon-occurrenceofoneormorefuture
eventsnotcontrolledbythePlan.Contingentliabilitiesarenotrecognizedbutthenatureandextentaredisclosedin
thenotestothefnancialstatements.Aprovisionforapresentobligationisrecognizedwhenareliableestimatecanbe
determinedandthesettlementoftheobligationisprobable.
93
note2.
inveStMentS
ThePlaninvests,directlyorthroughderivatives,infxedincome,equitiesandrealassetinvestmentsinaccordancewith
theBoardspolicyofassetdiversifcation.
(a)investments
(1)
beforeallocatingtheefectofderivativecontracts
TheschedulebelowsummarizesthePlansinvestmentsandinvestment-relatedliabilities,includingnetaccruedinterest
anddividendsof$270million(December31,2010$298millionandJanuary1,2010$263million),beforeallocating
theefectofderivativecontracts:
asatdecember31,2011 asatDecember31,2010 asatJanuary1,2010
(Canadian$millions) fairvalue cost FairValue Cost FairValue Cost
fixedincome
Debentures $ 662 $ 635 $ 1,333 $ 1,223 $ 2,499 $ 2,258
Bonds 31,033 27,806 27,622 27,552 18,089 19,548
Money-marketsecurities 7,545 7,562 4,735 4,835 3,207 3,308
Alternativeinvestments
(2)
5,821 5,482 5,231 5,021 5,829 6,139
Canadianreal-rateproducts 19,766 13,109 16,207 12,119 13,031 10,159
Non-Canadianreal-rateproducts 9,066 7,210 6,869 6,892 6,518 6,621
73,893 61,804 61,997 57,642 49,173 48,033
equity
Publiclytraded
Canadian 5,188 5,325 5,411 4,831 1,761 1,373
Non-Canadian 28,934 29,752 25,947 24,873 20,658 19,464
Non-publiclytraded
Canadian 2,280 1,422 1,961 1,470 1,464 1,314
Non-Canadian 10,252 10,507 9,673 9,885 7,163 8,148
46,654 47,006 42,992 41,059 31,046 30,299
Realassets
Realestate(note5) 14,960 8,660 16,861 11,898 14,209 10,456
Infrastructure 8,709 7,460 7,070 5,771 5,568 4,824
Timberland 2,166 2,092 2,220 2,108 2,339 2,116
25,835 18,212 26,151 19,777 22,116 17,396
146,382 127,022 131,140 118,478 102,335 95,728
investment-relatedreceivables
Securitiespurchasedunder
agreementstoresell 7,245 7,219 2,286 2,291 2,453 2,455
Cashcollateraldepositedunder
securitiesborrowingarrangements 841 841 249 249 983 1,005
Derivative-related,net 2,095 1,141 2,519 1,128 2,315 1,208
10,181 9,201 5,054 3,668 5,751 4,668
investments $ 156,563 $ 136,223 $ 136,194 $ 122,146 $ 108,086 $ 100,396
(1)
Foradditionaldetails,refertothescheduleofInvestmentsover$100milliononpages118121.
(2)
Comprisedprimarilyofhedgefundsandmanagedfuturesaccounts.
94
investment-relatedliabilities
Securitiessoldunder
agreementstorepurchase $ (35,088) $ (35,112) $ (28,245) $ (28,741) $ (9,684) $ (9,701)
Securitiessoldbutnot
yetpurchased
Fixedincome (2,076) (2,048) (898) (901) (1,429) (1,467)
Equities (847) (826) (249) (212) (983) (911)
Cashcollateralreceivedunder
creditsupportannexes (458) (458) (383) (383) (268) (268)
Derivative-related,net (1,836) (532) (1,698) (915) (2,213) (1,512)
(40,305) (38,976) (31,473) (31,152) (14,577) (13,859)
netinvestments(note2d) $ 116,258 $ 97,247 $ 104,721 $ 90,994 $ 93,509 $ 86,537
(b)fairvaluehierarchy
TheschedulebelowpresentsthePlansinvestmentsandinvestment-relatedliabilitieswithinthefairvaluehierarchyas
outlinedinnote1d:
december31,2011
(Canadian$millions) Level1 Level2 Level3 total
Fixedincome $ 59,389 $ 4,309 $ 10,195 $ 73,893
Equity 32,013 1,069 13,572 46,654
Realassets 856 205 24,774 25,835
Netinvestment-relatedreceivables/(liabilities) (2,533) (27,885) 294 (30,124)
netinvestments $ 89,725 $ (22,302) $ 48,835 $ 116,258
December31,2010
(Canadian$millions) Level1 Level2 Level3 Total
Fixedincome $ 46,817 $ 4,847 $ 10,333 $ 61,997
Equity 30,096 192 12,704 42,992
Realassets 1,435 286 24,430 26,151
Netinvestment-relatedliabilities (1,233) (24,998) (188) (26,419)
Netinvestments $ 77,115 $ (19,673) $ 47,279 $ 104,721
January1,2010
(Canadian$millions) Level1 Level2 Level3 Total
Fixedincome $ 31,695 $ 5,426 $ 12,052 $ 49,173
Equity 20,893 351 9,802 31,046
Realassets 1,378 301 20,437 22,116
Netinvestment-relatedliabilities (1,617) (6,739) (470) (8,826)
Netinvestments $ 52,349 $ (661) $ 41,821 $ 93,509
95
Comparativefgureshavebeenrestatedduetonon-consolidationunderSection4600.Thereisnoimpactonthe
netinvestments.
Theschedulebelowpresentsareconciliationofinvestmentsandinvestment-relatedreceivables/(liabilities)measured
atfairvalueusingsignifcantunobservableinputs(Level3)duringtheyear.Realizedandunrealizedgains(losses)are
includedininvestmentincome.
2011
NetInvestment-
related
Receivables/
(Canadian$millions) FixedIncome Equity RealAssets (Liabilities) total
Balance,beginningofyear $ 10,333 $ 12,704 $ 24,430 $ (188) $ 47,279
Purchases 3,394 3,408 5,833 3,671 16,306
Sales (4,202) (3,678) (7,308) (3,582) (18,770)
Transfersin
(3)
253 (9) 244
Transfersout
(3)
(170) (259) 27 (402)
Gainsincludedininvestmentincome(note6)
Realized 31 854 286 84 1,255
Unrealized 556 543 1,533 291 2,923
balance,endofyear $ 10,195 $ 13,572 $ 24,774 $ 294 $ 48,835
2010
NetInvestment-
related
Receivables/
(Canadian$millions) FixedIncome Equity RealAssets (Liabilities) Total
Balance,beginningofyear $ 12,052 $ 9,802 $ 20,437 $ (470) $ 41,821
Purchases 4,827 3,929 10,084 5,039 23,879
Sales (6,785) (2,550) (7,782) (5,048) (22,165)
Transfersin
(3)
5 5
Transfersout
(3)
(87) (69) 41 (115)
Gains/(losses)includedin
investmentincome(note6)
Realized (601) 423 68 (77) (187)
Unrealized 927 1,169 1,623 322 4,041
Balance,endofyear $ 10,333 $ 12,704 $ 24,430 $ (188) $ 47,279
(3)
Transfersinandtransfersoutoflevel3areduetothechangeintheavailabilityofobservableinputsusedforfairvaluemeasurementof
investmentassetsorrelatedliabilities.Similarly,transfersbetweenlevel2andlevel1areduetothechangeintheavailabilityofobservableinputs.
Seenote1dFairValueHierarchy.
96
(c)derivativecontracts
Derivativecontractsarefnancialcontracts,thevalueofwhichisderivedfromthevalueofunderlyingassets,
commodities,indices,interestratesorcurrencyrates.Derivativecontractsaretransactedeitherintheover-the-counter
(OTC)marketoronregulatedexchanges.
Notionalamountsofderivativecontractsrepresentthecontractualamounttowhicharateorpriceisappliedfor
computingthecashtobepaidorreceived.Notionalamountsarethebasisuponwhichthereturnsfrom,andthefair
valueof,thecontractsaredetermined.Theydonotnecessarilyindicatetheamountsoffuturecashfowinvolvedor
thecurrentfairvalueofthederivativecontractsand,therefore,donotindicatethePlansexposuretocreditormarket
risks.Thederivativecontractsbecomefavourable(assets)orunfavourable(liabilities)asaresultoffuctuationsin
eithermarketratesorpricesrelativetotheirterms.Theaggregatenotionalamountsandfairvaluesofderivative
contractscanfuctuatesignifcantly.
Derivativecontracts,transactedeitherintheOTCmarketoronregulatedexchanges,include:
Swaps
SwapsareOTCcontractsinwhichtwocounterpartiesexchangeaseriesofcashfowsbasedonagreeduponratestoa
notionalamount.ThevariousswapagreementsthatthePlanentersintoareasfollows:
Equityandcommodityswapsarecontractsinwhichonecounterpartyagreestoeitherpayorreceivefromtheother
cashfowsbasedonchangesinthevalueofeitheranequityorcommodityindex,abasketofstocksorcommodities,
orasinglestockorcommodity.
Interestrateswapsareagreementswheretwocounterpartiesexchangeaseriesofpaymentsbasedondiferentinterest
ratesappliedtoanotionalamount.
Currencyswapsinvolvetheexchangeoffxedpaymentsinonecurrencyforthereceiptoffxedpaymentsin
anothercurrency.
Forwards and futures
Futuresarestandardizedcontractstradedonregulatedfutureexchanges,whereasforwardcontractsarenegotiated
agreementsthataretransactedbetweencounterpartiesintheOTCmarket.Examplesoffuturesandforwardsare
describedbelow:
Equityandcommodityfuturesarecontractualobligationstoeitherbuyorsellatafxedvalue(thecontractedprice)of
anequityorcommodityindex,abasketofstocks,asinglestockorcommoditiesatapredeterminedfuturedate.
Interestratefuturesarecontractualobligationstoeitherbuyorsellaninterest-ratesensitivefnancialinstrumentona
predeterminedfuturedateataspecifedprice.
Currencyforwardsandfuturesarecontractualobligationstoexchangeonecurrencyforanotherataspecifedpriceor
settlementatapredeterminedfuturedate.
Options
Optionsmaybeeitheracquiredinstandardizedamountsonregulatedexchangesorcustomizedandacquiredinthe
OTCmarket.Theyarecontractualagreementsunderwhichtheseller(writer)grantsthepurchasertheright,butnot
theobligation,eithertobuy(calloption)orsell(putoption),asecurity,exchangerate,interestrate,orotherfnancial
instrumentorcommodityatapredeterminedprice,atorbyaspecifedfuturedate.Theseller(writer)ofanoption
canalsosettlethecontractbypayingthecashsettlementvalueofthepurchasersright.Theseller(writer)receivesa
premiumfromthepurchaserforthisright.ThevariousoptionagreementsthatthePlanentersintoincludeequityand
commodityoptions,interestrateoptions,andforeigncurrencyoptions.
97
Credit derivatives
CreditderivativesareOTCcontractsthattransfercreditriskrelatedtoanunderlyingfnancialinstrument(referenced
asset)fromonecounterpartytoanother.Examplesofcreditderivativesincludecreditdefaultswaps,equitydefault
swaps,totalreturnswaps,andloanparticipations.
Creditdefaultswapsandequitydefaultswapsprovideprotectionagainstthedeclineinvalueofthereferencedasset
asaresultofspecifedeventssuchaspaymentdefaultorinsolvency.Theseswapsaresimilarinstructuretoanoption
wherebythepurchaserpaysapremiumtothesellerofthecreditdefaultswaporanequitydefaultswapinreturnfor
paymentrelatedtothedeteriorationinthevalueofthereferencedasset.Thereferencedassetforcreditdefaultswaps
isadebtinstrumentwhilethereferencedassetforequitydefaultswapsisanequityinstrument.
Totalreturnswapsarecontractsinwhichonecounterpartyagreestopayorreceivefromtheothercashfowsbased
onchangesinthevalueofthereferencedasset.
