Board of Governors PENSION & BENEFITS COMMITTEE Friday 20 September 2013 8:30 a.m. to 12:00 noon NH3001 OPEN SESSION 1. Approval of the Minutes· and Business Arising 2. Execution Against the Work plan* [Windibank] 3. New Guidance re: Valuation of Hypothetical Wind-up Liabilities* [Shapira] 4. Indexation Protocol** [Shapira] 5. Previous Years' Fees and Expenses* [Huber] 6. Further Investment in Sionna Investment Managers* [Huber] 7. Benefits Review Working Group a. Progress Report [Rutledge] b. Budget Request [Rutledge] 8. Other Business 9. Next Meeting: Friday, 11 October 2013, 8:30 a.m. - 12:00 p.m. inNH3001 *attachedlto be distributed** ACTION Decision Information Information Discussion Information Decision Information Decision 15 September 2013 Erin Windibank, Associate University Secretary Please convey regrets to Cindy Baker at 519-888-4567 x32623 or [email protected]List of Future Agenda Items Total Compensation Statements: Range of Options and Costs Reduced Load to Retirement (Federal Government initiative to enable older workers to work part-time and accrue pension benefits at a reduced rate proportional to the workload and simultaneously draw a partial pension corresponding to the reduced workload) Alternatives to the Flexible Pension Plan
Transcript
Board of Governors PENSION & BENEFITS COMMITTEE
Friday 20 September 2013 8:30 a.m. to 12:00 noon
NH3001
OPEN SESSION
1. Approval of the Minutes· and Business Arising
2. Execution Against the Work plan* [Windibank]
3. New Guidance re: Valuation of Hypothetical Wind-up Liabilities* [Shapira]
4. Indexation Protocol** [Shapira]
5. Previous Years' Fees and Expenses* [Huber]
6. Further Investment in Sionna Investment Managers* [Huber]
7. Benefits Review Working Group a. Progress Report [Rutledge] b. Budget Request [Rutledge]
8. Other Business
9. Next Meeting: Friday, 11 October 2013, 8:30 a.m. - 12:00 p.m. inNH3001
*attachedlto be distributed**
ACTION
Decision
Information
Information
Discussion
Information
Decision
Information Decision
15 September 2013 Erin Windibank, Associate University Secretary
Please convey regrets to Cindy Baker at 519-888-4567 x32623 or [email protected]
List of Future Agenda Items Total Compensation Statements: Range of Options and Costs Reduced Load to Retirement (Federal Government initiative to enable older workers to work part-time and accrue pension benefits at a reduced rate proportional to the workload and simultaneously draw a partial pension corresponding to the reduced workload) Alternatives to the Flexible Pension Plan
Board of Governors PENSION & BENEFITS COMMITTEE
Minutes of the Friday 14 June 2013 Meeting
Present: Darren Becks, Monika Bothwell, Steve Brown, James Brox, Stewart Forrest, Tim Jackson, Ranjini Jha, GeoffMcBoyle, Cathy Newell Kelly, Christine Wagner, Bill Watson [chair], Karen Wilkinson,
Secretariat: Rebecca Wickens
Guests: Jason Gorrie, Patti Hancock (1.), Sue McGrath, Bruce Mitchell, Kenton Needham, Glenda Rutledge, Allan Shapira
Absent: Lori Curtis, Dennis Huber, GeoffMcBoyle
Organization of Meeting: Bill Watson, chair of the committee, took the chair, and Rebecca Wickens, secretary of the committee, acted as secretary. The secretary advised that a quorum was present.
The agenda was approved as circulated without formal motion.
1. AUDITED FINANCIAL STATEMENTS Hancock took members through the financial statements and audit results, noting: the fmancial statements are similar to last year's; there are no new reporting standards; the change in assets is due primarily to improved market conditions; the auditors noted that the pension fund is holding more cash than permitted under the Statement of Investment Policies and Procedures, but that this has been reported to the relevant governing bodies.
There was a motion that the committee accept the audited financial statements as presented and approve them for filing. Jackson and Wilkinson. Carried.
2. APPROVAL OF THE 10 MAY 2013 MINUTES AND BUSINESS ARISING The minutes were approved as distributed. Brox and Newell Kelly. Carried. There was no business arising.
