Board of Governors PENSION & BENEFITS COMMITTEE 9:30 a.m. … · 2017-03-03 · 2016 11 Mar 2016 20 May 2016 17 Jun 2016 9 Sept 2016 7 Oct 2016 11 Nov 2016 9 Dec 2016 20 Jan 2016

Board of Governors PENSION & BENEFITS COMMITTEE

Friday 24 February 2017 9:30 a.m. to 12:00 noon

NH 3318

OPEN SESSION ACTION

9:30 1. Approval of the 20 January 2017 Minutes (Open Session)*and Business Arising

2. Execution Against the Work Plan* [Grivicic]

Decision

Information

9:35

9:40

11:00

11:30

3. Update on Government Pension Plan Initiatives [Shapira]

4. Preliminary Valuation Results (RPP and PPP)* [Shapira/Byron]

5. Quarterly Pension Risk Management Dashboard – to 31 December 2016*(Byron)

6. Cost-of-Living Adjustments* (Hornberger)a. Cost of Living Increase for Pensionersb. Pensions for Deferred Membersc. Salaries for Pension Purposes for Individuals on LTDd. Indexing of LTD Plan Benefits and Maxima

Information

Decision

Information

Decision

11:50

7. Other Business

8. Proceed into Confidential Session

CONFIDENTIAL SESSION

9. Approval of the 20 January 2017 Minutes (Confidential)*and Business Arising

Next Meeting: Friday 10 March 2017 from 9:30 a.m. – 12:00 noon in Needles Hall 3318

Decision

*attached** to be distributed

+ distributed separately

17 February 2017 Mike Grivicic Assistant University Secretary

Please convey regrets to Melissa Zapletal at 519-888-4567 x36125 or [email protected]

PB 24 February 2017, page 1 of 51

mailto:[email protected]

University of Waterloo Board of Governors

PENSION & BENEFITS COMMITTEE Minutes of the 20 January 2017 Meeting

Present: Monika Bothwell, Stewart Forrest, Mary Hardy, Dennis Huber, Ranjini Jha, David Kibble, Ramesh Kumar, Alan Macnaughton, Ian Orchard, Marilyn Thompson, Christine Wagner, Karen Wilkinson

Regrets: Michael Steinmann

Administration: Lee Hornberger, Sarah Hadley

Consultants: Linda Byron, Nathan LaPierre, Allan Shapira

Secretariat: Mike Grivicic

Organization of Meeting: Karen Wilkinson took the chair and Mike Grivicic acted as secretary. The secretary advised that a quorum was present. The agenda was approved without formal motion.

1. MINUTES OF THE 8 DECEMBER 2016 MEETING AND BUSINESS ARISINGMembers agreed to add greater detail on the indexing option approved in item 5. A motion was heard to approve the minutes as amended. Huber and Kibble. Carried. There was no business arising from the minutes.

2. EXECUTION AGAINST THE WORK PLANMinor adjustments were noted and the report was received for information.

3. UPDATE ON GOVERNMENT PENSION PLAN INITIATIVESShapira provided an update: some universities continue to express interest in joint pension plan, with some issues remaining to be addressed; Marshall consultation is expected to put out a paper in February, potentially with options on pension plan funding to be provided for comment, and new models may reduce solvency requirements that would help private plans while having a potential negative impact on public sector plans.

4. INVESTMENT STATUS OF THE PAYROLL PENSION PLANSarah Hadley spoke to the material distributed: fully indexed investments; contribution sources and funding status; quarterly rebalancing of funds within plan. A member expressed approval at the indexing investment approach utilized for this plan.

5. ACTUARIAL VALUATION ASSUMPTIONSShapira and Byron provided a PowerPoint presentation to the committee: assumptions that will be utilized for the 1 January 2017 actuarial valuation of the Registered Pension Plan (RPP) and the Payroll Pension Plan (PPP); 2017 will be a filing year for the plan; entering stage 2 of the solvency process which will allow three years to make interest-only payments before running the plan on a going concern basis; assumptions including demographics, asset allocation, rates of return, termination/mortality rates, economic trends, and timing/length of liabilities; linking of inflation to assumptions e.g. CPI + 3.70% for discount rate; solvency and wind up calculations are prescribed. Members discussed: no significant changes to CPI methodology; estimation of administration expenses and practice of utilizing estimates on higher end of range. The committee heard a motion to approve the assumptions as outlined in the report with: CPI of 2.0%; 4.0% increase in pensionable earnings; discount rate of 3.50% real / 5.5% nominal; sensitivity analysis at 10 basis points; review of preliminary results to examine how to potentially include administration fees into the discount rate; no other changes to mortality tables, termination tables or other factors from 2016. Forrest and Kibble. Carried.

6. OPTIMIZATION COMPONENT OF ASSET-LIABILITY STUDYNathan LaPierre spoke to the distributed material and members discussed: consideration of asset classes in model; types of liability-matching investments included for consideration; some assets in the model do not have large and deep markets; exposure to emerging markets can be achieved directly or via Canadian/US equities, though this analysis only considers domicile of investment; detailing of constraints for optimization model; comparison of efficient frontier for optimization considers nominal returns and tail risk; inclusion of private debt in model may suffer from survivor bias; emerging market equities model in potential risks; not clear that increased liability


hedging would provide significant reduction to risk, according to stochastic modelling; if adopting liability hedging, discount rate would presumably be reduced; dynamic allocation of investment under liability hedging model is possible; combination of indices to approximate ACWI; assumptions including indexing approach and currency exposure, the latter of which actually appears to reduce risk in the model; sources of return from real estate category; model seems to demonstrate apparent tradeoffs in liquidity, opacity and rate of return; discussion of model portfolios; leveraged fixed income analysis appears to show how to reduce worst case, those it may be counter-intuitive that this occurs; main conclusions are that liability hedging has the biggest impact on reducing median contributions while optimizing return-seeking component with adding direct assets reduces the risk in the worst cases, while leveraged bonds appears to help both. Members questioned if a derivative could be utilized that mitigates downside risk while allowing for capping on the upside, and LaPierre observed that the upside may be needed and that the collar position would have to be entered into repeatedly. These matters will be considered further at a future meeting. 7. OTHER BUSINESS Macnaughton observed the recent passing of changes to the Canada Pension Plan, and Shapira indicated that the impacts of this on the pension plan would need to be examined. 8. PROCEED INTO CONFIDENTIAL SESSION With no additional business in open session, the committee proceeded into confidential session. NEXT MEETING The next meeting is on Friday 24 February 2017 from 9:30 a.m. – 12:00 p.m. in Needles Hall Room 3318.

