2013 Annual Report. September 1, 2012, to August 31, Sustainable

Transcription

1 2013 Annual Report September 1, 2012, to August 31, 2013 Sustainable Futures

2 Contents What s In It for Me? 1 Members Value of the Plan What We Do for You Life with the Plan A Profile of Plan Members Employers Value of the Plan We re Here to Help Plan Benefits and Contributions Plan Benefits and You Plan Contributions and You Average Pensions in Pay Plan Rule Updates Financial Health of the Plan 9 Report on 2013 Investment Results Investing at Home and Abroad Real Estate Holdings in Canada Investing Responsibly Global Infrastructure Investments Valuation Overview Five-year Financial Summary How the Plan is Governed 18 A Message from the Board Meet the Board of Trustees Trustee Remuneration Committees Plan Partners, Agents and Service Providers ii

3 What s In It for Me? Members Value of the Plan Members of the College Pension Plan are faculty members and senior administrators at participating British Columbia post-secondary institutions and persons providing educational services to students of these institutions. As members of the plan, employees can provide for their retirement income needs much more efficiently and effectively than they would be able to individually. Members benefit from: employer contributions; long-term investment returns; accessing large-scale, very efficient, professional investment and administration services; and the pooling of risks across a large group for example, the risk of members outliving their savings is eliminated. The plan provides retired members with peace of mind and security knowing they have a reliable income. Currently, the plan has more than 13,300 active members, 4,800 inactive members and 5,500 retired members. Inactive members are those no longer working for a plan employer but have left their pension contributions with the plan and are eligible to receive a lifetime pension when they reach retirement age. What We Do for You The College Pension Board of Trustees (board) is committed to providing comprehensive information and easy-to-use services so plan members can make informed decisions about their pensions. The College Pension Plan provides printed and online information, a personalized and general pension calculator and other online resources, plus educational seminars throughout British Columbia to meet the board s commitment. I think that you have an excellent website for things like calculating the pension estimate, it s really easy to use. feedback from a CPP member near retirement The personalized purchase cost estimator allows members to maximize the value of their future pension benefit by estimating their cost to purchase back time that they didn t contribute to their pension; for example, general leave without pay. Through the plan s administrative agent, the BC Pension Corporation, the board is proud to provide excellent customer Economic Impact of British Columbia s Public Sector Pension Plans, a study conducted by the Conference Board of Canada, shows that BC public sector pension plans are good for individual plan members, their communities and the larger BC economy. The research shows this required savings means the members of BC s public sector pension plans, like the College Pension Plan, effectively save more for retirement than the typical RRSP saver. Retired plan members increased savings and higher pensions result in higher spending in communities where they live, contributing to the local economy and employment rate. In fact, the public sector plan members spend $1.3 billion more creating an additional 8,000 jobs per year for the BC economy. Over the next 23 years, it is estimated that the higher savings rate of public sector pension plan members in BC will result in a more than $85 billion increase in the Canadian gross domestic product. 1

4 service to plan members and employers. This service includes assisting plan members in many types of transactions and answering questions via telephone, , the web and in person at the offices in Victoria. Life with the Plan Keep in touch with the plan as you move through your career and your life so you get the most from it. Read on how these two fictional plan members keep in touch with the plan. Meet Sinead. At 45 years old she is in the middle of her career. In fact, she has recently moved from a position with a provincial government to a teaching position at a plan employer. What does this career change mean to her pension? The College Pension Plan has transfer agreements with a number of pension plans across Canada including the other BC public sector pension plans. Sinead may be able to enhance her pension benefit by transferring her pensionable and contributory service from her previous pension plan to the College Pension Plan. Before Sinead makes a decision on transferring service, she should: Apply to the College Pension Plan for a transfer estimate to find out how much service the plan will recognize from her former plan. Contact her former pension plan to see what pension options are available to her from that plan. For more detailed information, Sinead can read the PensionFacts: Transferring service, or contact the College Pension Plan. Meet Andrew. He is 60 years old and getting ready to retire. How can the plan assist Andrew as he goes through this major life change? As a retiring member Andrew has a number of pension options to consider. These are detailed in the Choosing Your Best Pension Option booklet. For Andrew, the Near Retirement section of the College Pension Plan s website will be very helpful. The website has information on the Thinking About Retiring seminar; it s a great way for Andrew to learn about his pension options. Online, Andrew can also look at the Retirement Planning Package, which includes a pension Estimate Request form he can complete with an expected retirement date and send to the plan for a personalized pension estimate. Andrew can also contact the College Pension Plan by phone or to ask personal questions about his pension options. A Profile of Plan Members The plan has three types of members: 1. Active members are those employed with a plan employer and are currently contributing, on an approved leave of absence or receiving benefits from an approved group disability plan. 2. Inactive members are those no longer working for a plan employer but have left their contributions (or accrued benefit) in the plan. 3. Retired members are those receiving a pension; this group also includes those receiving a disability pension and beneficiaries or survivors receiving a pension after the death of a plan member. Member profile as at August 31, ,385 Active Members + 4, ,571 = Inactive Members Retired Members 23,762 2