Loanparticipationsarecontractsinwhichonecounterpartyprovidesfundingtotheotherpartyinexchangefor
participationinterestsinsharingtherisksandproftsoftheloansoriginatedbytheotherparty.
Other derivative products
ThePlanalsotransactsinotherderivativeproductsincludingstatisticswapsanddividendswapsintheOTCmarket.
Aninvestormaytradethestatisticswapswiththeobjectiveofaddingvalueorhedgingforrisksassociatedwiththe
magnitudeofmovement,i.e.,volatility,variance,correlation,covarianceofsomeunderlyingproducts,suchasexchange
rates,orstockindexes.DividendswapsareanOTCcontractwhereaninvestoragreestomatchalldividendspaidout
byanunderlyingstockorindexoveraspecifedtimeperiod.Inreturn,thedividendpayerreceivesafxedamountat
expirycalledthedividendswaprate.
98
ThefollowingschedulesummarizesthenotionalamountsandfairvalueofthePlansderivativecontractsheld:
(Canadian$millions) notional fairvalue Notional FairValue Notional FairValue
equityandcommodityderivatives
Swaps $ 22,496 $ (178) $ 15,332 $ 884 $ 15,102 $ 977
Futures 10,003 (97) 5,494 (4) 6,920 3
Options:Listed purchased 158 3 185 3 136 4
written 149 (3) 278 (5) 213 (6)
OTC purchased 5,271 423 5,492 337 4,563 324
written 4,059 (111) 6,325 (294) 2,924 (216)
42,136 37 33,106 921 29,858 1,086
interestratederivatives
Swaps 26,557 5 19,347 16 5,146 7
Futures 92,951 24 28,479 29,669 (8)
Options:Listed purchased 1,308
written 7 1,463 (1) 73 (1)
OTC purchased 1,815 76 5,382 28 5,739 37
written 4,384 (80) 2,115 (26) 1,098 (20)
125,714 25 58,094 17 41,725 15
currencyderivatives
Swaps 274 5 44 4 44 2
Forwards
(4)
38,177 20 35,548 200 31,004 138
Futures 62 16 16
Options:OTC purchased 5,660 30 14,583 125 10,431 180
written 5,526 (31) 12,300 (114) 8,877 (145)
49,699 24 62,491 215 50,372 175
creditderivatives
Loanparticipations 35 189 101
Creditdefaultswapspurchased 8,510 300 8,043 82 10,825 209
written 1,729 (308) 2,049 (267) 2,494 (567)
Totalreturnswaps 10 1 37 (16)
10,249 (7) 10,127 (185) 13,545 (273)
otherderivatives
Statisticswaps 4,147 (61) 4,968 (76) 15,481 (246)
Dividendswaps 439 (37) 364 (24) 263 (28)
4,586 (98) 5,332 (100) 15,744 (274)
232,384 (19) 169,150 868 151,244 729
Netcashcollateral(received)/paid
underderivativecontracts 278 (47) (627)
notionalandnetfairvalueof
derivativecontracts $ 232,384 $ 259 $ 169,150 $ 821 $ 151,244 $ 102
(4)
ExcludescurrencyforwardsrelatedtoRealEstateassetsasdisclosedinnote5.
99
Thenetfairvalueofderivativecontractsintheprevioustableisrepresentedby:
Derivative-relatedreceivables $ 2,025 $ 2,578 $ 3,004
Cashcollateralpaidunderderivativecontracts 307 113 132
Derivative-relatedliabilities (2,044) (1,710) (2,275)
Cashcollateralreceivedunderderivativecontracts (29) (160) (759)
$ 259 $ 821 $ 102
100
(d)investmentassetmix
ThePlanhadapolicyassetmixof45%equities,49%fxedincome,5%commodities,25%realassetsand(24%)money
marketasatDecember31,2011.
Directinvestments,derivativecontracts,andinvestment-relatedreceivablesandliabilitiesareclassifedbyasset-mix
categorybasedontheintentoftheinvestmentstrategiesoftheunderlyingportfoliosofthePlan.ThePlansnet
investmentsaresummarizedinCanadiandollarsbelow:
efectivenet EfectiveNet EfectiveNet
investments Investments Investments
atfairvalue assetMix atFairValue AssetMix atFairValue AssetMix
($millions) % ($millions) % ($millions) %
equity
Canadian $ 10,636 9% $ 9,286 9% $ 8,427 9%
Non-Canadian 41,034 35 38,203 36 32,755 35
51,670 44 47,489 45 41,182 44
fixedincome
Bonds 26,500 23 22,728 22 15,462 17
Real-rateproducts
(5)
29,291 25 23,245 22 19,882 21
55,791 48 45,973 44 35,344 38
commodities
(6)
5,645 5 5,226 5 1,939 2
Realassets
Realestate(note5) 14,960 13 16,861 16 14,209 15
Infrastructure 8,709 7 7,070 7 5,568 6
Timberland 2,166 2 2,220 2 2,338 3
25,835 22 26,151 25 22,115 24
absolutereturnstrategies
(7)
Internalabsolutereturnstrategies 7,679 7 6,845 7 6,299 7
Alternativeinvestments 4,652 4 4,531 4 5,367 5
12,331 11 11,376 11 11,666 12
Moneymarket
(7)
(35,014) (30) (31,494) (30) (18,737) (20)
netinvestments $ 116,258 100% $ 104,721 100% $ 93,509 100%
(5)
BeginningJanuary1,2010,realrateproductsareincludedinfxedincomeinsteadofrealassets.January1,2010comparativefgureshavebeen
reclassifedtorefectthischange.
(6)
BeginningJanuary1,2010,commodities,previouslyincludedinrealassets,arereportedinaseparateassetclass.January1,2010comparative
fgureshavebeenreclassifedtorefectthischange.
(7)
BeginningJanuary1,2010,absolutereturnstrategiesandmoneymarket,previouslyincludedinfxedincome,areeachreportedinaseparate
assetclass.January1,2010comparativefgureshavebeenreclassifedtorefectthischange.
101
(e)Riskmanagement
Objectives
ThePlansprimarylong-termriskisthatthePlansassetswillfallshortofitsliabilities(i.e.,beneftsowedtomembers).
Therefore,theobjectiveofinvestmentriskmanagementistoachieveadiversifyingofrisksandreturnsinafashion
thatminimizesthelikelihoodofanoverallreductionintotalfundvalueandmaximizestheopportunityforgainsover
theentireportfolio.Thisisachievedthroughassetdiversifcationsothatthemarketandcreditexposuretoanysingle
issuerandtoanysinglecomponentofthecapitalmarketsisreducedtoanacceptablelevel.
ThePlanalsomanagesitsliquidityrisksothatthereissufcientliquiditytomeetshort-termmarked-to-market
paymentsresultingfromthePlansderivativeexposureandtogivethePlantheabilitytoadjusttheassetmixin
responsetothechangesinthemarketconditions.
Policies
ThePlandoesnotmanagemarketandcreditriskseparately.Toapplyriskmanagementtoinvestmentsinaconsistent
manner,thePlanhasanumberofpolicies,forexample:
StatementofInvestmentPoliciesandProceduresThestatementaddressesthemannerinwhichthefundshall
beinvested.Investmentsshallbeselectedandheldinaccordancewiththecriteriaandlimitationssetforthinthe
statementandinaccordancewithallrelevantlegislation.TheBoardapprovesthepoliciesinthestatementand
reviewsthematleastannually.
BoardInvestmentPolicyThispolicyappliestothetotalfundandaggregateassetclasses.Thepolicyaddresses
therisksthatarerelevantandmaterialatthetotalfundlevel.Thepolicyspecifesassetmixandriskbudget
allocationandlistsinvestmentconstraintssuchasmaximumexposurespermittedforasingleissuer,liquidity
requirements,andcurrencymanagement.TheBoardapprovesthispolicyandreviewsitregularly.
PortfoliopoliciesforeachinvestmentdepartmentThesepoliciesaredevelopedtoapplytotheindividual
portfolioswithineachassetclassmanagedbytheInvestmentDivision.Allportfoliopoliciesincludethe
departmentsinvestmentstrategies,operatingprocedures,tradinglimitsandapprovalrequirements,riskfactors
andadescriptionofhowtheriskswillbemanagedandreportingrequirementsforeachportfoliomanager,
particularlyrelatingtoreportingdeviationsfromtheapprovedportfoliopolicy.Allportfoliopoliciesarereviewed
annuallyandapprovedbytheExecutiveVice-PresidentoftheInvestmentDivisionandtheSeniorVice-President
responsibleforthedepartment.
TradeAuthorizationandExecutionOperationPolicyThispolicyprovidesguidanceontradingwithauthorized
counterpartiesandtheproceduresforobtainingauthorizationtotradewithanewcounterparty.
Pre-TradeClearancePolicyThispolicyformalizestheprocedurestoensurethedataneededfortradecapture,
pricing,riskmanagement,andaccountingisaccurate,complete,andcanbeenteredintothePlanssystemsof
recordonatimelybasispriortocommencementoftrading.
Processes
ThePlanusesriskbudgetingtoallocateriskacrosstheinvestmentassetclasses.Theriskbudgetispresentedtothe
Boardannuallyforreviewandapproval.Eachinvestmentdepartmentisresponsibleformanagingtheinvestment
risksassociatedwiththeinvestmentstheymanagewithintheriskbudgetallocatedtothem.Eachdepartmentis
subjecttocompliancewiththeStatementofInvestmentPoliciesandProcedures,theBoardInvestmentPolicy(which
includestheriskbudgetallocatedtothem),TradeAuthorizationandExecutionOperationPolicy,Pre-tradeClearance
Policyandtheapplicableportfoliopolicies.Inaddition,theFixedIncomeDepartmentisresponsibletomaintainthe
liquiditypositionsinaccordancewiththePlanspoliciesonliquidity.TheFinanceDivisionindependentlymeasuresthe
investmentriskexposureandtheliquiditypositionofthePlanandprovidestheinformationtotheInvestmentDivision
andtheInvestmentCommitteeoftheBoard.
102
Eachinvestmentdepartmenthasaninvestmentcommittee,oranequivalent,whichmeetsregularlytoassessthe
investmentrisksassociatedwiththeportfoliositmanagesanddeterminesactionplans,ifrequired.Individualmanagers
ineachinvestmentdepartmentreceivelimitedauthoritytoinvestfromtheBoardbysub-delegationfromsenior
management.Tradinglimitsandapprovalrequirementsaresetoutintheportfoliopoliciesforthedepartment.For
investmentsnottradedonexchanges,suchasalternativeinvestmentsandprivateequityinvestments,theinvestment
departmentsconductduediligencebeforeacquisitionanduseitasatooltomonitortheinvestmentsafteracquisition.
Theobjectiveistoobtainasmuchtransparencyaspossibleforthedepartmentstoassesstheriskexposurearising
fromtheseprivateandalternativeinvestments.
TheseniorrepresentativesfromeachinvestmentdepartmentformtheInvestmentRiskCommittee(IRC)whichfocuses
onmanaginginvestmentrisksatatotalfundlevel.TheChiefFinancialOfcerattendsallmeetingsofthecommitteeas
anobserver.Thiscommitteebringstogethertheexperience,investmentandoperationalbusinessjudgmentrequiredfor
assessingandmanagingmarket,creditandliquidityrisksonaregularbasis.Itmonitorsthecurrencypositions,interest
rateriskandliquidityriskatthetotalfundlevel.Thecommitteemeetseveryotherweek,ormorefrequentlyasrequired.
ReportingtotheIRCaretheInvestmentDivisionCreditCommitteeandtheInvestmentDivisionLiquidityCommittee.
TheEnterpriseRiskManagementCommitteeoverseesandmanagesinvestmentandnon-investmentrisksfacedbythe
Plan.ThecommitteeischairedbytheChiefExecutiveOfcerandincludesseniorrepresentativesfromalldivisions.The
EnterpriseRiskManagementCommitteemeetsregularlyandreportstotheBoardsemi-annuallyandmorefrequently
asnecessary.
