Teachers Pension Plan 2013 Annual Report. January 1, 2013 to December 31, 2013

Transcription

1 Teachers Pension Plan 2013 Annual Report January 1, 2013 to December 31, 2013

2 Contents Executive summary 1 Annual message 2 Celebrate strength in numbers 2 Financial health 3 Highlights The financial year in review 3 Investment overview Taking care of plan assets 5 Report on investment Great returns, great value 5 Market outlook Looking ahead: the investment market outlook for actuarial valuation A report card for the plan 12 Plan details 13 Contributions Fair for members, fair for employers 13 Plan updates 14 Benefits Good for members, good for BC 15 Services Our goal: engaged, informed plan members & employers 18 Membership Guaranteed, predictable retirement income for over 90,000 members 18 Who we are 20 About the trustees Meet the board 20 Committees Down to the details 20 Trustee remuneration Trustee activities 22 Partners, agents & service providers Working together 23 Financial Statements 24 ii Teachers Pension Plan 2013 Annual Report

3 Executive summary $20 billion in assets 45,271 active members* 33,450 retired members* 2,500 retired members over age 80 12,098 33,173 male active plan members female active plan members 14.6% 9.7% rate of return on investments for 2013 rate of return, 5 year annualized *As at December 31, 2013, there are 12,087 inactive plan members. Learn more in the Membership section. TOP MARKS FOR THE PLAN Voted Best Pension Fund 2014, Canada by World Finance magazine. Read more in the March 10, 2014, Board Communique, available on the News Archive page of the plan website. Teachers Pension Plan 2013 Annual Report 1

4 Annual message Celebrate strength in numbers At the close of 2013, the Teachers Pension Plan held $20.7 billion in net assets (up from $18.3 billion at the close of 2012) and had earned a 14.6 per cent return on its investments for the year. What do those numbers really mean? They mean the plan funds have continued to grow, and more funds mean a stronger plan. The numbers mean the plan is financially healthy. Most of all, for members at all stages of plan membership, those numbers mean a reliable, secure retirement income. If you look a little deeper, those numbers reveal even more. The plan is one of the most efficient retirement savings options available, with exceptionally low investment and management fees. For BC communities and the province at large, those numbers mean opportunity because some of the plan s assets are invested locally, for example in infrastructure and real estate developments. In addition, retirees throughout the province spend much of their pension income in local communities, contributing to our provincial economy. Based on its performance in many areas, the Teachers Pension Plan was named the 2014 Pension Fund of the Year, Canada by World Finance magazine. The award is based on excellence in service to members, innovation, risk management and investment performance. Pension plans were researched and judged on their administrative skills and foresight, their service and financial performance. The Teachers Pension Plan earned a full five-star rating. It is gratifying when others recognize the plan as World Finance magazine has done because it reinforces the pride and confidence that the trustees share: we know it is an excellent plan and we are thrilled that others know it, too. And while 2013 has been a great year, well deserving of recognition, we are also cognizant of and grateful for the years of work done throughout the plan s history. Today s successes are the culmination of years of hard work and sometimes some tough decisions. Joint trusteeship, with plan members and plan employers sharing management of the plan, is an exemplary method for governance. As you read this report, join us in celebrating the work done this year as well as the work done in years past, which brought us to our current, award winning position. DID YOU KNOW? The large scale and professional management of the plan enables it to operate very efficiently. Total investment management and pension administration costs are a quarter of one per cent, significantly less than what individual investors would commonly pay for investment management fees. Joann Cain, 2013 Chair Teachers Pension Board of Trustees In 2013, the plan paid out close to $1 billion in pension benefits and much of that money flowed straight into the BC economy. 2 Teachers Pension Plan 2013 Annual Report

