Actuarial Valuation Report for Accounting Purposes on the Saskatchewan Teachers Superannuation Plan as at June 30, 2001

Transcription

1 Actuarial Valuation Report for Accounting Purposes on the as at June 30, 2001 Aon Consulting 8 th Floor, Canada Building st Street East Saskatoon, Saskatchewan S7K 0B3 Phone: (306) Fax: (306) January 31, 2002

2 Table of Contents Actuarial Valuation Report for Accounting Purposes on the as at June 30, 2001 Page Executive Summary...1 Section 1: Introduction...4 Section 2: Valuation Results...6 Section 3 Actuarial Opinion and Cost Certificate...13 Appendix A: Summary of Plan Provisions Appendix B: Actuarial Assumptions and Cost Methods Appendix C: Membership Appendix D: Summary of Assets Appendix E: Employer Certification G:\2001\TSC\REPORTS\VALN00.DOC

3 Executive Summary Page 1 We are pleased to submit our actuarial report as at June 30, 2001 on the Saskatchewan Teachers Superannuation Plan (the Plan ). Our valuation covers the Formula Plan applicable to teachers hired before July 1, The purpose of our report is to determine the financial position of the Plan on an accounting basis in respect of service to June 30, 2001 and to determine the current service cost of benefits accruing in the Plan year following June 30, The previous actuarial report on the Plan was done as at June 30, Since that time the Plan has been amended to provide increased pension benefits for disabled members who return to work for 40 days prior to retirement. This amendment served to increase liabilities under the Plan by $51,068,000 as at June 30, This report has been prepared on an actuarial basis which may be considered best estimate, with equal likelihood that over time, the true liabilities will prove to be greater than or less than the amounts we have determined. The economic assumptions used were reviewed and approved by the Saskatchewan Teachers Superannuation Commission. Our valuation results have been determined on the projected accrued benefit method pro-rated on service. FINANCIAL POSITION OF THE PLAN AS AT JUNE 30, 2001 This valuation of the Plan has disclosed an excess of liabilities over assets (unfunded liability) of $1.727 billion as at June 30, 2001 on an accounting basis. The total actuarial value of the assets at June 30, 2001 was $1.813 billion. The actuarial value of the liabilities at June 30, 2001 was $3.540 billion. At June 30, 1999, the date of the previous valuation, the Plan had an excess of liabilities over assets (unfunded liability) of $1.770 billion.

4 Executive Summary Page 2 Financial Position of the Plan (000's) 4,000,000 3,000,000 2,000,000 1,000,000 0 June 30, 2001 June 30, 1999 Assets Liabilities Unfunded Liability June 30, 2001 June 30, 1999 (000 s) (000 s) Assets $ 1,813,071 $ 1,614,409 Liabilities $ 3,539,857 $ 3,384,160 Unfunded Liability $ 1,726,786 $ 1,769,751 CURRENT SERVICE COST The current service cost of benefits accruing in the Plan year commencing July 1, 2001, is estimated to be $43,177,000. Teachers contributions are estimated to be $16,218,000. The terms of the Plan require that the government contribute an amount equal to the sum of teachers contributions and an amount equal to the excess, if any, of all payments made from the Fund over the sum of the accumulated contributions with interest of teachers retiring in the year or receiving a refund, a commuted value transfer or a transfer pursuant to a reciprocal agreement. The cost of benefits for service after June 30, 2001 was also determined using the attained age normal actuarial cost method. Under this method, the actuarial present value of benefits for future service for active and returning inactive members is determined and compared with the actuarial present value of future contributions from active and returning inactive members to produce the actuarial present value of benefits for future service to be provided by government contributions. The results are shown in the following table:

5 Executive Summary Page 3 June 30, 2001 (in $ millions) June 30, 1999 (in $ millions) Present value of benefits for future service accruals $ $ Present value of future teacher contributions Present value of future matching government contributions Present value of additional government required contributions for future service accruals $ $ Section 2 details our analysis of the change in the Plan s funded position from June 30, 1999 to June 30, The present value of the future cost of benefits is 279% of the present value of future teacher contributions. At the previous valuation, it was 252%. This percentage would have been expected to increase due to the normal aging of the remaining active members. SUBSEQUENT EVENTS We have not been made aware of any subsequent events which would have an effect on the results of our valuation. Emerging experience differing from the assumptions will result in gains or losses that will be revealed in subsequent valuations. We are available to discuss our report. Respectfully submitted, Aon Consulting Inc., Wayne R. Berney, FSA, FCIA Senior Vice President Paul Hebert, ASA Consultant January 31, 2002

6 Section 1: Introduction Page 4 ENGAGEMENT We have been engaged by the Saskatchewan Teachers Superannuation Commission (the Commission ) to prepare an actuarial valuation on the (the Plan ) as at June 30, 2001, for accounting purposes. PURPOSE The purpose of this valuation is to determine the Plan s financial position in respect of service to June 30, 2001 and to determine the current service cost of benefits accruing in the Plan year following the valuation date. The valuation is being performed for accounting purposes. ASSUMPTIONS Because the valuation is being performed for accounting purposes, the valuation has been prepared using best estimate actuarial assumptions. The use of best estimate actuarial assumptions will produce results such that the actuarial liabilities of the Plan will, with an equal likelihood over time, prove to be greater than or less than the amounts determined in this valuation report. The actuarial assumptions used in this valuation were reviewed and approved by the Commission. It is our opinion that the assumptions are, in aggregate, appropriate for the purposes of this valuation. Nevertheless, emerging experience differing from the assumptions will result in gains or losses, which will be revealed in subsequent valuations. DATA Data for the valuation was provided by the Commission. We performed numerous tests on the data as described in Appendix C. In our opinion, the data is sufficient and reliable for the purposes of this valuation. ASSETS Information on the assets of the Plan was taken directly from the audited financial statements of the Plan and working papers as prepared by the Commission. We have relied entirely on these statements and working papers for the asset data used in this report. Details of the asset data are provided in Appendix D.

