Investments

• 1. How did the fund perform overall?

The fund earned an 11.2% rate of return and investment income totalled $11.7 billion in 2011.

Our rate of return exceeded our 9.8% fund benchmark. This translated into $1.4 billion more than the markets returned, which is what we call value-added returns. Here is a performance breakdown by asset class:

Asset Class	Performance vs. Benchmark
Equities	Return: -0.8% Benchmark: -5.1%
Fixed income	Return: 19.9% Benchmark: 19.5%
Commodities	Return: -2.3% Benchmark: -1.5%
Real assets	Return: 13.1% Benchmark: 13.3%
Total	Return: 11.2% Benchmark: 9.8%

More information on each of these asset classes and benchmarks used is available in the annual report.

We often say that it is long-term performance that counts for pension plans. Taking a longer view, we have earned an average return of 8.0% over the last 10 years and 10.0% since the plan was created in 1990.

• 2. When you refer to benchmarks, what do you mean?

The benchmarks we use reflect the performance of various markets in which we invest, such as the S&P/TSX 60 Index for Canadian stocks and the S&P 500 Index for U.S. stocks. We compare our performance against these benchmarks - our goal is to do as well as or better than the investment returns of the relevant market benchmarks.

Different pension funds have different benchmarks depending on their asset mixes. Every pension plan has different member demographics, contribution rates and benefit structures that influence their investment strategies, so they may use different benchmarks than we do.

A list of the benchmarks we use is available in our annual report.

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Funding

•  3. Why is there another funding shortfall?

Despite changes to contribution rates, reduced inflation increases and strong asset growth, the pension plan has experienced recurring funding shortfalls for the past 10 years. As at Jan. 1, 2012, the plan is projecting a preliminary $9.6 billion funding shortfall. Shortfalls persist because the cost of future pensions continues to grow faster than plan assets as our members are living longer and interest rates remain low,

The Teachers' pension plan is 94% funded, and with $117.1 billion in net assets, it can afford to pay pensions for many years. But the pension plan has to show, at least every three years, that it is in balance -- that is, it will have sufficient assets to pay all pensions owed to current members over the long term (some 70 years in the future).

Current Ontario legislation protects the value of pension benefits already earned by working and retired members. Only future contribution rates and pension benefits to be earned in future years can be adjusted during a teacher’s career in response to funding shortfalls.

Ontario Teachers' Federation and the Ontario government, as plan sponsors, make decisions on any contribution and benefit adjustments.

Read the full Q&A on plan funding or visit www.FundingYourPension.com to learn more.

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Compensation

•  4. Why are bonuses being paid when there's a shortfall?

There is no relation between incentive compensation and the plan’s funding status (surplus or shortfall). Incentive compensation is based on whether executives and investment staff outperform relevant market benchmarks and meet other corporate objectives.

Many important factors that affect the plan’s funding status are beyond the control of pension plan management, such as demographic trends, interest rates, contribution rates and benefit levels. (The Ontario Teachers’ Federation and the Ontario government jointly decide contribution and benefit levels.) Factors that are within the pension plan’s control, such as how well we manage plan assets, do affect incentive payments.

• 5. What are bonuses based on?

Our compensation program is designed to attract and retain talented people and reward them appropriately. It is based on the pay-for-performance principle. For example, when markets plunged in 2008 and the fund lost money, incentive compensation also declined.

Incentive compensation for executives and investment staff is based on performance relative to market benchmarks. In the last three years, the pension fund’s investment return has outperformed its benchmarks, as shown below.

Year	Our rate of return	Benchmark return
2011	11.2%	9.8%
2010	14.3%	9.8%
2009	13.0%	8.8%

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