16 February 2017 Mike Grivicic

Assistant University Secretary


Execution against Work Plan

Pension & Benefits Committee, Board of Governors, University of Waterloo

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 (Target month)

26 Feb 2016

11 Mar 2016

20 May 2016

17 Jun 2016

9 Sept 2016

7 Oct 2016

11 Nov 2016

9 Dec 2016

20 Jan 2017

24 Feb 2017

Approval of Actuarial Valuation Assumptions Annual (Jan)

Investment Status of PPP Annual (Jan)

Preliminary Valuation Results (RPP and PPP) Annual (Feb)

Cost-of-living Increase for Pensioners Annual (Feb)

Pensions for Deferred Members Annual (Feb)

Salaries for Pension Purposes for Individuals on Long-term Disability

Annual (Feb)

Actuarial Valuations (RPP and PPP) Annual (Mar)

Benefits Plan Premium Renewals Annual (Mar)

Indexing of Long-term Disability Plan Benefits and Maxima

Annual (Mar)

Review of Contribution and Protocol Caps (RPP and PPP)

Annual (Mar)

Budget Overview Annual (May)

Previous Years’ Fees and Expenses Annual (May)

Annual Audit of the Pension Plan Fund Financial Statements

Annual (May)


1 Most recent item was May 2014, then June 2013 2 Most recent report was published in September 2015 for the 2014-15 year

Task Frequency 26 Feb 2016

11 Mar 2016

20 May 2016

17 Jun 2016

9 Sept 2016

7 Oct 2016

11 Nov 2016

9 Dec 2016

20 Jan 2016

Benefits/Financial Analysis Report Annual (June)

Cost of Removing Life-time Maximum on Out-Of-Province Health Care Coverage for Retirees

Annual (June)

Flexible Pension Plan1 Annual (Sept)

Indexing of Health and Dental Plan Maxima Annual (Nov)

Cost-of-living adjustment to payroll pension plan limit

Annual (Dec)

Indexation of Retiree Life Insurance Annual (Dec)

Total Fund Overview (provided under reports from RPPI)

Quarterly

Investment Manager Review (provided under reports from RPPI)

Semi-annually

Approval of the Statement of Investment Policies and Procedures (SIPP)

Annual 1

Annual Report to the Community2 Annual

Actuarial Filing Minimum every three years

Most recent filing was July 2014


Presentation to University of Waterloo

Prepared by Aon Hewitt

Preliminary Actuarial Valuation Results as of January 1, 2017 University of Waterloo Pension and Benefits Committee Meeting on February 24, 2017


Proprietary & Confidential | February 24, 2017 2 Aon Hewitt

Table of Contents Understanding the Actuarial Process Actuarial Assumptions for Going Concern Valuation Pension Liability/Asset Relationship Highlights of January 1, 2017 Valuation Results Plan Members—Demographics Actuarial Assumptions for Going Concern Valuation—Economic Assumptions Actuarial Assumptions for Going Concern Valuation—Demographic Assumptions Expected Investment Returns For UW Pension Fund Reconciliation of Plan Assets (Market Value) Development of Actuarial Value of Assets Pension Fund Asset Mix as of December 31, 2016 Going Concern Valuation Results as of January 1, 2017—Registered Pension Plan – Past Service Going Concern Valuation Results as of January 1, 2017—Registered Pension Plan – Current Service Analysis of Experience Going Concern Valuation Results as of January 1, 2017 – Payroll Pension Plan Going Concern Results – Sensitivity Total Current Service Cost for 2017 Contribution for 2017 – Based on Preliminary Assumptions Actuarial Assumptions for Solvency and Wind-Up Valuations Solvency and Wind-Up Valuation Results as of January 1, 2017 Appendix



Understanding the Actuarial Process

Ultimate cost of Pension Plan equals the sum of benefits paid Cost is funded by University and member contributions and investment

earnings, net of expenses Actuarial process from a funding perspective:

– Using actuarial estimates to make periodic funding contributions in a systematic manner to meet the ultimate cost



Understanding the Actuarial Process (continued)

Elements of an actuarial valuation: – Pension Plan: Contractually promises to pay benefits

defined by the plan formula(s) on retirement, death, disability and termination

– Plan Members: Current employees, retirees and beneficiaries in this group will be or are entitled to the benefits promised by the plan. Specific data is gathered and validated for all members

– Actuarial Assumptions: Actuary uses these to estimate who will receive a benefit, what the amount of benefit will be, when the benefit will start, and how long it will be paid

– Actuarial Cost Method: Used to allocate the cost of the estimated benefits (determined using the member data and actuarial assumptions) to various time periods



Actuarial Assumptions for Going Concern Valuation

Assumptions to Estimate:

When Pension Benefits Are Payable

Amount of Pension Benefits Payable

How Long Pension Benefits Are Payable

How Much Money to Set Aside

Termination Rates Disability Rates Preretirement Mortality Rates Retirement Ages

Increases in CPP Wage Base Increases in ITA Maximum

Pension Increases in Salaries Inflation

Postretirement Mortality Rates Investment Return on Pension Fund

Demographic

Assumptions

Economic

Assumptions

Demographic

Assumptions

Economic

Assumptions



Pension Liability/Asset Relationship Growth in Liabilities From Year to Year Growth in Assets From Year to Year

Liabilities at beginning of year

(representing discounted present value of pension benefits earned in respect of service

up to the valuation date)

Value of pension fund assets at beginning of year

Plus Plus

Interest on liabilities at rate used to

discount the liabilities Rate of return on pension fund assets

Plus Plus

New liability for benefits earned by

members in the year (current service) and increase/(decrease) in liability from

experience losses/(gains)

Contributions made by members and University

Less Less

Pension payments and lump-sum transfers Pension payments, lump-sum transfers,

fees and expenses



Highlights of January 1, 2017 Valuation Results

This material includes the going concern valuation results for the Registered Pension Plan (RPP) and the Payroll Pension Plan (PPP) as at January 1, 2017

The January 1, 2017 actuarial valuation of the RPP is required to be filed with the pension regulators by September 30, 2017

The University is eligible to apply for Stage 2 solvency funding relief: – Prior to filing the valuation, the University must file the application with the

supporting financial information regarding cost savings achieved against savings targets

The going concern results have been determined using the set of assumptions discussed with the Pension and Benefits Committee on January 20, 2017: – Sensitivity to a 0.10% reduction in the discount rate has also been

determined – Discount rate derivation has been updated based on December 31, 2016

capital market assumptions; discount rate of 5.60% is at the 50th percentile however does not include a margin for adverse deviation

– Margin is addressed in the contribution strategy



Plan Members—Demographics

1 Year following valuation date

January 1, 2016 January 1, 2017

Active Members (Including Leaves) Number 4,169 4,326 Average age 47.5 47.4 Average years of credited service 10.4 10.4 Average pensionable earnings1 $ 94,753 $ 96,884 Total pensionable earnings1 $ 395,023,466 $ 419,120,983 LTD Members Number 84 74 Average age 57.2 55.9 Average years of credited service 18.2 17.6 Average pensionable earnings1 $ 59,106 $ 56,818 Total pensionable earnings1 $ 4,964,947 $ 4,204,509 Suspended Members Number 10 10 Average age 32.6 33.6 Average years of credited service 2.3 2.3