7 Section 1: Introduction Page 5 SUBSEQUENT EVENTS After consulting with representatives of the Commission, to the best of our knowledge there have been no events subsequent to the valuation date which have not already been reflected in the valuation results and which, in our opinion, would have a material impact on the results of the valuation.

8 Section 2: Valuation Results Page 6 FINANCIAL POSITION AS AT JUNE 30, 2001 The actuarial value of assets is compared to the actuarial value of liabilities at June 30, 2001 to determine the financial position of the Plan. The actuarial position of the Plan as at June 30, 2001, in respect of past service, is as follows. Comparative figures as at June 30, 1999 are also shown. June 30, 2001 (000 s) June 30, 1999 (000 s) Assets Actuarial value of assets $ 1,813,071 $ 1,614,409 Total Assets $ 1,813,071 $ 1,614,409 Actuarial Liabilities Liability for service accrued to the valuation date for active members $ 1,096,096 $ 1,178,525 Liability for service accrued to the valuation date for inactive members 98,092 89,244 Pensioners 2,127,472 1,932,974 Spouses and dependents 99,435 60,518 Liability for disability benefits payable after age , ,899 Total Liabilities $ 3,539,857 $ 3,384,160 Surplus/(Unfunded Liability) ($1,726,786) ($1,769,751)

9 Section 2: Valuation Results Page 7 June 30, 2001 $2,127,472 ( $ 000s ) Accrued liability for actives Accrued liability for inactives Pensioners $98,092 $99,435 $1,096,096 $118,762 Spouses and dependents Liability for disability benefits payable after age 65 June 30, 1999 $1,932,974 $89,244 $1,178,525 $122,899 $60,518

10 Section 2: Valuation Results Page 8 UNFUNDED LIABILITY The valuation has revealed that the Plan has an unfunded liability of $1.727 billion as at June 30, The previous valuation revealed an unfunded liability of $1.770 billion as at June 30, This unfunded liability will grow with interest at the compound rate of 7.5% per annum. Interest on the unfunded liability for the year following the valuation date is $ million. The unfunded liability can be amortized by equal annual payments of $ million payable monthly in arrears over 25 years or equal annual payments of $ million payable monthly in arrears over 50 years. COST OF BENEFITS FOR SERVICE AFTER JUNE 30, 2001 The cost of benefits accruing under the Plan for service following the valuation date is summarized in the following table with comparative figures from the previous valuation: June 30, 2001 (In $000 s) June 30, 1999 (In $000 s) 1. Actuarial present value of benefits for future service for active and returning inactive members 253, ,820 LESS 2. Actuarial present value of future contributions from active and returning inactive members 90, , Actuarial present value of future matching government contributions 90, ,692 EQUALS 4. Actuarial present value of benefits for future service to be covered by payments in addition to teacher contributions and matching government contributions 71,899 60,436

11 Section 2: Valuation Results Page 9 The above results can be interpreted as follows: 1. The lump sum present value of benefits to be earned for service after June 30, 2001 is about $162,871,000 in excess of the lump sum present value of future teachers contributions. 2. The total cost of benefits to be earned for service after June 30, 2001 is 279.0% of teachers contributions. That is, the total cost is equal to teachers contributions, plus a further 179.0% of teachers contributions. Using the projected accrued benefit method pro-rated on services results in the following: (In $000 s) 1. Current service cost of benefits accruing in the year following June 30, , Actuarial present value of teachers contributions in the year following June 30, , Balance of current service cost in the year following June 30, ,959

12 Section 2: Valuation Results Page 10 ANALYSIS OF CHANGE IN FINANCIAL POSITION An analysis of the sources of actuarial gains and losses revealed in the current valuation is set out below. (000s) Unfunded Liability at June 30, 1999 ($1,769,751) Adjustment to the unfunded liability due to recalculation of liability for disability benefits payable after age 65 58,774 Adjustment to the unfunded liability due to reproduction of the June 30, 1999 results by Aon Consulting Inc. (5,660) Adjusted unfunded liability at June 30, 1999 (1,716,637) Expected interest on the adjusted unfunded liability (248,741) Expected unfunded liability at June 30, 2001 ($1,965,378) Gains and losses in the inter-valuation period: Decreases to the Unfunded Liability Investment income greater than expected 206,720 Change in assumptions 135,746 Contributions made in excess of benefits accrued 49,493 Disability experience different than expected 10,725 Mortality experience different than expected 8,062 Miscellaneous 5,607 Increases to the Unfunded Liability Salary and YMPE increases and interest credited different than expected (56,031) Impact of plan amendment (51,608) Increase in unfunded liability due to data changes (29,929) Retirement experience different than expected (25,441) Termination experience different than expected (12,328) Pensioner increases different than expected (2,424) Unfunded Liability at June 30, 2001 ($1,726,786)

