administrator and the fiduciary duty you hold. John is legal counsel to the Fund.

Transcription

1 3250 Bloor Street West, Suite 200 Toronto, Ontario M8X 2Y4 Canada F: October 3, 2018 Dear Members of the Executive-Elect of the General Council, I look forward to sitting down with you on October 12, 2018 to introduce your role as Administrator of the Pension Plan of The United Church of Canada. The role of Administrator is unique in your job description. It is defined by the Pension Benefits Act, not by the General Council or delegated to you by the Council. In this role you are legally bound to ensure that the pension plan and pension fund are administered in accordance with the Act and with the regulations and the terms of the pension plan. The Administrator is accountable to all participants of the plan -- beneficiaries (active, retired, deferred, and dependents), sponsors (employers) and regulatory authorities. It is important to note that the General Council has no authority to direct or restrict how you, the Executive, act in this capacity. I will present brief overviews of the Fund, the governance structure and outstanding issues that will likely come before you in this triennium, including the transition from a third-party administrator to inhouse administration. As well, John Prezioso, of Brown Mills Klink Prezioso LLP, will speak to your role as administrator and the fiduciary duty you hold. John is legal counsel to the Fund. Currently the Executive names a representative to the Board (Graham Brownmiller has held this position for the last six years). This has been important link in the relationship between the Administrator and the Board to which the Administrator has delegated most of its responsibilities. Marcus Robertson, the chair of the Pension Board, looks forward to sitting down with you in the new year. Following are a couple documents that you may find helpful in preparation for our time: - Fast Facts Governance Structure - Statement of Beliefs and Guiding Principles - Pension Fund Staff Chart - Third Party Administrator Transition Report You may also find it helpful to review the Annual Report of the Plan. Go to the United Church website and search for pension annual report. Sincerely, The Reverend Alan Hall Executive Officer Ministry and Employment ahall@united-church.ca ext 3141

2 FAST FACTS ABOUT YOUR PENSION PLAN As at December 31, ,737 1,102 Deferred members Number of pensioners (+10 child pensioners) 3,416 Number of active members Active: currently employed by the United Church Pensioner: receiving pension Child pensioner: dependent child who has lost a parent Deferred: has earned a pension but is not yet receiving it 19 Average length of time people contribute to the plan: years 25 Average length of time people receive a pension: years 2017: $66,628, : $64,710, : $61,909, Members retired in 2017 Members joined in Includes refunds and death benefits 75 Active members over age Average age of pensioners 65.5 Average age of plan members at retirement 54 Average age of active members 180 including Pensioners over age 90 4 over age 100!

3 THE PENSION PLAN OF THE UNITED CHURCH OF CANADA SECTION 1 PENSION GOVERNANCE SYSTEM The strategic framework of the pension governance system is set out in the Statement of Beliefs and Guiding Principles adopted by the Executive of the General Council (the Executive ) in This document is reproduced in Section 2. The pension governance system recognizes the division of functions involved in the administration of the Plan and the Fund and clearly sets out the mechanisms for achieving accountability amongst the parties involved in these endeavours. The following chart summarizes the reporting structure within the pension governances system, the authorities and responsibilities of the Executive, and the functions delegated to the Pension Board and those delegated to other committees. The following is a brief summary of the roles and responsibilities of the Executive and the Pension Board within the governance framework. ROLE OF THE EXECUTIVE The Executive s authority as legal administrator is set out in The Manual. As the legal administrator, the Executive is answerable for the administration of the Plan and the Fund and as such is responsible for the oversight of the Plan s purpose, adherence to high level guiding principles and stewardship of the interest of the primary stakeholders. In its capacity as the legal administrator, the Executive is required to practice a standard of care and observe certain fiduciary duties under common law and applicable statutes. ROLE OF THE PENSION BOARD Given the scope and depth of the knowledge required to prudently administer the Plan, the Executive has delegated the performance of certain functions to the Pension Board. In performing these functions the Pension Board takes on the role of agent of the legal administrator (the Executive) and assumes the role of the Administrator of the Plan in relation to the Plan s day to day operations. In its capacity as the agent of the legal administrator, the Pension Board is required to practice a standard of care and observe certain fiduciary duties under common law and applicable statutes. The Pension Board in turn has adopted processes to ensure the preservation of the governance structure s integrity. Included in these processes is the delegation of certain functions to the Investment Committee and the Pension Plan Advisory Committee. Executive of the General Council Handbook Updated through March 31, 2013 Page 1-1