5 Financial health Highlights The financial year in review The Teachers Pension Plan posted a 14.6 per cent return net of fees for the fiscal year 2013, exceeding its market benchmark of 12.3 per cent. The plan s investment assets increased from $18.3 billion for the year ending December 31, 2012, to $20.7 billion as at December 31, The breakdown: - The plan s combined public equities returned 24.3 per cent. Global equities and emerging market equities earned 33.8 per cent and 1.9 per cent respectively. Canadian equities returned 14.9 per cent, a good return despite some weakness in commodity demand from emerging market countries. - Demand for Canadian real estate remained strong, earning 7.9 per cent. - The plan s combined fixed income portfolio which comprises money market funds, bonds and mortgages lost 2.3 per cent due to the rise in interest rates over the course of 2013, which pushed bond prices down. A SAMPLE OF OUR INVESTMENT PORTFOLIO 120 Bremner is a 700,000 sq.ft (30-storey) office tower. It is under construction with a 2014 delivery. bcimc is targeting a LEED Gold Certification. LEED (Leadership in Energy & Environmental Design) is an internationally recognized green building certification program, which provides third party verification that a building was designed and built using strategies intended to improve energy savings, water efficiency, greenhouse gas emissions reduction, and indoor air quality. Investment asset mix and performance as at December 31, 2013 Approved Target asset mix Actual asset mix Rate of Performance (All values %) range market value market value return benchmark Fixed income Short term Mortgages Nominal bonds (1.2) (1.2) Real return bonds (13.5) (13.1) (2.3) (2.4) Public equity Canadian equities Global equities Emerging markets equities Real estate Private placements* * 32.7* Infrastructure and renewable resources (IRR)* * 8.0* All weather fund** ** ** Total asset mix * The illiquid assets are only valued once per year as of December 31. The rates of return for private placements and infrastructure and renewable resources are preliminary and reflect December 31, 2013, internal rates of return, which is the industry standard for calculating returns for illiquid assets. ** The plan invested in the all weather fund October 31, As a result there are no annual returns related to this asset class for the year ended December 31, Teachers Pension Plan 2013 Annual Report 3

6 Five-year financial summary $ Millions For the year ended December Increase in assets Investment income $ 2,684 $ 1,778 $ 532 $ 1,465 $ 1,553 Contributions Members Employers Transfers from other plans Total increase in assets 3,402 2,458 1,219 2,100 2,145 Decrease in assets Pension benefits Termination and refund benefits Transfers to other plans Retired member group benefits Investment and administration costs* Total decrease in assets 1,056 1, Increase in net assets 2,346 1, ,190 1,278 Net assets available for benefits at beginning of year 18,348 16,899 16,649 15,459 14,181 Net assets available for benefits at end of year $20,694 $18,348 $16,899 $16,649 $15,459 Investment and administration costs as a percentage of net assets (%) Investment management* Benefits administation * External investment management costs incurred in the investment pooled funds by wholly owned corporations of $12.1 million (2012 $13.1 million; 2011 $8.6 million; 2010 $7.5 million; 2009 $6.6 millon) 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. 4 Teachers Pension Plan 2013 Annual Report

7 Investment overview Taking care of plan assets Overseeing the investment of more than $20 billion in plan A SAMPLE OF OUR INVESTMENT PORTFOLIO assets is a major responsibility for the Teachers Pension Board bcimc has held an equity interest in of Trustees. The most important issue for any pension plan is Puget Energy since 2009 along with long-term results, and the board s goal is to achieve consistent two other large Canadian institutional and steady performance over the longer term based on a investors and an infrastructure fund disciplined approach and prudent decision making. investor. Puget Energy s core business is The board s Statement of Investment Policies and Puget Sound Energy (PSE), a regulated Procedures (SIPP, available on the Investment Info page of utility that provides electric and natural the plan website) sets out the investment strategy and overall gas service to the Puget Sound region framework for managing the plan s assets. The board reviews of Western Washington. As Washington the SIPP annually and approves the long-term asset mix State s largest utility, PSE serves more policy for investing assets. For an overview of how the plan s than 1.1 million electric and 760,000 investments work, read Investment Matters, available on the natural gas customers in a service area Investment Info page of the plan website. spanning more than 6,000 square miles. Diversification of investments is a key principle in our PSE is also the Pacific Northwest s largest investment policy. Through bcimc s pooled funds, the plan utility producer of renewable energy has exposure to a range of asset types (e.g., bonds, equities, as an owner and operator of three real estate, infrastructure and private placements), across wind farms. industry sectors and global markets. With the support of the board, British Columbia Investment Management Corporation (bcimc) integrates environmental, social and governance factors into the investment analysis, decisions and processes. A fresh mix In September 2013, the board adopted a new strategic asset allocation, effective January 1, 2014, that will continue the shift to a greater emphasis on real assets. Real assets, including real estate, infrastructure, and renewable resources, are tangible, physical investments ideally suited for the long-term financial objectives of pension plans. These types of investments provide reliable cash flows, appreciate in value and protect against inflation and the short-term volatility experienced in public markets. These investments also allow for more direct asset management, which enables bcimc to influence the strategic direction of these companies and create long-term value for the plan. Given that investing in real assets is opportunistic in nature, the shift in the long-term policy target may take a few years to achieve. Report on investment Great returns, great value The Teachers Pension Plan s investment portfolio earned 14.6 per cent net of fees for 2013, exceeding the market benchmark of 12.3 per cent and adding over $2.6 billion in value for the plan. Taking into account contributions and fees received and benefits paid out, the market value of the investments increased from $18.3 billion to $20.7 billion. The plan achieved healthy investment results as global economic growth continued to improve throughout the year. Although the year started with Europe still in economic recession, stock market returns were strongly positive, primarily in the United States, Europe, and Japan. As the year moved into its second half, capital markets reacted negatively to the political gridlock in the U.S. and concern that the U.S. Federal Reserve would taper its monetary stimulus thereby triggering an economic slowdown. Fortunately, these events did not prove to be as negative as originally feared and many stock markets around the globe ended the year with higher returns than anticipated. Teachers Pension Plan 2013 Annual Report 5