13 Section 2: Valuation Results Page 11 The previous valuation was performed by a different consulting actuary. In reproducing results as at June 30, 1999, it was determined that liabilities relating to disability benefits payable after age 65 were overestimated by $58,774,000. In addition, for the reproduction of results other than those described above, Aon Consulting Inc. was able to match results closely, with a difference of $5,660,000. These two items served to adjust the unfunded liability at June 30, 1999 to $1.717 billion. Interest on the previous adjusted unfunded liability is the expected interest earned on the previous adjusted unfunded liability at the valuation interest rate of 7.0% per annum for the 2-year intervaluation period. This amount totaled $248,741,000 resulting in an expected unfunded liability of $1.965 billion at June 30, The average net investment rate of return on the actuarial value of the assets (13.1% per annum) exceeded the assumed rate of return (7.0% per annum) over the two year intervaluation period resulting in a gain from investments of $206,720,000. Various assumptions have been changed since the previous valuation including the discount rates, the inflation rate and the salary increase assumptions. These changes served to decrease the unfunded liability by $135,746,000 at June 30, During the two year intervaluation period, contributions made to the Plan exceeded benefits accrued under the Plan by approximately $49,493,000. This served to directly decrease the unfunded liability at June 30, There were more than the expected number of disabilities during the two year intervaluation period. This served to reduce the unfunded liability by $10,725,000 at June 30, For all groups, overall there were more deaths than expected during the two year intervaluation period. This served to decrease the unfunded liability by $8,062,000 at June 30, During the intervaluation period, salaries and YMPE increases and interest credited to teacher contributions were different than expected resulting in a combined loss of $56,031,000. Individually, salary experience resulted in a loss of $39,714,000, YMPE experience resulted in a loss of $4,042,000 and actual interest credited to teacher contributions resulted in a loss of $12,275,000. The Plan was amended to allow for greater benefits payable following retirement after being disabled if a teacher returned to teaching for at least 40 days. This amendment increased liabilities under the Plan by $51,608,000.

14 Section 2: Valuation Results Page 12 A significant number of dependents appeared on the 2001 data who were not previously accounted for in The additional liabilities associated with these new dependents served to increase the unfunded liability by $29,929,000. The retirement experience under the Plan was different than expected during the two year intervaluation period. This served to increase the unfunded liability by $25,441,000 at June 30, The termination experience was different than expected during the two year intervaluation period, resulting in a loss of $12,328,000 to the Plan as at June 30, Cumulative pensioner increases granted under the Plan since the previous valuation were higher than expected (expected increases of 1.6% for each of January 1, 2000 and January 1, 2001 versus actual increases of 1.3% at January 1, 2000 and 2.0% at January 1, 2001). This served to increase the unfunded liability by $2,424,000 at June 30, Some other experience gains and losses under the pension plan represent a small amount and the cost involved in evaluating them would not add value to the content of this report. Overall, the resulting experience of these elements is a net plan gain of $5,607,000.

15 Section 3: Actuarial Opinion and Cost Certificate Page 13 ACTUARIAL OPINION AND COST CERTIFICATE FOR THE SASKATCHEWAN TEACHERS SUPERANNUATION PLAN AT JUNE 30, 2001 OPINION This opinion forms an integral part of the report. In our opinion, for the purposes of this actuarial report: a) the data on which this valuation is based are sufficient and reliable; b) the assumptions used are, in aggregate, appropriate; and c) the actuarial cost methods and the asset valuation methods employed in this report are appropriate. Nonetheless, emerging experience differing from the assumptions will result in gains or losses that will be revealed in subsequent valuations. WE HEREBY CERTIFY THAT: 1. With respect to the financial position of the Plan: (a) (b) (c) The first purpose of this report was to prepare actuarial estimates of the funded status of the Plan as at June 30, 2001 on an accounting basis in accordance with the CICA Handbook. The Plan has an unfunded liability (excess of liabilities over assets) of $1.727 billion as at June 30, 2001, based on actuarial value of assets of $1.813 billion and liabilities of $3.540 billion. The unfunded liability can be amortized with equal annual payments of $ million, payable monthly in arrears, over the 25 year period commencing July 1, 2001, or with equal annual payments of $ million, payable monthly in arrears, over the 50 year period commencing July 1, 2001.