5 This means there is a smaller proportion of active members contributing to the plan and more retired members drawing pensions. This information helps the board understand the risk profile of the plan. Age and gender demographics of the plan s active members are also a key element of the actuarial valuation. As the average age of members increases, more members approach retirement and start to draw their pensions. The actuary has already considered these age profiles when assessing the plan. The gender profile of members is important because the average female has a longer life expectancy than the average male and will therefore likely draw their pension for a longer period. The actuary factors this information in when preparing a valuation. Age profile of active members as at August 31, 2013 Gender profile of active members as at August 31, <65 years 11% 65 years 4% 55<60 years 18% <40 years 19% Female 56% Male 44% 40<45 years 14% 50<55 years 18% 45<50 years 16% Growth in membership as at August 31, ,000 12,000 Active Members 13,385 10,000 8,000 6,000 4,000 Retired Members 5,571 2,

6 Ratio of active to retired members as at August 31 Active Retired The first retiree 1 starts receiving a pension Employers Value of the Plan For employers, the plan is a valued employee benefit that assists recruitment and retention. By participating in the plan, employers can provide a valuable pension benefit: at a lower cost; with less risk exposure; with less administrative burden; with less need for pension expertise; and with less distraction from their core mission, than if they were to provide their own single-employer pension plans. This valued benefit becomes a cost-effective component of the total compensation package that they provide to their employees. We re Here to Help Meet Renee. Renee is a new payroll manager at a post-secondary institution in BC that has participated in the College Pension Plan for 20 years. As a payroll manager, she is both a plan member and plan employer. How does the plan help Renee as an employer during her first year? The plan has a searchable employer instruction manual Employer training workshops are available across the province each year The plan has a calendar of employer responsibilities in the Payroll Reporting Refresher Employer Workshop handbook The plan s secure employer section has training videos, a message board and secure file submission The plan also has a monthly HTML Employer Newsletter available on the employer section of the plan website Employer Services staff are ready to answer questions and provide help 4

7 Participating employers as at August 31, 2013 Employer Name Effective Date Web Site British Columbia Institute of Technology (Burnaby) Jan 12, Camosun College (Victoria) June 1, Capilano University (North Vancouver) Sept 1, College of New Caledonia (Prince George) Sept 1, College of the Rockies (Cranbrook) May 8, Douglas College (New Westminster) April 1, Emily Carr University of Art and Design (Vancouver) Jan 19, Justice Institute of BC (New Westminster) April 27, Knowledge Network Corporation (Burnaby) June 1, Kwantlen Polytechnic University (Surrey) July 1, Langara College (Vancouver) April 1, Lester B. Pearson College of the Pacific (Victoria) Jan 31, Nicola Valley Institute of Technology (Merritt) Sept 1, North Island College (Courtenay) Aug 1, Northern Lights College (Dawson Creek) Sept 1, Northwest Community College (Terrace) Sept 1, Okanagan College (Kelowna) Sept 1, Royal Roads University (Victoria) Jan 1, Selkirk College (Castlegar) Sept 1, Thompson Rivers University (Kamloops) Nov 1, University of the Fraser Valley (Abbotsford) Nov 1, Vancouver Community College (Vancouver) Sept 1, Vancouver Island University (Nanaimo) Jan 1, Plan Benefits and Contributions Plan Benefits and You The plan benefits are defined by the pension plan rules. The following points are an overview. Further details of these benefits are available on the plan website. The College Pension Plan provides a lifetime pension benefit based on salary and years of service. If a member retires before age 65, their pension from the College Pension Plan includes a temporary payment called the bridge benefit paid from the member s retirement date until the earlier of age 65 or their death. Retired members of the College Pension Plan may receive an annual cost-of-living adjustment (COLA) from the inflation adjustment account. Future increases are not guaranteed; however, once granted, COLA becomes part of the members lifetime pension. On January 1, 2013, retired members received a COLA of 1.80 per cent. The COLA cannot exceed the change in the Consumer Price Index; further, it cannot exceed the inflation adjustment cap currently 1.83 per cent set every three years after each valuation. The College Pension Plan has agreements with many other public sector pension plans that allow plan members to transfer pension rights from one plan to another. Members may be able to increase their future pension benefits by purchasing past service. Deadlines apply. 5