3. EXECUTION AGAINST THE WORK PLAN The report was accepted for information.
4. UPDATE OF GOVERNMENT PENSION INITIATIVES Shapira reminded members that the university has been accepted for stage one solvency funding. relief. [Note: an email was sent to the committee on 10 June 2013.] Shapira also reported on: the working group on asset consolidation, including the mandate, membership and timeline; a meeting of university stakeholders to explore the possibility of and challenges associated with a sector plan.
5. INDEXATION PROTOCOL Speaking to the presentation, Shapira gave an overview of the work done to-date, concepts involved and issues to be resolved in relation to the indexation protocol. Discussion included: the necessary margin of surplus and how to determine this number; priorities among the indexation protocol, loan balance and cap protocol; how to ensure inter-generational equity; discussions with the regulator re: incoming legislative amendments and whether topping-up indexation will be caught; whether the protocol is applied automatically under certain circumstances or whether the committee has (and requires) discretion. Members heard that a draft of the indexation protocol will be presented for discussion in the fall.
6. PREVIOUS YEARS FEES AND EXPENSES McGrath spoke to the revised document, indicating where changes have been made. Shapira gave a breakdown of the Aon Hewitt fees by category of work and by year. Discussion included: whether the report is prepared on an accrual ba:;is; why the report is inconsistent with the financial statements; reasons for
Pension & Benefits Committee 14 June 2013 Minutes page 2
differences between human resources' and Aon Hewitt's reporting of Aon Hewitt fees; whether it is possible to calculate the investment costs for the real estate and infrastructure investments. Shapira, McGrath and Huber were asked to discuss over the summer and present an update at the September meeting.
7. FLEXIBLE PENSION PLAN - UPDATE, FUTURE REPORTING McGrath reported: there are thirty-six existing members; thirty-one of those members made contributions in the past year; this is the final year for existing members to make contributions; after the end of this year, the plan will not be open to new members or contributions. Members asked McGrath to make the same report next year, after which the committee will decide what information is required in future years.
8. INVESTMENT IN SIONNA INVESTMENT MANAGERS Speaking to the notice distributed with the agenda, the secretary informed members that a motion to rescind and a revised motion re: the investment in Sionna Investment Managers will be presented for approval at the September meeting.
9. BENEFITSIFINANCIAL ANALYSIS REPORT Rutledge took members through the presentation, highlighting: the total cost of the plan; the university's role under the administrative services only model; impact of permitting internal coordination of benefits on per person costs; change to reporting of average cost per pensioner; costs per category of benefits; significant costs within categories; the impact of drugs coming off patent, biologics and other super-drugs on drug plan costs; costs that the university may be able to address through wellness programs; changes in the long-term disability (LTD) plan experience by employee category. Discussion included: a request that consolidated reporting for pensioners at the university and federated university and affiliated university colleges continues; whether post-age 65 retirements are expected to impact drug costs; drivers behind changes in LTD plan experience. Needham and Rutledge agreed to look at alternatives for reporting on pensioner-related costs.
10. LIFE-TIME MAXIMUM ON OUT-OF-PROVINCE HEALTH CARE COVERAGE FOR RETIREES Rutledge indicated that, because the benefits plan is under review, she did not prepare a formal report this year. Members heard: there is one person who has exhausted the life-time maximum; no other out of province retiree is close to the maximum; there are questions about why there is a maximum and whether this should apply to employees who are hired to live out of province; the benefits review working group will be asked to look at the foregoing questions.
11. OTHER BUSINESS There was no other business.
12. NEXT MEETING The date and time of the September meeting are still to be determined. Members will receive the 2013-2014 meeting dates over the summer.
22 July 2013 Rebecca Wickens Associate University Secretary
Pension & Benefits Committee. Board of Governors, University of Waterloo Execution against Work Plan
The below represents the annual responsibilities of the P&B Committee and has been prepared as an aid to planning only. The committee's activities are much broader, however, and include: legislative changes, plan changes and improvements; selection of managers and service providers; and requests from the UW community regarding pension and benefits plans.
