Q: What does it mean to be a fully funded pension plan?
A: Being fully funded means the Plan has enough assets to cover what it owes in pension benefits to members who are retired today and who will retire in the future.
The Plan’s funded status is determined by its assets and liabilities, as well as assumed rates of investment return and demographic assumptions on how our membership will age over the coming years. HOOPP’s 2016 Annual Report shows that the Plan is more than fully funded at 122%. That means for every $1 HOOPP currently owes in benefits, it has $1.22 in assets. This is an extremely positive position to be in.
Q: How does the plan being fully funded affect me, the member?
A: Being fully funded reflects the long-term health of the Plan and strengthens our ability to keep the pension promise to you. Your pension is based on a formula which takes into account your earnings and the years you contributed to the Plan. Once you retire, the pension you receive is paid to you from the HOOPP Fund, and you receive it for life.
Q: Since HOOPP is more than fully funded, what are you doing with the surplus of funds?
A: HOOPP’s 2016 Annual Report shows that for every $1 HOOPP currently owes in benefits, it has $1.22 in assets.
This surplus, among other things, also allows HOOPP to withstand the kind of sever economic downturn that we saw in 2008. It also allows HOOPP to keep contribution rates for members and employers stable. HOOPP’s contribution rates have been unchanged since 2004 and will remain stable until at least the end of 2018.
The surplus also gives us the option to provide Cost of Living Adjustments (COLA) to retired and deferred members to help their pensions keep up with rising prices due to inflation. This adjustment isn’t guaranteed, but each year the Board of Trustees votes on whether to provide a COLA that ranges from zero to 100% of the previous year's increase in the consumer price index (CPI). This year, due to our strong funded status, we provided COLA at 100%. Learn more about inflation protection.
Q: Where is HOOPP investing my contributions?
A: The HOOPP Fund is comprised of stocks, bonds, real estate, and fixed income – many of the same types of investments you would find in a mutual fund. But we take a unique approach, known as Liability Driven Investing (LDI). Developed by our investment managers, LDI considers Plan assets in relation to Plan liabilities in order to balance risk with returns. For example, we want to own assets that appreciate when interest rates are declining.
Using this approach, our portfolio is divided into two main components. The liability hedge portfolio invests in bonds and real estate. These holdings provide a steady cash flow and inflation protection so that we can continue to meet our pension obligations. The return-seeking portfolio invests in public equities, corporate debt and private equities using strategies that are expected to increase returns while balancing risk.
Our LDI approach, combined with our long-term time horizon – we look more than 70 years in the future when investing contributions – ensures that we are able to deliver on our pension promise and pay member benefits regardless of the ups and downs in stock markets and the economy. Find out more about HOOPP’s investments and our annual results.
Q: I keep hearing that there will be so many retiring Baby Boomers in the years to come. Is HOOPP prepared for this?
A: There’s no question that the coming wave of retiring Baby Boomers (those born between 1946 and 1965 and now range in age from 50 to 69) will change the face of Canada, and its economy.
HOOPP is prepared. The Plan’s funded ratio already takes into account Baby Boomer demographics and increased life expectancies. This coming surge in retirement is already reflected in our assumptions and our risk calculations.
The Plan monitors demographic trends carefully with an annual analysis. It also conducts detailed demographic experience studies periodically to help ensure assumptions about future expectations remain relevant. In 2014 HOOPP adjusted the life expectancy assumption of Plan members according to new information from the Canadian Institute of Actuaries.
As well, we continue to adhere to our Liability Driven Investing (LDI) approach, which matches Plan assets to Plan liabilities in order to ensure we can deliver on the pension promise.
Q: How can I be sure that the Plan will provide me with a pension that starts in retirement and lasts the rest of my life?
A: Delivering on the pension promise is our main mission at HOOPP. That means our commitment to being fully funded – so that all current and future pension payments are backed by assets in the HOOPP Fund – is our top priority.
This promise is reinforced by our funded status, which is closely monitored by our own internal governance as well as external regulators. Our funded status is determined by the Plan’s assets and liabilities, as well as assumed rates of investment return, and demographic assumptions. This gives us a view many years into the future so that, decades in advance, we can anticipate, and correct for, any potential shortfalls.
Q: If HOOPP increases its returns, does that mean members’ pension benefits increase?
A: The Fund’s overall return on investment does not directly impact how your pension is calculated, but it does contribute to the long-term health of the Plan. Positive returns strengthen our ability to keep our pension promise.
Your pension in retirement is based on a formula that takes into account your best five consecutive years of earnings and how long you’ve been contributing to the Plan.
The value of the benefit you will receive in retirement will likely amount to much more than your total contributions plus interest. Retired members typically get back their contributions plus interest about four or five years into retirement. That’s possible because about 80% of pension payments are generated from investment returns.
Check out your latest Annual Statement or HOOPP’s pension calculator for an estimate of your retirement benefit.
Q: Does HOOPP invest in infrastructure projects like some of its peer plans?
A: We look at every investment from a return on investment and risk objective to determine whether it meets our needs. To date, we haven’t found any major public infrastructure projects that meet our investment needs or make sense for the long-term growth of the Plan.
Q: Can I transfer other money into HOOPP?
A: Because HOOPP is set up as a pension trust, we cannot accept monies that don’t correspond to an eligible period of pensionable service. The pension you receive from HOOPP is based on your employment, specifically your earnings and how long you’ve been contributing to the Plan. In some instances, cash or RRSP funds can be used to buy back service if there were periods of time where you were working for a HOOPP employer but not contributing to the Plan. These can include waiting periods, employer-approved leaves, or other eligible periods. For more information, visit our buying back service page, or call Client Services at 1-877-43(HOOPP) or 416-646-6445.
For more information, please visit HOOPP’s investment strategy section or watch these investment videos.