8 Overall, the plan s investments did very well in Combined public equities achieved extraordinary returns of 24.3 per cent. Investments in Canadian real estate were a solid contributor to the plan s returns at 7.9 per cent, while infrastructure and private equity investments returned 13.1 per cent and 23.8 per cent respectively. Only fixed income returns were negative, losing 2.3 per cent due to rising long-term interest rates. Responsible investing and the plan Responsible investing continues to play an important role in the management of the plan s funds. This philosophy is based on the belief that well-governed companies responsive to environmental and social issues will positively affect longterm investment performance, and mitigate risk, for the plan. The investment agent for the Teachers Pension Board of Trustees, British Columbia Investment Management Corporation (bcimc), is a founding signatory to the United Nations Principles for Responsible Investment, an international network of investors working together to put responsible investing principles into practice. Its goals are to promote the importance of sustainability for investors and support signatories to incorporate these principles into their investment decision-making and ownership practices. With the support of the board, bcimc engages and encourages companies to apply best practices for corporate governance, adopt good standards of safety and employee welfare, and be responsible in their operations by effectively managing relationships with suppliers, customers and communities. bcimc ranks among the top performing investment managers globally in implementing the United Nations Principles for Responsible Investment. Implementing change also occurs through collaboration with like-minded investors and organizations such as the Canadian Coalition for Good Governance, the CDP (formerly known as the Carbon Disclosure Project) and the Investor Network on Climate Change. Learn more about bcimc s responsible investment activities on its website. A SAMPLE OF OUR INVESTMENT PORTFOLIO TimberWest Forest Corp. is uniquely positioned as western Canada s largest private timber and land management company. TimberWest is a leader in sustainable forest management and is committed to Vancouver Island communities. The company complies with ISO and the Sustainable Forestry Initiative, and provides approximately 1,000 direct and 2,000 indirect jobs to workers on Vancouver Island. bcimc first invested in TimberWest in 2009 and took the company private in partnership with the Public Sector Pension Investment Board in Aquarion Water Company is New England s largest investor-owned water utility. Since bcimc first invested in this company with a consortium of investors in 2007, Aquarion has maintained an active growth strategy, acquiring numerous regional water systems and continuing to improve water quality and network reliability. It has received awards for being a well operated water utility and environmental steward, and is consistently highly rated for customer service. Managing costs Managing investment costs is important to the board. bcimc s fees (0.20 per cent of assets) continue to be significantly below those of other large Canadian pension plans and 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 passes to the plan, contributing to its long-term sustainability. 6 Teachers Pension Plan 2013 Annual Report

9 Investment performance year ended December 31 Market value rates of return (All values %) Rate of return Performance benchmarks Annual rates Five-year annualized rates* Ten-year annualized rates annual rate by investment category Short term DEX 91 day T-Bill Money market DEX 91 day T-Bill Bonds DEX ShortTerm Government Bond Index Bonds (1.2) (1.2) DEX Universe Bond Index Universe bonds (1.2) (1.2) DEX Universe Bond Index Global government bonds (1.2) 0.4 JP Morgan Hedged Index Real return bonds (13.5) (13.1) DEX Real Return Bond Overall Index Mortgages Combined Mortgages Benchmark 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 Composite Active Canadian S&P/TSX Capped Composite Active small cap S&P/TSX Small Cap Indexed S&P/TSX Composite Enhanced S&P/TSX Capped Composite Global equities MSCI World Net ex-canada U.S. actively managed Russell 1000 U.S. indexed S&P 500 Total Return Index U.S. social indexed MSCI KLD 400 Social Index U.S. enhanced Russell 1000/S&P 500 Total Return Index U.S. active small cap Russell 2000 Global equities MSCI World Net ex-canada Asia MSCI Pacific Net Europe MSCI Europe Net Index Emerging markets equities MSCI Emerging Markets Net Index Real estate CPI + 4% Private placements 23.8** 32.7** MSCI All Country World Net plus 2% Infrastructure and renewable resources 13.1** 8.0** Nominal 8% * The five-year annualized rate is the net earned rate of the fund. An annualized rate means the rate for a five- or ten-year period converted into the equivalent annual rate. ** The illiquid assets are only valued once per year as of December 31. The rates of return for private placements and infrastructure and renewable resources are preliminary and reflect December 31, 2013, internal rates of return, which is the industry standard for calculating returns for illiquid assets. Performance benchmark indices abbreviations CPI = Consumer Price Index DEX = PC-Bond domestic bond exchange 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) Teachers Pension Plan 2013 Annual Report 7