Task Frequency Oct. 5, Nov. 16, Dec 7, 2012 2012 2012
Approval of Actuarial Annual Valuation Assumptions
. . . . . . Approval of the Statement of Annual Investment Policies and Procedures (SIPP)
Preliminary Valuation Results Annual (RPP and PPP)
Actuarial Valuations (RPP and Annual PPP)
Actuarial Filing! Minimum everytbree years
Cost-of-living adjustment to payroll pension plan limir
Annual ./
Cost-of-living Increase for Annual Pensioners
Pensions for Deferred Annual Members3
Salaries for Pension Purposes Annual for Individuals on Long-term Disability
I Filed September 30, 2011. 2 Usually addressed at the December meeting, but the information was available in November. 3 Addressed at special meeting in April
Pension & Benefits Committee - Execution Against Work Plan 022213
Jan. 18, Feb. 22, Mar. 8, May 10, June 14, Sept 20, 2013 2013 2013 2013 2013 2013
./ .
• ./
I
./
./
./
./
./
Task Frequency Oct. 5, Nov. 16, Dec 7, Jan. 18, Feb. 22, Mar. 8, May 10, June 14, Sept. 20, 2012 2012 2012 2013 2013 2013 2013 2013 2013
Benefits Plan Premium Annual ./
Renewals
Indexing of Long-term Annual ./
Disability Plan Benefits and Maxima
Investment Status ofPPP Annual ./
Review of Contributio~ !pld Annual ./ . . . . . . Protocol Caps (RPP and PPP)
Budget Overview4 Annual
BenefitslFinancial Analysis Annual • ./
Report
Life-time Maximum on Out- Annual • ./ Of-Province Health Care Coverage for Retirees
Investment Manager Review Twice ./ ./
I
Total Fund Overview Quarterly ./ ./ ./ ./
Flexible Pension Plan Annual ./
Previous Years' Fees and Annual ./ ./ ./ Expenses
Annual Audit of the Pension Annual • ./ Plan Fund Financial Statements
Annual Report to the Annual ./ Community
, Indexing of Health and Dental Annual ./ Plan Maxima
Committee Evaluation Annual ./ -
4 Review of budget deferred until later in the calendar year
Pension & Benefits Committee - Execution Against Work Plan 022213
Update on Interest Rates and Mortality Rates
University of Waterloo
Pension & Benefits Committee
September 20, 2013
Hewitt
Table of Contents
• A Matter of Interest: - Update on New Guidance on Interest Rates to be Used in the Valuation of Liabilities Under
Solvency and Hypothetical Wind-Up Valuations
• A Matter of Time: - Update on New Mortality Tables Arising From Canadian Mortality Study
ConsulUng I Retiroment Proprietary & Confidential I 10/69 Uptlate on Interest Rates and Mortality Rates - P&B Committee Meeting - 09 20 2013.PPTIAHS·'kn 0912013 I Jewitt
A Matter of Interest
• Canadian Institute of Actuaries (CIA) provides guidance to actuaries (through an Educational Note) on the interest rate and mortality rate basis to be used for calculating the cost of annuity purchases under solvency and hypothetical wind-up valuations
• Guidance is based on annuity pricing data collected by the CIA on a regular basis
• CIA has just issued new guidance that includes a significant change in connection with indexed annuities
Consulting I Retirement Proprietary & ConfidentIal I 10769 Update on Interest Rates and Mortality Rates - P&B Committee Meeting - 09 20 2013.PPT/AHSlkn 09/2013 2
Solvency and Hypothetical Wind-Up Valuations
• Both solvency valuations and hypothetical wind-up valuations are based on the valuation of the pension plan as if it had been wound-up on the valuation date and the obligations of the plan settled through the purchase of annuities or the payment of commuted values
• Under the solvency valuation, as per the Ontario Pension Benefits Act, escalated adjustments (i.e., indexation) are excluded from the valuation of the liabilities
• Solvency valuations are used as the test for any additional funding required above going concern special payments
• Hypothetical wind-up valuations are used to:
- determine if the full amount of commuted values can be paid out of the pension plan
- communicate funded status of the pension plan on a wind-up basis to plan members
- determine if contribution holidays can be taken or benefit improvements can be made without any additional funding