(f)creditrisk
ThePlanisexposedtotheriskthatacounterpartydefaultsorbecomesinsolvent(creditrisk).Creditriskistheriskof
lossassociatedwithacounterpartysinabilitytofulfllitspaymentobligations.Acreditriskmayarisedirectlyfroman
obligor,anissuerofsecurities,orindirectlyfromaguarantorofacreditobligation.
Credit risk management
ThePlanactivelymanagesitscreditexposures.Whenoverexposuresaredetectedeitherinindividualexposuresorin
groupsofexposuresthePlantakesactiontomitigatetherisks.Suchactionsmayincludereducingtheexposuresand
usingcreditderivatives.
ExceptfordebtissuedorguaranteedwithoutsignifcantconditionsbytheGovernmentofCanada,bythegovernment
ofaprovinceorterritoryofCanada(withaminimumDBRScreditratingofAA),orbytheGovernmentoftheUnited
StatesofAmerica,thePlanstotalinvestmentinsecuritiesofasingleissueracrossallassetclassesshallnotexceed
3%ofthemarketvalueofthetotalfundwithouttheapprovaloftheBoard.Further,notmorethan20%ofthemarket
valueofallbonds,debentures,realreturndebtproducts,mezzaninedebtandotherdebtinvestments(excludingthe
marketvalueofthenon-marketableOntarioDebentures,debtowedbyafliatedthirdpartiesinrelationtorealestate
properties,anddebtassociatedwithaninvestmentstrategyapprovedbytheBoard)shallbemadeupofinvestments
ratedbelowaDBRScreditratingofBBBoritsequivalentorthatareunrated.
ThePlanhasacreditriskassessmentprocesstodetermineauthorizedcounterpartiesforrepurchaseagreements,
reverserepurchaseagreements,andderivativecontracts.ThePlandealsprimarilywithcounterpartiesthathavea
creditratingofAorhigherforderivativecontracts.Policiesarealsoinplacetolimitthemaximumexposurestoany
individualcounterpartyforderivativecontracts.
Collateralisanimportantmitigatorofcounterpartycreditrisk.ThePlanroutinelyobtainscollateral,suchasinthecase
ofreverserepurchaseagreementsandOTCderivativecontracts.Note2iprovidesfurtherdetailsonsecuritiescollateral.
ThePlanentersintoagreementswithcounterpartiestolimititsexposuretocreditlosses.AnInternationalSwapsand
DerivativesAssociation(ISDA)MasterAgreementisexecutedwithallOTCderivativecounterparties,whichallows
bothpartiestosettleobligationsonanetbasiswhenterminationorotherpre-determinedeventsoccur.ThePlanalso
negotiatesacollateralagreementknownasCreditSupportAnnex(CSA)withitskeycounterpartiestofurthermitigate
counterpartycreditrisk.ACSAgivesthePlanthepowertorealizecollateralpostedbycounterpartiesintheeventofa
defaultbysuchcounterparties.
103
Maximum exposure to credit risk before collateral held
ThefollowingtablepresentsthemaximumexposureasatDecember31,2011,December31,2010andJanuary1,2010to
creditriskfrombalancesheetandof-balancesheetfnancialinstrumentsandarrangementsbeforetakingaccountof
anycollateralheld.Theanalysisincludesfnancialassetssubjecttocreditriskonly;otherfnancialassets,mainlyequity
securities,aswellasnon-fnancialassetsareexcluded.Forof-balancesheetguarantees,themaximumexposureto
creditriskisthemaximumamountthatthePlanwouldhavetopayiftheguaranteesweretobecalledupon.For
loancommitmentsandriskparticipationagreements,themaximumexposureisthecommittedamountunderthe
agreements.Forcreditderivatives,themaximumexposureisthenotionalamountofwrittencreditderivativesas
presentedinnote2c.
onbalancesheet:
Cash $ 435 $ 432 $ 493
ReceivablefromtheProvinceofOntario 2,717 2,627 2,524
Receivablefrombrokers 39 101 93
fixedincome
Debentures 662 1,333 2,499
Bonds 31,033 27,622 18,089
Money-marketsecurities 7,545 4,735 3,207
Canadianreal-rateproducts 19,766 16,207 13,031
Non-Canadianreal-rateproducts 9,066 6,869 6,518
Securitiespurchasedunderagreementstoresell 7,245 2,286 2,453
Derivative-relatedreceivables 2,025 2,578 3,004
totalonbalancesheet $ 80,533 $ 64,790 $ 51,911
ofbalancesheet:
Guarantees $ 2,867 $ 233 $ 1,532
Loancommitments 33 380 611
Riskparticipationagreements 113 133 125
Notionalamountofwrittencreditderivatives 1,729 2,049 2,494
totalofbalancesheet 4,742 2,795 4,762
totalmaximumexposure $ 85,275 $ 67,585 $ 56,673
Comparativefguresforguarantees,totalof-balancesheetamountsandtotalmaximumexposuredecreasedby
$192millionfortheyearendedDecember31,2010andincreasedby$1,149millionasatJanuary1,2010dueto
non-consolidationunderSection4600.
WhilethePlansmaximumexposuretocreditriskisthecarryingvalueoftheassets,or,inthecaseofof-balance
sheetitems,theamountguaranteedorcommitted,inmostcasesthelikelyexposureisfarlessduetocollateral,credit
enhancements(e.g.,guaranteesinfavourofthePlan)andotheractionstakentomitigatethePlansexposure,as
describedpreviously.
104
Credit risk concentrations
AsatDecember31,2011,thePlanhasasignifcantconcentrationofcreditriskwiththeGovernmentofCanada,the
ProvinceofOntarioandtheU.S.Treasury.ThisconcentrationrelatesprimarilytoholdingGovernmentofCanada
issuedsecuritiesof$42.1billion(December31,2010$34.9billion,January1,2010$22.0billion),U.S.Treasuryissued
securitiesof$9.6billion(December31,2010$8.4billion,January1,2010$6.5billion),ProvinceofOntariobondsof
$2.9billion(December31,2010$1.4billion,January1,2010$0.8billion),receivablefromtheProvince(seenote3)
of$2.7billion(December31,2010$2.6billion,January1,2010$2.5billion),non-marketableProvinceofOntario
debenturesof$0.7billion(December31,2010$1.3billion,January1,2010$2.5billion),andfutureprovincialfunding
requirementsofthePlan.
(g)Marketrisk
Marketriskistheriskoflossthatresultsfromfuctuationsinequityandcommodityprices,interestandforeign
exchangerates,andcreditspreads.ThePlanisexposedtomarketriskfromitsinvestingactivities.Thelevelofmarket
risktowhichthePlanisexposedvariesdependingonmarketconditions,expectationsoffuturepricemovements,the
occurrenceofcertaincatastrophicevents(e.g.,hurricanesandearthquakes)afectingthepricesofinsurancelinked
securities,expectationsoffutureyieldmovementsandthecompositionoftheasset-mix.
Market risk management
ThePlanmanagesmarketriskprimarilythroughdiversifyingtheinvestmentsacrossindustrysectors,investment
strategiesandonaglobalbasis.AvarietyofderivativecontractsarealsoutilizedtomanagethePlansmarket
riskexposures.
Market and credit risk measurement
ThePlanusesastatisticalValue-at-Risk(VaR)-typeapproach,theexpectedtailloss(ETL)methodology,tomeasure
investmentriskcomprisingofmarketandcreditriskoveraone-yearhorizonata99%confdencelevel.TheETL
methodologycapturestheefectofmoreextremelosseventsthanVaRforthesameconfdencelevelasitisthe
averageofallthelossesinthetail.
TotalAssetRiskispreparedusingtheETLmethodology.Thisriskcapturestheinvestmentriskexposurebyassetclass
refectingtheriskofpotentiallossesinnetassetsduetobothmarketandcreditriskfactors.Statistically,thePlan
wouldexpecttoseelossesinexcessoftheriskexposureonthereportonly1%ofthetimeoveraoneyearperiod,
subjecttocertainassumptionsandlimitationsdiscussedbelow.
TheETLmethodologyisastatisticalapproachthataccountsformarketvolatilityandcreditriskaswellasrisk
diversifcationachievedbyinvestinginvariousproductsandmarkets.Risksaremeasuredconsistentlyacrossall
marketsandproductsandcanbeaggregatedtoarriveatasinglerisknumber.Theone-year99%ETLnumberusedby
thePlanisgeneratedusingahistoricalsimulationandbootstrapsamplingapproachthatrefectstheexpectedannual
returnontheportfoliointheworst1%ofthecases.ThePlancurrentlyusestheprevious25yearsofmarketdata.When
sufcienthistoricaldataisnotavailable,proxiesandstatisticalmethodsareusedtocompletethedataseries.
TherearelimitationstotheETLmethodologyinuse.Forexample,historicaldatamaynotprovidethebestestimate
offuturechanges.Itmayfailtocapturethecorrelationinassetreturnsinextremeadversemarketmovementswhich
havenotoccurredinthehistoricalwindow.Thebootstrapsamplingapproachandlonghistoricalwindow,however,
mitigatethislimitationtosomeextentbyenablingthegenerationofasetofscenariosthatincludeextremeadverse
events.AnotherlimitationisthatthePlancomputestheriskrelativetoassetpositionsatthecloseofthebusinessday.
Positionsmaychangesubstantiallyduringthecourseofatradingday.TheselimitationsandthenatureoftheETL
measuremeanthatthePlanslossesmayexceedtheriskexposureamountsindicatedinanyriskreports.
ThePlancontinuouslymonitorsandenhancestheriskcalculationmethodology,strivingforbetterestimationof
riskexposure.Anumberofinitiativeswerecompletedinthepastyearthatsignifcantlyimprovedtheaccuracyof
calculatedriskmeasures.Existingriskmethodologiesweremodifedtoincorporatemoreaccurateriskmodelsand
morereliableriskdata.
105
Thechartbelowshowstheyear-over-yearchangeinTotalAssetRiskETLofthePlan.The$3billionincreaseforthe
yearismainlyduetoachangeinthemodellingofrealinterestratesbyemployingamethodbasedonlevelchanges
observedincomparablehistoricalperiodsversusonebasedonrandomsampledpercentagechanges.Thischange
wasnecessitatedbythecurrentlowinterestrateenvironmentandimpacteddirectlytherealrateproductassets.The
changesintheotherassetsaremainlyduetochangesinthemarketvalueofthePlansholdings,foreignexchange
hedgingandadditionalriskmodelchanges.
asatDecember31
(Canadian$billions)
(8)
2011 2010
equity
Canadian $ 4.0 $ 3.5
Non-Canadian 12.5 11.0
fixedincome
Bonds 2.0 2.0
Real-rateproducts 4.5 1.5
commodities 3.5 2.5
Realassets
Realestate 1.5 2.5
Infrastructure 1.5 1.0
Timberland 0.5 0.5
absolutereturnstrategies 1.0 2.0
Moneymarket 4.5 3.5
totalassetRisketlexposure
(9)(10)
$ 21.5 $ 18.5
(8)
Roundedtothenearest$0.5billion.
(9)
TotalETLExposuredoesnotequalthesumofETLexposureforeachassetclassbecausediversifcationreducestotalriskexposure.