Plan Members—Demographics (continued)


Pensioners and Survivors Number 1,745 1,837 Average age 74.4 74.4 Average annual pension $ 29,831 $ 30,028 Total annual pension $ 52,054,5231 $ 55,162,6431 Total bridge benefit $ 83,395 $ 64,268 Deferred Pensions: Subject to COLA Number 493 477 Average age 50.0 50.6 Average annual pension $ 6,268 $ 6,701 Deferred Pensions: Others Number 8 8 Average age 66.6 67.6 Average annual pension $ 980 $ 980

1 Does not reflect increase as of May 1, 2016 or 2017, as applicable



Actuarial Assumptions for Going Concern Valuation— Economic Assumptions

1 PPP limit of $3,337 in 2017 increased at 2.75% per year up to $3,400 for PPP 2 Across the board increases plus grid steps / merit / promotion 3 1.40% / 2.20% for 75% indexed benefits in 2016; 1.50%/2.10% for 75% indexed benefits in 2017

Economic Assumptions

January 1, 2014 (Last Filed Valuation)


Increase in Consumer Price Index (CPI) 2.25% per year 2.00% per year No change Increase in Year’s Maximum Pensionable Earnings under Canada pension plan

3.00% per year (CPI + 0.75%)

2.75% per year (CPI+0.75%)

No change

Increase in Income Tax Act maximum pension

$2,770.00 in 2014; increased after 2014 at 3.00% per year up to $3,200

$2,890.00 in 2016; increased at 2.75% per year up to $3,200

$2,914.44 in 2017; increased at 2.75% per year up to $3,2001

Increase in salaries2 5.00% per year for 1 year;

4.25% per year thereafter (CPI + 2.00%)

4.00% per year (CPI + 2.00%)

No change

Increase in salaries (disabled) 2.25% per year

(CPI + 0.00%) 2.00% per year No change

Interest rate used to discount liabilities 6.00% per year

(CPI + 3.75%) 5.70% per year (CPI + 3.70%)

5.50% per year (CPI + 3.50%)

Interest rate used to discount cash flow from real return bonds

3.75% per year Not applicable Not applicable

Interest rate used to calculate 50% rule

1.70% per year for 10 years; 2.30% per year thereafter

1.20%3 per year for 10 years; 1.70% per year thereafter

1.30%3 per year for 10 years; 1.60% per year thereafter

Interest rate for crediting on required member contributions

3.00% per year No change No change

Loading for administrative expenses Reflected in discount rate No change No change



Actuarial Assumptions for Going Concern Valuation— Demographic Assumptions

Demographic Assumptions January 1, 2014 (Last Filed Valuation)


Retirement age Age 64, but no earlier than

one year after valuation date

No change No change

Mortality rates 2014 Canadian Pensioners

Combined Table (“CPM2014 Combined”) with Improvements under Scale CPM-B

No change No change

Termination rates Age Rates Per 100

20 10.0 25 10.0 30 5.6 35 3.2 40 2.2 45 1.7 50 1.2 55 0.7

No change No change



Expected Investment Returns For UW Pension Fund

Expected real rate of return as of December 31, 2016 calculated based on the following target asset mix:

Asset Class

Canadian Equities 15.0%

Non-Canadian Equities 40.0%

Fixed Income 33.0%

Cash 2.0%

Infrastructure (Listed) 5.0%

Real Estate 5.0%

100.0%

Annual Nominal Rate of Return

Expected Nominal Return 5.60%

Administrative Expenses (0.10%)

Provision For Adverse Deviation (0.00%)

Net Real Rate of Return 5.50%

Annual Standard Deviation (Asset Only) 9.09%

Annual Drawdown Risk 95% (Asset Only) -12.99%



Reconciliation of Plan Assets (Market Value)

Total

Market Value of Assets, January 1, 2016 $ 1, 402,751,131

Plus Member contributions $ 29,217,369 University contributions 47,679,126 Flex contributions 0 Transfers in from other plans 2,219,963 Investment income 99,934,288 Net transfers from other accounts 0 $ 179,050,746 Less Pensions and lump-sum refunds paid $ 60,993,588 Expenses and fees 1,795,451 $ 62,789,039 Market Value of Assets, December 31, 2016*

$ 1,519,012,838

Rate of return (net of expenses and fees) 6.95% * The December 31, 2016 Market Value of Assets on page 16 has been adjusted for in-transit benefit payments of $54,000 and will be adjusted again based on the audited financial statements



Development of Actuarial Value of Assets

At the last filed valuation, the Actuarial Value of Assets for assets other than real return bonds, was set equal to the Market Value of Assets

The actuarial value of the real return bonds was determined by discounting the projected cash flow at the real rate of return of 3.75% per year

The real return bonds were sold in October 2014 at a MVA of $216,935,034, compared to an AVA of $172,569,989 at a gain of $44,365,045

The Actuarial Value of Assets as of January 1, 2016 and January 1, 2017 is set equal to the Market Value of Assets at that date, net of adjustments for amounts payable/receivable, with an optional reserve equal to the gain on the sale of the real return bonds



Pension Fund Asset Mix as of December 31, 2016

Asset Class Current Asset Mix Target Asset Mix

Cash and short term 11% 2% Fixed-income 40% 33% Equities 39% 55% Infrastructure 7% 5% Real estate 3% 5% Total 100% 100%



Going Concern Valuation Results as of January 1, 2017 Registered Pension Plan—Past Service

1 Reflects decrease in nominal discount rate by 0.10% 2 Reflects in-transit benefit payments of $54,016 3 Reflects actual indexation as of May 1, 2014 of 0.94%, and expected indexation in following two years 4 Reflects actual indexation as of May 1, 2016 of 1.13% (0.84% for 75% indexed benefits), and expected indexation in following two years 5 Reflects actual indexation as of May 1, 2017 of 1.43% (1.07% for 75% indexed benefits), and expected indexation in following two years

January 1, 2014

(Last Filed Valuation) January 1, 2016

January 1, 2017

Preliminary Sensitivity1

Past Service Actuarial value of assets $ 1,156,065,428 $ 1,402,178,988 $ 1,518,958,8222 $ 1,518,958,8222 Less: Accrued liability Active members $ 702,327,498 $ 786,498,866 $ 861,751,361 $ 877,849,555 Disabled and suspended members 17,175,900 16,539,864 13,322,113 13,532,393 Pensioners and beneficiaries 551,387,278 620,925,745 666,888,709 672,684,542 Deferred vested members 27,199,9753 30,824,6454 32,000,3245 32,583,6315