8 Plan Contributions and You Both plan members and employers pay contributions to fund future pension benefits; plan members contribute through automatic deductions from their employment earnings. A portion of these contributions goes to the basic account covering members basic pensions, while another portion of contributions goes to the inflation adjustment account, which covers cost-of-living adjustments. Cost-of-living adjustments are not guaranteed but once an adjustment is granted it becomes part of the members basic pensions. With assets of more than $3 billion, the plan is Contribution rates by percentage a retirement savings vehicle for more than 23,000 plan members. When a member retires, their pensions are funded by contributions from members and employers along with investment returns. Approximately 30 cents of every dollar a retired member receives will come from contributions they and their employer made; the remaining 70 cents will come from investment returns. Member Employer Rates effective Rates effective September 1, 2010 (%) September 1, 2010 (%) Average Pensions in Pay The average pensions of retired members, also called average pension in pay, in the College Pension Plan is $21,125 as at August 31, This figure is based on all the pensions in pay to retired members and their beneficiaries as at August 31, The average pension in pay includes the lifetime pension plus any bridge benefits and temporary annuities (TAs) that are in pay; it also includes any cost-of-living adjustments granted in prior years. The average pension in pay amount is lower than the new average pension amount because most new pensions include the bridge benefit, and some also include a TA. Both the bridge benefit and TA are paid from the member s retirement date until the earlier of age 65 or their death. Profile of pensions for the years year ended August 31 Salary up to YMPE* Salary over YMPE* * The YMPE is the year s maximum pensionable earnings for the Canada Pension Plan. The YMPE for 2013 is $51,100. Basic Inflation New Pensions In Force Pensions Supplements Total Pensions Pensions Ended at End of Paid Paid Paid During Year During Year Year ($ Millions) ($ Millions) ($ Millions) ,571 $ 98.0 $ 13.9 $ , , , , This table shows the five-year trend for the number and value of pensions in pay during the year. The number of pensions in force has increased by 33 per cent since

9 New pensions by type for the years year ended August 31 Limited Long Term Regular Member * Survivor Disability Deferred Total * Prior to 2012 new limited member pensions were included with new regular pensions. This table shows the five-year trend for the number of total new pensions by type. New pension recipient profile year ended August 31, 2013 Average Median Average Average Median Lifetime Lifetime Years of Number of Annual Annual New Annual New Annual Annual Service* New Pensions Salary Base Pension* Pension** Pension* Pension** Age at Retirement < Total < 10 years $ 74,000 $ 6,341 $ 4,892 $ 5,008 $ 4, < ,000 18,344 18,285 15,789 16, < ,000 24,850 24,949 22,520 22, < ,000 32,698 33,851 30,068 31, < ,000 41,738 40,401 38,180 37, < ,000 50,069 49,768 45,470 45, years ,000 63,166 58,839 59,852 56,438 Total n/a n/a n/a Average $ 81,000 $ 23,985 $ 20,911 $ 21,579 $ 19,282 Average Years of Service Average Age at Retirement 62 * Total new pensions divided by total new pension recipients. ** Half of the new pensions are less than this amount and half of the new pensions are greater than this amount. A lifetime annual pension is the portion of an annual pension a recipient is guaranteed to receive until s/he or his/her beneficiary dies. Some recipients may also receive a bridge benefits until age 65 or a temporary annuity. This table gives a demographic breakdown of all new pensions and, when compared to prior years, helps to identify retirement trends in the plan s membership. 7

10 Plan Rule Updates Employer withdrawal procedures amended Amendment 1 to College Pension Plan Rules, effective September 1, 2013 This amendment sets out the terms and conditions for an employer to withdraw from the plan. It details the steps the employer must take to communicate with plan members, the employer s financial responsibilities and the way the assets and liabilities will be handled. What this change means to you For members, there is no impact due to this change. This amendment standardizes the procedures in the event an employer wishes to withdraw from the plan. Currently, no employers are seeking to withdraw from the plan, and none are anticipated. Contribution rate increase for members and employers Amendment 2 to College Pension Plan Rules, effective September 1, 2013 Contribution rates for members and employers each increased by 0.66 per cent of salary. The board raised contribution rates following an independent actuarial valuation of the plan as at August 31, The valuation showed that the plan s basic account the account from which lifetime pensions are paid had actuarial assets of $3.514 billion and actuarial liabilities of $3.619 billion, meaning it was 97.1 per cent funded. The Joint Trust Agreement requires the board to increase contribution rates to eliminate an unfunded liability in the basic account. The plan remains financially strong, and a contribution rate increase is just one of the many steps the board takes to ensure the plan remains fiscally sustainable and the pension promise stays secure for all members. What this change means for you Starting September 1, 2013, contribution rates increased for you and your employer. The increase is modest due to strong plan governance and solid investment returns since 2010, which reflect positively on the plan s long-term, diversified investment strategy. 8