10 Investment portfolio Investments consist primarily of direct ownership in units of pooled investment portfolios. These are like mutual funds, in that the pension contributions of members and employers are combined and used to buy blocks of investment products rather than individual securities. These units of pooled investment portfolios are valued regularly based on the fair market value of the underlying assets. In the table below, all portfolios are pooled, except for two hundred million (one per cent), which are directly held. Investments held as at December 31, 2013 Market value Asset mix ($ Millions) market value (%) Short term Money market $ Bonds (1 5 years) Bonds Global government Nominal 2, Real return bonds , Mortgages Canadian equities Indexed 1, Active 1, , Global equities* Global indexed Global active 1, U.S. indexed 1, U.S. active 1, Europe indexed Europe active Asian indexed Asian active International currency hedging , Emerging markets equities* 1, Real estate 3, Private placements 1, Infrastructure and renewable resources (IRR) Infrastructure 1, Renewable resources , All weather fund* Total investments $20, comparison $ 18,344 * Asset classifications vary from the financial statements for the purpose of performance reporting. 8 Teachers Pension Plan 2013 Annual Report

11 Top ten holdings as at December 31, 2013 Canadian equities Market value Total Canadian Company ($ Millions) equity (%) Royal Bank of Canada $ The Toronto-Dominion Bank Bank of Nova Scotia Suncor Energy Incorporated Canadian National Railway Company Valeant Pharmaceuticals International Bank of Montreal Manulife Financial Corporation Canadian Natural Resources Limited Enbridge Incorporated Total top 10 $1, Total Canadian equities $3, Global equities Market value Total global Company ($ Millions) equity (%) Google Incorporated $ Apple Incorporated Exxon Mobil Corporation Chinese State Controlled Companies* Roche Holding AG Microsoft Corporation Nestle SA Procter & Gamble Company HSBC Holdings Plc Royal Dutch Shell Plc Total top 10 $ Total global equities $6, Emerging markets equities Market value Total emerging Company ($ Millions) markets equity (%) Chinese State Controlled Companies* $ Samsung Electronics Company Limited Housing Development Finance Corporation Limited British American Tobacco Plc Taiwan Semiconductor Manufacturing SABMiller Plc Vale SA HDFC Bank Limited ITC Limited Fomento Economico Mexicano SAB de CV Total top 10 $ Total emerging markets equities $1, * As of April 1, 2012, company exposures are based on the ultimate parent company exposure regardless of where the security is listed or traded. As a result, the client 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. This approach to aggregating exposure more accurately reflects concentration risk. Teachers Pension Plan 2013 Annual Report 9

12 Investment holdings market value as at December 31, 2013 $ Billions All weather fund 0.2 1% Short term 0.4 2% Mortgages 0.6 3% Private placements 1.1 5% Emerging markets equities 1.2 6% Infrastructure and renewable resources 1.4 7% Bonds % Bonds market value as at December 31, 2013 Corporate 18% Government 82% Real estate % Canadian equities % Global equities % Domestic real estate, by type as at December 31, 2013 Real estate, by location as at December 31, 2013 Other 0.6% Hospitality 7.5% Retail 8.2% Quebec and Maritimes 5.8% International 7.4% British Columbia 17.0% Industrial 12.6% Residential 23.5% Office 47.6% Ontario 34.6% Prairies 35.2% Global equities market value as at December 31, 2013 Canadian equities market value as at December 31, 2013 Actively managed 52% Actively managed 52% Indexed 48% Indexed 48% 10 Teachers Pension Plan 2013 Annual Report

13 Canadian equities, by sector as at December 31, 2013 Global equities, by sector as at December 31, 2013 Indexed (%) Actively managed (%) Indexed (%) Actively managed (%) Utilities Utilities Information technology Telecommunication services Health care Materials Consumer staples Energy Telecommunication services Consumer staples Consumer discretionary Health care Industrials Industrials Materials Information technology Energy Consumer discretionary Financials Financials Emerging markets equities, by sector as at December 31, 2013 Utilities Industrials Telecommunication services Consumer staples Consumer discretionary Materials Energy Information technology Indexed (%) Actively managed (%) Health care Financials Equities, by country as a percentage of total portfolio as at December 31, 2013 (%) Australia 1.1 France Germany Switzerland Japan UK Other developed countries Emerging markets Canada U.S Teachers Pension Plan 2013 Annual Report 11

