The Month in Brief. The Federal Government Introduces a Voluntary CPP Plan. In this issue. Geopolitical news

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1 Aon Hewitt The Month in Brief May 2015 In this issue The Federal Government Introduces a Voluntary CPP Plan 1 Geopolitical news 2 Economic news 2 Financial news 2 Financial markets The Federal Government Introduces a Voluntary CPP Plan Geopolitical news In its first ever white paper on military strategy, China outlined plans to shift its armed forces focus toward maritime warfare, in response to increased U.S. presence in the region. The Islamic State of Iraq and the Levant (ISIL) made major gains, expanding its control of territory both in Iraq and Syria. The U.S. State Department removed Cuba from its list of states sponsoring terrorism. The Canadian government announced its plan for consultations concerning a voluntary expansion of the Canada Pension Plan, whereby those who choose to pay higher premiums would receive higher payments in retirement. Greece has threatened to default on debt repayments, saying it will be unable to pay wages and pensions in June without a bailout deal from creditors. Federal Reserve Chair Janet Yellen said she expects interest rates to rise later this year. Risk. Reinsurance. Human Resources.

2 Economic news After a manufacturing slowdown contributed to poor Q1 GDP, Canada s manufacturing sales rebounded by 2.9% in March, the largest monthly gain since mid New unemployment benefit claims fell to a near 15-year low in the U.S., signaling a labour market recovery following a weak economy during the first quarter. Japan s economy grew at an annualized rate of 2.2% in the fourth quarter of 2014, exiting from its latest recession. The Canadian economy contracted at an annual rate of 0.6% in the first quarter of 2015 due to the sharp fall in oil prices. This is the worst performance since the 2008 recession. The Bank of Canada left its key interest rate unchanged at 0.75%, stating that the persistent slack in the Canadian economy and a weaker performance of the U.S. economy were not enough to justify lower rates. The UK Consumer Price Index fell by 0.1% in the year to April This is the first time the UK has experienced a period of deflation since Financial markets May was a bad month for Canadian and emerging markets equities, with losses in local currencies of 1.22% and 2.49% for the S&P/TSX and the MSCI Emerging Markets indices, respectively. Other foreign market indices posted good returns during the month, notably the S&P 500 Index which gained 4.38% in Canadian dollars. The currency impact was positive for Canadian investors, ranging from 0.86% for the MSCI EAFE to 3.09% for the S&P 500. The S&P GSCI Commodity Index, Light Energy (CAD), posted a positive return of 0.56% due to the currency impact. The yield curve steepened with lower yields for short maturities and rising yields for longer maturities. The result was a loss of 0.13% for the FTSE TMX Canada Long Term Bond Index and a return of 0.20% for the overall FTSE TMX Canada Universe Bond Index. In May the median solvency ratio of our Pension Plan Universe increased from 88.8% to 93.3% while the percentage of plans in solvency shortfall fell from 82.0% to 71.7%. Our representative balanced portfolio gained 0.58% during the month, with a cumulative return of 5.86% for Financial news Bombardier announced a reduction of its Global business jet production resulting in the suppression of 1,750 jobs. Verizon Communications Inc. agreed to purchase AOL Inc. for US$4.4 billion, seeking growth in mobile video and advertising. Several online brokerages were offering mortgages rates as low as 2% in Canada. Oil companies in Alberta have reduced investment by billions of dollars since the oil price downturn last summer, resulting in an estimated freeze of 1.2 million barrels per day of future production capacity. Shopify Inc., a Canadian e-commerce startup, gained 50% in its first day of trading following its IPO on the Toronto and the New York Stock Exchanges. Three of the major banks in Canada posted second quarter earnings above analysts expectations, easing concerns that the sector would be hurt by a slowing economy and a depressed energy industry. Courts in Delaware, U.S., and Ontario, Canada, ruled that Nortel Networks Corp s remaining billions of dollars should be distributed equally among the company s creditors around the world. This is an unusual gain for lesser ranked creditors such as the pensioners. The Month in Brief Aon Hewitt May