16 Section 3: Actuarial Opinion and Cost Certificate Page With respect to the Plan s cost of future service after June 30, 2001: (a) The second purpose of this report was to determine the current service cost of benefits accruing for the Plan year commencing July 1, (b) The Plan s cost for service to be accrued after June 30, 2001 is estimated to be $253,843,000 consisting of required teacher contributions of $90,972,000 and government contributions of $162,871,000. The government cost is equal to 179.0% of the required teacher contributions. (c) The current service cost of benefits accruing for the Plan year commencing July 1, 2001 is $43,177,000. (d) Required teacher contributions for the Plan year commencing July 1, 2001 are estimated to be $16,218,000. The government is required to match these contributions. In addition to the matching contributions, the government is required to contribute an amount equal to the excess, if any, of all payments made from the Fund over the sum of the accumulated contributions with interest of members retiring in the year and members receiving a refund of contributions, a transfer of commuted value, or a transfer pursuant to a reciprocal transfer agreement. (e) The government contributions referred to in (d) above are eligible contributions under Section 147.2(2) of the Income Tax Act and will continue to be so until the unfunded liability has been retired. 3. The value of plan assets would be less than the actuarial liabilities if the Plan were to be wound up on the valuation date. 4. This report has been prepared and this actuarial opinion given in accordance with accepted actuarial practice. Wayne R. Berney Fellow, Society of Actuaries Fellow, Canadian Institute of Actuaries Paul Hebert Associate, Society of Actuaries January 31, 2002

17 Appendix A: Summary of Plan Provisions Page A-1 The following is a summary of the provisions of the Plan which are relevant in determining the actuarial liabilities. This summary reflects all Plan amendments up to the valuation date including an amendment made subsequent to the date of the previous valuation which provides increased pension benefits for disabled members who return to work for at least 40 days prior to their retirement. ELIGIBILITY The Plan applies to teachers who established a pension record before July 1, 1980, including teachers who have left teaching and who returned to teaching at a later date, except for such teachers who elected to transfer to the Saskatchewan Teachers Annuity Plan which is now the new Saskatchewan Teachers Retirement Plan (STRP). This option to transfer was available up until June 30, Teachers hired on and after July 1, 1980 are not eligible to participate in the Plan. SERVICE Eligible service, for all purposes of the plan, includes all service as a teacher while employed by a Board of Education in Saskatchewan to which the Education Act applies, plus certain other service while disabled, on sick leave, on leave of absence and in other related occupations. A member may purchase credit for various other periods of service. The following describes the various types of service under the Plan: Contributory service: CPP contributory service: Service for which contributions have been made by the teacher. Service which corresponds directly with regular contributory service (above) but for which contributions were also being made to the Canada Pension Plan (CPP). Income Continuance Plan (ICP) service: Service where a teacher is in receipt of benefits from the Saskatchewan Teachers Federation Income Continuance Plan. Eligibility service: Service equal to regular contributory service (above), but may also include various other services rendered including service outside of teaching or service for part-time teachers.

18 Appendix A: Summary of Plan Provisions Page A-2 Qualifying service: Service which may be used in certain instances for eligibility for retirement and can include, but is not limited to, service while employed in the civil service, political service or other teaching service not covered by this Plan. RETIREMENT DATES A teacher may retire with an unreduced pension after meeting any of the following requirements: 1. at age 65 with one year of eligibility service, 2. after age 60 with at least 20 years of eligibility service, 3. after completion of 30 years of eligibility service, 4. when a member s age plus eligibility service total 85 but not before age 55, and 5. when a member s age plus eligibility, ICP and qualifying service total 85 but not before age 60. A teacher may retire with a reduced pension after age 55 with 20 years of eligibility service. In this case, the lifetime retirement pension is reduced by 0.25% for each month early retirement precedes the earlier of age 60 or the date the teacher s age plus eligibility service (assuming no future service grow-in) equals 85. AGE AND SERVICE ALLOWANCE The annual amount of pension is determined as follows: 2% of average annual salary for the highest five years multiplied by years of contributory plus ICP service to a maximum of 35 Upon attaining age 65, the allowance is reduced by 0.7% of the lesser of the five-year average CPP maximum pensionable earnings corresponding to the five years in which the teacher last taught or the average highest five years of salary described above, multiplied by years of CPP contributory service.

19 Appendix A: Summary of Plan Provisions Page A-3 This bridge benefit is not subject to any early retirement reductions which might otherwise be applied to the lifetime retirement benefit. The above pension amounts are subject to the CCRA Maximum pension amounts for service after For disabled teachers who retire under the Plan, the above benefit is recalculated at retirement to include additional service accrued between the date of disability and the date of retirement. As well, if a disabled teacher returns to work for at least 40 days prior to retirement, the final average salary and final average YMPE used in the determination of the retirement benefit are updated to reflect values at retirement. ESCALATION OF ALLOWANCES Pensions in course of payment are increased each January 1 by 80% of the increase in the 12-month average Consumer Price Index published by Statistics Canada for the year ending the previous October 31. LEVEL INCOME OPTION Upon retirement, a teacher may elect a level income option. In such cases, the pension before age 65 is increased by a level income upward adjustment, which will be indexed along with the basic pension amount. The reduction at age 65 is then determined as the sum of the following three items: i) The CPP offset at age 65, as determined at retirement, indexed to age 65; ii) The level income offset at age 65, as determined at retirement, not indexed to age 65; and iii) The amount of indexation between the age at retirement and age 65 on the level income upward adjustment determined at retirement. CONTRIBUTIONS BY PARTICIPANTS Teachers contribute 7.85% of salary less 1.8% of earnings on which contributions to the Canada Pension Plan are made. A teacher who has previously received an allowance and who has returned to teaching is not required to contribute to the plan. Teacher contributions cease after a teacher has contributed for 35 years.