4 THE PENSION PLAN OF THE UNITED CHURCH OF CANADA CHART - PENSION GOVERNANCE SYSTEM STRUCTURE AND ROLES EXECUTIVE OF THE GENERAL COUNCIL Legal administrator of the Plan Approves: Statement of Beliefs and Guiding Principles (SBGP) Trust agreement Appointments to the Pension Board and its related committees Pension Board Terms of Reference Termination of the Plan Delegates performance of functions to the Pension Board Receives annual stewardship reports MINISTRY & EMPLOYMENT UNIT Ensures a broad overview of the linkages between the personnel systems and mission work of the church PENSION BOARD Recommends to the Executive Changes to the SBGP Approval of Trust Agreement Appointments to the Pension Board and its related committees Changes to the Pension Board s Terms of Reference Termination of the Plan Operational Functions Approves: Amendments to the Plan Actuarial valuation reports and cost certificates Administration, communication, funding and the Statement of Investment Policies and Procedures (SIPP) Audit plan Appoints external advisors and agents (i.e., actuary, auditor, 3rd party benefit administrator provider(s), and legal advisor(s), etc.) Monitors the trustee, funded status, voting of proxies and investment managers Ensures compliance with policies, applicable legislation, the Plan, and the Pension Board Terms of Reference INVESTMENT COMMITTEE (IC) PENSION PLAN ADVISORY COMMITTEE (PPAC) AUDIT COMMITTEE Recommends Changes to the pension governance system and existing policies, beliefs and principles related to Fund investment The SIPP and any changes to it Appointment(s) of custodians and/or trustees Recommends Changes to the governance system, design and funding policies, contribution levels, Plan amendments and interpretation Approval of actuarial reports and cost certificates Changes to the Plan document Approves appointment of investment managers and allocation of funds Approves actuarial methods and assumptions, service standards and eligibility requirement waivers Recommends Approval of financial statements for net assets and accounting policies and practices Appointment of external auditor Approval of auditor s engagement letter Evaluates consistency of the Plan s funded position, service standard, risk tolerance and required submissions to applicable regulators Reviews the annual audited financial statements for the Fund Evaluates asset mix, investment performance, the performance of external advisors, cash flows and voting proxies, and required submissions to applicable regulators Executive of the General Council Handbook Updated through March 31, 2013 Page 1-2

5 SECTION 2 STATEMENT OF BELIEFS AND GUIDING PRINCIPLES STATEMENT OF BELIEFS AND GUIDING PRINCIPLES FOR THE PENSION PLAN OF THE UNITED CHURCH OF CANADA To establish a strategic framework for the management and operation of the Pension Plan of The United Church of Canada and the related Fund (the Plan), the Executive of General Council in its role as Administrator of the Plan has adopted the following Beliefs and Guiding Principles on April 23, 2005 and October 31, While numbered for convenient reference, these statements are all of equal importance in the operation of the Plan. General 1. The Church believes in taking a best practices approach to governance of the Plan, including (1) clear and documented allocation of responsibilities, (2) development and documentation of all key beliefs, guiding principles and related policies, (3) proper reporting, oversight and performance evaluation, (4) reviewing peer pension practices, and (5) obtaining advice from experts or delegating, as needed. 2. All beliefs, guiding principles and related policies should be consistent with, and mutually supportive of, each other and be balanced and reasonable. 3. The Administrator and all its delegates must be guided by what is in the best interest of the Plan members in all investment and administrative activity. In matters relating to plan design and funding, the broader interest of the Church and participating employers should also be considered. 4. All Plan-related activities will comply with legislation (e.g., Pension Benefits Act and Income Tax Act), Church policies (e.g., relevant human resources and compensation policies), and Pension Board policies (e.g., plan design, funding, Statement of Investment Policies & Procedures). 5. All Plan-related activities will be based on honesty and understanding and on transparency and full disclosure where relevant and appropriate. Plan Design 6. The design of the Plan should reflect that saving for retirement is a shared responsibility and is dependent on government, employer and individual saving initiatives (the three-legged stool). 7. Saving for retirement using the church s Plan should occur over the course of an employee's service with pastoral charges and other participating employers. 8. Plan members should be encouraged to plan for their retirement income.