(10)
Inprioryears,TotalRiskETLwaspresentedinsteadofTotalAssetRiskETL.TotalRiskETListheriskofthePlanassociatedwiththediference
invaluebetweentheassetsandtheliabilitiesorthefundingsurplus/defcitoveraone-yearhorizon.Withthechangestotherealinterestmodel,
TotalRiskETLisdrivenprimarilybyrealinterestratemovementsthroughtheimpactontheliabilityvalue.TotalAssetRiskETListherisk
associatedwiththenetinvestmentassetsonly.Inthecontextofinvestmentrisk,marketorcreditrisks,andchangesmadetotheinvestment
portfolioandtheirresultingimpactstotheriskoflossofthePlansassets,TotalAssetRiskETListheriskmeasurethatsummarizestheimpact
ofchangesinthePlansholdings.TotalAssetRiskETLismonitoredandreportedtobothmanagementandtheBoard.TheBoardInvestment
PolicysetsoutlimitsinthemanagementofthePlansTotalAssetRiskETL.TotalRiskETLcontinuestobemonitoredandreportedtoboth
managementandtheBoard;however,itismanagedinconjunctionwithlonger-termAsset-LiabilityStudies.
Interest rate risk
InterestrateriskreferstotheefectonthemarketvalueofthePlansassetsandliabilitiesduetofuctuationsininterest
rates.ThevalueofthePlansassetsisafectedbyshort-termchangesinnominalandrealinterestrates.Pension
liabilitiesareexposedtofuctuationsinlong-terminterestratesaswellasexpectationsforsalaryescalation.
ThePlanmanagestheinterestrateriskbyusinginterestratederivativesasdetailedinnote2ctothefnancial
statements.Aftergivingefecttothederivativecontractsandinvestment-relatedreceivablesandliabilitiesdiscussedin
note2c,a1%increaseinnominalinterestrateswouldresultinadeclineinthevalueofthePlansinvestmentsinfxed-
incomesecuritiesof6%(December31,20106%,January1,20106%).Similarly,a1%increaseinrealinterestrates
wouldresultinadeclineinthevalueofthePlansinvestmentsinreal-rateproductsof17%(December31,201016%,
January1,201014%).
AsatDecember31,2011,holdingtheinfationandsalaryescalationassumptionsconstant,a1%decreaseinthe
assumedlong-termrealratesofreturnwouldresultinanincreaseinthepensionliabilitiesofapproximately19%
(December31,201018%,January1,201018%).
106
Foreign currency risk
ForeigncurrencyexposurearisesfromthePlansholdingsofforeigncurrency-denominatedinvestmentsandrelated
derivativecontracts.
AsatDecember31,2011,December31,2010,andJanuary1,2010thePlanhadinvestmentsexposedtoforeigncurrency.
InCanadiandollarsthisexposureisasfollows:
december31 December31 January1
Currency netexposure NetExposure NetExposure
UnitedStatesDollar $ 22,877 $ 20,970 $ 19,978
BritishPoundSterling 5,759 5,565 4,673
Euro 4,684 4,632 5,358
BrazilianReal 3,021 3,202 4,237
JapaneseYen 2,538 2,655 2,155
ChileanPeso 1,968 1,492 1,279
ChineseRenminbi 1,892 410 220
AustralianDollar 1,495 2,361 1,935
SouthKoreanWon 1,011 520 391
SwedishKrona 723 678 68
Other 4,920 4,045 3,086
$ 50,888 $ 46,530 $ 43,380
A1%increase/decreaseinthevalueoftheCanadiandollaragainstallcurrencies,withallothervariablesandunderlying
valuesheldconstant,wouldresultinanapproximatedecrease/increaseinthevalueofnetinvestmentsof$509million
asatDecember31,2011(December31,2010$465million,January1,2010$434million).
(h)liquidityrisk
LiquidityriskreferstotheriskthatthePlandoesnothavesufcientcashtomeetitscurrentpaymentliabilitiesand
acquireinvestmentsinatimelyandcost-efectivemanner.LiquidityriskisinherentinthePlansoperationsandcan
beimpactedbyarangeofsituationspecifcandmarket-wideeventsincluding,butnotlimitedto,crediteventsand
signifcantmovementsinthemarket.
Liquidity risk management
TheliquiditypositionofthePlanisanalyzeddailytoensurethePlanmaintainsatleast1%ofitsassetsin
unencumberedCanadiantreasurybills.ThePlanalsomanagesitsliquiditybyholdingadditionalunencumbered
GovernmentofCanadasecurities(bonds,treasurybillsandreal-ratebonds)andU.S.Governmentsecuritiesthatare
availableforrepurchaseagreementssothatthePlanisabletowithstandtheliquidityefectsofanequitymarket
downturnthathave1-in-10and1-in-100chanceofoccurringoveraoneyeartimehorizon.ThePlansliquidityposition
isperiodicallytestedbysimulationsofmajoreventssuchassignifcantmovementsinthemarket.
Liquid assets
ThePlanmaintainsaportfolioofhighlymarketableassetsincludingCanadaandU.S.governmentbondsthatcan
besoldorfundedonasecuredbasisasprotectionagainstanyunforeseeninterruptiontocashfow.Thefairvalue
oftheCanadaandU.S.governmentbondsis$51,695millionasatDecember31,2011(December31,2010$43,285
million,January1,2010$28,495million).ThePlanalsohaspubliclytradedequitiesof$34,122million(December31,
2010$31,358million,January1,2010$22,419million)whicharelistedonmajorrecognizedstockexchanges.These
securitiesarereadilyrealizableandconvertibletocash.
107
Contractual maturity
ThePlansliabilitiesincludeaccruedpensionbenefts,investment-relatedliabilities,duetobrokers,accountspayable
andaccruedliabilities.Duetobrokers,accountspayableandaccruedliabilitiesareallduewithinoneyear.AsthePlan
maysettlederivativesatfairvaluebeforecontractualmaturity,theyareconsideredtomaturewithinoneyear.
ThePlansinvestment-relatedliabilitiesbymaturityasatDecember31areasfollows:
2011
(Canadian$millions) WithinOneYear OnetoFiveYears total
Securitiessoldunderagreementstorepurchase $ (29,565) $ (5,523) $ (35,088)
Securitiessoldbutnotyetpurchased
Fixedincome (2,076) (2,076)
Equities (847) (847)
Cashcollateralreceivedundercreditsupportannexes (458) (458)
Derivative-related,net (1,836) (1,836)
total $ (34,782) $ (5,523) $ (40,305)
2010
(Canadian$millions) WithinOneYear OnetoFiveYears Total
Securitiessoldunderagreementstorepurchase $ (28,245) $ $ (28,245)
Fixedincome (898) (898)
Total $ (31,473) $ $ (31,473)
ThePlansinvestment-relatedliabilitiesbymaturityasatJanuary1areasfollows:
2010
(Canadian$millions) WithinOneYear OnetoFiveYears Total
Securitiessoldunderagreementstorepurchase $ (9,684) $ $ (9,684)
Fixedincome (1,429) (1,429)
Total $ (14,577) $ $ (14,577)
Thecomparativefgurefortotalinvestment-relatedliabilitiesdecreasedby$19,166million(December31,2010),
$15,814million(January1,2010)duetonon-consolidationunderSection4600.
108
(i)Securitiescollateral
CanadianandU.S.governmentsecuritieswithafairvalueof$1,260million(December31,2010$858million,
January1,2010$2,378million)havebeeneitherdepositedorpledgedwithvariousfnancialinstitutionsaseither
collateralormargin.ThePlanisnotallowedtoeitherpledgethesamesecuritieswithotherfnancialinstitutions
ortosellthemtoanotherentityunlessthePlancouldsubstitutesuchsecuritieswithothersecuritiesthatthe
counterpartiesaccept.
CanadianandU.S.governmentsecuritieswithafairvalueof$1,838million(December31,2010$447million,
January1,2010$269million)havebeenreceivedfromvariousfnancialinstitutionsascollateral.ThePlanholdsthe
collateralreceivedaslongasthePlanisnotadefaultingpartyoranafectedpartyinconnectionwithaspecifed
conditionlistedonthecontractualagreementsandthereisnoearlyterminationofthecontractualagreement.The
Planispermittedtoeithersellorrepledgethecollateralintheabsenceofdefaultbytheownerofthecollateralbutit
hasneithersoldnorrepledgedanycollateralasofDecember31,2011,December31,2010,orJanuary1,2010.
note3.
ReceivablefRoMthePRovinceofontaRio
ThereceivablefromtheProvinceconsistsofrequiredmatchingcontributionsandinterestthereon.
Contributionsreceivable $ 2,663 $ 2,554 $ 2,445
Accruedinterestreceivable 54 73 79
$ 2,717 $ 2,627 $ 2,524
ThereceivableasatDecember31,2011fromtheProvinceconsistsof$1,344million,whichwasreceivedinJanuary2012,
andanestimated$1,373milliontobereceivedwithinterestinJanuary2013.ThereceivableasatDecember31,2010
fromtheProvinceconsistedof$1,316million,whichwasreceivedinJanuary2011,andaninitialestimateof$1,311million
tobereceivedinJanuary2012.ThereceivableasatJanuary1,2010fromtheProvinceconsistedof$1,245million,which
wasreceivedinJanuary2010,andaninitialestimateof$1,279milliontobereceivedinJanuary2011.Thediference
betweentheinitialestimatesandtheactualamountreceivedwasduetointerest.
note4.
accRUedPenSionbenefitS
(a)actuarialassumptions
Theactuarialassumptionsusedindeterminingthevalueofaccruedpensionbeneftsof$162,587million(December31,
2010$146,893million,January1,2010$131,858million)refectmanagementsbestestimateoffutureeconomic
eventsandinvolvebotheconomicandnon-economicassumptions.Thenon-economicassumptionsinclude
considerationssuchasmortalityaswellaswithdrawalandretirementrates.Theprimaryeconomicassumptions
includethediscountrate,salaryescalationrateandtheinfationrate.Thediscountrateisbasedonthemarketrate,
asatthevaluationdate,oflong-termGovernmentofCanadabonds,whichhavecharacteristicssimilartothePlans
liabilities,plusaspreadtorefectthecreditriskoftheProvinceofOntario.Theinfationrateisthediferencebetween
theyieldonGovernmentofCanadalong-termnominalbondsandGovernmentofCanadareal-returnbonds.Thesalary
escalationrateincorporatestheinfationrateassumptionandlong-termexpectationofgrowthinrealwages.
In2011,thespreadwaschangedfrom50basispointstotheprevailingspreadatDecember31betweenthe
GovernmentofCanadaandtheProvinceofOntariolong-termnominalbonds.Thischangeinaccountingestimateis
appliedprospectivelybeginningDecember31,2011.Theefectofthechangewasadecreaseinthevalueofaccrued
pensionbeneftsby$12,397millionin2011.
109
Asummaryoftheprimaryeconomicassumptionsisasfollows:
2011 2010 2010
Discountrate 3.40% 4.05% 4.60%
Salaryescalationrate 3.05% 3.40% 3.55%
Infationrate 2.05% 2.40% 2.55%
Realrate 1.35% 1.65% 2.05%
Theprimaryeconomicassumptionswerechangedasaresultofchangesincapitalmarketsduring2011.Thesechanges
resultedinanetincreaseinthevalueofaccruedpensionbeneftsof$22,284million(December31,2010$10,242million,
January1,2010$9,941million).Nochangestothenon-economicassumptionswereadoptedin2011.Thevaluation
methodswereadjustedtorefectmembershipdatabeingprovidedasattheendofeachschoolyearratherthanasat
theendofeachcalendaryearcommencingin2011.Changesinnon-economicassumptionsandthevaluationmethods
decreasedtheaccruedpensionbeneftsby$68millionincludingtheimpactofupdatingthemembershipdata
fromcalendaryeartoschoolyear(December31,2010$198millionincrease,January1,2010nil).Thechangesin
economicandnon-economicassumptionsandthechangeinvaluationmethodsresultedinanetincreaseinthevalue
ofaccruedpensionbeneftsof$9,819million(December31,2010$10,440million,January1,2010$9,941million).