14 Market outlook Looking ahead: the investment market outlook for 2014 The Teachers Pension Plan has a long-term investment horizon and is able to withstand short-term market volatility. The Teachers Pension Board of Trustees and the BC Investment Management Corporation remain focused on holding a well-diversified portfolio that follows a disciplined, long-term approach to managing the plan s funds. With the backdrop of increased economic and financial stability, global stock markets have experienced a strong start to In the U.S., there are signs of improvement in housing, business investment and employment. With inflation below two per cent in Canada and the U.S., and economies operating below capacity, the respective central banks are maintaining low interest rates to stimulate economic growth. The European Central Bank has also implemented policies to stimulate economic growth. Geopolitical risks are heightened as evidenced by recent events in Ukraine and Russia. Furthermore, a continued slowdown in China could dampen world economic growth actuarial valuation A report card for the plan Every three years an independent actuary assesses the long term financial health of the plan. The valuation is like a report card showing whether the plan is on track for meeting its pension promise. Working from a number of assumptions, the actuary compares money coming into the plan through current and future contributions and investment returns (assets) against the money that will be paid out in the future for pension benefits (liabilities). If the assets are the same as the liabilities, the plan is fully funded. A shortfall in assets is an unfunded liability; an excess in assets is a surplus. The board must address an unfunded liability by adjusting contribution rates for both members and employers. The most recent actuarial valuation (as at December 31, 2011) showed an unfunded liability for basic pension benefits. Effective July 1, 2013, member and employer contributions each increased by 1.3 per cent of salaries. The contribution rate increase restores the plan to full funding. DID YOU KNOW? In evaluating the plan s finances, the actuary makes assumptions about: how long plan members are living, current and future income from contributions, current and future investment returns Actuarial valuation history as at December 31 $ Millions Basic pension benefits unfunded liability Total assets* $19,836 $18,258 $14,649 Total liabilities 20,691 18,735 15,516 Unfunded liability* $ (855) $ (477) $ (867) Funding ratio (assets/liabilities) * Calculated on an entry-age basis which is used to determine future contribution rates. 12 Teachers Pension Plan 2013 Annual Report

15 Plan details Contributions Fair for members, fair for employers The Teachers plan is pre funded: it is designed fairly to ensure each generation pays in advance for its own pension benefits. Pension benefits are part of the total compensation package for employees. Employers and employees are partner contributors to the plan. Contributions from employers and members make up approximately 20 per cent of the cost of pensions. The remaining 80 per cent comes from investment returns. Members who end their employment, retire or reach 35 years of pensionable service stop contributing to the plan. If a member reaches 35 years of pensionable service and continues working, the employer contributes until the earlier of the member s retirement or the end of the calendar year in which the member reaches age 71. Contribution rates as a percentage of salary Prior to July 1, 2013 Effective July 1, 2013 Up to YMPE* Over YMPE Up to YMPE* Over YMPE Member 11.20% 12.70% 12.50% 14.00% Employer 13.33% 14.83% 14.63% 16.13% Total 24.53% 27.53% 27.13% 30.13% * Year's maximum pensionable earnings (YMPE) is the limit to earnings on which Canada Pension Plan contributions are made. The 2013 YMPE was $51,100 and will increase to $52,500 in Contribution revenue year ended December 31, 2013 $ Millions Transfers from other plans $7.2 1% Members have two key options for maximizing the value of their pension benefit: Transferring service moving pensionable service from one plan to another. Members may carry their years of pensionable service and contributions to or from plans with a different employer if that employer has an agreement with the Teachers Pension Plan. More information about transferring service, including a list of agreements currently in place, is available in the Transferring service PensionFacts, available on the Publications page of the plan website. Member contributions $ % Employer contributions $ % Contributions including purchases of service year ended December 31 $ Millions Member Employer Teachers Pension Plan 2013 Annual Report 13