6 9. The Plan must be affordable to pastoral charges, other participating employers and members. The pastoral charges and other participating employers should pay the greater share. 10. Market risk should be borne by the pastoral charges and other participating employers. 11. The Plan should provide a life-time retirement income for the member, protection for surviving spouses and beneficiaries and benefits of relatively equal value to members with or without a spouse. 12. Age 65 is appropriate for the normal retirement date. 13. A member who retires at the normal retirement date with 35 or more years of credited service in the Plan with an average earnings history should have an adequate level of retirement income from all sources. 14. Subject to reasonable minimum age and/or service criteria, members should be able to retire earlier than the normal retirement date, with limited additional cost to the Plan as a general rule. However, the Plan should retain the flexibility to provide program enhancements such as the current unreduced pension upon retirement at or above age 60 with 35 or more years of credited service, or special early retirement windows. 15. If a member continues employment with a pastoral charge or other participating employer beyond the normal retirement date, the member should be able to defer pension commencement beyond the normal retirement date on an equitable cost basis. 16. Retirement income from the Plan should maintain its real value over the long term subject to available funding. 17. Accrued benefits belong to members from the date of enrolment in the Plan. Funding 18. Funding levels must ensure a high level of certainty regarding the security of benefits under the Plan. 19. Contributions from the pastoral charges, other participating employers and members should be stable and predictable. 20. The funding mechanisms used for the Plan must be tax effective. 21. Funding of the Plan, including actuarial assumptions and methods, should assume that the Plan will remain a going concern.

7 22. Plan documentation and the legislation enable surplus to be applied to meet contribution obligations of the pastoral charges, other participating employers and members, but otherwise require surplus to be used for the exclusive benefit of the members; however, members do not have any unilateral rights to access surplus while the Plan is ongoing or to force a wind-up of the Plan. 23. Cost effectiveness in spending and efficiency in operations will guide utilization of the Fund assets and Church resources in Plan related activities. 24. Equity among the membership generations is desirable in terms of contribution levels and allocation of surplus to fund future benefit upgrades or Plan improvements. Investment 25. Investment markets provide opportunities to produce a real rate of return and an inflation component. 26. Investment-grade conventional bonds and conventional mortgages provide a measure of certainty for the Fund's ability to pay future plan benefits, since these securities have guaranteed periodic investment income and guaranteed principal values at their maturity. 27. Asset classes like equities, real estate, real return bonds and real return mortgages are likely to offer better inflation protection than conventional bonds and conventional mortgages. 28.A. Investment in equities offers the potential for higher total investment returns over the long term than would be the case if the Fund invested solely in conventional bonds and conventional mortgages, enabling lower contributions to fund the Plan's anticipated benefits. B. The risk from equities not having guaranteed periodic investment income and guaranteed maturity values and dates is adequately compensated for by the higher expected return over the long term. 29. Investment in established foreign capital markets offers the potential for higher total investment returns over the long term than if the Fund were invested solely in Canadian investment vehicles, since the Canadian market capitalization is approximately 2% of world market capitalization in public companies and Canada does not provide access to many quality industries and companies. 30. Diversification reduces volatility. 31. Non-traditional investments may improve the total investment returns over the long term, but should be used only if they are fully understood, well proven in the market place and priced appropriately. 32. It is important to avoid, whenever possible, having to sell a significant part of the portfolio in a bear market to meet the benefit payment obligation.