Additional voluntary contribution balances 959,189 778,457 744,583 744,583 Members flex contribution balances 1,251,748 1,210,788 1,164,723 1,164,723 Cost of living increase effective May 1 5,268,871 7,150,875 9,695,783 9,786,999 Total $ 1,305,570,459 $ 1,463,929,240 $ 1,585,567,596 $ 1,608,346,426 Funding excess/(unfunded liability) $ (149,505,031) $ (61,750,252) $ (66,608,774) $ (89,387,604) Deferred asset gain/(loss)—funding reserve on sale of real return bonds (Optional) N/A (44,365,045) (44,365,045) (44,365,045) Funding excess/(unfunded liability) on market value basis without funding reserve $ (149,505,031) $ (106,115,297) $ (110,973,819) $ (133,752,649) Market value of assets $ 1,194,775,607 $ 1,402,178,988 $ 1,518,958,822 $ 1,518,958,822



Going Concern Valuation Results as of January 1, 2017 Registered Pension Plan—Current Service January 1, 2014 to December 31, 2014 January 1, 2016 to December 31, 2016

$ Amount % of Pensionable

Earnings $ Amount % of Pensionable

Earnings

Current Service Total current service cost $ 53,202,405 14.97% $ 61,199,016 15.30% Less: Members’ required contributions (25,986,716) (7.31%) (29,371,798) (7.34%) University current service cost $ 27,215,689 7.66% $ 31,827,218 7.96% As a % of members’ required contributions 104.7% 108.4% Pensionable earnings $ 355,351,815 $ 399,988,413

January 1, 2017 to December 31, 2017

Preliminary Sensitivity

$ Amount % of Pensionable

Earnings $ Amount % of Pensionable

Earnings

Current Service Total current service cost $ 67,244,568 15.89% $ 68,710,889 16.23% Less: Members’ required contributions (31,234,780) (7.38%) (31,234,780) (7.38%) University current service cost $ 36,009,788 8.51% $ 37,476,109 8.85% As a % of members’ required contributions 115.3% 120.0% Pensionable earnings $ 423,325,493 $ 423,325,493



Analysis of Experience In $ Millions

Funding excess/(unfunded liability) as of January 1, 2016 $ (106.1)

Plus: University contributions 47.7 Member contributions 29.2 Less: Total current service cost (61.9) Plus: Interest at 5.70% per year (5.6) Equals: Expected funding excess/(unfunded liability) as of January 1, 2017 $ (96.7)

Plus: Gains (losses) due to: Return on actuarial value of assets 20.2 COLA adjustment lower than assumed 4.0 Salary increases lower than assumed 2.5 Change in ITA maximum pension lower than assumed Change in YMPE lower than assumed

2.0 (1.8)

Mortality experience (1.0) Retirement experience 6.2 Termination experience (0.7) Additional deferred year of COLA (0.5) Data adjustments / Article 12 transfers (0.6) Miscellaneous experience (0.6) Equals: Funding excess/(unfunded liability) as of January 1, 2017—before change in assumption basis $ (67.0) Plus: Impact of change in assumptions (44.0) Equals: Funding excess / unfunded liability as of January 1, 2017—after change in assumption basis (111.0)



Going Concern Valuation Results as of January 1, 2017 Payroll Pension Plan

1 Reflects maximum benefit in 2016 of $3,309 per year of credited service, indexed at 2.75% per year up to $3,400 2 Reflects maximum benefit in 2017 of $3,337 per year of credited service, indexed at 2.75% per year up to $3,400

January 1, 20172

January 1, 20161 Preliminary Sensitivity

Past Service Market value of assets $ 33,737,828 $ 37,578,541 $ 37,578,541 Less: Accrued liability Active members $ 21,380,969 $ 26,174,311 $ 26,639,933 Pensioners and beneficiaries 13,574,700 15,423,361 15,561,746 Total $ 34,955,669 $ 41,597,672 $ 42,201,679 Funding excess/(unfunded liability) $ (1,217,841) $ (4,019,131) $ (4,623,138) Current Service University current service cost $ 1,582,372 $ 1,750,204 $ 1,791,022 As a % of pensionable earnings 0.40% 0.41% 0.42%



Total Current Service Cost for 2017

1 Total University contributions shown on following page

Preliminary

RPP PPP Total

$ Amount

% of Pensionable

Earnings $ Amount

% of Pensionable

Earnings $ Amount

% of Pensionable

Earnings

Total current service cost $ 67,244,568 15.89% $ 1,750,204 0.41% $ 68,994,772 16.30% Less: Members’ required contributions (31,234,780) (7.38%) - - (31,234,780) (7.38%) University current service cost $ 36,009,788 8.51% $ 1,750,204 0.41% $ 37,759,992 8.92%1 Sensitivity

RPP PPP Total

$ Amount

% of Pensionable

Earnings $ Amount

% of Pensionable

Earnings $ Amount

% of Pensionable

Earnings

Total current service cost $ 68,710,889 16.23% $ 1,791,022 0.42% $ 70,501,911 16.65% Less: Members’ required contributions (31,234,780) (7.38%) - - (31,234,780) (7.38%) University current service cost $ 37,476,109 8.85% $ 1,791,022 0.42% $ 39,267,131 9.27%1



Contributions for 2017 – Preliminary

Member contributions: $ 31,234,780 7.38% of pensionable earnings

University contributions: 1.63 x $ 31,234,780 12.03% of pensionable earnings

= $ 50,912,691

$ 36,009,788 Allocated to pay University current service cost under RPP in 2017

12,562,584 2,340,319

Allocated to pay University special payments to amortize unfunded liability ($110,973,819 amortized over 12 years) Additional contributions allocated to fund the unfunded liability

$ 50,912,691 Total University contributions

Assumes no contribution to Payroll Pension Plan Assumes deferral of asset gain on real return bonds – if no reserve is held for deferred gain, the special payments required to amortize the unfunded liability decreases to $7,540,320 and additional contributions allocated to fund the unfunded liability increases to $7,362,583



Solvency and Wind Up Valuations

The solvency and wind up valuations are performed at January 1, 2017 using assumptions that are prescribed by legislation and actuarial standards

The solvency ratio has improved since January 1, 2016 due to increases in nominal government bond yields and asset gains during the year

The transfer ratio decreased as yields on inflation-linked bonds dropped which was partially offset by asset gains during the year

The solvency and wind up valuations are both performed assuming the plan were to wind up on the valuation date and all benefits are settled either through an annuity purchase or the payment of lump-sum (commuted) values to members

The solvency valuation excludes the value of indexation from the liabilities; solvency deficit is subject to funding requirements

The wind up valuation represents the estimated liability of all benefits to be settled; wind-up deficit is calculated for reporting purposes but is not required to be funded