11 Financial Health of the Plan Report on 2013 Investment Results The College Pension Plan s (plan) investment portfolio earned 10.3 per cent net of fees for the fiscal year 2012/13, exceeding the market benchmark of 9.2 per cent. The market value of the investments increased from $2.9 billion to $3.2 billion. The plan s healthy investment results were achieved during a time of uneven recovery in the global economy. The response by central banks around the world to stimulate economic growth and stabilize financial markets contributed to the strong stock market returns experienced in the latter part of 2012 and early Total equity return for the fiscal year was significantly higher than As 2013 progressed, concern that the U.S. Central Bank would reduce their economic stimulation actions had a negative effect on the fixed income returns which ended the fiscal year at -1.7 per cent. The best performing fixed income category was mortgages, with a positive return of 4.3 per cent. Within the equity portfolio, a large allocation to global equities was a notable bright spot with a strong return of 25.3 per cent. The Canadian equity market rose 10.5 per cent due in part to economic ties to the U.S. and better U.S. economic prospects. Valuations within the domestic real estate program continue to be strong, albeit not at the levels seen during the two prior years. Return for domestic real estate was 8.8 per cent. An important component of investment management is managing investment costs. British Columbia Investment Management Corporation s (bcimc) fees continue to be significantly lower than those of other investment managers. This is because bcimc operates on a cost recovery, not-for-profit basis and its large asset size provides access to substantial economies of scale. By carefully managing the plan s investment management expenses, a greater proportion of investment return will pass through to the plan, contributing to its long-term sustainability. Looking Ahead: Investment Market Outlook for 2014 The increased economic and financial stability during 2013 resulted in substantial gains across global stock markets. Economic growth is expected to continue into 2014 but risks remain: the direction of U.S. fiscal policy remains uncertain growth in China has moderated while growth in Europe overall has turned positive, southern European countries in particular continue to struggle with high unemployment and high levels of sovereign debt Despite ongoing volatility in the capital markets, bcimc and the board will maintain a long-term perspective, holding a well-diversified portfolio and following a disciplined approach to managing the plan s investments. 9

12 Asset mix and performance as at August 31, 2013 Target Asset Actual Asset Approved Mix Market Mix Market Rate of Performance Range (%) Value (%) Value (%) Return (%) Benchmark (%)* Short-Term Mortgages Nominal Bonds (1.2) (1.1) Real Return Bonds (10.8) (10.5) Total Fixed Income (1.7) (1.9) Canadian Equities Global Equities Emerging Markets Total Public Equity Total Real Estate Private Placements** Strategic Investments and Infrastructure (SIIF)** Total Private Placements and SIIF Total Portfolio * Benchmarks are objective standards approved by the board to evaluate actual investment returns. ** The illiquid assets are only valued once a year as of December 31. The rates of return for private placements and strategic investments reflect the December 31, 2012, internal rates of return which is the industry standard for calculating returns for illiquid assets. This table is important because it shows how the plan directs its assets to be allocated. It also shows the trustees are maintaining a healthy asset mix. Five-year annualized rates of return year ended August % 6.0% 5.0% 5.4% 4.9% 4.0% 3.0% 2.0% 1.0% Five-Year Annualized Rates Benchmark 0.0%

13 Top ten holdings as at August 31, 2013 Top ten canadian equities Market Value Per Cent of Total Company ($ Thousands) Canadian Equity Royal Bank of Canada $ 28, Toronto-Dominion Bank 26, Bank of Nova Scotia 21, Suncor Energy Incorporated 17, Canadian National Railway Company 13, Bank of Montreal 13, Enbridge Incorporated 11, Canadian Natural Resources Limited 10, Valeant Pharmaceuticals International 10, Manulife Financial Corporation 10, Total Top 10 $ 163, Total Canadian Equity $ 485,749 Top ten global equities Market Value Per Cent of Total Company ($ Thousands) Global Equity Google Incorporated $ 9, Apple Incorporated 9, Chinese State-Controlled Companies* 9, Exxon Mobil Corporation 8, Roche Holding AG 7, Johnson & Johnson 7, Microsoft Corporation 6, Procter & Gamble Company 6, Nestle SA 6, HSBC Holdings Plc 5, Total Top 10 $ 75, Total Global Equity $ 903,232 Top ten emerging markets equities Market Value Per Cent of Total Company ($ Thousands) Emerging Markets Equity Chinese State-Controlled Companies* $ 20, British American Tobacco Plc 6, Samsung Electronics Company Limited 6, Housing Development Finance Corporation Ltd. 6, Taiwan Semiconductor Manufacturing 5, SAB Miller Plc 4, Anheuser-Busch InBev SA 4, ITC Limited 4, HDFC Bank Limited 4, Fomento Economico Mexicano SAB de CV 4, Total Top 10 $ 68, Total Emerging Markets Equity $ 278,201 * Company exposures are based on the ultimate parent company exposure regardless of where the security is listed or traded. As a result, the above exposure report shows Chinese State Controlled Companies as one of the top exposures because the ultimate parent company for many companies in China, is the Chinese government. The advantage of this change is that the exposure report will aggregate the concentration risk more accurately. 11