• Pension Benefits Guarantee Fund does not cover escalated adjustments on the wind-up of a pension plan
Consulting I Retirement Proprietary & Confidential I 10769 Update on Interest Rates and Mortality Rates - P&B Committee Meating - 09 20 2013.PPT/AHSlkn 09/2013 3 OINIlewiU
Interest Rates For Solvency Valuations
• Under CIA Guidance, for the valuation on non-indexed annuities, interest rate is to be based on yields on long-term Government of Canada nominal bonds (CANSIM series V39062) plus a spread which changes periodically but has recently been between 70 and 90 basis points (currently 70 basis points)
• Under new Guidance, spread"will be based on duration of liabilities using the table below (with interpolation ):
Duration of Uabiltties (years) Spread Over V39062
7.8 +40 bps
10.2 + 60 bps
12.5 + 70 bps --L- ________
ConsultIng I Retirement Proprietary & Confidential I 10769 Update on Interest Rates and Mortality Rates - P&B Commiitce Mealing - 09 20 2013.PPT/AHSlkn 09,12013 4 AONllewilt
Interest Rates For Solvency Valuations (continued)
January 1, 2011 Interest Rates (per year) (last filed valuation) January 1, 2012 January 1, 2013 September 2013
Active Members Age 55 and OVer. 4.48% 3.31% 2.96% 3.80% Pensioners and Deferred Pensioners 1
Active Members Under Age 552 3.70% for 10 years; 2.40% for 10 years; 2.50% for 10 years; 3.20% for 10 years; 5.00% thereafter 3.90% thereafter 3.70% thereafter 4.40% thereafter
1 Assumed to be settled through annuity purchase
2 Assumed to be settled through commuted value transfer
Consulting I Retirenmnt Proprietary & Confidentl;1I I 10769 Update on Interest Rl'Ites and Morl:!lity Rates · P&B Committee Meeling· 09 20 2013.PPT/AHSlkn 09/2013 5 Jlewitl
Interest Rates For Hypothetical Wind-Up Valuations
• As a result of insufficient data to provide credible guidance, for the valuation of fully indexed annuities, an acceptable proxy for the interest rate has been yields on long-term Government of Canada real return bonds (CANSIM series V39057)
• Under new CIA Guidance, with ·additional data now available, for the valuation of fully indexed annuities, interest rate is to be based on yields on long-term Government of Canada real return bonds (CANSIM series V39057) less 120 basis points
Consulting I Retirement Proprietary & Confidential I 10769 Update on Interest Rates and Mortality Rates - P&B Committee Meeting - 09 20 2013.PPTlAHSIkn 09/2013 6 AONIlewit1
Interest Rates For Hypothetical Wind-Up Valuations (continued)
January 1, 2011 Interest Rates (per year) (last flied valuation) January 1,2012 January 1, 2013
Active Members Age 55 and Over, 1.11% 0.45% 0.38% Pensioners and Deferred Pensioners 1
Active Members Under Age 552 1.90% for 10 years; 1.20% for 10 years; 1.10% for 10 years; 2.40% thereafter 1.50% thereafter 1.30% thereafter
1 Assumed to be settled through annuity purchase
2 Assumed to be settled through commuted value transfer
Consulting I Retirement Proprietary & Confidential I 10769 Updl'lte on Intarest Rates and Mortnlity Rates - P&B Committee Meating - 09 20 2013.PPT/J\HSlkn 09.'2013
September 2013
Old Guidance
1.30%
1.70% for 10 years; 2.20% thereafter
New Guidance
0.10%
no change
Results From January 1, 2013 Solvency and Hypothetical Wind-Up Valuations
Solvency Valuation
SolvencyIWind-Up Assets $ 1,089,490,300
Less: SolvencyIWind-Up Uabilities 1.337.806.900
Excess/(Deficiency) $ (248,316,600)
Solvency Ratio (Market Value of Assets/Solvency Liabilities) 0.815
Transfer Ratio (Market Value of AssetsIWlnd-Up UabUities)
Consulting I Retirement Proprietary & Confidential I 10769 Update on Interest Rates and Mortality Rates - P&B Committee Meeting - 09 20 2013.PPT/J\HSlkn 0912013
Hypothetical Wlnd-Up Valuation
$ 1,089,490,300
1.896.904.500
$ (807,414,200)
0.575
8 AONlIewit1
A Matter of Time
• Canadian Institute of Actuaries (CIA) has issued a Draft Report on Canadian Pensioners Mortality based on Canadian mortality experience studies conducted by the CIA