The wind up valuation is based on the premise that a market for fully-indexed annuities exists, which may not be practical for a pension plan of this size



Actuarial Assumptions For Solvency and Wind-Up Valuations

Assumptions

January 1, 2014

(Last Filed Valuation) January 1, 2016 January 1, 2017

Retirement Ages Age between 55 and 65 that produces

highest value

No change No change

Mortality Rates 1994 Uninsured Pensioner Mortality Table With

Generational Mortality Improvements Under Scale AA

CPM2014 Combined with Generational Improvements

Under Scale CPM-B

CPM2014 Combined with Generational Improvements

Under Scale CPM-B

Interest Rates— Solvency Valuation (Per Year)

Active Members Age 55 and Over, Pensioners and Deferred Pensioners1

3.83% 3.04%% 3.12%3

Active Members Under Age 552

3.10% for 10 years; 4.60% thereafter



Interest Rates— Wind-Up Valuation (Per Year)

Active Members Age 55 and Over, Pensioners and Deferred Pensioners1

0.15% - 0.05% (100% indexed) 0.72% (75% indexed)

-0.09%3 (100% indexed) 0.71%3 (75% indexed)

Active Members Under Age 552


1.20% for 10 years; 1.70% thereafter (100% indexed) 1.40% for 10 years; 2.20% thereafter (75% indexed)

1.30%for 10 years; 1.60% thereafter (100% indexed) 1.50% for 10 years; 2.10% thereafter (75% indexed)

___________________________________ 1 Settled through annuity purchase 2 Settled through commuted value 3 Based on guidance released by Canadian Institute of Actuaries for January 1, 2017 actuarial valuations



Solvency and Wind Up Valuation Results as of January 1, 2017

Note:

Difference between Solvency and Wind Up Valuation is that Wind Up Valuation includes indexation under plan, whereas Solvency Valuation excludes the indexation.


Solvency Valuation Wind Up Valuation Solvency Valuation Wind Up Valuation

Market Value of Assets $ 1,402,178,988 $ 1,402,178,988 $ 1,518,958,822 $ 1,518,958,822 Less: Wind up expenses (500,000) (500,000) (500,000) (500,000) Solvency/wind up assets $ 1,401,678,988 $ 1,401,678,988 $ 1,518,458,822 $ 1,518,458,822 Solvency/Wind Up Liabilities Active members $ 954,556,678 $ 1,348,691,828 $ 981,453,639 $ 1,486,593,840 Disabled and suspended members 20,883,902 29,067,814 16,095,461 24,973,468 Pensioners and beneficiaries 672,727,068 844,785,390 704,990,152 957,688,555 Deferred vested members 39,842,193 65,271,033 39,764,670 80,833,562 Voluntary contribution balances 778,457 778,457 744,583 744,583 Member flex contribution balances 1,210,788 1,210,788 1,164,723 1,164,723 Total $ 1,689,999,086 $ 2,289,805,310 $ 1,744,213,228 $ 2,551,998,731 Solvency Excess/(Deficiency) $ (288,320,098) $ (888,126,322) $ (225,754,406) $(1,033,539,909)

Transfer ratio (market value of assets/wind up liabilities) N/A 0.61 N/A 0.60 Solvency ratio (market value of assets/solvency liabilities) 0.83 N/A 0.87 N/A



Solvency Funding Relief – Stage 2

The University must apply for Stage 2 solvency funding relief under Regulation 178/11 to the Pension Benefits Act

If approved, the minimum contribution towards funding the solvency deficiency is interest on the solvency deficit for the three years following the valuation date: – The remaining solvency deficit will be amortized over 7 years from

January 1, 2020 – Alternatively, the University could amortize the solvency deficit at

January 1, 2017 over 10 years – One year deferral of the special payments is permitted

Minimum Special Payment determined as follows: – Interest on solvency deficit = $225,754,406 x 2.9% = $6.5 million – Going concern special payments of $12.5 million cover the interest on

solvency deficit so no additional contribution required – Amortization over 10 years = $26.0 million (including going concern

payments)



Appendix



Definition of Terms

Accrued liability The actuarial present value of the benefits earned by members in respect of their service prior to the valuation date. For active and disabled members, the accrued benefits reflect anticipated future salary increases. For pensioners, the accrued liability reflects the actuarial present value of future benefit payments.

Actuarial value of assets Since neither book value nor market value is necessarily an ideal measure, other methods are often used to reduce volatility in year-to-year valuation results. The method for this valuation assumes the market value of assets less a reserve equal to the gain on the real return bond sale which will be recognized over time.

Funding excess/(unfunded liability) Amount by which the actuarial value of assets exceeds/ (is less than) the accrued liability.

Funding reserve The amount by which the market value of assets exceeds/ (is less than) the actuarial value of assets.

Members’ pensionable earnings The covered earnings (see definition under “Plan Provisions”) for active and disabled members accruing service at the valuation date.



Definition of Terms (continued)

Current service cost The actuarial present value of the benefits expected to be earned by active and disabled members in respect of service during the year following the valuation date. The required member contributions are subtracted from the total current service cost to derive the University current service cost. For funding purposes, the University current service cost is expressed as a percentage of the required member contributions. This amount is also shown as a percentage of members’ pensionable earnings.

Solvency liability The actuarial present value of benefits earned for service prior to the valuation date, determined as if the Pension Plan were terminated on the valuation date. The solvency liability excludes liabilities for future escalated adjustments (indexation).

Wind up liability Equal to the solvency liability, but including liabilities for future escalated adjustments.

Transfer ratio The ratio of market value of assets to the wind up liability.



Definition of Terms (continued)

Personnel Data

Active members Members contributing to the Pension Plan as of the valuation date. Includes both full-time and part-time members and members on a paid or unpaid leave of absence who have elected to pay their required member contributions.

Disabled members Members who are certified to be totally disabled by a medical doctor and in receipt of disability income under the University’s long-term disability income plan. Such members continue to accrue benefits but do not make the required member contributions.

Pensioners and surviving beneficiaries Members who have retired as of the valuation date, or surviving beneficiaries of such members, and are in receipt of a pension from the trust fund.

Deferred vested members Members who have terminated employment as of the valuation date and who are entitled to a monthly pension commencing at normal retirement date.

Suspended members Members who have previously joined the Plan but elected to cease making further contributions to the Plan until age 35.



Legal Disclaimer

© 2017 Aon Hewitt Inc. All Rights Reserved. This document contains confidential information and trade secrets protected by copyrights owned by Aon Hewitt. The document is intended to remain strictly confidential and to be used only for your internal needs and only for the purpose for which it was initially created by Aon Hewitt. No part of this document may be disclosed to any third party or reproduced by any means without the prior written consent of Aon Hewitt.