(b)Planprovisions
CreditedserviceearnedafterDecember31,2009issubjecttoconditionalinfationprotectionasdescribedin
paragraph(f)oftheDescriptionofPlannote.Theinfationprotectionbeneftsvarybetween50%and100%ofthe
changeintheConsumerPriceIndex.Theco-sponsorsmayonlyinvoketheconditionalinfationprotectionprovisionat
thetimeofafundingvaluationfling,dependingonthePlansfundedstatus.TheOntariogovernmentanddesignated
employersparticipatinginthePlanwillmakeextracontributionstothePlanequaltoanyinfationprotectionbenefts
membersforego.
ConditionalinfationprotectionwasinvokedinthefledfundingvaluationasatJanuary1,2011.EfectiveJanuary1,2012,
infationprotectionis60%ofthechangeintheConsumerPriceIndexforthepost-2009creditedservice.The
co-sponsorsarepermittedtochangethelevelofinfationprotectionwhenflingasubsequentfundingvaluation.
Thenextrequiredflingdateisin2014.
Forfnancialstatementvaluations,thePlanaccruestheminimumamountofinfationprotectionbeneftsestimated
at60%forpost-2009creditedserviceuntilthenextrequiredflingandattheguaranteedlevelof50%fortheperiod
thereafter.Theindexationpercentageforcreditedserviceearnedbefore2010remainsat100%.
If100%indexationhadbeenassumedstartingafterthenextstatutoryfling,withfullinfationprotectionrestoredon
ago-forwardbasis,theaccruedpensionbeneftswouldincrease$1,620million(December31,2010$755million)to
$164,207million(December31,2010$147,648million).Thepresentvalueofthemaximumextracontributionsthe
PlanwillreceivefromtheOntariogovernmentanddesignatedemployerswillbe$1,620million(December31,2010
$755million).
(c)experiencegainsandlosses
Experiencelossesontheaccruedpensionbeneftsof$179million(December31,2010$316milliongain)arosefrom
diferencesbetweentheactuarialassumptionsandactualresults.
110
note5.
inveStMentinRealeState
ThePlansrealestateinvestmentscompriserealestate-relatedinvestmentsthatareeitherownedormanagedon
behalfofthePlanbyCadillacFairviewCorporationLimited,awholly-ownedsubsidiary.Thetablesbelowprovide
informationonthenetinvestmentinrealestate:
assets
(1)
Realestateproperties
(2)
$ 18,866 $ 12,593 $ 17,100 $ 12,505 $ 15,461 $ 12,167
Investments 1,234 869 1,831 1,392 1,992 1,509
Otherassets
(2)
306 268 361 321 319 248
Totalassets 20,406 13,730 19,292 14,218 17,772 13,924
liabilities
(1)
Long-termdebt
(2)
4,665 4,527 1,719 1,792 2,947 2,984
Otherliabilities
(2)
781 543 712 528 616 484
Totalliabilities 5,446 5,070 2,431 2,320 3,563 3,468
netinvestmentinrealestate $ 14,960 $ 8,660 $ 16,861 $ 11,898 $ 14,209 $ 10,456
(1)
AsatDecember31,2011,U.S.DollarandBritishPoundSterlingnetassetshavebeenhedgedbywayofforeigncurrencyforwardcontractsfora
notionalamountof$915million(December31,2010$1,253million,January1,2010$1,698million)withacombinedfairvalueof
($43)million(December31,2010$24million,January1,2010$71million).
(2)
Includestheproportionateshareofassetsandliabilitiesinrealestatejointventuresof$3,717million(December31,2010$3,259million,
January1,2010$3,489million)and$1,144million(December31,2010$1,305million,January1,2010$1,371million),respectively.
(Canadian$millions) 2011 2010
Revenue
Rental $ 1,804 $ 1,773
Investmentandother 77 66
1,881 1,839
expenses
Propertyoperating 793 776
Generalandadministrative 37 32
Other
(3)
47 24
877 832
Operatingincome 1,004 1,007
Interestexpense (176) (159)
Income(note6) 828 848
Netinvestmentgain
(4)(5)
1,545 1,519
netrealestateincome $ 2,373 $ 2,367
(3)
Includestransactioncostsof$24million(2010$11million).
(4)
Includesunrealizednetgainof$1,337million(2010$1,210million).
(5)
Thisamountisincludedinnetrealizedandunrealizedgainoninvestmentsshowninnote6.
111
note6.
inveStMentincoMe
(a)investmentincome/(loss)beforeallocatingnetrealizedandunrealizedgainsoninvestments,
directmanagementfeesandtransactioncoststoassetclasses
Investmentincome,beforeallocatingthenetrealizedandunrealizedgainsoninvestmentsandtransactioncoststo
assetclasses,fortheyearendedDecember31,isasfollows:
fixedincomeinterest
Debentures $ 99 $ 156
Money-marketsecurities (124) (138)
Bonds 1,334 1,049
Netrepointerestexpense (166) (56)
Netswapinterestexpense (154) (106)
Canadianreal-rateproducts 428 393
Non-Canadianreal-rateproducts 171 150
1,588 1,448
equitydividendincome
Canadianequity 179 148
Non-Canadianequity 979 643
1,158 791
Realassets
Realestate(note5) 828 848
Infrastructure 201 273
Timberland 60 43
1,089 1,164
3,835 3,403
netrealizedandunrealizedgainoninvestments
(1)(2)
8,233 10,210
directmanagementfees (218) (256)
transactioncosts (115) (88)
investmentincome $ 11,735 $ 13,269
(1)
Includesunrealizednetgainsof$5,284million(2010$6,755million).
(2)
Includesnetforeigncurrencygains/(losses)of($546)million(2010gainsof$569million).
112
(b)investmentincome/(loss)
Investmentincome/(loss)byassetclass,afterallocatingnetrealizedandunrealizedgainsandlossesoninvestments,
directmanagementfees,andtransactioncostsfortheyearendedDecember31,isasfollows:
Fixedincome $ 9,306 $ 4,172
Canadianequity (267) 1,659
Non-Canadianequity (248) 3,678
Commodities (46) 660
Realassets 2,990 3,100
$ 11,735 $ 13,269
note7.
inveStMentRetURnSandRelatedbenchMaRkRetURnS
InvestmentreturnsandrelatedbenchmarkreturnsbyinvestmentassetclassfortheyearendedDecember31are
asfollows:
2011 2010
investment Investment
investment benchmark Investment Benchmark
(percent) Returns Returns Returns Returns
Fixedincome 19.9% 19.5% 9.9% 9.5%
Canadianequity (5.0) (9.1) 14.6 13.8
Non-Canadianequity 0.2 (4.4) 9.4 5.9
Commodities (2.3) (1.5) 3.2 3.3
Realassets 13.2 13.3 13.9 5.5
TotalPlan 11.2% 9.8% 14.3% 9.8%
InvestmentreturnshavebeencalculatedinaccordancewiththeacceptablemethodssetforthbytheCFAInstituteand
thePensionInvestmentAssociationofCanada.
ThePlanidentifesbenchmarkstoevaluatetheinvestmentmanagementperformance.Theperformanceofeachasset
classismeasuredagainstbenchmarksthatsimulatetheresultsbasedontheinvestmentstrategiesemployedbythe
investmentmanagersidentifedfortheassetclass.
TheTotalPlanreturnismeasuredagainstaCanadiandollar-denominatedcompositebenchmarkproducedby
aggregatingreturnsfromeachofthepolicyassetclassbenchmarks,usingthePlansasset-mixpolicyweights.
note8.
StatUtoRyactUaRialvalUationS
StatutoryactuarialvaluationsarepreparedperiodicallytodeterminethefundingrequirementsofthePlan.Active
membersarecurrentlyrequiredtocontribute10.4%oftheportionoftheirsalariescoveredbytheCPPand12.0%of
salariesabovethislevel.MembercontributionsarematchedbytheProvinceanddesignatedemployers.Inaddition,the
FundingManagementPolicyestablishedbytheco-sponsorsprovidesproceduresfortheco-sponsorstodetermine
contributionsandbenefts.
113
Underanagreementbetweentheco-sponsors,contributionratesareasfollows:
ContributionRate
(percent) CoveredbyCPP NotCoveredbyCPP
2012 10.80% 12.40%
2013 11.15% 12.75%
2014 11.50% 13.10%
Theactuarialmethodsusedtopreparestatutoryactuarialvaluationsarediferentthanthoseusedtopreparea
fnancialstatementactuarialvaluationandtheamountsdisclosedinthesefnancialstatements.Thestatutoryactuarial
valuationsuseavaluationmethodwhichtakesintoaccountfuturebeneftstobeearnedandfuturecontributionstobe
madebymembersofthePlanasatthevaluationdate.
Themostrecentstatutoryactuarialvaluationthathasbeenfledwithregulatoryauthoritieswaspreparedasat
January1,2011byMercer(Canada)Limitedanddisclosedafundingsurplusof$212million,afteradoptingconditional
infationprotectionof60%forpost-2009serviceandthecontributionincreasessummarizedabovewhichwillbe
payableovertheffteenyearperiodcommencingJanuary1,2012.
note9.
contRibUtionS
Members
Currentservice $ 1,352 $ 1,294
Optionalcredit 25 19
1,377 1,313
Provinceofontario
Currentservice 1,345 1,280
Interest 40 52
Optionalcredit 21 16
1,406 1,348
Otheremployers 26 25
Transfersfromotherpensionplans 14 11
40 36
$ 2,823 $ 2,697
note10.
benefitSPaid
Retirementpensions $ 4,329 $ 4,190
Deathbenefts 259 244
Disabilitypensions 29 30
Commutedvaluetransfers 33 21
Transferstootherplans 10 10
Refunds 3 5
$ 4,663 $ 4,500
114
note11.
adMiniStRativeexPenSeS
(a)investmentexpenses
Salaries,incentivesandbenefts $ 180.6 $ 195.3
Premisesandequipment 31.5 30.6
Professionalandconsultingservices 37.0 26.0
Informationservices 14.9 14.5
Communicationandtravel 12.0 10.0
Custodialfees 8.0 9.0
Statutoryauditfees 1.6 1.3
Boardandcommitteeremuneration 0.6 0.6
Other 3.2 2.7
$ 289.4 $ 290.0
(b)MemberServicesexpenses
Salaries,incentivesandbenefts $ 28.6 $ 27.9
Premisesandequipment 8.8 9.2
Professionalandconsultingservices 3.5 4.0
Communicationandtravel 1.7 1.5
Statutoryauditfees 0.1 0.1
Boardandcommitteeremuneration 0.1 0.1
Other 0.8 0.8
$ 43.6 $ 43.6
(c)compensationofkeymanagementpersonnel
Keymanagementpersonnelaredefnedasthosepersonshavingauthorityandresponsibilityforplanning,directing
andcontrollingtheactivitiesofthePlan,beingtheBoard,theExecutiveTeamandtheSeniorVicePresidentsofthe
InvestmentDivision.
ThecompensationofthekeymanagementpersonnelisincludedintheadministrativeexpensesofthePlan.Thereare
nootherrelatedpartytransactionsbetweenthekeymanagementpersonnelandthePlan.
