Client spotlight: Ottawa International Airport Authority
Reducing pension risk with inflation-linked annuities
About Ottawa International Airport Authority
Canada’s airports are critical infrastructure with 26 of the largest airports making up a major part of the national airport system. Ottawa International Airport Authority is a federally registered non-profit, non-share capital corporation that manages Ottawa Airport. The management of the Ottawa International Airport was transferred to the Authority in the 90s. While most airport authorities have origins in the federal government, they don’t receive any government funding.
Rob Turpin
Earlier this year, Rob spoke with Sun Life about the organization’s pension de-risking journey. His responsibilities include developing the Airport Authority's financial and accounting information systems strategy. He manages financial relationships and strategies with airlines, the investment banking community and rating agencies.
The Airport Authority’s defined benefit pension plan is an inflation-linked plan that closed to new entrants in 1997. It was a mature plan when the Airport Authority first partnered with consulting firm Normandin Beaudry (NB) in 2015.
The drivers
In 2012, the Airport Authority wanted to reduce the risk of its pension plan. They have been working towards this goal since then. As a first step, they implemented a glidepath based on the funded status of the plan on a solvency basis. Their main objective was to manage contribution volatility. However, they needed a balanced approach as they were not willing to crystalize a deficit. They worked with NB, who had to consider this when establishing a plan for them.
Navigating transaction obstacles
A few years later they came to market and purchased annuities. It was an ambitious move at the time as it happened in a low interest rate environment. The plan included inflation protection. In addition, the market for inflation-linked group annuities was not as well established as it is today.
The transactions
Near the end of 2017, the plan’s solvency ratio improved to just above 90% and the market was seeing competitive pricing from insurers for inflation-linked deals. This is when the Airport Authority began considering the next phase in their de-risking journey and implementing steps to transfer the liabilities to an insurer.
December 2018: The first purchase was an annuity buy-in around $50M. It covered all retirees in the plan at that time. The transaction led to a financial gain and the solvency ratio improved to 97%.
2020 and 2022: Two smaller annuity buy-ins of $6M and $8M followed in later years. These transactions covered new cohorts of retirees.
In 2024, the plan is fully funded. The financial position of the plan is stable, with 85% of the plan's liabilities covered by annuity buy-ins.
“Working with Normandin Beaudry gave us a lot of insight into what they were seeing, their activities with insurance companies … market timing was able to be assessed.” – Rob Turpin
Takeaways from the Airport Authority’s de-risking journey
Education is key
Education for the pension and audit committees and the Board began 12 months before transacting and was instrumental in understanding the risks and benefits of de-risking.
Transaction readiness in 5 steps
The fast pace on quote day forces parties to make decisions quickly. Ensuring transaction readiness helps plan sponsors address any issues for the company or retirees ahead of time.
De-risking success factors
De-risking can take time and involves many parties. Preparing for these factors ahead of time can help to result in a successful transaction.
A bright future
Implementing a de-risking strategy can be complex and every pension plan is unique. Pension experts can help plan sponsors navigate the process of purchasing annuities and combat misconceptions. They work to identify the strategy to reduce risk for a specific retirement plan. They help to implement the long-term stability that comes from purchasing an annuity. Understanding de-risking goals is important. Working with the right partners helps plan sponsors focus on their main business. It also helps protect employees' financial futures.