University of Waterloo As of December 31, 2016

To protect the confidential and proprietary information included in this material, it may not be disclosed or provided to any third parties without the approval of Aon Hewitt.

Pension Risk Management Dashboard


2

About This Material This dashboard was prepared for the University of Waterloo to track changes in funded status of the Pension Plan over successive reporting periods, as well as quantify the amount of risk to which the Pension Plan is exposed. The report presents the funded status and performs the analysis on three bases: Risk-Free Benchmark Basis – This liability is calculated using best estimate assumptions for retirement, termination and other demographic experience, and a discount rate and inflation assumption determined with reference to the risk-free environment. For this report, the liability has been determined at the real return bond yield plus a 40 basis point credit spread to reflect additional yield that can be achieved with relatively little additional risk. This liability differs from the solvency calculation in that the demographic assumptions are best estimate and statutory “grow-in” provisions are not included. Going Concern Basis – This liability is calculated using the going concern assumptions at the most recent valuation. The analysis is performed using the market value of assets without regard to the Funding Reserve established in the most recent valuation. This Funding Reserve was established to reflect gains from the sale of the real return bonds. A separate line item showing the funded ratio reflecting the funding reserve is included on page 3. Solvency Basis – This liability is calculated using assumptions determined in accordance with the Canadian Institute of Actuaries Annuity Purchase guidance and Commuted Value standards in effect at each measurement date shown in this report. A summary of these assumptions is included on page 8. This dashboard also contains a reconciliation that compares the going concern liability with the liability calculated using the risk-free benchmark. The difference between the two liabilities represents the amount of return expected to be provided by taking on risk in the investment portfolio. Over successive quarters the tool helps quantify how that risk changes as the underlying interest rates change. On both bases the following information is shown: ■ Current Funded Status and Historical Asset Liability Performance

— How well funded is the plan?

— What has been the return on plan assets and liabilities?

■ Detailed Asset and Liability Performance Attribution

— What factors drove the performance of assets and liabilities over the prior period?

— What is the relative impact of these factors on the assets and liabilities in isolation and in combination?

For the Risk-Free Benchmark Basis, the following information is also shown:

■ Scenario Testing

— What risk exposures does the plan face?

— What would be the impact of a downside event for each risk factor?



3

Executive Summary – Going Concern Funded Status

Asset-Liability Return

Highlights for the Quarter-Ending 12/31/2016 The plan's funded ratio decreased to 98.0% at 12/31/2016. This result was primarily due to the combined effects of: ■ Asset performance lower than expected,

■ Contributions of $19.6 million, and

■ An increase in liabilities primarily due to interest growth.

Asset Liability Return for Quarter-Ending 12/31/2016 Assets returned 1.0% during the quarter while liabilities returned 1.4%, resulting in a funded status decrease of 0.2%.

Values in $1,000,000 (CAD)

Periodic

Return/Change

Cumulative

12 Months 3/31/16 6/30/16 9/30/16 12/31/16

g Market Value of Assets Return 7.3% 0.3% 2.2% 3.7% 1.0%

g

g Going Concern Liability:

g Return 6.4% 2.1% 1.4% 1.4% 1.4%

g Funded Ratio Change (Market) 1.5% -1.5% 0.9% 2.3% -0.2%


12/31/15 3/31/16 6/30/16 9/30/16 12/31/16

g Market Value of Assets $ 1,402.7 $ 1,409.3 $ 1,442.9 $ 1,499.0 $ 1,519.2 g Going Concern Liability 1,453.7 1,483.8 1,505.1 1,526.1 1,549.5 g Surplus/(Deficit) $ (51.0) $ (74.5) $ (62.2) $ (27.1) $ (30.3) g

g Periodic Contributions 18.7 $ 18.6 $ 19.2 $ 19.5 $ 19.6 g Effective Interest Rate 5.75% 5.70% 5.70% 5.70% 5.70% g

g Funded Ratio (Market): 96.5% 95.0% 95.9% 98.2% 98.0% Funded Ratio (Actuarial)1: 93.4% 92.0% 92.9% 95.3% 95.2%

Asset Duration 1.9 1.8 2.1 2.1 2.0

Going Concern Liability Duration 14.2 14.0 14.0 14.0 14.0

1Reflects funding reserve of $44.4 million due to sale of Real Return Bonds


4

Executive Summary – Risk-Free Benchmark Funded Status


Highlights for the Quarter-Ending 12/31/2016 The plan's funded ratio increased to 60.8% at 12/31/2016. This result was primarily due to the combined effects of: ■ Asset performance lower than expected,


■ A decrease in liabilities due to an increase in the risk-free rate offset by an increase in inflation expectations.

Asset Liability Return for Quarter-Ending 12/31/2016 Assets returned 1.0% during the quarter while liabilities returned -5.7%, resulting in a funded status increase of 3.8%.


Periodic

Return/Change

Cumulative

12 Months 3/31/16 6/30/16 9/30/16 12/31/16


g

g Risk-Free Liability: g Return 3.5% 3.3% 3.8% 2.3% -5.7%

g Funded Ratio Change 1.1% -2.0% -1.2% 0.5% 3.8%


12/31/15 3/31/16 6/30/16 9/30/16 12/31/16

g Market Value of Assets $ 1,402.7 $ 1,409.3 $ 1,442.9 $ 1,499.0 $ 1,519.2 g Risk-Free Liability 2,350.0 2,441.0 2,552.0 2,627.9 2,497.3 g Surplus/(Deficit) $ (947.3) $ (1,031.7) $ (1,109.1) $ (1,128.9) $ (978.1) g

g Periodic Contributions 18.7 $ 18.6 $ 19.2 $ 19.5 $ 19.6 g Discount Rate 1.05% 0.89% 0.70% 0.59% 0.91% g

Funded Ratio: 59.7% 57.7% 56.5% 57.0% 60.8%

Assets Duration: 1.9 1.8 2.1 2.1 2.0 Risk-Free Liability Duration: 18.7 18.6 19.0 19.1 18.6


5

Reconciliation of Risk-Free Benchmark and Going Concern Funded Status

*Going Concern The difference between the Risk-Free Liability and the Going Concern Liability is a measure of the amount of risk premium on which the Pension Plan funding is based.

Values in $1,000,000

12/31/15 3/31/16 6/30/16 9/30/16 12/31/16

g Market Value of Assets $ 1,402.7 $ 1,409.3 $ 1,442.9 $ 1,499.0 $ 1,519.2

g Going Concern Liability $ 1,453.7 $ 1,483.8 $ 1,505.1 $ 1,526.1 $ 1,549.5 g Risk Premium 896.3 957.2 1,046.9 1,101.8 947.8

Risk-Free Liability $ 2,350.0 $ 2,441.0 $ 2,552.0 $ 2,627.9 $ 2,497.3



6

Executive Summary – Solvency Funded Status


Highlights for the Quarter-Ending 12/31/2016 The plan's funded ratio increased to 86.9% at 12/31/2016. This result was primarily due to the combined effects of: ■ Asset performance lower than expected,


■ A decrease in liabilities primarily due to an increase in risk-free rates, offset by a narrowing of the annuity purchase spread.