• Current mortality tables are generally based on U.S. experience. CIA Draft Report shows that Canadian mortality experience is better than that of the U.S. (i.e., longer life expectancy) and that the current standard tables used for pension plan valuations underestimate the improvements to longevity that have been experienced for many decades
• CIA Draft Report recommends separate mortality tables for public sector pension plans and private sector pension plans, with adjustments based on the pension amounts payable under the plan concerned
• New tables and improvement scales in the Draft Report first have to be finalized and then approved for use in pension plan valuations; timing has not been provided
Consulting I Retirement Proprietary & Confidentj<ll I 10769 Update on Interest Rates and Mortality Rates - P&B Committee Meeting - 09 20 2013.PPT/AHS,1m 09/20,3 9 ONIIewill
A Matter of Time (continued)
Life Expectancy at Age 65
Mortality Table Current Age Male Female
UP94 Generational Under Scale M 65 19.8 22.1 (table currently being used) 45 21.3 22.9
25 22.6 23.7
RPP 2014 Public Generational Under Scale CPM-A 65 22.7 24.5 45 23.6 25.2 25 24.3 25.8
Consulting I Retirement Proprietary & Confidential I 10769 Update on Interest Rates and Mortality Rates - P&B Committee Meeting - 09 20 2013.PPT/AHSlkn 09/2013 10 AONI-Iewilt
Registered Pension Plan Management and Administrative Expenses Fiscal 2012 and 2011
Sub-Total $2,300 $2,715 HST Z 201 302 Management ana Aamlnlstratlve .. ees reponea In tne
annual audited financial statements for the registered
pension plan $2,501 $3,017
Oldfield fees charged directly to fund assets 613 213 Payments by University of Waterloo to:
(a) Pension Benefit Guarantee Fund 215 163 (b) Minister of Finance" 49 0
Total All Expenses $3,378 $3,393
1 Highstreet terminated Ju~e 2011, McLean Budden terminated December 2011,
Sionna added May 2012, Oldfield added July 2011
2 UW recovers HST paid by the pension fund where possible through input tax credits
3 Includes amounts paid in the fiscal year Including estimates for work completed and
not yet billed. Detailed analysis of period expenses was not undertaken
4 2012 credit represents a correction to a previous year estimate (accrual
versus actual expense)
5 Minister of Finance fee paid from the CIBC Mellon pension operating account in 2011
-$388 10
-141
-343 -47
44 27
62
0
137 -120
-45 1
-$415
-101
-$516
400 0
52
49
-$15
FOR APPROVAL
University or Waterloo PENSION & BENEFITS COMMITTEE
20 September 2013
Investment in Sionna Investment Managers
Motion #1: To repeal the motion passed on 10 May 2013 stating: "That the Pension & Benefits Committee approve a further investment of $3 OM in Sionna Investment Managers (Canadian equity) on behalf of the university's registered pension plan." ..
Motion #2: That the Pension & Benefits Committee approve a further investment of $30M in Sionna Investment Managers (Canadian equity fund) on behalf of the university's registered pension plan, to be deployed in Quarterly tranches of$5-10M per Quarter. commencing in 03 2013. subject to review and approval each Quarter by the Registered Pension Plan Investments Subcommittee and confirmation with the chairs of the Pension & Benefits Committee and the Finance and Investment Committee.
Background: In May and October 2012, the Registered Pension Plan Investments Subcommittee ("RPPf') recommended, and the Pension & Benefits Committee ("P+B") and Finance and Investment Committee ("F+f') approved, two $20M investments in Sionna Investment Managers. RPPI has since recommended a further investment of $3 OM in Sionna.
P+B approved the text of.Motion #1 on May 10,2013, subject to approval by F+I. Following discussion, F+I approved an amended version: Motion #2 (new text underlined) on June 3, 2013.
P+B is asked to repeal Motion #1 and to consider the amended Motion #2. Notice of these motions was given to P+B by the committee secretary at the June 14,2013 meeting.