20 Appendix A: Summary of Plan Provisions Page A-4 EMPLOYER CONTRIBUTIONS The Government is required to contribute amounts equal to that contributed by the teachers. The Government must also make an annual payment which amounts to the excess, if any, of all payments made from the Fund over the sum of the accumulated contributions with interest of members retiring in the year and members receiving a refund of contributions, a transfer of commuted value, or a transfer pursuant to a reciprocal agreement. DISABILITY ALLOWANCE A disability pension, determined by the same formula as the age and service pension with an offset for Canada Pension Plan disability allowance, is payable to a teacher who: 1. is disabled for a period of 60 or more days because of total physical or mental incapacity for teaching, 2. has 10 years of eligibility and/or ICP service, 3. has at least three years of the above service in the five years preceding disablement, and 4. has not attained age 65. Payments may be discontinued or reduced on recovery or re-employment. The period during which a teacher has been in receipt of a disability allowance or payments from the Saskatchewan Teachers Federation Income Continuance Plan is included in the eligible service used for recalculation of the allowance upon entitlement to an age and service allowance. Disability allowances are payable from the General Revenue Fund of the provincial government. IN-SERVICE DEATH BENEFITS When a teacher dies prior to completing eight years of eligibility service, the following benefits apply. If the teacher is married at the date of death, the surviving spouse will receive 60% of the allowance earned to the date of death, plus a further 10% for each child under age 18 (maximum 25% for three or more children), and special benefits are payable to orphaned children and dependent parents. This benefit is not payable until such time as when the member would have been eligible to receive an allowance. Optionally, the surviving spouse may receive the teacher contributions with interest. If the teacher is

21 Appendix A: Summary of Plan Provisions Page A-5 single at the date of death, the beneficiary is entitled to receive the teacher s contributions accumulated with interest. If the teacher, at the date of death, is eligible for an allowance on the ground of age and service, or has eight or more years of eligibility service, the following benefits apply. If the teacher is married at the date of death the surviving spouse will receive 60% of the allowance earned to the date of death, plus a further 10% for each child under age 18 (maximum 25% for three or more children), and special benefits are payable to orphaned children and dependent parents. Optionally, the surviving spouse may receive the teacher contributions with interest. If the teacher is single at the date of death, the beneficiary is entitled to receive the teacher s contributions accumulated with interest. POST-RETIREMENT DEATH BENEFIT If a retired teacher dies, the surviving spouse is entitled to receive 60% of the benefit the pensioner was receiving, plus a further 10% for each dependent child (subject to a maximum of 25% for all such children). Where the death of the surviving spouse occurs after the death of the retired teacher, the 60% benefit is payable in respect of the first dependent child. If a retired teacher dies without a surviving spouse and/or dependent, the pension ceases on the death of the retired teacher with the difference, if any between the teacher s accumulated contributions with interest at the date of retirement and the total pension payments made being refunded to a beneficiary or the estate. TERMINATION BENEFITS If a teacher terminates membership prior to the completion of ten years of consecutive contributory service, a refund is made of the teacher s contributions with interest. If a teacher has ten or more consecutive years of contributory service each with at least 140 days of contributory service, and leaves his contributions made subsequent to January 1, 1969 in the Fund, he is entitled to a deferred allowance commencing at the time when he becomes eligible. Teachers who have not taught for at least four months, who are not eligible for an allowance under the plan and who have at least one year of eligibility service can apply to have the commuted value of their deferred allowance transferred out of the Plan.

22 Appendix A: Summary of Plan Provisions Page A-6 OTHER PROVISIONS The Saskatchewan Teachers Superannuation Commission has entered into a number of reciprocal agreements, affecting the pension entitlements of teachers transferring to or from certain other employers.

23 Appendix B: Actuarial Assumptions and Cost Methods Page B-1 ACTUARIAL ASSUMPTIONS FOR ACCOUNTING PURPOSES Assumptions have been adopted in order to estimate the liabilities which are likely to be incurred. The true cost of the Plan will emerge only as experience develops, investment earnings are received, and benefit payments are made. These assumptions will be reviewed from time to time in order to adequately reflect the experience of the Plan. The actuarial assumptions used in the June 30, 1999 valuation were reviewed for appropriateness and changes have been made for this valuation where deemed appropriate. The assumptions used in this valuation and the reasons for any changes are outlined below. Following from the requirements of the CICA Handbook, all assumptions used for this valuation are management s best estimate assumptions. These assumptions were originally proposed by Aon Consulting Inc. and were reviewed and finalized, including any appropriate changes, by the Saskatchewan Teachers Superannuation Commission. As such, there is an equal likelihood that actual results will be greater than or less than the results produced by this valuation. DEMOGRAPHIC ASSUMPTIONS Mortality Rates of mortality are used to determine the proportion of members who will survive to retirement age and the probability that pension payments will or will not be required at the point in time at which the future payments are due. We have utilized the Uninsured Pensioners 1994 (UP94) Mortality Table with mortality improvements projected to the year 2010 for all Plan members, including currently disabled members. This is unchanged from the previous valuation. Mortality rates per 1,000 lives at representative ages are as follows: UP94 Projected to 2010 Age Male Female