Asset Liability Return for Quarter-Ending 12/31/2016 Assets returned 1.0% during the quarter while liabilities returned -6.4%, resulting in a funded status increase of 6.1%.


Periodic

Return/Change

Cumulative

12 Months 3/31/16 6/30/16 9/30/16 12/31/16


g

g Solvency Liability: g Return 1.0% 3.0% 2.7% 2.1% -6.4%

g Funded Ratio Change 3.9% -2.4% -0.7% 0.9% 6.1%


12/31/15 3/31/16 6/30/16 9/30/16 12/31/16

g Market Value of Assets $ 1,402.7 $ 1,409.3 $ 1,442.9 $ 1,499.0 $ 1,519.2 g Solvency Liability 1,690.0 1,749.6 1,806.9 1,855.6 1,747.7

g Surplus/(Deficit) (Before Expenses) $ (287.3) $ (340.3) $ (364.0) $ (356.6) $ (228.5)

g

g Periodic Contributions 18.7 $ 18.6 $ 19.2 $ 19.5 $ 19.6 g Effective Interest Rate 3.01% 2.86% 2.77% 2.69% 3.13%

g Funded Ratio: 83.0% 80.6% 79.9% 80.8% 86.9% Assets Duration: 1.9 1.8 2.1 2.1 2.0 G

Solvency Liability Duration: 14.4 14.7 14.9 15.0 14.4


7

Appendix



8

Actuarial Attestation This document is intended to provide to the University of Waterloo a summary of the performance of the Pension Plan as of 12/31/2016. This analysis is intended to assist University of Waterloo with a review of the associated issues and options, and its use may not be appropriate for other purposes. This analysis has been prepared solely for the benefit of University of Waterloo. Any further dissemination of this report is not allowed without the written consent of Aon Hewitt. In conducting the analysis, we have relied on plan design, demographic and financial information provided by other parties, including the plan sponsor. While we cannot verify the accuracy of all the information, the supplied information was reviewed for consistency and reasonableness. As a result of this review, we have no reason to doubt the substantial accuracy or completeness of the information and believe that it has produced appropriate results. Experience different than anticipated could have a material impact on the ultimate costs of the benefits. In addition, changes in plan provisions or applicable laws could have a substantial impact on cost. Actual experience may differ from our modeling assumptions. February 9, 2017

Actuarial Methods & Assumptions Our analysis of the estimated financial position of the Pension Plan is based on the following:

Plan Provisions & Membership Data Same as in the Actuarial Valuation Results as of January 1, 2016 presentation to the Pension and Benefits Committee Meeting dated February 26, 2016

12/31/15 3/31/16 6/30/16 9/30/16 12/31/16

Going Concern

Discount Rate 5.75% 5.70% 5.70% 5.70% 5.70% Inflation 2.00% 2.00% 2.00% 2.00% 2.00%

Risk-Free Benchmark

Discount Rate 1.05% 0.89% 0.70% 0.59% 0.91%

Solvency

Annuity Purchase Interest Rate 3.04% 2.87% 2.84% 2.76% 3.12% Effective Date of Annuity Purchase Guidance Used 12/31/15 12/31/15 6/30/16 6/30/16 12/31/161

Lump Sum Value Interest Rate (Years 1-10)2 1.90% 1.90% 1.70% 1.60% 2.30% Lump Sum Value Interest Rate (Years 10+)2 3.60% 3.40% 3.10% 3.00% 3.70% Mortality CPM2014 CPM2014 CPM2014 CPM2014 CPM2014

All other assumptions and methods are the same as those shown in the Actuarial Valuation Results as of January 1, 2016 presentation to the Pension and Benefits Committee Meeting dated February 26, 2016. For the Risk-Free Benchmark basis, all other assumptions and methods are the same as those used for Going Concern basis.

1 As of the date of issue of this report, the annuity purchase guidance effective December 31, 2016 is considered to be preliminary, pending approval from the CIA Practice Council. 2 Lump Sum Value Interest Rates are based on rates in effective on the first day of the month following quarter end (i.e. January 1st, April 1st, July 1st and October 1st).



9

Liabilities

Assets

Asset-Liability Performance Attribution – Going Concern

■ Overall, assets returned 1.0% during this quarter, as opposed to an expected growth assumption of about 1.1% per quarter.

■ The fixed income assets lost value due to an increase in the underlying risk-free rates, partially offset by shrinking credit spreads.

■ The plan's return-seeking assets were a significant contributor to the performance of the portfolio.

■ $19.6 million in contributions were made during the quarter and the trust paid $13.5 million in benefits to the participants.

■ Liabilities as of 12/31/2016 are based on a discount rate of 5.70%.

■ Liabilities were expected to grow by $21.4 million due to interest cost during the quarter.

■ New benefit accruals increased the liability by $15.7 million during the quarter.

■ Plan liabilities decreased by $13.5 million during the quarter as benefits were paid.


Funded Ratio

■ Contributions exceeded benefit accruals during the quarter, resulting in a net increase of 0.2% in the funded status.

■ Overall, assets returned 1.0% during this quarter, as opposed to an expected growth assumption of about 1.2% per quarter. As a result, there was a decrease in funded status of 0.1%.



10

Liabilities

Assets

Asset-Liability Performance Attribution – Risk-Free Benchmark






■ Risk-free rates increased, and inflation expectations increased resulting in a net decrease of $158.7 million (-$322.3 million + $163.6 million).




Funded Ratio

■ Overall, the difference in exposure to risk-free rates between assets and liabilities combined with changes in risk-free rates resulted in an increase in funded status of 6.7%.

■ Changes in inflation expectations resulted in a decrease in funded status of 4.2%.

■ Changes in credit spreads resulted in an increase in funded status of 0.2%.

■ Return-seeking assets experienced gains during the quarter in excess of expected, adding 0.5% to the plan's funded status during the period.

■ Contributions and benefit accruals during the quarter resulted in a net increase of 0.3% in the funded status.



11

Liabilities

Assets

Asset-Liability Performance Attribution – Solvency






■ Risk-free rates increased, and the annuity purchase spread narrowed, resulting in a net decrease of $130.5 million ($175.7 million - $45.2 million).




Funded Ratio

■ Overall, the difference in exposure to risk-free rates between assets and liabilities combined with changes in risk-free rates resulted in an increase in funded status of 6.7%.

■ Changes in credit spreads and the annuity purchase spread resulted in a decrease in funded status of 2.0%.

■ Return-seeking assets experienced gains during the quarter in excess of expected, adding 0.8% to the plan's funded status during the period.



