Toronto Civic Employees' Pension Plan Actuarial Valuation Report as at December 31, Government Management Committee

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1 GM12.12 STAFF REPORT ACTION REQUIRED Toronto Civic Employees' Pension Plan Actuarial Valuation Report as at December 31, 2015 Date: April 20, 2016 To: From: Wards: Reference Number: Government Management Committee Treasurer All P:\2016\Internal Services\ppeb\gm16005ppeb (AFS22006) SUMMARY This report submits, for the Committee's information, the Actuarial Valuation Report as at December 31, 2015 on the Toronto Civic Employees' Pension Plan (the Plan), which is financed by The Toronto Civic Employees' Pension and Benefit Fund (the Fund) and provides information on an automatic cost-of-living increase of 1.12% to pensioners effective January 1, 2016, provided in accordance with By-law No governing the Plan and the Fund. The 2015 Valuation Report sets forth the financial position of the Fund for the year ended December 31, 2015 on both going-concern and solvency bases, and confirms that the Fund does not require any special payments by the City of Toronto. The Charts below summarize the financial position of the plan as at December 31, 2015 and December 31, 2014 based on the Actuarial Valuations. Going Concern Valuation This type of valuation assumes that the plan will be continuing until all pensions are paid out. Table 1 - Going Concern Valuation ($ millions) December 31, 2015 December 31, 2014 Assets $321.4 $319.4 Liabilities $211.5 $224.0 Surplus / (Deficit) $109.9 $95.4 Staff report for action on 2015 Actuarial Valuation - Toronto Civic Employees Pension Plan 1

2 Solvency Valuation This type of valuation assumes that the plan was wound up on the valuation date (i.e. Dec, 31st) with all amounts coming due (i.e. as if the assets are used to meet existing liabilities including the purchase of annuities for the pensioners & unretired members). Table 2 - Solvency Valuation ($ millions) December 31, 2015 December 31, 2014 Assets $336.8 $347.2 Liabilities $251.4 $252.7 Surplus / (Deficit) $85.4 $94.5 Valuation is being filed with FSCO Valuation was filed with FSCO RECOMMENDATIONS The Treasurer recommends that: 1. Government Management Committee receive this report for information, including the Actuarial Valuation Report as of December 31, 2015 (attached as Attachment 1) prepared by Buck Consultants Limited with respect to the Toronto Civic Employees Pension and Benefit Plan and its underlying Fund. Financial Impact There is no financial impact as a result of this report. Increases to pensioners are automatic, based on meeting defined criteria, and there are no additional payments required to be made by the City. The annual estimated cash cost to the Fund of the automatic increase in pensioner benefits is approximately $312,614. The estimated actuarial cost (present value) of the automatic increase in pensioner benefits on a solvency basis was $2.8 million as at December 31, 2015 and on a goingconcern basis was $2.4 million. This increase is payable from the assets of the Fund with no contribution required by the City. As outlined in the actuarial report, this will not create any deficit at this time, or into the future given the Fund s going concern and solvency surpluses. The City's five (5) Pre-OMERS Pension Plans have total assets of approximately $1.6 billion. It costs the City approximately $1 million per year to provide staff and other administrative facilities for the five plans. Potential mergers of each plan with OMERS, which would entail consequent wind-ups of the plans, are being explored to minimize or Staff report for action on 2015 Actuarial Valuation - Toronto Civic Employees Pension Plan 2

3 eliminate the requirements for special payments and provide cost savings with respect to the administration of the Plans, while continuing to protect all of the rights of those entitled to benefits under the Plans. The Deputy City Manager & Chief Financial Officer has reviewed this report and agrees with the above financial impact information. DECISION HISTORY The Actuarial Valuation Report on the Toronto Civic Employees' Pension Plan ( the Plan ) and The Toronto Civic Employees' Pension and Benefit Fund which finances it is submitted annually to Government Management Committee. The last such report was considered by Government Management Committee at its meeting held on May 11, 2015 when it adopted Government Management Committee report GM4.3 titled "Toronto Civic Employees Pension and Benefit Fund Actuarial Report as at December 31, Following is the link to the report and decision document: ISSUE BACKGROUND Ontario pension plans are governed by the Pension Benefits Act (PBA) and regulated through the Financial Services Commission of Ontario (FSCO). FSCO is an arm slength agency of the Ontario Ministry of Finance, which is responsible for the administration and enforcement of the PBA, both Act and Regulations. The PBA establishes the minimum standards for such plans, and the regulations require the preparation and filing (at least every three (3) years) of an actuarial valuation report on a pension plan s assets and liabilities, in order to determine the funded status of the plan on both a going-concern basis and a solvency basis. Going-Concern Valuation: This type of valuation assumes that the plan will be ongoing for an indefinite period of time (until the last beneficiary is paid out). It compares the value of the plan's assets as at the valuation date with the actuarially-calculated present value of all future liabilities as at the same date, yielding either a funding surplus or a deficit. The Valuation Report also contains a reconciliation with the surplus or deficit shown in the previous Valuation Report as a measure of the plan's financial health. An unfunded liability on a goingconcern basis must be eliminated by the employer by one or more special payments, which may be amortized over a period not exceeding fifteen (15) years. Staff report for action on 2015 Actuarial Valuation - Toronto Civic Employees Pension Plan 3