14 Investment performance year ended August 31 This table presents the financial returns for the plan achieved in 2012/13 (and the annualized five- and ten-year periods) compared with benchmarks and prior-year returns. The plan s annual investment rates of return have exceeded performance benchmarks for four consecutive years as at August 31, Rate of Performance Return (%) Benchmark* (%) Annual Rates (4.9) (2.3) Five-Year Annualized Rates Ten-Year Annualized Rates Annual Rates by Investment Category Short-Term** DEX T-Bill 91 day Money Market DEX T-Bill 91 day Bonds DEX ShortTerm Government Bond Index Nominal Bonds (1.2) (1.1) DEX Universe Bond Index Canadian Bonds Universe (1.2) (1.1) DEX Universe Bond Index Global Government Bonds (1.1) 0.6 JP Morgan Government Bond Index (GBI) / Global (hedged CAD) Real Return Bonds (10.8) (10.5) DEX Real Return Bond Overall Index Mortgages Fixed-Term DEX ST Bonds + 1% Construction DEX 1 Year T-Bills + 1% Mezzanine DEX 1 Year T-Bills + 2.5% Canadian Equities S&P/TSX Equity Active S&P/TSX Capped Equity Indexed S&P/TSX Equity Enhanced S&P/TSX Capped Equity Small Cap S&P/TSX Small Cap Equity Global Equities MSCI World ex-canada Net Index Indexed Global MSCI World ex-canada Net Index Enhanced Global MSCI World ex-canada Net Index Active Global MSCI World ex-canada Net Index U.S. Active Russell 1000 U.S. Indexed S&P 500 Total Return Index U.S. Indexed Social MSCI KLD 400 Social Index U.S. Small Cap Russell 2000 U.S. Enhanced Russell 1000/S&P 500 Europe Indexed MSCI Europe Net Index Europe Active MSCI Europe Net Index Asian Active MSCI AC Asia Pacific ex-japan Net Index Asian Indexed MSCI Pacific Net Index Emerging Markets MSCI Emerging Markets Net Index Real Estate CPI + 4% * Benchmarks are standards to compare against actual investment returns. ** Bonds and money market investments with less than 5 years to maturity. The Basic and Inflation Adjustment investment portfolios were merged into one portfolio as at January 1, Returns prior to this date refer to the Basic Account only and returns after January 1, 2010 refer to the combined portfolio. Performance Benchmark Indices Abbreviations CPI = Consumer Price Index DEX = PC Bond Domestic Index KLD = KLD Research and Analytics Inc. MSCI = Morgan Stanley Capital International S&P = Standard & Poor s S&P/TSX = Standard & Poor s/toronto Stock Exchange Equity or Capped Equity (Source of annual rates: British Columbia Investment Management Corporation) 12

15 Investment portfolio as at August 31, 2013 Market Value Asset Mix ($ Thousands) Market Value (%) Short-term Money Market $ 26, Bonds (1-5 years) 50, , Bonds Universe 402, Global Government 25, Real Return Bonds 117, , Mortgages 117, Canadian Equities* Indexed 247, Actively Managed 237, , Global Equities Global 202, U.S. Indexed 184, U.S. Actively Managed 157, Europe 162, Thematic 29, Asian 165, , Emerging Markets Equities 278, Real Estate * 501, Private Placements and Strategic Investments and Infrastructure Private Placements* 149, Strategic Investments and Infrastructure* 167, , Total Investments $ 3,226, Comparison $ 2,921,154 * Asset classifications vary from the financial statements for the purpose of performance reporting on Strategic Investments and Infrastructure This table shows the diversity of investment holdings of the plan. It means we don t put all our eggs in one basket; we diversify our assets to reduce risk. 13

16 Investing at Home and Abroad Real Estate Holdings in Canada Real estate investments have contributed to the plan s portfolio since Real estate is an attractive investment for pension plans since it provides a steady income stream with opportunities for long-term growth through capital appreciation. bcimc s real estate program includes ownership, operation and development of direct real estate assets. The plan s portfolio includes real estate across Canada, with some examples listed below: Vancouver 745 Thurlow Street A 23-storey office tower is under construction in downtown Vancouver. Located in the city s financial district, it is designed to a Leadership in Energy and Environmental Design (LEED) green-building rating system (for assessment of sustainable design) Core and Shell Gold standard and is scheduled for completion in Toronto A new development site is located in the up-and-coming Southcore neighbourhood, close to Toronto s financial district. This site consists of three buildings: 120 Bremner Blvd Under construction, this 30-storey office tower is expected to be completed in bcimc is targeting a LEED Gold certification. PWC Tower This is a 26-storey office tower completed in January The lead tenant is PricewaterhouseCoopers, the world s largest professional services firm. The building is targeted to receive LEED Gold certification. 75 Lower Simcoe Street Expected to be completed in 2014; this four-star Delta flagship hotel will have 567 rooms. It has been designed with the latest in sustainable features including heat-recovery ventilation, low-flow fixtures, smart card-controlled room lighting, green roofs throughout the building and an urban forest which will create a unique green space with forested walkways and gardens. Investing Responsibly In the area of responsible investing, the board s investment agent, British Columbia Investment Management Corporation (bcimc), is proactive in engaging companies to implement good governance practices and operate in an environmentally and socially responsible way. This philosophy is based on the belief that investing in well-governed companies that are responsive to environmental and social issues will positively affect long-term investment performance, and mitigate risk, for the plan. bcimc also implements responsible investing through collaboration with other large investors and organizations. For example, bcimc is a member of the Canadian Coalition for Good Governance, the Carbon Disclosure Project, Principles for Responsible Investment, and the Investor Network on Climate Change. bcimc s real estate investment program has been incorporating Responsible Property Investing (RPI) initiatives since its inception in 1991; in 2006 these initiatives were formalized in a strategic plan. The environmental certifications achieved address energy efficiency, water consumption reduction, waste diversion, green space, air quality and alternative transportation. Plan members can learn more about bcimc s responsible investment activities by reviewing bcimc s website. 14