16 Buying back periods of past service paying for periods of employment that have not already been counted as service with the plan. This may include approved leaves of absence (pregnancy, parental, compassionate care, general or other approved leaves) or other service (employment service before becoming a contributor to the plan). For more information, please see the Purchasing leaves of absence and Purchase of service and arrears for part-time members PensionFacts, available on the Publications page of the plan website. Plan updates More flexibility for buying back service (Amendment 20 effective April 1, 2013) Members can now buy back service for an approved leave that they took while working in a different school district. Also, for leaves that last more than one year, they may choose to buy back service in affordable annual portions. Members may take advantage of these changes as long as: their leave ended after March 31, 2013, and they apply by the applicable deadlines. Members must apply to purchase service within five years of returning to work at the end of the leave. Members have 30 days to apply to buy back any eligible service after they end employment with all school districts. Contribution rate increase (Amendment 21 effective July 1, 2013) Effective July 1, 2013, member and employer contribution rates each increased by 1.3 per cent of salary. An independent actuarial valuation of the Teacher s Pension Plan as at December 31, 2011, showed the plan was 96 per cent funded. As required under the Joint Trust Agreement, the board approved the increase to contribution rates, which will restore the plan to full funding over time. Members and employers were reminded of the change in the 2012 Report to Members and throughout the past year. Number of purchases of service year ended December Leaves of absence* Arrears** * A leave of absence is an employer-approved absence from work. ** Arrears occur when contributions should have been made on a member's behalf but were not. Value of purchases of service year ended December 31 $ Thousands 5,227 7,795 Leaves of absence* Arrears** * A leave of absence is an employer-approved absence from work. ** Arrears occur when contributions should have been made on a member's behalf but were not. LEAVING A LEGACY Effective March 31, 2014, the Wills, Estates and Succession Act sets out new rules for nominating a beneficiary for pension purposes. As a result members have more options to protect their family, leave a legacy to their community and customize their estate planning the way they want. The changes expand the number of options available but existing nominations remain valid. A spouse is automatically the beneficiary unless they have waived their rights to any pension benefits, so the ability to nominate beneficiaries may be limited. 14 Teachers Pension Plan 2013 Annual Report

17 Benefits Good for members, good for BC A member s basic pension payment is calculated using a formula based on the member s highest average salary, years of pensionable service and age at retirement. Pension payments do not depend on the performance of investment markets while the member is working or after the member retires. By contributing to a secure, well funded pension plan, members are preparing now for the future. In 2013, the plan paid out close to $1 billion in pension benefits and much of that money flowed straight into the local economy and the BC economy. Basic pension (guaranteed) The basic pension payment is secure, dependable and guaranteed for life. It is paid for as long as the member lives and may continue to the member s spouse or dependant after the member s death. The advantage of a pre funded plan is that the pension is predictable. The plan also provides survivor and disability benefits. Cost of living adjustments (not guaranteed) Cost of living adjustments are not guaranteed; however, once granted they become part of the basic, lifetime pension. Adjustments are based on the annual Canada Consumer Price Index (CPI). If the CPI decreases (deflation), retired members will receive no increase or decrease to their pension. If the board grants a cost of living adjustment, retired members 56 or older will receive it. On January 1, 2013, retired members received a 1.1 per cent cost of living adjustment. Post retirement group health benefits (non-pension, not guaranteed) The Teachers Pension Plan offers voluntary extended health care and dental programs. The plan does not subsidize the premiums for the programs; however, it offers retirees access to group rates. Access to group rates means premiums are typically more affordable than the premiums charged for benefit packages individuals could buy on their own. All retired members may choose to enrol themselves, their spouses and their dependants in the plans. More information about post retirement group health benefits is available on the plan website. Termination and refund benefits Plan members who end their employment before reaching age 55 have a number of choices for what they can do with the money they have put into the plan. See the Terminating employment PensionFacts, available on the Publications page of the plan website, for more information. Average and median pensions in pay as at December 31, 2013 Number of pensions 33,450 Average value* $29,959 Median value* $29,666 * Average values reflect the total of all pensions paid for the plan, divided by the total number of recipients in the plan. In the case of median pensions, half of the pensions paid are greater than this amount and half of the recipients receive less. New pensions by age at retirement Broken down by years of pensionable service for the year ended December 31, 2013 Service (years) < < < Total < < < < < < Total ,651 Average service Average age 60 Teachers Pension Plan 2013 Annual Report 15

18 New pensions, by type for the year ended December 31 Limited LTD to Regular members* Survivor Disability pension Deferred Total , , , , , , , , , , , , , , , , , , , ,598 * Prior to 2012 new limited members were included as part of new regular pensions Pensions for the year ended December 31 $ Millions New pensions Pension In force at Basic Inflation Total during year terminations end of year pensions paid supplements paid pensions paid , ,450 $810.9 $167.4 $ , , , , , , , , , , , , , , , , , , Average value of new pensions for the year ended December 31, 2013 Total present value Service Total new Average annual Average annual Median annual Average new pensions (years) pensions salary base pension pension present value ($ Millions) < $ 60,000 $ 6,000 $ 4,700 $ 84,000 $ < ,000 15,200 14, , < ,000 23,000 23, , < ,000 30,200 30, , < ,000 38,900 37, , < ,000 48,300 47, , years ,000 48,900 49, , Total 1,651 78,000 35,400 34, ,000 $ Teachers Pension Plan 2013 Annual Report