12

Asset Allocation and Benchmarking

Asset Class 12/31/2016 Alternatives ■ MSCI USA REIT Index 3.0%

■ MSCI USA Infrastructure Index 6.9%

Fixed Income ■ FTSE TMX Universe Bond Index 50.6%

Equities ■ MSCI World Index 35.6%

■ S&P TSX 3.9%

Total 100.0%



13

Glossary of Terms ■ Funded Status and Asset-Liability Return

— Liability Return reflects the growth in liability due solely to interest rate movements and excludes the impact of Accruals and Benefit Payments.

■ Asset Liability Performance Attribution

— Expected Growth reflects assets growing at the expected annual return and liabilities increasing at the interest rate.

— Risk-Free Rates splits out the expected movement in assets and liabilities based on movements in federal bond yields.

— Inflation splits out the expected movement in assets and liabilities based on movements in implied inflation, determined based on real and nominal federal bond yields.

— Credit Spreads splits out the expected movements in corporate and provincial bond yields in excess of federal bond yields.

— Excess Return-Seeking Assets defines the movement in the Return-Seeking assets based on benchmark returns in excess of expectations. The expectations are defined by the long-term capital market assumptions of the plan and are reflected in "expected growth".

— Benefit Payments displays the expected decrease in assets and liabilities due to benefit payments during the period.

— Contributions/Accruals displays the expected increase in assets and liabilities due to employer contributions and new benefit accruals, respectively.

— Other includes fixed income returns due to coupons and other active management effects, from the asset perspective. From a liability perspective, this bucket includes all liability changes not explained by financial movements during the period.



Cost of Living Adjustment (COLA) Applicable Changes Effective May 1, 2017

The pension plan text defines the Cost of Living Adjustment (COLA) increase as equal to the ratio of the average of the monthly Consumer Price Indexes (CPI) for the preceding calendar year over the average of the monthly CPI for the previous calendar year, minus 1, to a maximum of 5%. The following table provides the monthly CPI figures for 2015 and 2016 as well as the average of the monthly CPI for each year:

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Avg.

2015 124.3 125.4 126.3 126.2 126.9 127.2 127.3 127.3 127.1 127.2 127.1 126.5 126.57

2016 126.8 127.1 127.9 128.3 128.8 129.1 128.9 128.7 128.8 129.1 128.6 128.4 128.38

Effective January 1, 2014, the COLA for pension benefits earned after December 31, 2013 is equal to 75% of COLA, and pension benefits earned up to December 31, 2013 attract 100% of COLA. Effective May 1, 2017, the COLA (2016 avg. CPI / 2015 avg. CPI – 1) is 1.43% at 100%, 1.07% at 75%. a. Pensioners COLA is automatically applied to monthly pensions in pay (Plan Text, Article 7) effective each May 1st. If in any year the COLA increase exceeds 5%, the Pension & Benefits Committee must decide if the adjustment will be restricted to 5% or whether the higher rate will be applied. If the increase is limited to 5% in any given year, a catch-up increase will be given on a cumulative and compounded basis in the following year or as soon as the plan resources permit, but there will be no retroactivity in any catch-up increase. The breakdown of the application of COLA to pensions in pay is noted below:

Pension Benefits Earned COLA Annual Pension Up to December 31, 2013 1.43% $54.3 million

Accrual after December 31, 2013 1.07% $0.8 million

Action Required: None

b. Deferred Pensions The COLA adjustment for deferred pensions is determined in accordance with Article 7.03(d) of the Plan Text, which requires the amount of COLA increase be determined by the Pension & Benefits Committee each year.

The full deferred pension of a member who terminated employment prior to January 1, 2008 is eligible for a COLA adjustment. For members who terminated employment on or after January 1, 2008, if as of the termination date the member is within 10 years of normal retirement date or has 20 or more years of


continuous service, the full deferred pension is eligible for a COLA adjustment. Otherwise, the pension benefit earned for service on or after January 1, 2008 is not eligible for a COLA adjustment.

As of December 31, 2016, there were 492 deferred members; the breakdown of COLA eligibility is as follows:

100% COLA on full deferred pension 249

100% COLA on pre 2008 deferred pension, no COLA on post 2007 deferred pension 122

100% COLA on pre 2013 deferred pension, 75% COLA on post 2014 deferred pension 15

75% COLA on full deferred pension 1

No COLA on full deferred pension 105

*Valuation reports 485 deferred members – HR is in the process of reconciling member data on Ariel

The value of the COLA adjustment to deferred pensions is $0.4 million. Note that this amount is already included in the going concern liability.

In November 2015, the Pension & Benefits Committee approved the following guiding principles for deciding the COLA for deferred pensions:

• All deferred pension accruals currently eligible for indexation should be treated the same with respect to indexation decisions, subject to any future plan provision changes that provide otherwise;

• If indexation is granted in a particular year, it will be at 100% of the COLA increase for pre-2014 service and 75% of COLA increase for post January 1, 2014 service;

• The post retirement COLA increase “catch up” provision for pensions in payment takes precedence over indexation of deferred members’ pensions; and

• Financial status of the plan should be considered by the Pension & Benefits Committee before deciding on deferred indexation (no specific metrics).

Action Required: Decision

c. Pensionable Earnings for LTD Benefit Recipients The pension plan provides that pensionable earnings for members on LTD be adjusted annually by an amount to be determined by the Pension Committee, taking into consideration other factors including the cost of living adjustment awarded to pensioners and the salary increases awarded to active faculty and staff, subject to the Income Tax Act limits.

As of December 31, 2016, there were 74 individuals in receipt of LTD benefit payments.


The range increase effective May 1, 2017 is 1.50% for all employee groups.

The value of the COLA adjustment to pensionable earnings is $0.2 million. Note that this amount is already included in the going concern liability.

In November 2015, the Pension & Benefits Committee approved the following guiding principles for deciding the COLA applied to salaries for pension purposes for members on LTD:

• Members on LTD are more like active members than other groups receiving COLA increases; and

• Therefore, salaries for pension purposes for members on LTD should be indexed by the lesser of 100% of COLA increase and the range increase for active employees.

Action Required: Decision

d. Maximum Insured Earnings for LTD Benefit The plan design for the long term disability benefit includes an annual indexing provision for the maximum insured earnings. The provision applies 100% of the COLA adjustment as calculated under the pension Plan Text methodology. By applying 1.43%, the maximum insured salary increases from $170,288 to $172,723.

Action Required: None


Documents

Board of Governors PENSION & BENEFITS COMMITTEE 9:30 a.m. … · 2017-03-03 · 2016 11 Mar 2016 20 May 2016 17 Jun 2016 9 Sept 2016 7 Oct 2016 11 Nov 2016 9 Dec 2016 20 Jan 2016