17 Global Infrastructure Investments Another important asset class for the plan is infrastructure, which includes roads, utilities and water. These investments have characteristics similar to those of real estate, providing a steady income stream with opportunity for long-term capital growth through appreciation. Brazil Company: OHL Brasil Infrastructure Investment: Toll-Road Operations The plan is invested in Brazil s largest toll-road operator, OHL Brasil, in partnership with a large Spanish toll-road operator and other investors. As a company, OHL Brasil operates across the southern region of Brazil. It has a long and successful history operating highways and managing capital projects in the region, making it a high-quality infrastructure operator in one of the world s fastest growing economies. As Brazil s economy continues to expand, the demand for vehicles and paved roads is expected to increase. OHL Brasil is well positioned to take advantage of this large growth opportunity, and bring stateof-the-art European standards in highway construction, operation and maintenance to this region. This investment allows the plan to gain more exposure to fast-growing markets through investments in core infrastructure assets that provide the plan with stable and growing dividends for up to 25 years. Germany Company: Open Grid Europe Infrastructure Investment: Gas Transmission The plan, along with other investors, is invested in Open Grid Europe, a gas transmission company in Germany. Open Grid Europe is the owner and operator of the longest regulated supra-regional gas transmission network in Germany, with approximately 12,000 kilometres of gas pipeline and 27 compressor stations. Open Grid Europe transports almost 62.5 billion cubic metres of natural gas annually approximately 70 per cent of Germany s total national shipping volume and serves 450 national and international customers. Open Grid Europe s pipeline network spans the entire country and is a key hub for pan-european gas flows, as well as domestic transmission for natural gas shipments from Russia and Norway. Open Grid Europe represents the ultimate core strategic infrastructure asset, not just in Germany but for the broader European economy. Germany is Europe s largest and strongest economy with a well-developed, reliable regulatory framework. 15

18 Valuation Overview An actuarial valuation is an in-depth analysis of the financial condition of a pension plan. One of the outcomes of the valuation is a statistic known as the funding ratio. To determine the funding ratio, an actuary calculates the liabilities of the plan (i.e., the costs of paying the present and future pension benefits when they come due) and compares them to the plan s current assets (i.e., the present assets plus future contributions). If the liabilities exceed the assets, then the plan has a deficit; if the assets are greater than the liabilities, then the plan has a surplus. A valuation does two things: it determines the funded position of the pension plan and determines the level of contributions that, together with the existing assets, will be sufficient to pay the pension benefits as they come due. Contribution rates are adjusted periodically to ensure the plan remains financially healthy. The August 31, 2012, valuation report showed the following results (compared with the 2009 results): Valuation Results as at August 31, ($ millions) ($ millions) Basic benefits only: Assets $3,514 $3,082 Liabilities 3,619 3,110 Unfunded liability $105 $28 The graph below demonstrates how the College Pension Plan s prudent and long-term approach to investing has affected its actuarial funding ratio through this period of economic volatility. The College Pension Plan s actuarial funding ratios over the past decade have been: Actuarial funding ratio as at August 31, % 99.1% 97.8% 97.4%

19 Five-Year Financial Summary The table below shows how much money the plan has available for providing pension benefits and compares that number to previous years. This year-to-year summary provides a snapshot of the bigger picture. The trustees goal is to increase the funds available for pensions over the long term and achieve consistent, reliable performance. Five-year financial summary ($ thousands) year ended August Increase (Decrease) in Assets Investment Income (Loss) $ 311,410 $ 203,869 $ 208,727 $ 153,184 $ (118,166) Contributions Employers 64,784 63,732 62,554 58,968 54,291 Members 64,631 63,382 61,410 58,529 54,264 Transfers from Other Plans 6,683 6,627 6,798 5,463 5,079 Total Increase (Decrease) in Assets 447, , , ,144 (4,532) Decrease in Assets Pension Benefits 111, ,997 93,721 85,824 78,465 Termination Benefits 17,969 15,009 11,065 8,396 10,235 Transfers to Other Plans 2,185 1,494 1,498 2,598 1,276 Retired Member Group Benefits 6,823 Investment and Administration Costs* 9,428 7,966 6,594 6,152 5,558 Total Decrease in Assets 141, , , , ,357 Increase (Decrease) in Net Assets 306, , , ,174 (106,889) Net Assets Available for Benefits at Beginning of Year 2,922,998 2,711,854 2,485,243 2,312,069 2,418,958 Net Assets Available for Benefits at End of Year $3,229,024 $2,922,998 $2,711,854 $2,485,243 $2,312,069 Investment and Administration Costs* As a Percentage of Net Assets Investment Management Direct Costs 0.19% 0.16% 0.15% 0.14% 0.13% Indirect Costs* 0.05% 0.07% 0.04% 0.03% 0.05% 0.24% 0.23% 0.19% 0.17% 0.18% Benefits Administration 0.11% 0.11% 0.10% 0.11% 0.11% * External investment management costs incurred in the investment pooled funds by wholly owned corporations of $1.8 million (2012 $2.1 million; 2011 $1.1 million; 2010 $0.9 million; 2009 $1.1 million) reduce investment income and are not included in investment and administration costs. They are included in investment management costs as a percentage of net assets. 17