19 Percentage of new pension recipients by age at retirement for the year ended December 31, 2013 Age < % Age 55 < % Percentage of new pension recipients by years of service for the year ended December 31, 2013 < 10 years 115 7% 10 < 15 years 103 6% 15 < 20 years % 20 < 25 years % Age 60 < % Age % 25 < 30 years % 30 < 35 years % 35 years % Number of termination and refund benefits* paid** year ended December * A member who terminates from the plan, if eligible, may choose to receive a refund or termination benefit. See the Terminating employment PensionFacts for more information. ** Includes death benefits paid. Value of termination and refund benefits* paid** year ended December 31 $ Millions * A member who terminates from the plan, if eligible, may choose to receive a refund or termination benefit. See the Terminating employment PensionFacts for more information. ** Includes death benefits paid. Teachers Pension Plan 2013 Annual Report 17

20 Services Our goal: engaged, informed plan members & employers The Teachers Pension Board of Trustees (board) is committed to proactively providing comprehensive information and easy to use services so plan members can engage with and make informed decisions about their pensions. Through the plan s administrative agent, the British Columbia Pension Corporation, members and employers can choose from printed and online information, online resources, plus seminars throughout the province. When members and employers , visit, call or write the plan, experienced and well-trained client representatives respond to a wide range of requests. This includes providing pension plan information or benefit calculations, helping employers with reporting and assisting active and retired members with pension applications. The web is key to providing services to plan members and employers. The My Account portal allows active and inactive members to view their personal information; active members can access personalized tools. New this year, retired members can use My Account to view their personal information, pension statements, beneficiaries and more online. Many web based resources and tools are also available for plan employers, including a secure online contribution remittance service. Superior service, high value Through its Service Delivery Plan with the British Columbia Pension Corporation, the board approves service standards and monitors performance against those standards. Regular surveys of plan members and employers show that both groups are highly satisfied with the service they receive. Serving members In 2013, the plan: responded to over 29,000 phone calls completed over 26,000 service requests held 79 member seminars for over 2,300 attendees Members self-serve My Account is an online service for active, inactive and retired members. My Account has been open to retired members since July 1, As at December 31, 2013: over 15,000 active members are registered over 2,000 retired plan members are registered Membership Guaranteed, predictable retirement income for over 90,000 members Membership in the Teachers Pension Plan is open to all certificated teachers (including teachers on call), principals and vice principals, directors of instruction, superintendents, assistant superintendents, associated professionals appointed by a board of education in the British Columbia public school system and eligible employees of other employers approved by the Teachers Pension Board of Trustees. New employees, including those employed in a less than half time capacity, must be immediately enrolled in the Teachers Pension Plan and cannot opt out of enrolment. Membership profile as at December 31, 2013 Active members 45,271 50% Retired members 33,450 37% Inactive* members 12,087 13% * Members no longer employed by a plan employer, but with money in the plan. 18 Teachers Pension Plan 2013 Annual Report

21 There are three categories of plan members: Active members currently contribute, or receive benefits from an approved salary continuance plan or are on an approved leave of absence. There are over 45,200 active members in the plan, a decrease of less than one per cent from Inactive members terminated their employment with a plan employer and left contributions in the plan. They may be eligible for a pension in the future. Those not eligible may become eligible if they return to work for a plan employer, make contributions and accrue additional service. There are over 12,000 inactive members in the plan, a decrease of roughly one per cent from Retired members receive a pension, including those who receive a disability pension, and spouses and other beneficiaries who receive a pension after the death of a member. There are over 33,400 retired members in the plan, an increase of four per cent from Plan employers The plan employers are the school districts, the British Columbia Principals and Vice Principals Association, the British Columbia School Superintendents Association, the British Columbia Teachers Federation, the Francophone Education Authority and the Teacher Qualification Service (British Columbia). Active members, by age as at December 31, 2013 Active members, by gender as at December 31, 2013 < 40 years 39% 40 < 45 years 16% 45 < 50 years 14% 50 < 55 years 13% 55 < 60 years 12% 60 years 6% Male 12,098 27% Female 33,173 73% Number of members as at December 31 87,263 87,847 88,595 89,734 90,808 28,521 29,821 30,983 32,162 33,450 Membership growth, active vs. retired Retired 17.3% 11,751 11,985 12,122 12,222 12,087 46,991 46,041 45,490 45,350 45, Active Inactive* Retired * Members no longer employed, but with money in the plan Active -3.7% Teachers Pension Plan 2013 Annual Report 19

