Operating a defined benefit pension plan like HOOPP requires balancing assets and liabilities.

• Assets equal the current value of the contributions collected and invested to pay pensions.
• Liabilities equal the current value of the Plan’s benefit obligations.

When a pension plan’s assets exceed its liabilities, it’s fully funded. However, when a pension plan’s liabilities exceed its assets,  the plan has a shortfall and is not fully funded.

At year end 2007, HOOPP’s liabilities exceeded its assets by about one per cent. Relatively speaking, that is a very modest gap that we fully expect to close over time.

To close the gap, while maintaining an acceptable balance between assets and liabilities, HOOPP needs to ensure its:

• investment strategy and the resulting returns match the Plan’s funding needs
• contribution rates are set at an appropriate level
• benefit levels are sustainable

At the same time, however, HOOPP needs to ensure that the Plan remains affordable for both members and participating employers. That means keeping contributions at reasonable levels and – to the extent possible – keeping contribution rates stable from one year to the next. 

It also requires making certain educated assumptions about future economic, market and demographic trends.