ThecompensationofthekeymanagementpersonnelasatDecember31issummarizedbelow:
Short-termemployeebenefts $ 12.0 $ 11.0
Post-employmentbenefts 3.1 3.0
Otherlong-termbenefts 23.5 23.5
Terminationpayments 0.1
Total $ 38.6 $ 37.6
115
(d)employeepost-employmentbenefts
TheemployeesofthePlanareeithermembersoftheOntarioPublicServiceEmployeesUnion(OPSEU)PensionPlan
orPublicServicePensionPlan(PSPP).SomeemployeesarealsomembersofthePublicServiceSupplementaryPlan
(PSSP).ThesethreepensionplansaresponsoredbytheProvinceofOntarioandinformationisavailableon
www.optrust.comandwww.opb.ca.Astheemployer,thePlanmatchestheemployeescontributionstothesepension
plans.Someseniormanagementemployeesalsoparticipateinanon-registered,unfundedSupplementalEmployee
RetirementPlan(SERP)managedbythePlantoprovidetheemployeesnon-indexedretirementbeneftsequalto2%of
theemployeesbestthree-yearaveragepensionableearningsforeachyearofservice,lesstheinitialannualpensionto
whichtheemployeeisentitledunderthePSPPandPSSP,combined.ThecontributionsexpensedbythePlanduringthe
yearwas$10.1million(2010$11.9million).Contributionsareincludedinthesalaries,incentivesandbeneftsexpenses.
note12.
caPital
Thefundingsurplusesordefcitsdeterminedregularlyinthefundingvaluationspreparedbyanindependentactuary
aredescribedasthePlanscapitalinthefnancialstatements.Theactuarysfundingvaluationisusedtomeasurethe
long-termhealthofthePlan.TheactuaryteststhePlansabilitytomeetitsobligationstoallcurrentPlanmembersand
theirsurvivors.Usinganassumedrateofreturn,theactuaryprojectsthePlansbeneftstoestimatethecurrentvalue
oftheliability(seenote4),whichiscomparedtothesumofthePlanassets,thefuturecontributionsforallcurrent
Planmembersandthepresentvalueofthecontributionincreasesforfuturemembers.Theresultofthecomparisonis
eitherasurplusoradefcit.
TheobjectiveofmanagingthePlanscapitalistoensurethePlanisfullyfundedtopaytheplanbeneftsoverthelong
term.Theco-sponsorschangethebeneftandcontributionlevelstoeliminateanydefcits.TheFundingManagement
Policysetbytheco-sponsorsinthePartnersAgreementprovidesguidanceonhowtheco-sponsorsmanagethe
Planscapital.
Afundingvaluationincludingaplantoeliminateanydefcitisrequiredtobefledwiththepensionregulatoratleast
everythreeyears.Apreliminaryfundingvaluationisperformedbytheactuarywhenthevaluationisnotfledwiththe
regulatorassistingtheco-sponsorsinmanagingthePlanscapital.
Themostrecentfundingvaluationfledandpreliminaryfundingstatusaredisclosedinnote8.
note13.
RetiReMentcoMPenSationaRRanGeMent(Rca)
RestrictionsintheITAonthepaymentofcertainbeneftsfromaregisteredplanforperiodsofserviceafter1991may
impactsomePlanmembers.Toaddressafectedmembers,theRCAwasestablishedbyagreementbetweenthe
co-sponsorsasasupplementaryplantoprovidethesebenefts.
TheRCAisadministeredunderatrustseparatefromtheassetsofthePlan.TheBoardhasbeenappointedbythe
co-sponsorstoactasthetrusteeoftheRCA.
BecausetheRCAisaseparatetrustandthePlandoesnotcontroltheRCA,thenetassetsavailableforbenefts
andthevalueofaccruedbeneftsanddefcit,referredtobelow,havenotbeenincludedinthefnancialstatements
ofthePlan.
TheRCAisfundedonapay-as-you-gobasisfromaportionofthecontributionsmadetothePlanbymembers,the
Provinceanddesignatedemployers.TheportionisbasedonalimitoncontributionstothePlanwithcontributionsabove
thelimitbeingremittedtotheRCA.ThelimitisdeterminedannuallybythePlansindependentactuarysuchthatthe
RCAcontributionsareexpectedtobesufcienttopaythebeneftsoverthenext12months.Atthebeginningof2012,
theactuarydeterminedthatthelimitshouldincreasefrom$14,500to$15,000.Duetothefundingpolicyadoptedbythe
co-sponsors,thenetassetsavailableforbeneftswillcontinuetobesubstantiallylessthantheaccruedbenefts.
116
Inaddition,becauseitisdifculttopredictthebeneftsexpectedtobepaidoverthenext12months,itispossible
thattheassetsmaybeinsufcienttopaythebenefts.Insuchacase,thepaymentofbeneftswillbetemporarily
suspendedandcontributionsraisedinordertofundthepaymentsthataredueundertheRCA.
TheRCAfnancialstatementsareincompliancewithSection4600andIFRS.ThecomparativesasatJanuary1,2010
andfortheyearsendedDecember31,2010and2011areshownbelow:
december31 December31 January1
(Canadian$thousands) 2011 2010 2010
StateMentSoffinancialPoSition
netassetsavailableforbenefts
Assets $ 17,152 $ 16,781 $ 14,931
Liabilities (1,595) (1,412) (1,206)
$ 15,557 $ 15,369 $ 13,725
accruedbeneftsanddefcit
Accruedbenefts $ 391,835 $ 383,582 $ 295,992
Defcit (376,278) (368,213) (282,267)
$ 15,557 $ 15,369 $ 13,725
StateMentSofchanGeSinnetaSSetS
availablefoRbenefitS
Contributions $ 6,142 $ 6,467
Investmentincome 49 42
6,191 6,509
Beneftspaid 5,917 4,810
Expenses 86 55
6,003 4,865
Increaseinnetassets $ 188 $ 1,644
Theactuarialassumptionsandtheaccrualofconditionalinfationprotectionusedindeterminingthevalueofaccrued
beneftsareconsistentwiththePlanexceptthattheassumeddiscountratehasbeenadjustedtorefecttheefectof
the50percentrefundabletaxundertheRCA.
Theestimateofthevalueofaccruedbeneftsishighlysensitivetosalaryincreases,bothactualandassumed.Any
changestothesalaryassumptionswillhaveasignifcantefectontheliabilitiesforfuturebenefts.Inaddition,signifcant
uncertaintyexistsinprojectingtheliabilitiesoftheRCAduetochangesinthenumberoffutureparticipantsaswellas
changestotheincometaxregulationsrelatingtopensions.
note14.
coMMitMentS
ThePlanhascommittedtoenterintoinvestmentandothertransactions,whichmaybefundedoverthenextseveral
yearsinaccordancewiththetermsandconditionsagreedto.AsatDecember31,2011,thesecommitmentstotalled
$4,962million(2010$4,628million).Thecomparativefguresdecreasedby$2,821millionduetonon-consolidation
underSection4600.
117
note15.
GUaRanteeSandindeMnificationS
ThePlanprovidesguaranteestothirdpartiesrelatedtocertaincompaniesthePlaninvestsinandwillbecalledupon
tosatisfytheguaranteesifthecompaniesfailtomeettheirobligations.ThePlanexpectsmostguaranteestoexpire
unused.NopaymentshavebeenmadebythePlanineither2011or2010undertheseguarantees.
ThePlanguaranteesthreedebenturesissuedbyarealestatetrustin2011.Therealestatetrustisaninvestmentholding
companyincludedinthePlansnetrealestateinvestments.Thedebenturescomprisedof$1.25billion3.24%SeriesA
DebenturesmaturingonJanuary25,2016,$0.75billion4.31%SeriesBDebenturesmaturingonJanuary25,2021and
$0.6billion3.64%SeriesCDebenturesmaturingonMay9,2018.Thedebenturesmayberedeemedbytheissuerat
anytimepriortomaturity.ThePlansmaximumexposureis$2,635millionasatDecember31,2011.
ThePlanguaranteesloanandcreditagreementswhichwillexpirebetween2012and2014.ThePlansmaximum
exposureis$149millionasatDecember31,2011(December31,2010$155million,January1,2010$163million).As
atDecember31,2011,thecompanieshavedrawn$127millionundertheagreements(December31,2010$133million,
January1,2010$141million).
ThePlanguaranteesleaseagreementsforasubsidiarywithexpirydatesrangingfrom2012to2059.ThePlans
maximumexposureis$83millionasatDecember31,2011(December31,2010$78million,January1,2010
$75million).Therewerenodefaultleasepaymentsineither2011or2010.
note16.
litiGation
In2007,theBoardonbehalfofthePlanmadeanequitycommitmentinrespectofaproposedtransactionpursuant
towhichacorporation(thePurchaser)organizedbyseveralinvestorswasproposingtoacquireBCEInc.(BCE).
PursuanttothedefnitiveagreementthatwasenteredintobetweenBCEandthePurchaserinrespectoftheproposed
transaction,abreak-upfeewouldhavebeenpayablebyBCEincertaincircumstances,andareversebreak-upfee
wouldhavebeenpayablebythePurchaserincertaincircumstances.Certainoftheinvestors,includingtheBoard,are
partiestoalimitedguaranteeofthisreversebreak-upfee.Thetransactionwasterminatedin2008becausenotallof
theconditionsrequiredunderthedefnitiveagreementcouldbesatisfed.InconnectionwiththeBCEtransaction,the
Boardhasbeennamedasadefendantinthefollowingcases:
breakfeelitigation
BCEhasmadeaclaimintheSuperiorCourtofQuebecforthereversebreak-upfeeof$1.2billionundertheBCE
acquisitionagreement.TheBoardwouldberesponsiblefor58.7%ofsuchfeeiftheclaimissuccessful.Thisactionis
stillatthediscoverystage.Atthistimeitisnotpossibletopredicttheoutcome.
Proposedclassaction
AproposedclassactionlawsuitwascommencedintheProvinceofSaskatchewaninOctober2008regardingthenon-
paymentofsecondandthirdquartercommonsharedividendsbyBCE.Theplaintifhastakennostepstoadvancethe
claimsince2008.Acertifcationmotionhasnotbeenscheduled.Atthistimeitisnotpossibletopredicttheoutcome.