22 Who we are About the trustees Meet the board Trustees as at December 31, 2013, are listed in the Board of Trustees member remuneration table. Full bios are available on the plan website. Committees Down to the details Trustees participate in a number of standing and ad hoc committees. The following list describes the standing committees. Board committees Benefits and Communications Committee This committee provides advice and recommendations to the Teachers Pension Board of Trustees on benefit and communication issues and makes decisions on these issues under authority delegated by the board. In 2013, the committee met three times over a total of five days to address post retirement group benefits, plan rule amendments, reciprocal transfer agreements and communications products such as the Report to Members, the Annual Report and the After Class newsletter. Governance Committee This committee assists the board in fulfilling its governance responsibilities by formalizing regular consideration of issues such as board policy development and review, the risk management review process, board strategic planning mechanisms, development of the board s assessment tools and any other item referred to the committee by the board. This committee is newly formed, and met once in Interplan committees Audit Committee The mandate of the Audit Committee is to act on behalf of the pension plans boards and helps them provide: a timely and cost effective system of accounting and reporting, financial statements conforming with generally accepted accounting principles, an independent audit of the financial statements, and an annual report with audited financial statements. The committee accomplishes its mandate to provide financial oversight by: monitoring and reporting to the boards on the integrity of reporting, internal controls and compliance, monitoring and reporting on the independence and performance of the external auditors, monitoring and reporting on risk management as it affects financial reporting, recommending the selection and compensation of external auditors, and addressing any matter referred to the committee by one or more of the four boards. 20 Teachers Pension Plan 2013 Annual Report

23 Membership on the committee includes two nominees from each of the boards of the College, Municipal, Public Service and Teachers pension plans. All nominees must be ratified by all the boards. The committee must include at least two trustees who understand generally accepted accounting principles (GAAP), internal controls and audit committee functions. The committee must meet at least three times a year. In addition to its role of financial oversight through monitoring and reporting, the committee also evaluates its own performance annually through an established procedure. It met five times in Executive Committee This group of board chairs, vice-chairs and senior administrators of the Teachers, College and Public Service pension plans meets to discuss areas of common interest and to keep abreast of activities in the other boards. It met five times in Investment Committee This committee provides a forum for considering investment issues that are common to the College, Public Service and Teachers pension boards of trustees. It can make recommendations to each pension board on matters such as generic investment policy and procedure statements and investment issues identified either by a pension board, the BC Investment Management Corporation or the committee itself. The committee considers investment industry trends, regulatory and legal developments, responsible investing issues, asset class reviews and updates on capital markets, among other matters. The committee met four times in Trustee Education Committee This committee provides a forum for the College, Public Service, Municipal and Teachers pension boards of trustees to develop the knowledge and skills of the trustees, to work together on common educational issues and to provide information to trustees on trends in benefits, pensions, investments, etc., in a variety of jurisdictions. The committee met three times in Website Review Committee The Pension Corporation administers websites for College, Municipal, Public Service and Teachers pension plans through a jointly shared pensionsbc.ca landing page. The committee meets, as required, to provide feedback to the Pension Corporation on significant website architecture issues and website design improvements that are common across all four boards. The committee met once in Teachers Pension Plan 2013 Annual Report 21

24 Trustee remuneration Trustee activities During 2013 the Teachers Pension Board of Trustees met seven times over a total of 10.5 days. Trustees also participated in a number of standing and ad hoc committees and attended a number of conferences, including the annual BC Public Sector Pension Conference. In addition to attending scheduled training sessions, individual trustees participated in other educational opportunities to increase their effectiveness on the board. Trustee attendance Trustee attendance at the board and committee meetings was consistently high in The average attendance of all trustees was 91 per cent. Trustee remuneration Trustees are remunerated by the plan for time spent on board business. Remuneration guidelines and rates are set out in the Teachers Pension Board of Trustees Remuneration Policy, available on the Board Policies page of the plan website. Under the policy, trustee remuneration may be adjusted annually by an amount equal to the cost of living adjustments made to pension payments. Trustees receive remuneration directly if they are not remunerated by any other organization. If trustees are remunerated by another organization, they may request their plan remuneration be paid to the other organization. Expenses related to trustee attendance at educational events and meetings to conduct board business are reimbursed within board policy limits. Board of Trustees member remuneration for the year ended December 31, 2013 Board Per diem Annual Chair and Vice Total Board member meetings ($381/meeting) stipend Chair remuneration payments Paid to Joann Cain (chair) 41.0 $ 15, $ 3, $3, $ 23, Joann Cain Linda Watson (vice-chair) , , , , Linda Watson Joan Axford , , , Joan Axford Reg Bawa , , , Minister of Finance Chung Yan Ip 3, , Chung Yan Ip , , BC Teachers Federation , , , Wayne Jefferson , , , Board of Education (SD75) Harold Krische , , , BC Principals and Vice Principals Association Dale Lauber , , , Dale Lauber Ken Tannar 3, , Ken Tannar , , BC Teachers Federation , , , Brad Underwood , , , Minister of Finance Grand Total $88, $38, $5, $132, Teachers Pension Plan 2013 Annual Report