8 33. Socially responsible investment procedures can be employed provided there is reasonable assurance that the best long term interest of the members is being served. 34. Investment processes should be cost-effective, prudent and provide value-added return. 35. Active management adds value in most asset classes over the long term. It is possible to manage a portfolio with considerably fewer holdings and different industry weightings than the benchmark index with the objective of adding value. 36. Indexed products can add value in certain asset classes and geographies by lowering costs, enhancing transactional ease and/or increasing market exposure. 37. Derivatives such as options, swaps and hedges and short-selling can add value by reducing various risks such as market risk, interest rate risk, credit risk, liquidity risk and currency risk. Derivatives and short-selling should never be used for speculative purposes.

9 The United Church of Canada Ministry and Employment Executive Officer Alan Hall Program Assistant Stefanie UyesugiCooper Team Leader & Project Manager Pension & Benefits David Dawrant Manager, Pension & Benefits Admin. Vacant Pension & Benefits Admin. Supervisor Jennifer Miscio Benefits Analyst Althea Wray Pension Administrator Edizon Hernaez Benefits Administrator Lautaro CastilloOliva Pension Administrator Katherine Armani Benefits Administrator Suhujitha Parasuraman Pension Administrator Blake Ball Manager Pension Governance & Communications Shenagh Rosa Data Administrator Pension & Benefits Anna Di Vito Benefits Specialist Margaret Kowalczyk Pension Training Coordinator Rose Canlas (.60 ) term to Dec 31/18 Program Assistant Vacant Operational Organization Chart Prepared by: Employee Relations - 9/12/2018 Pension & General Fund Manager Derek Hurst

10 Permanent Committee on Ministry and Employment Policies and Services October 3, 2018 For Information THIRD PARTY ADMINISTRATOR TRANSITION Origin: Staff Update McAteer took over as the third party administrator July 1, The transition progressed slowly with most major milestones not being delivered despite considerable efforts from United Church (UCC) staff to move things forward. In view of this, the Pension Plan Advisory Committee (PPAC) in November/December 2017 retained an independent pension systems consultant (Linea Solutions) to provide a preliminary assessment for a sustainable pension and benefits administration model for The United Church of Canada. The Pension Board received Linea s report and approved their proposed co-sourced administration model, whereby staff at the General Council Office administer the plans in-house using a customized off-the-shelf administration system. Work on that project, the Pension and Benefits Administration Stabilization Project ( PABAS ), is currently underway. This decision did not contemplate McAteer playing a long term role so the decision was taken to terminate McAteer s contract with six month s notice. McAteer ultimately agreed to the terms of the proposed co-operative disengagement with no penalties levied. McAteer drafted a disengagement plan that effectively removed themselves from any significant service delivery after September 1. To meet this transition plan, staff worked with Linea and two other external consultants to ensure that UCC was in a position to effectively assume full administration by then, namely by developing bridging tools to support key administration activities and leveraging staff s expertise. Further, additional staff resources were hired to adequately support day-to-day operations and the PABAS project, increasing the complement of pension and benefit administration staff from seven to eleven. Work on the PABAS project continues in earnest. The Project Team has defined and named the two elements of the project as follows: Exodus the bridging solution to support administration from September 1, 2018 until the target operating model is operational Elysium the target operating model supported by the customized off-the-shelf solution. The demands of transitioning administration from McAteer at short notice has required the PABAS project team to reprioritize tasks in order to ensure staff were adequately equipped to assume administration from McAteer effective September 1, To achieve this, resources were diverted to Exodus, which has pushed out work in relation to Elysium. Tentatively, Phase 4 is scheduled for January 1, 2019, subject to Pension Board approval. PAGE 1

11 Permanent Committee on Ministry and Employment Policies and Services October 3, 2018 Staff will provide an update, if any, at the meeting. PAGE 2 For Information