118
Major Investments
fixedincoMeandShoRt-teRMinveStMentSoveR$100Million
Type($millions) Maturity Coupon(%) FairValue Cost
GovernmentofCanadabonds 20122041 1.0010.50 $ 20,960 $ 17,591
Securitiespurchasedunderagreementstoresell 20122012 -0.301.02 7,245 7,219
Canadatreasurybills 20122012 0.000.00 5,829 5,822
Provincialbonds 20162043 0.009.50 3,363 2,989
Canadiancorporatebonds 20112108 0.0030.00 2,435 2,470
Internationalcorporatebonds 20122037 0.0013.53 2,335 2,709
UnitedStatestreasurybonds 20122015 0.389.25 401 388
UnitedStatestreasurybills 20122012 0.000.00 130 131
Securitiessoldunderagreementstorepurchase 20122012 0.051.57 (35,088) (35,112)
Real-RetURninveStMentSoveR$100Million
Type($millions) Maturity Coupon(%) FairValue Cost
Real-returnCanadabonds 20212044 1.504.25 $ 15,333 $ 10,797
UnitedStatestreasuryinfationprotection 20142041 0.503.88 9,043 7,188
Real-returnprovincialbonds 20132036 2.004.50 2,228 1,333
Real-returnCanadacorporatebonds 20162046 0.005.33 2,041 841
Index-linkedmortgages 20232030 4.635.53 165 137
PRovinceofontaRiodebentUReSoveR$100Million
MaturityDate($millions) Coupon(%) FairValue Cost
2012-2012 11.0611.31 $ 662 $ 635
119
MAJORINVESTMENTS
coRPoRateShaReS/UnitSoveR$100Million
(asatDecember31,2011)(millions)
SecurityName Shares FairValue
iSharesMSCIEmergingMarketsIndex 49.7 $1,918.4
MultiplanEmpreendimentos
ImobiliariosS.A. 52.1 1,103.0
GNCHoldings,Inc. 26.3 742.5
Hitachi,Ltd. 131.6 703.6
CanadianNaturalResourcesLimited 15.1 576.9
TotalSA 11.2 570.9
VodafoneGroupPlc 184.8 544.1
TheMcGraw-HillCompanies,Inc. 11.9 543.6
ACELimited 6.3 447.7
NipponTelegraphand
TelephoneCorporation 8.2 427.3
WellsFargo&Company* 15.2 404.3
PotashCorporationofSaskatchewanInc. 9.6 402.3
RoyalDutchShellplc 5.2 333.6
MichaelKorsHoldingsLimited 13.2 325.7
DeutscheTelekomAG 27.7 324.2
GoldcorpInc. 6.8 307.6
MarathonPetroleumCorporation 8.9 301.2
TransoceanLtd. 7.5 291.6
ContinentalAG 4.6 290.0
RoyalBankofCanada 5.5 284.4
BarrickGoldCorporation 6.1 282.1
MMXMineracaoeMetalicosSA 147.7 278.9
Toronto-DominionBank,The 4.2 274.3
BRFBrasilFoodsS.A. 13.4 267.9
NestlSA 4.5 261.9
SafewayInc. 11.9 256.8
IntelCorporation 10.3 253.2
AkzoNobelN.V. 5.1 251.9
UnileverN.V. 7.2 251.4
MicrosoftCorporation 9.5 250.5
ChowTaiFookJewellery
CompanyLimited 130.7 238.6
LLXLogisticaS.A. 124.1 228.3
HSBCHoldingsplc 28.5 224.2
SprintNextelCorporation 91.6 218.2
Macdonald,DettwilerandAssociatesLtd. 4.4 208.5
GlaxoSmithKlineplc 8.7 204.0
NovartisAG 3.3 193.5
AppleInc. 0.5 190.1
RockwellCollins,Inc. 3.3 185.1
BankofNovaScotia 3.5 178.0
TheWaltDisneyCompany 4.4 169.2
SecurityName Shares FairValue
Metlife,Inc. 5.2 165.1
GoogleInc. 0.2 164.0
CanadianPacifcRailwayLimited 2.3 157.0
PfzerInc. 7.1 156.1
PNCFinancialServicesGroup,Inc.* 3.1 153.5
SuncorEnergy,Inc. 5.1 151.2
3MCompany 1.8 148.5
ItaUnibancoHoldingS.A. 7.8 147.9
DaimlerChryslerAG 3.2 143.9
JPMorganChase&Co.* 4.2 141.9
EducationManagementCorporation 5.0 141.1
BAESystemsplc 31.1 140.4
Johnson&Johnson 2.1 139.5
CanadianImperialBankofCommerce 1.9 136.8
ExxonMobilCorporation 1.5 132.6
Wolseleyplc 3.9 131.4
SunTrustBanks,Inc.* 7.3 129.7
AppliedMaterials,Inc. 11.6 126.8
RioTintoplc 2.5 122.4
OGXPetrleoeGsParticipaesS.A. 16.4 121.7
DellInc. 8.0 118.9
CVSCaremarkCorporation 2.9 118.7
SamsungElectronicsCo.,Ltd. 0.1 117.2
ChesapeakeEnergyCorporation 5.2 116.9
ThermoFisherScientifcInc. 2.6 116.8
SampoOyj 4.6 116.3
Tifany&Co. 1.7 115.5
ToyotaMotorCorporation 3.3 113.7
QENational 31.6 113.0
Hewlett-PackardCompany 4.2 111.3
CiscoSystems,Inc. 6.0 109.9
NewsCorporation 6.0 109.3
WoodsidePetroleumLtd. 3.4 108.9
CreditSuisseGroupAG 4.5 108.6
TransCanadaCorporation 2.4 108.1
IllinoisToolWorksInc. 2.3 108.1
PSAPeugeotCitroen 6.7 107.3
DanaherCorporation 2.2 105.9
MetalurgicaGerdauS.A. 10.7 104.0
NissanShataiCo.,Ltd. 10.5 103.5
Koninklijke(Royal)PhilipsElectronicsN.V. 4.8 103.4
CanonInc. 2.2 101.9
KrogerCo.,The 4.1 100.3
*Includesfairmarketvalueofwarrantsandsubscriptionreceipts.
120
RealeStateinveStMentSoveR$100Million
TotalSquare
Footage Efective%
Property (thousands) Ownership
canadianRegionalShoppingcentres
ChamplainPlace,Dieppe 719 100%
ChinookCentre,Calgary 1,383 100%
FairviewMall,Toronto 875 50%
FairviewParkMall,Kitchener 746 100%
FairviewPointeClaire,Montreal 1,047 50%
GeorgianMall,Barrie 626 100%
LeCarrefourLaval,Montreal 1,360 100%
LesGaleriesDAnjou,Montreal 1,200 50%
LesPromenadesSt.Bruno,Montreal 1,138 100%
LimeRidgeMall,Hamilton 814 100%
MarketMall,Calgary 971 50%
MarkvilleShoppingCentre,Markham 979 100%
MasonvillePlace,London 684 100%
McAllisterPlace,St.John 483 100%
PacifcCentre,Vancouver 1,440 100%
PoloParkMall,Winnipeg 1,233 100%
RegentMall,Fredericton 494 100%
RichmondCentre,Richmond 793 50%
RideauCentre,Ottawa 1,389 100%
SherwayGardens,Toronto 986 100%
ShopsatDonMills,Toronto 470 100%
ThePromenade,Toronto 704 100%
TorontoEatonCentre,Toronto 1,710 100%
TotalSquare
Footage Efective%
Property (thousands) Ownership
canadianofceProperties
EncorPlace,Calgary 359 100%
GranvilleSquare,Vancouver 407 100%
HSBCBuilding,Vancouver 395 100%
PacifcCentreOfceComplex,
Vancouver 1,549 100%
PricewaterhouseCoopersPlace,
Vancouver 241 100%
RBCCentre,Toronto 1,226 100%
ShellCentre,Calgary 683 50%
Toronto-DominionCentre
OfceComplex,Toronto 4,438 100%
TorontoEatonCentreOfce
Complex,Toronto 1,897 100%
WaterfrontCentre,Vancouver 410 100%
YongeCorporateCentre,Toronto 669 100%
U.S.RegionalShoppingcentres
LakewoodMall,Lakewood,California 2,093 49%
LosCerritosCenter,Cerritos,California 1,317 49%
QueensCenter,Queens,NewYork 950 49%
StonewoodCenter,Downey,California 923 49%
WashingtonSquare,Tigard,Oregon 1,317 49%
U.k.ofceProperties
ThomasMoreSquareEstate,London 558 50%
MAJORINVESTMENTS
121
PRivatecoMPanieSandPaRtneRShiPSoveR$100Million
ABAcquisitionHoldingsLtd.
AcornCareandEducationLimited
AllianceLaundrySystems,LLC
AOTBeddingHoldingCorp.
ApolloOverseasPartners(Delaware892)VI,L.P.
ApolloOverseasPartners(Delaware892)VII,L.P.
AQROfshoreMulti-StrategyFund,Ltd.
ARCEnergyFund5CanadianLimitedPartnership
AresCorporateOpportunitiesFundII,L.P.
AresCorporateOpportunitiesFundIII,L.P.
AvayaInc.
BarclaysPrivateCreditPartnersFundL.P.
BCEuropeanCapitalVIII
BDCMIntermediateCompanyA
BDCMOfshoreOpportunityFundIILtd.
BirminghamInternationalAirport
BridgewaterPureAlphaFundIILtd.
BristolAirports(Bermuda)Limited
TheBrusselsAirportCompany
BANCOBTGPactualS.A.
CamelotGroupplc
TheCampbellGlobalAssetsFundLimitedSAC
CopenhagenAirportA/S
CrestlineOTOpportunityFund,L.P.
DaVinciReHoldingsLtd.
DiamondCastlePartnersIV-A,L.P.
DonnetParticipaesS.A.
DownsviewManagedAccountPlatformInc.
Easton-BellSports,LLC
EmpresadeServiciosSanitariosdelBio-BioS.A.
EQTV(No.2)LimitedPartnership
EsvalS.A.
ExalInternationalLimited
ExpressPipelineLtd.
FlexeraHoldings,LP
FountainVestChinaGrowthFund,L.P.
GCTGlobalContainerTerminalsInc.
GMOMeanReversionFund(Ofshore)L.P.
GottexRealAssetFund,L.P.
GrupoCorporativoOno,S.A.
HancockTimberResourceGroup
HS1Limited
HudsonCatastropheFund,Ltd.
INCResearch,Inc.
IntelSat,Ltd.
InterGenN.V.
IvanplatsLtd.
ManabiHoldingS.A.
MapleFinancialGroupInc.
MapleLeafSports&EntertainmentLtd.
MarathonSpecialOpportunityFundLtd.
MBKPartnersFundII,L.P.
MBKPartners,L.P.
MitraEnergyLimited
Munchkin,Inc.
NBCGEatonSub-Fund
NorthernStarGenerationLLC
Nuevosur,S.A.
NXTCapitalHoldings,L.P.
OLEMediaManagement,L.P.
OrbisSICAVGlobalEquityFund
ParkSquareCapital,LLC
PermiraIVL.P.2
PershingSquareInternational,Ltd.
ProvidenceEquityPartnersFundVL.P.
ProvidenceEquityPartnersFundVIL.P.
QuinteLimited
R3,Ltd.
ResourceManagementServiceInc.
RhneOfshorePartnersIIIL.P.
ScotiaGasNetworksPLC
SilverCreekLowVolCOCaymanLP
SilverCreekSpecialOpportunitiesFundCaymanII,L.P.
SilverCreekSpecialOpportunitiesFundCaymanIII,L.P.
SilverLakePartnersIII,L.P.
SociedadAustraldeElectricidadS.A.
SonicWALL,Inc.
StewardTrust
TDRCapitalII,L.P.
TrezCapitalCorporation
ValueActCapitalInternationalII,L.P.
WellspringCapitalPartnersIV,L.P.
YorkStreetCapitalPartnersII,L.P.
MAJORINVESTMENTS
122
Eleven-year Review
(Canadian$billions) 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001
chanGeinnetaSSetS
income
Investmentincome $11.74 $13.27 $10.89 $(19.03) $4.68 $12.31 $14.09 $10.80 $11.42 $(1.41) $(1.74)
Contributions
Members/transfers 1.41 1.35 1.29 1.13 1.06 0.83 0.79 0.75 0.71 0.68 0.64
ProvinceofOntario 1.41 1.35 1.43 1.18 1.08 0.82 0.78 0.75 0.72 0.70 0.68
totalincome 14.56 15.97 13.61 (16.72) 6.82 13.96 15.66 12.30 12.85 (0.03) (0.42)
expenditures
Beneftspaid 4.66 4.50 4.39 4.20 4.02 3.82 3.62 3.43 3.20 3.08 3.08
Investmentexpenses 0.29 0.29 0.21 0.15 0.23 0.22 0.21 0.19 0.16 0.10 0.12
Clientserviceexpenses 0.05 0.05 0.04 0.04 0.04 0.03 0.03 0.03 0.03 0.03 0.04
totalexpenditures 5.00 4.84 4.64 4.39 4.29 4.07 3.86 3.65 3.39 3.21 3.24
increase/(decrease)innetassets $9.56 $11.13 $8.97 $(21.11) $2.53 $9.89 $11.80 $8.65 $9.46 $(3.24) $(3.66)
netaSSetS
investments
Fixedincome
Bonds $26.50 $22.73 $15.46 $14.22 $22.91 $20.86 $5.28 $8.96 $10.30 $13.80 $7.56
Real-rateproducts 29.29 23.24 19.88 17.41 11.06 11.80 10.56 11.90 7.07 5.92 6.98
Equities
Canadian 10.64 9.29 8.43 6.21 13.73 16.39 19.26 16.80 15.19 13.43 17.06
Non-Canadian 41.03 38.20 32.75 28.72 36.31 32.42 25.78 23.09 19.13 18.19 24.28
Commodities 5.64 5.22 1.94 1.25 3.02 2.32 2.65 2.13 1.89 1.48 1.09
Realassets
Realestate 14.96 16.86 14.21 13.48 13.41 11.12 8.75 7.20 6.20 7.28 7.25
Infrastructure 8.71 7.07 5.57 7.23 6.72 4.73 3.80 2.29 1.50 0.88 0.03
Timberland 2.17 2.22 2.34 2.80 2.12 2.05 0.97 0.70 0.40 0.09
Absolutereturnstrategies 12.33 11.38 11.67 14.75 12.30 15.21 9.49 11.18 10.69 2.52 2.80
Moneymarket (35.01) (31.49) (18.74) (20.97) (13.58) (11.22) 8.26 (2.53) 2.06 1.85 1.07
netinvestments 116.26 104.72 93.51 85.10 108.00 105.68 94.80 81.72 74.43 65.44 68.12
ReceivablefromProvinceofOntario 2.72 2.63 2.52 2.19 1.84 1.58 1.50 1.42 1.36 1.32 1.28
Otherassets
(1)
40.81 32.04 15.21 32.33 32.06 23.14 10.67 18.23 6.28 17.91 19.49
Totalassets 159.79 139.39 111.24 119.62 141.90 130.40 106.97 101.37 82.07 84.67 88.89
Liabilities
(1)
(42.69) (31.86) (14.84) (32.18) (33.35) (24.39) (10.84) (17.04) (6.39) (18.46) (19.43)
netassets 117.10 107.53 96.40 87.44 108.55 106.01 96.13 84.33 75.68 66.21 69.46
Accruedpensionbenefts 162.59 146.89 131.86 118.14 115.46 110.50 110.53 96.73 83.12 73.67 65.43
(defcit)/surplus
(1)
$(45.49) $(39.36)$(35.46) $(30.70) $(6.91) $(4.49) $(14.40) $(12.40) $(7.44) $(7.46) $4.03
(1)
ComparativefgureshavebeenrevisedtorefecttheadoptionofCICAHandbookSection4600andIFRS(seeNote1btothefnancialstatements).