20 How the Plan is Governed 45 Years of Value A Message from the Board The College Pension Plan (plan) turned 45 in Established in 1968, with five employers and 302 active members, the plan has grown extensively over the intervening decades and now has 23 employers and more than 13,300 active members. As the plan has grown, so has the diversity and needs of its members, says Dominique Roelants, chair of the College Pension Board of Trustees. Our board of trustees is also diverse; we use our personal and professional experience with pension plans to consider all plan members when making decisions so that the decisions are fair. As trustees we also understand the importance and benefit of the plan at different stages in our lives and careers, and we want to share that knowledge with the rest of the plan s members. We also want to stress the sustainability of the plan, its value as a model of a successful pension plan, and the importance of access to adequate and efficient pension coverage for all Canadian workers. The College Pension Plan is governed by a joint trust agreement. Trustees are appointed by the four plan partners: BC Government and Service Employees Union, the Federation of Post-Secondary Educators of BC, the Post-Secondary Employers Association and the provincial government. The average board tenure of a plan trustee is more than seven years. As a new trustee, Cameron McRobb knows his appointment influenced his interest and resulting knowledge about his membership in the plan. Many members early in their career aren t sure of the plan s value or the benefits of participating, says Cameron. In my role as a trustee, I now know that taking the time to learn about my pension as a member is easy to do and important for my future. On the plan website is a section dedicated to new members. It features general information about the plan, useful publications on the benefits of the plan for members at different stages in their lives and careers, and access to My Account a personalized tool for members to estimate their future pension amounts and other important information. With 30 years of training and experience in management, finance and investing, it is important to trustee and member Cindy Turner that she understands the plan on both a professional and personal level. People talk to me about pensions, and I had a lot of questions myself. I want to be able to explain to others about the plan and the investments. I believe strongly in the plan, I m comfortable saying it s a good plan. For Cindy and to other members in the later years of their career, understanding the full financial impact of their pension on retirement becomes more and more important as it is a key part of their retirement income security. For members starting to think about retirement, the plan offers many resources to help make important decisions about retirement in a dedicated section on the plan website. Resources include the Retirement Planning Package and Estimate Request, Choosing Your Best Pension Option booklet, and retirement seminars. 18

21 Trustee Danny Bradford is a retired member of the plan; he knows the plan s continued good governance ensures the plan is secure and is able to deliver a basic pension benefit for his lifetime as evidenced by his monthly pension cheque. Retired members, like myself, like to be updated about the plan s financial status, cost-of-living adjustments and retired member benefit opportunities like extended health care and dental coverage, says Danny. Resources like the twice-yearly After Work newsletter sent out by the plan help members stay informed. As trustees, our primary goal is to ensure the basic pension benefit will be there for members when they retire. We must be fair and consider all plan members in all stages of their careers and lives in our decision making. To assist us with our decision making, an actuary conducts an actuarial valuation every three years to assess the plan s financial condition. Our latest valuation showed that the plan s actuarial funding ratio was 97.1 per cent as at August 31, 2012, in spite of very poor market performance in the period. The actuarial funding ratio expresses the funded position of the plan and helps to determine the level of contributions that, together with existing assets, will be sufficient to pay the pension benefits as they come due. An actuarial funding ratio of 97.1 per cent is positive news for the plan. The plan trustees and partners have guided the plan to successfully meet the diverse needs of the plan s members for 45 years, says Dominique. We will continue to work so the plan remains valuable and sustainable for members for the next 45 years and into the future. Highlights from 45 Years 1968: The plan comes into being with 302 active members and five employers. 1971: Total plan assets top $1 million. 1975: First ad hoc cost-of-living supplementary allowances (cost-of-living adjustments) paid. 1981: The inflation adjustment account is created. 1982: First cost-of-living adjustments from the inflation adjustment account paid to retired members. 1994: Improved governance: College Pension Advisory Board established to recommend changes in benefits, funding policy, contribution rates and more to government. 1999: Total plan assets reach $1 billion. 2000: Jointly trusteed board is formed. 2002: Launch of online purchase-of-service cost estimator. The estimator, an early step in providing online services, helps active members decide whether to purchase service. 2006: The plan launches My Account, giving active members online access to their service summary. More My Account features added over time. 2006: Total plan assets reach $2 billion. 2010: Cost-of-living adjustments capped to ensure they are sustainable for current and future retired members. 2013: Total plan assets reach $3 billion. 19

