“For us, what it amounts to is walking our talk. Our focus is on our funded status, and from our point of view that’s what matters the most to our members and our sponsors. We have the entire organization organized and oriented around that concept.” – Hugh O’Reilly



When the conversation is already about good news, why try to change it? One reason would be to change the conversation’s perspective, from the immediate to the long term.
Canadian pension plans get a lot of respect globally for their impressive annual returns and their management and investment structures, having been tagged ‘maple revolutionaries’ by The Economist. The returns are an obvious measure of the model’s success, but those numbers don’t tell the whole story, or even the most important one, according to Hugh O’Reilly, President and CEO of OPTrust.
In its report Changing the Conversation, the pension plan, which defines itself as a pension-management organization rather than an asset-management group, focuses on its fully funded status, calling that a more significant measure of success than annual returns that still garner the headlines.
“For us, what it amounts to is walking our talk. Our focus is on our funded status, and from our point of view that’s what matters the most to our members and our sponsors. We have the entire organization organized and oriented around that concept,” O’Reilly told ARIA during a recent conversation.
“We looked at the issue of annual reports, and we thought there is a cognitive dissonance here. We need to report on our funded status, and that’s what we are going to do. We are going to speak to what our annual return was, we will speak to what our member-service scores were, but what we want to focus on is our funded status.”
The plan’s 2016 fully funded status is its eighth in a row. The strategy of moving the focus, or the conversation, away from annual returns is designed to highlight what O’Reilly describes as meaningful measures of success: keeping the promise to pay pensions and keeping member and employer contribution rates stable.
“If you are going to judge the success of a pension plan, judging success on the basis of a one-year return doesn’t make any sense at all.”
With its member-driven strategy, meaning its investment practises are aligned with the best interests of members, O’Reilly says OPTrust’s mission is paying pensions today, preserving pensions for tomorrow. He calls it the plan’s ethos, shared by every part of the organization.
“Everyone knows that what we are all about is making sure that we are member-driven and demonstrating that our members matter.”
Even as it strives to change the conversation from annual returns to a fully funded status, 2016 ended on a successful note for the plan. It had a six per cent net investment return, a 9.1 out of 10 member-satisfaction score, an A-plus from the Principles for Responsible Investment (PRI) group, and ended the year with $19 billion in net assets.
“I’m very proud of our results last year. If you look across the spectrum, at areas where we took risk, like in the alternative asset classes, in real estate the return was in excess of 10 per cent, in infrastructure the return was in excess of 11 per cent, and private equity was in excess of 20- per cent.
“Those are great returns. In the long term, we are a high-performing plan that delivers great results to our members at a very good price … we do all of this for 35 basis points.”
Of critical importance, he adds, is the strengthening of the plan’s actuarial assumptions; for 2015, its actuarial filling discount rate was 5.55 per cent nominal, reduced in the 2016 report to 5.40 per cent. Strengthening the assumptions provides additional margin and security for members, and “is another critical component of what we are doing.”
The year wasn’t without its challenges. OPTrust had a record number of retirements, in part due to the province’s changing the rules for post-retirement non-pension benefits, says O’Reilly. The plan also encountered a large number of enrolments as those retiring were replaced by new employees. Despite all the changes, the plan still achieved a high member-satisfaction score, showing the member-driven focus of the organization, he adds.
The plan’s demographics are changing with the times, with 1.2 active members to every 1 inactive or retired member. That reality, explains O’Reilly, drives the member-driven investment strategy.
“That tells us we need to pay attention to risk … because if we suffer a loss in this pension plan, we don’t reduce benefits – we don’t reduce what our (current) retirees are receiving. What will happen is that we will either reduce future benefits or increase contributions, and that then would be a burden borne entirely by the active members.”
To that end, the investment strategy is about risk allocation, not asset allocation.
“It’s not about chasing returns. It’s about ensuring that we earn what is required to maintain this plan in a fully funded position so that we can pay the benefits we promised at the current contribution level.”
Which brings the focus back to the changing of the conversation. The most effective way to communicate the success of the plan and its commitment to its members and sponsors is by talking about the importance of remaining fully funded, says O’Reilly.
“We looked at our annual report that just focuses on the year that was, and we thought that it was a pretty short-term perspective. We want to focus on more than just the year that was, we want to focus on who we are, what we are and what matters to us, and that’s our funded status.”
That focus, continues O’Reilly, “holds us accountable.”
And how would he measure the success of the strategy to change the conversation? It wouldn’t be in the headlines, but rather in an organization that ‘walks the talk.’
“The most important way in which I measure success is that when you come here and talk to people, we talk about this the same way. What that tells me is that the organization is unified, pointed in the right direction and understands what our mission is.”
OPTrust, says O’Reilly, is a pension-management organization, focused on delivering the promise of a pension.
“We are about making sure we get paid for the risk we take, that we maintain our funded position, that we maintain our current benefit and contribution levels and that we keep the promise we made to our members.”

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