3 Performance of indices TOTAL RETURNS TO MAY 31, 2015 ASSET CLASSES RETURNS (%) ANNUALIZED RETURNS (%) STANDARD DEVIATION (%) Indices 1 month YTD 2015:1 2014:4 2014:3 2014:2 1 year 2 years 5 years 10 years 15 years 5 years 10 years 15 years FIXED INCOME FTSE TMX Canada 91 Day T-Bill FTSE TMX Canada Universe Bond FTSE TMX Canada Long Term EQUITIES S&P/TSX Composite S&P 500 (CAD) S&P 500 (USD) MSCI EAFE (CAD) (Net dividend) MSCI EAFE (Local Currency) MSCI World (CAD) (Net dividend) MSCI World (Local Currency) MSCI Emerging Markets (CAD) MSCI Emerging Markets (Local Currency) OTHERS FTSE EPRA/NAREIT Developed (CAD) S&P GSCI Commodity Index, Light Energy (CAD) USD return for a Canadian investor BALANCED PORTFOLIO, MONTHLY REBALANCING * * 5% FTSE TMX Canada 91-Day T-Bill + 40%FTSE TMX Canada Universe Bond + 30% S&P/TSX Composite % S&P 500 (CAD) % MSCI EAFE (CAD) (Net dividend). FTSE TMS Canada Federal long-term yield Yield (%) May-97 May-98 May-99 May-00 May-01 May-02 May-03 May-04 May-05 May-06 May-07 May-08 May-09 May-10 May-11 May-12 May-13 Difference between FTSE TMX Canada long-term and short-term yield Long-Term Advantage May-97 May-98 May-99 May-00 May-01 May-02 May-03 May-04 May-05 May-06 May-07 May-08 May-09 May-10 May-11 May-12 May-13 Difference (%) Short-Term Advantage The Month in Brief Aon Hewitt May

4 Volatility of S&P 500 (USD) Apr-97 Mar-98 Mar-99 Feb-00 Jan-01 Jan-02 Dec-02 Dec-03 Nov-04 Nov-05 Oct-06 Sep-07 Sep-08 Aug-09 Aug-10 Jul-11 Jun-12 Jun-13 Annualized Standard Deviation (%) Measured over a 60-Market Day moving period. Pension plans median solvency ratio and percentage of plans in solvency shortfall Median solvency ratio Percentage of plans in solvency shortfall 120% 110% 100% 90% 80% 70% 60% 50% 40% May 2015: 93.3% May 2015: 71.7% The Month in Brief Aon Hewitt May

5 Contact Information Matt MacLean Aon Hewitt (Halifax) Brian White Aon Hewitt (Toronto) Julianna Spiropoulos Aon Hewitt (Calgary) Mathieu Vézina Aon Hewitt (Québec) Mario Delisle Aon Hewitt (Montréal) John Myrah Aon Hewitt (Regina) Chris Kautzky Aon Hewitt (Vancouver) About Aon Hewitt Aon Hewitt empowers organizations and individuals to secure a better future through innovative talent, retirement and health solutions. We advise, design and execute a wide range of solutions that enable clients to cultivate talent to drive organizational and personal performance and growth, navigate retirement risk while providing new levels of financial security, and redefine health solutions for greater choice, affordability and wellness. Aon Hewitt is the global leader in human resource solutions, with over 30,000 professionals in 90 countries serving more than 20,000 clients worldwide. For more information on Aon Hewitt, please visit aonhewitt.com Aon Hewitt Inc. All Rights Reserved. This document contains confidential information and trade secrets protected by copyrights owned by Aon Hewitt. The document is intended to remain strictly confidential and to be used only for your internal needs and only for the purpose for which it was initially created by Aon Hewitt. No part of this document may be disclosed to any third party or reproduced by any means without the prior written consent of Aon Hewitt. Risk. Reinsurance. Human Resources.