PeRfoRMance(%)
Rateofreturn 11.2 14.3 13.0 (18.0) 4.5 13.2 17.2 14.7 18.0 (2.0) (2.3)
Benchmark 9.8 9.8 8.8 (9.6) 2.3 9.4 12.7 10.6 13.5 (4.8) (5.3)
123
funding Valuation History
Fundingvaluationsmustbefledwiththepensionregulatoratleasteverythreeyears.Valuationdatesandvoluntary
flingsaredeterminedbyOTFandtheOntariogovernment.Filingsmustshowtheplanhassufcientassetstopayall
futurebeneftstocurrentplanmembers.Forreference,allpreviouslyfledfundingvaluationsanddecisionsmadetouse
surplusoraddressshortfallsaredetailedinthissection.Assumptionsusedforeachvaluationarealsoreportedbelow.
Thetablesummarizesallfledfundingvaluationsthatrefectthedecisionsofthesponsorsasspecifedonpage124of
thisannualreport.Inpreviousreports,fguresfortheyears19982001wereshownbeforetheapplicationofgains.Gains
aroseinthoseyearsastheplanperformedbetterthantheactuarialassumptions.
filedfUndinGvalUationS
1
(asatJanuary1)($billions) 2011 2009 2008 2005 2003 2002 2001 2000 1999 1998
Netassets 107.5 87.4 108.5 84.3 66.2 69.5 73.1 68.3 59.1 54.5
Smoothingadjustment 3.3 19.5 (3.6) (1.5) 9.7 3.0 (4.3) (7.3) (5.1) (6.0)
Valueofassets 110.8 106.9 104.9 82.8 75.9 72.5 68.8 61.0 54.0 48.5
Futurebasiccontributions 33.8 25.9 23.6 16.7 14.7 13.7 12.7 13.4 12.0 12.3
Futurespecialcontributions 3.8 5.5 5.6 6.2
FuturematchingofCIP
beneftreduction 5.1
Specialpayments
2
0.2 3.9
Totalassets 153.5 138.3 134.1 105.7 90.6 86.2 81.5 74.4 66.2 64.7
Costoffuturepensions (158.4)
3
(137.5)
3
(134.1)
3
(105.6) (89.1) (84.3) (80.9) (69.9) (66.2) (64.7)
ReductionincostduetoCIP 5.1
Surplus 0.2 0.8 0.0 0.1 1.5 1.9 0.6 4.5 0.0 0.0
1
Valuationflingdatesdeterminedbytheplansponsors.
2
OwedbytheOntariogovernmenttopayoftheplansinitialunfundedliabilityin1990.Thegovernmentuseditsportionofplansurplusesinthe
1990stoeliminatetheremainingpayments.
3
Assumes100%infationprotection.
aSSUMPtionSUSedfoRfiledvalUationS
(asatJanuary1)(percent) 2011 2009 2008 2005 2003 2002 2001 2000 1999 1998
Rateofreturn 5.40 5.00 5.65 6.475 6.40 6.30 6.25 6.50 7.50 7.50
Infation 2.15 1.35 2.20 2.750 2.05 1.90 2.20 2.25 3.50 3.50
Realrateofreturn 3.25 3.65 3.45 3.725 4.35 4.40 4.05 4.25 4.00 4.00
124
fUndinGdeciSionS
Theplansponsorsjointlydecidewhatbeneftstheplanwillprovide;thecontributionratepaidbyworkingmembers
andmatchedbygovernmentandotherdesignatedemployers;andhowanyfundingshortfallisaddressedandany
surplusisused.Ahistoryofthesponsorsplanfundingdecisionsfollows:
1990:Apreliminaryunfundedliabilityof$7.8billiontobeamortizedover40yearsbyspecialpaymentsfromtheOntario
government;basiccontributionrateincreasedto8%from7%.
1993:Apreliminary$1.5billionsurpluswasdistributed;$1.2billionusedtoreducegovernmentsspecialpayments;
$0.3billionusedtoofsetgovernmentcostreductionsintheeducationsector(socialcontractdays).
1996:Apreliminary$0.7billionsurpluswasdistributed;$0.6billionusedtoreduceearlyretirementpenaltyto2.5%
from5%foreachpointshortof90factorandlowertheCPPreductionafterage65(to0.68%from0.7%).
1998:Apreliminary$6.8billionsurpluswasdistributed;$2.2billiontopayforthe85factorwindowfrom1998to
2002andfurtherlowertheCPPreductionto0.6%;$4.6billiontoreducethevalueofspecialpaymentsowedby
thegovernment;OTFandOntariogovernmentagreefuturesurpluswouldbeusedtoeliminatethegovernments
remainingspecialpayments,andthenext$6.2billionwouldbeavailabletoOTFforbeneftimprovements.
1999:Apreliminary$3.5billionsurpluswasdistributed;$3.5billiontoeliminategovernmentsremainingspecialpayments.
2000:$4.5billionsurplus;nochangestobeneftsorcontributionlevels.
2001:Apreliminary$6.8billionsurpluswasdistributed;$6.2billiontopayforbeneftimprovements:permanent
85factor;10-yearpensionguarantee;reducedpensionasearlyasage50;lowerCPPreduction(to0.45%);5-year
averageYearsMaximumPensionableEarnings(YMPE)tocalculateCPPreduction;pensionrecalculationbased
onapproximatebest-5salaryforolderpensioners;andtop-upwaivedforLong-TermIncomeProtection(LTIP)
contributions;$76millionwassetasideinacontingencyreservetobeusedbyOTFatalaterdate.
2002:$1.9billionsurplus;nochangestobeneftsorcontributionlevels.
2003:$1.5billionsurplus;nochangestobeneftsorcontributionlevels;FundingManagementPolicyadoptedby
plansponsors.
2005:$6.1billionpreliminaryfundingshortfallresolved,leavingplanwitha$0.1billionsurplus;plansponsorsintroduced
specialcontributionrateincreasestoresolvetheshortfall,totalling3.1%ofbaseearningsby2009forteachers,the
Ontariogovernmentandotheremployers;OTFusedthe$76millioncontingencyreservesetasidein2001toreduce
contributionrateincreasesformembersin2008.
2008:$12.7billionpreliminaryfundingshortfallresolved,leavingtheplaninabalancedposition;plansponsors
introducedconditionalinfationprotectionforpensionbeneftsearnedafter2009andincreasedthebasiccontribution
rateto9%from8%.
2009:$2.5billionpreliminaryfundingshortfallresolvedprimarilybyassumingaslightlyhigherlong-termrateofreturn
oninvestments:RRByieldplus1.5%versusRRBplus1.4%.Otherminorchangesmadetoassumptionstorefectrecent
planexperience.
2011:$17.2billionpreliminaryshortfallresolvedwith1.1%contributionrateincrease(phasedinoverthreeyears),slightly
smallerannualcost-of-livingincreasesforteacherswhoretiredafter2009,andrecognitionofcurrentcontributionrate
asthepermanentbaserate.
FUNDINGVALUATIONHISTORY
125
Corporate Directory
ontaRioteacheRS
PenSionPlan
President and Chief
Executive Ofcer
Jim Leech
Audit services
Carol Gordon,Vice-President
enterprise Project
Management Ofce
Jacqueline Beaurivage,
Vice-President
finance
David McGraw,SeniorVice-President
andChiefFinancialOfcer
Calum McNeil,Vice-President
Jennifer Newman,Vice-President
George Wong,Vice-President
Human Resources
Marcia Mendes-dAbreu,
Vice-President
Legal
Melissa Kennedy,GeneralCounsel,
CorporateSecretaryandSenior
Vice-President,CorporateAfairs
Jef Davis,Vice-President
Information and Technology
Russ Bruch,Vice-President,
ChiefInformationOfcer
Douglas Gerhart,Vice-President
Maryam Ghiai,Vice-President
Phil Nichols,Vice-President
Member services Division
Rosemarie McClean,
SeniorVice-President
Investment Division
Neil Petrof,
ExecutiveVice-Presidentand
ChiefInvestmentOfcer
Asset Mix and Risk
Barbara Zvan,
SeniorVice-Presidentand
ChiefInvestmentRiskOfcer
James Davis,Vice-President
scott Picket,Vice-President
fixed Income and
Ron Mock,SeniorVice-President
Jason Chang,Vice-President
Jonathan Hausman,Vice-President
Infrastructure
stephen Dowd,SeniorVice-President
Olivia steedman,Vice-President
Public Equities
Wayne Kozun,SeniorVice-President
Leslie Lefebvre,Vice-President
William Royan,Vice-President
Lee sienna,Vice-President
Tactical Asset Allocation
Michael Wissell,SeniorVice-President
Kevin Duggan,Vice-President
Ziad Hindo,Vice-President
Teachers Private Capital
Jane Rowe,SeniorVice-President
Andrew Claerhout,Vice-President
steve faraone,Vice-President
Nicole Musicco,Vice-President
Glen silvestri,Vice-President
Jo Taylor,Vice-President
Investment Operations
Dan Houle,Vice-President
thecadillacfaiRvieW
coRPoRationliMited
President and Chief
Executive Ofcer
John M. sullivan
Development
Wayne L. Barwise,
ExecutiveVice-President
finance
Cathal J. OConnor,
ExecutiveVice-Presidentand
ChiefFinancialOfcer
General Counsel and secretary
sandra J. Hardy,
Investments
Russell Goin,
Operations
Ron Wratschko,
annUalMeetinG
April12,2012at5p.m.
TheCarlu
444YongeStreet,7thfoor
Toronto
Wewelcomeyourcommentsand
suggestionsonthisannualreport.
Please contact:
Deborah Allan
Director,Communicationsand
MediaRelations
Tel:416-730-5347
E-mail:communications@otpp.com
Ontario Teachers Pension Plan
5650YongeStreet,
Toronto,OntarioM2M4H5
416-228-5900
London U.K. Ofce:
LeconfeldHouse,CurzonStreet
LondonW1J5JA
+442076594450
New York Ofce:
375ParkAvenue,Suite3508
NewYork,NY10152
212-888-5799
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OUTsTANDING sERVICE AND
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LEADING

l2% Asia & Other

3C-Yar Canaoa RRPs

% Real Estate ($15.0 billion)

% Infrastructure ($8.7 billion)

% 10/10 Extremely Satised

% 9/10 Very Satised

97,200 Pension Estimates

46,700 Changes in Personal Information

35,500 E-statement Interactive Viewings

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