24 Appendix B: Actuarial Assumptions and Cost Methods Page B-2 Cessation of Active Membership Allowance has been made for the probabilities of active members terminating employment prior to retirement. The following illustrates termination rates at representative ages used for the valuation: Assumed Termination Rate Age Male Female % 5.85% % 4.55% % 4.03% % 3.20% % 3.03% The same rates were used in the previous valuation. An additional assumption is required regarding the status of a member after termination. This has not changed since the previous valuation and is as follows: Distribution of Terminations by Type Assumptions Used in the Valuation Became inactive (contributions left in fund) 66% Teachers contributions refunded 31% Reciprocal transfers 3% Cessation of Inactive Membership Inactive membership ceases if contributions are refunded or transferred to another plan, or if the member returns to active teaching service. The rates of cessation of inactive membership with respect to returning to active teaching at representative ages are as follows:

25 Appendix B: Actuarial Assumptions and Cost Methods Page B-3 Rates of Cessation of Inactive Membership Used in the Valuation of Active and Inactive Membership For Return to Active Teaching Return to Active Status Assumption Used in the Valuation Age Males Females % 6.1% % 5.4% % 3.9% % 1.6% % 1.1% % 0.6% % 0.4% For inactive members who are assumed to return to active teaching, a retirement age of 60 has been assumed. As well, a salary of $39,000 for the year ending June 30, 2001 has been used to value inactive members returning to active status which represents the average salary of inactives who returned to active over the intervaluation period. The rates of cessation of inactive membership with respect to terminations (i.e. refunds) or reciprocal transfers at representative ages are as follows: For Termination or Reciprocal Transfers: Refund & Transfers: Assumption Used in the Valuation Age Males Females % 5.0% % 2.5% % 2.0% % 1.9% % 1.9% % 1.7% % 1.7% Retirement Ages It has been assumed that 50% of all members will retire at the earliest date that the member qualifies for early unreduced retirement. For remaining members, it is assumed that 50% will then retire at each age

26 Appendix B: Actuarial Assumptions and Cost Methods Page B-4 up to age 65. No member is assumed to retire later than the date upon which 35 years of service is completed. The previous valuation of the Plan assumed the same rates of retirement. Disability The probability of future disability of current active and inactive members was assumed to be in accordance with the following table: Rates of Disability at Representative Ages Age Males Females % 0.00% % 0.24% % 0.55% % 1.07% % 1.59% % 2.01% The same disability rates were used in the previous valuation of the Plan. It has been assumed that current disabled members will remain disabled until age 65. It has been assumed that 75% of currently disabled members will return to teach for at least 40 days prior to their retirement under the Plan. This enables this group to have recalculated benefits at retirement determined using current salary and YMPE amounts. Note that, other than this general assumption, specific rates of recovery for current disabled members have not been used. Salary Increases Based on Promotion and Service Increments The salaries paid to teachers are based on a salary grid which varies by classification and by number of years of experience. In addition to increases due to changes in the overall salary grid, teachers receive promotional increases if they move from one salary class to another, and service related increments during the first ten years of their teaching careers. As in the previous valuation, we have split the salary increase assumption into two component: one component for the period until the member has completed ten years of pensionable service and the other component for the period thereafter. This approach recognizes the higher rates of salary increase during the first ten years due to service related increments.

27 Appendix B: Actuarial Assumptions and Cost Methods Page B-5 For this valuation we have retained the previous scale of promotional salary increases. The salary scale at representatives ages used is shown below: Assumed Scale of Annual Salary Increases Due to Promotion and Service Increments Less Than 10 Years Service More Than 10 Years Service Ages Males Females Males Females % 3.2% 2.6% 2.2% % 3.0% 2.0% 2.0% % 2.3% 0.8% 1.3% % 2.2% 0.7% 1.2% % 2.0% 0.6% 1.0% % 1.9% 0.5% 0.9% % 0.0% 0.0% 0.0% ECONOMIC ASSUMPTIONS Underlying Inflation Rates We have assumed that the inflation rate will be 3.0% per annum. The previous valuation of the Plan assumed an inflation rate of 2.0% per annum for the first three years after the valuation date and 3.25% thereafter. Rate of Investment Return The valuation interest rate is a long term estimate due to the long term nature of the obligations of the Plan. We have used a valuation interest rate of 7.5% per annum for all members. This implies that the fund would earn 7.5% per annum, net of investment expenses, and for all future years. The previous valuation of the Plan assumed a valuation interest rate of 7.0% per annum for the first three years following the valuation date and 7.25% per annum thereafter. Our best estimate of the long term rate of return on plan assets has been based on consensus forecasts of investment managers obtained in Aon s quarterly survey of pension fund investment managers and the Watson Wyatt (formerly KPMG) 20 th Annual Canadian Survey of Economic Expectations 2001 applied against the June 30, 1999 asset mix of the (STSP). The surveys indicated a median expected long term rate of return for bonds of 6%. For equities, the median expected long term rate of return was 10% in the Aon survey (no difference between U.S. and non-north American) and 9% for U.S. equities and 9.8% for non-north American equities in the Watson survey.