22 Meet the Board of Trustees The College Pension Plan s governance is through a joint trust agreement. Plan partners of the Joint Trust Agreement appoint the trustees. Trustee responsibilities include the management of the College Pension Plan and investment of the assets of the pension fund. Dominique Roelants, Chair Dominique Roelants was appointed to the College Pension Board of Trustees in 2001 by the Federation of Post-Secondary Educators of BC. He has served on many board committees and interplan committees. His experience in economic modelling is a valuable addition to the board. Dominique joined Vancouver Island University (then Malaspina College) in Nanaimo in 1983 as a computer science professor. He holds a bachelor s degree in math and computing science, and a master s degree and a PhD in computer science. In 2004, he earned a bachelor of laws and became a lawyer in He has also completed the Advanced Trustee Management Standards Program. He began sitting on the Pension Advisory Committee of the Federation of Post-Secondary Educators of BC in 1998 and still attends as a non-voting member. He served as second vice-president of the federation from May 2005 to May 2009; he is currently first vice-president. Dominique has also been a member of the board of directors of Island Savings Credit Union since Geraldine Hutchings, Vice Chair Geraldine Hutchings was appointed to the College Pension Board of Trustees in March 2012 by the provincial government. She is a member of the board s Benefits Committee and the Interplan Trustee Education Committee. Geraldine is a lawyer with the British Columbia Ministry of Justice and has practiced law since She has a bachelor s degree in psychology and a bachelor of law from the University of Victoria. Geraldine has also completed the Advanced Trustee Management Standards Program. Prior to her appointment to the board, Geraldine was an executive of the Yukon Law Society, member and chair of the Yukon Human Rights Commission, a member and chair of the Yukon Mental Health Review Board and worked as an adjudicator under the Canada Labour Code. Danny Bradford Danny Bradford was appointed to the College Pension Board of Trustees in 2000 by the BC Government and Service Employees Union (BCGEU). He sits on the College Pension Plan s Benefits and Communications committees and has also served on the Interplan Benefits Committee. Danny is a seasoned trustee with an extensive background in pension management. He has completed the Advanced Trustee Management Standards Program and also serves on the board of directors of the Canadian Apprenticeship Forum and on the executive of the College chapter of the British Columbia Retired Teachers Association. Danny was a vice-president of the BCGEU and a provincial executive member for many years and served as vice-chair of the BCGEU Finance Committee. Danny has also served on the BC Pension Corporation Board of Directors, the Centre for Curriculum, Transfer & Technology and the Industry Trades and Apprenticeship Commission of British Columbia. Danny is a millwright-trades qualified Red Seal tradesperson, and retired from his position as school chair of Selkirk College s School of Industry & Trades Training in April He holds an Instructor Diploma from the University of British Columbia. 20

23 Weldon Cowan Weldon Cowan was appointed to the College Pension Board of Trustees in September 2005 by the Federation of Post-Secondary Educators (FPSE) of BC. He is the chair of the Interplan Trustee Education Committee and chair of the BC Pension Corporation Board of Directors. Weldon has completed the Advanced Trustee Management Standards Program. He also holds the ICD.D designation from the Institute of Corporate Directors. Weldon holds a bachelor of science with a specialization in chemistry from Concordia University and a diploma in education from McGill. He taught French Immersion Science for over 15 years at the secondary level before joining the FPSE. Carl Fischer Carl Fischer was appointed to the College Pension Board of Trustees in 2007 by the provincial government. He is a member of the Benefits Committee and the Interplan Investment Committee. Carl is a certified general accountant and works as executive director of Financial Reporting and Advisory Services for the Ministry of Finance. He also sits on the BC Pension Corporation Board of Directors and BC Pension Corporation Audit Committee. Michael Lancaster Michael Lancaster was appointed to the College Pension Board of Trustees in August 2007 by the provincial government. He chairs the Communications Committee and is a member of the Benefits Committee. Michael is a senior labour relations specialist with the BC Public Service Agency, a government agency responsible for labour relations and human resources for approximately 27,000 public service employees in ministries and agencies that provide services to the people of British Columbia. He holds a master s degree in political science, is a certified employee benefits specialist and a certified human resources professional. Karen Maynes Karen Maynes was appointed to the College Pension Board of Trustees in 2005 by the provincial government. She brings to the board extensive experience in the post-secondary education sector. After articling with Klynveld Peat Marwick Goerdeler (KPMG), Karen received her chartered accountant designation in 1987 and joined Douglas College as director of finance. She became vice-president, finance and administration at the college in Karen is the past chair of the provincial Senior Finance and Administration Officers Committee, and she sits as a post-secondary sector representative on the Institute of Chartered Accountants of BC Government Organizations Accounting & Auditing Forum. She has also served on numerous Douglas College and provincial committees dealing with issues such as technology planning, faculty negotiations and data definitions and standards. Cameron McRobb Cameron McRobb was appointed to the College Pension Board of Trustees in January 2012 by the British Columbia Government and Service Employees Union. He has eight years experience as a bargaining-unit chair. He is a member of the Interplan Investment Committee, Benefits Committee and Interplan Website Committee. Cameron is the chair of the Motor Vehicle Trades Program at Okanagan College in Kelowna. 21