4 Solvency Valuation: This type of valuation basis assumes that the plan was wound up on the valuation date with all amounts coming due (i.e., as if its assets had been used to meet its existing liabilities, including the purchase of annuities for its pensioners and unretired members). If a plan had greater assets than liabilities on a solvency basis on the valuation date, it has an actuarial surplus. If there were more liabilities than assets the plan has a solvency deficiency and, in order to comply with the PBA, that deficiency must be eliminated by the employer by one or more special payments which may be amortized over a period of no longer than five (5) years. Actuarial valuation reports must be filed with FSCO and the Canada Revenue Agency (CRA) at least every three (3) years. If, at the end of any year the plan has a goingconcern unfunded liability or a solvency deficiency in excess of 15% (i.e., the plan is less than 85% funded), such a report must be filed each year, until the deficiency is eliminated. Asset Mix and Investment Returns The Toronto Civic Employees Pension Committee (the Pension Committee) is the administrator of the Plan and the Fund within the meaning of the PBA, and therefore must ensure that both are administered in accordance with that Act and its regulations. Those regulations contain investment rules and restrictions and require the administrator to formulate a Statement of Investment Policies and Procedures (SIPP) with annual reviews. Given the demographics of the Plan, the Pension Committee invests the Fund s assets conservatively, through a number of investment managers, in a well-diversified portfolio of equity and fixed-income securities in accordance with the Fund's SIPP. The Pension Committee monitors the performance of the managers regularly with advice from a professional investment consulting firm. Staff report for action on 2015 Actuarial Valuation - Toronto Civic Employees Pension Plan 4

5 The target asset mix of the Fund as set out in its current SIPP is as follows: Asset Mix Cash & Equivalents 2% Bonds 48% Canadian Equity 20% U.S. and Other Foreign Equity 30% TOTAL 100% The Fund's net rate of return for 2015 was 5.5% compared to 11.4% for 2014 COMMENTS The Civic Plan is one of five (5) pre-omers pension plans sponsored by the City of Toronto. It covers 524 retired members, and 491 survivor pensioners. The Fund s Actuary, Buck Consultants, conducts an annual actuarial valuation of the Fund s assets and liabilities and recently submitted to the Pension Committee its actuarial valuation report for The purpose of the valuation is to determine: (a) the financial position of the Fund as at the latest year-end on both going-concern and solvency bases; and (b) the minimum funding requirements by the City, if any, during the calendar years following that year-end. Going-Concern Valuation The Valuation Report shows that at December 31, 2015, the Fund had actuarial assets of $321.4 million, actuarial liabilities of $211.5 million and a going-concern excess of $109.9 million, up from the excess of $95.4 million as at December 31, The $14.5 million increase in the going-concern excess was primarily the result of strong investment returns over the past number of years. Solvency Valuation As part of the Actuarial Valuation, the actuary completed a solvency valuation comparing the Fund s assets at market value with the cost to purchase annuities and wind-up as at December 31, 2015 to satisfy the Fund s obligations. At its meeting held on March 23, 2016 the Pension Committee approved the solvency valuation on an unsmoothed basis. The Actuarial Valuation shows that on a solvency basis, the value of the assets of $336.8 million exceeded the solvency liabilities of $251.4 million, producing a solvency surplus of $85.4 million (a decrease of $9.1 million from the solvency surplus of $94.5 million as at December 31, 2014). The decrease in the solvency surplus was primarily related to the adoption by the Canadian Institute of Actuaries of new actuarial tables for valuing pension plans on a solvency/wind-up basis. Staff report for action on 2015 Actuarial Valuation - Toronto Civic Employees Pension Plan 5

6 Cost-of-Living Increase The Fund can fairly be compared to the fund of the Ontario Municipal Employees Retirement System (OMERS) given the similarities in plan design and municipal employee plan membership. However, while the OMERS plan provides for automatic indexation, the Plan's by-law has, since 1997, provided for contingent indexation at a rate equal to the lesser of: (a) (b) the investment rate of return of the Fund (using a 5-year smoothing technique) in excess of the rate of return required to maintain the actuarial solvency of the Fund as determined by the Actuary; and the increase in the year over year level of the average Consumer Price Index (CPI) for Canada as published by Statistics Canada, provided that the Fund is in a sufficient surplus position to cover the cost of the increase. In respect of 2015, there was an excess investment return as outlined in (a) above, equal to 5.10%, and the increase in the year-over-year level of the average CPI outlined in (b) above was 1.12%. As required by the Plan's governing Bylaw, and endorsed by the Pension Committee at its meeting held on March 23, 2016, an automatic cost-of-living adjustment is called for in respect of 2015 equal to 1.12% effective January 1, The estimated actuarial cost of the increase ($2.8 million on a solvency basis and $2.4 million on a going-concern basis as at December 31, 2015) will be payable from the assets of the Fund, and will not create a deficit at this time or into the future given the Fund s going-concern excess and solvency surplus. CONTACT Mike Wiseman, Director, Pension, Payroll & Employee Benefits Tel: (416) , Fax: (416) , mwisema@toronto.ca SIGNATURE Mike St. Amant Treasurer ATTACHMENT Attachment 1: The Toronto Civic Employees' Pension Plan, Actuarial Valuation Report as of December 31, 2015 (March 2016) Staff report for action on 2015 Actuarial Valuation - Toronto Civic Employees Pension Plan 6

Metropolitan Toronto Pension Plan Actuarial Valuation Report as at December 31, 2016

GM21.6 REPORT FOR ACTION Metropolitan Toronto Pension Plan Actuarial Valuation Report as at December 31, 2016 Date: May 11, 2017 To: Government Management Committee From: Treasurer Wards: All SUMMARY This