28 Appendix B: Actuarial Assumptions and Cost Methods Page B-6 Real estate was not included. We have used 7% as the expected rate of return on real estate assets. Both surveys report 5% for short term assets. The resulting expected rates of return based on the asset distribution for the STSP Fund were 7.9% from the Aon survey and 7.48% from the Watson survey. Custodial fees and investment management fees are approximately 0.10% for the STSP Fund. Given these results, it is our opinion that the best estimate rate of return over the long term is 7.5%. Real Rate of Interest We have assumed that the real rate of interest will be 4.5% per annum. The real rate of interest is the return the investor expects to receive beyond the rate of inflation. It is the difference between the rate of interest and the rate of inflation. The previous valuation of the Plan assumed a real rate of interest equal to 5.0% per annum for the first three years after the valuation date and 4.0% per annum thereafter. Salary Scale We assumed a general increase in salaries of 2.6% per annum for the first year after the valuation date and 3.5% per annum thereafter. The previous valuation of the Plan assumed general salary increases of 2.0% for the first two years following the valuation date, 2.5% per annum for the third year following the valuation date and 3.75% per annum thereafter. Year's Maximum Pensionable Earnings (YMPE) Levels In the current valuation, we assumed that the 2002 YMPE of $39,100 will increase in the future at the rate of 3.5% per annum. In the previous valuation, the 2000 YMPE of $37,600 was assumed to increase at the rate of 3.0% per annum for the two years following the valuation date and then 4.25% per annum thereafter. Income Tax Act Pension Maximum We assumed that the ITA maximum annual pension of $1, per year of pensionable service after 1991 will be indexed at 3.5% per annum starting in In the previous valuation the ITA maximum was assumed to increase at the rate of 4.25% per annum starting in Interest on Member Contributions Member contributions are assumed to earn interest in the future at the valuation interest rate of 7.5% per annum. The previous valuation also used the valuation interest rate assumption which was 7.0% for three years and 7.25% thereafter.

29 Appendix B: Actuarial Assumptions and Cost Methods Page B-7 OTHER ASSUMPTIONS Expenses No allowance for expenses has been made other than for investment management charges which are taken into account in the "net" valuation interest rate. This is the same assumption as was used in the previous valuation of the Plan. Administrative expenses are paid directly by the Teachers Superannuation Commission. Proportion Married and Age of Spouse Spouses are assumed to be one year older than members regardless of the sex of the member and 80% of members are assumed to have a spouse. No dependent children have been assumed. In the previous valuation of the Plan, it was assumed that spouses were one year older than the members, regardless of sex, and that 75% of members are married. It was assumed that 5% of active members had two dependents with an average age of 14 years. Percent Part-Time If a teacher is determined to be a part-time teacher, based on the ratio of their actual rate of salary to their full-time equivalent rate of salary at June 30, 2001 being less than 1.0, that same part-time percentage is assumed to apply to all future years for the purposes of determining future contributory service. Eligibility service is assumed to accrue in full year increments regardless of the percent part-time. ACTUARIAL COST METHOD An actuarial cost method is a technique used to allocate in a systematic and consistent manner the expected cost of a pension plan over the years of service during which plan members earn benefits under the plan. By pre-funding the cost of a pension plan in an orderly and rational manner, the security of benefits provided under the terms of the plan in respect of service that has already been rendered is significantly enhanced. The Projected Accrued Benefit Method (also called the Projected Unit Credit Method) Prorated on Service has been used for this valuation. Under this method, the actuarial present value of benefits in respect of past service is compared with the actuarial asset value, revealing either a surplus or an unfunded actuarial liability.

30 Appendix B: Actuarial Assumptions and Cost Methods Page B-8 When calculating the actuarial present value of benefits at the valuation date, the present value of all retirement, withdrawal, disability and pre-retirement death benefits are included. For each member, the retirement, withdrawal, disability and pre-retirement death benefits for a particular period of service are first projected each year into the future taking into account future vesting, early retirement entitlements and minimum pension/value entitlements. These projected benefits for each future year are then capitalized, multiplied by the probability of the member leaving the Plan in that year and discounted with interest and survivorship to the valuation date. The actuarial present value of benefits for the particular period of service is then determined by summing the present value of these projected benefits. For current disabled members, to value benefits payable after age 65 where benefit recalculation is required, service was estimated at retirement as the total of service to the valuation date plus expected service accrual between the valuation date and retirement with the applicable maximum of 35 years. For 25% of the benefits the ratio of estimated service at retirement to service at the valuation date was applied to their current disability benefit. From this was deducted the estimated Plan offset at 65. For the 75% of current disabled members who are expected to return to work for 40 days and thus receive their current salary and YMPE when recalculating the retirement benefit the following process was used. Firstly, service at retirement was determined as outlined above. Salary at the valuation date for each member was assumed to be equal to $53,954, which is the salary level outlined in the current collective bargaining agreement for Class IV teachers with 10 years of experience as at the valuation date. The above salary and the 2002 YMPE of $39,100 were projected to the assumed retirement age of 65 based on the general salary and YMPE increase assumptions described earlier in this appendix. The minimum liability held for each member is equal to that member s teacher contributions with interest at June 30, ACTUARIAL ASSET VALUATION METHOD For purposes of this valuation, the accrued actuarial value of assets utilizes a smoothed market value approach with realized and unrealized capital and currency gains/losses amortized over a four -year period. The smoothing method recognizes 100% of the realized and unrealized gains/losses from 1997/1998 and prior years, 75% of the realized and unrealized gains/losses from 1998/1999, 50% of the realized and unrealized gains/losses from 1999/2000 and 25% of the realized and unrealized gains/losses from 2000/2001. Details on the calculation of the accrued actuarial asset value are outlined in Appendix D. This is the same actuarial asset valuation method as was used in the previous valuation.

31 Appendix C: Membership Page C-1 SOURCE OF DATA Data as to the membership of the Plan as at June 30, 2001 was obtained from the Saskatchewan Teachers Superannuation Commission. The relevant data required as of June 30, 2001, to carry out this valuation was extracted from these records. The data was checked for consistency with the previous valuation, general reasonableness, internal consistency, and reconciled with the previous valuation s membership data. Data testing did not include an independent audit from source records to test for completeness and accuracy. All earnings and service information used in the valuation was as at June 30, Data checks included, but were not limited to, a review of salary increases, personal data (i.e. birth dates, dates of hire, service amounts, pension amounts, etc. from the previous valuation to this valuation), active members over age 65, and any duplicate records. Membership Reconciliation Active Members Inactive Members Disabled Members Superannuates Spouses and Dependents Number at June 30, 1999 (Mercer Report) 6,177 5, , Data adjustments 9 6 (6) (29) (22) Number at June 30, 1999 (Revised) 6,186 5, , Returned to active status 127 (127) Reinstated or reciprocal transfer in Became inactive (186) 189 (3) 0 0 Became disabled (89) (3) Recovered disability 7 0 (7) 0 0 Refund paid or reciprocal transfer out (40) (784) Deaths (10) (7) (9) (496) (353) New spouses and dependents from deaths Retirements Age and service (805) (69) (21) Disability 0 0 (19) 19 0 Reclassified - data corrections Number at June 30, ,269 5, ,114 1,040

32 Appendix C: Membership Page C-2 MEMBERSHIP DATA June 30, ,325 8,114 Actives Inactive members Disabled members 5,269 June 30, ,040 5, Superannuates Spouses and dependents 7,699 6,

33 Appendix C: Membership Page C-3 SUMMARY OF MEMBERSHIP DATA Active Members At June 30, 2001 At June 30, 1999 Number 5,269 6,177 Average age 50.6 years 49.3 years Average eligibility service 20.4 years n/a Average contributory service 19.6 years 19.2 years Average annualized salary $52,804 $49,064 Average teacher contributions with interest $142,139 n/a Percent female 69.5% n/a Employee average remaining service life (EARSL) 6.6 years n/a Inactive Members With Detailed Data Information At June 30, 2001 At June 30, 1999 Number 5,325 5,873 Average age 59.6 years 58.3 years Average eligibility service 3.0 years n/a Average contributory service 2.9 years 3.0 years Percent female 78.5% n/a Average annual accrued lifetime pension* $2,088 n/a Average teacher contributions with interest $16,996 n/a * For the 3,719 inactives with an accrued pension greater than zero at June 30, 2001.

34 Appendix C: Membership Page C-4 With General Data Information At June 30, 2001 At June 30, 1999 Number 1,350 1,121 Average age 67.8 years 67.8 years Average contributory service 2.0 years 2.0 years Average benefit per year of service $ $ Percent female 36% 36% The valuation results for the Inactives with general data information were determined using group averages as described above since detailed data for this group was not available. Superannuates, Spouses and Dependents Number Superannuates Spouses and Dependents Disability Total Average Annual Lifetime Pension 1 Superannuates Spouses and Dependents Disability Total Average Average Annual Bridge Pension 2 Superannuates Spouses and Dependents Disability 3 Total Average Average Attained Age Superannuates Spouses and Dependents Disability Total Average At June 30, 2001 At June 30, ,114 1, ,533 $21,701 $10,934 n/a $20,478 $5,411 $1,961 $17,669 $6, years 76.9 years 54.6 years 69.5 years 7, ,042 $22,165 $10,784 $16,644 $20,699 n/a n/a n/a n/a 69.6 years 78.3 years 53.8 years 70.0 years For data as at June 30, 1999, pension amounts are average total annual pensions including both lifetime and bridge pensions. For the 3,479 superannuates, 145 spouse and dependents and 379 disabilities receiving a bridge benefit payable to age 65. For disabilities, the bridge pension represents their current benefit payable to age 65.

35 Appendix C: Membership Page C-5 Superannuates The distribution of annual pensions currently payable for superannuates at June 30, 2001 is as follows: Age Number Total Annual Pension Average Annual Pension Under $ 20,048,981 $ 32, ,595 $ 50,758,994 $ 31, ,292 $ 40,031,811 $ 30, ,021 $ 23,257,899 $ 22, ,119 $ 24,030,642 $ 21, $ 15,147,446 $ 17, $ 9,704,995 $ 14, $ 7,402,608 $ 12,741 Over $ 4,522,924 $ 11,965 Total 8,114 $ 194,906,300 $ 24,021 Spouses and Dependents The distribution of annual pensions currently payable for spouses and dependents at June 30, 2001 is as follows: Age Number Total Annual Pension Average Annual Pension Under $ 642,569 $ 11, $ 829,489 $ 13, $ 1,119,015 $ 13, $ 989,908 $ 12, $ 1,792,373 $ 12, $ 1,768,535 $ 12, $ 1,471,981 $ 9, $ 1,768,291 $ 9,507 Over $ 1,273,885 $ 9,436 Total 1,040 $ 11,656,046 $ 11,208