Connections. your 2011 annual report. about your pension pl an. Helping you build a meaningful retirement. Inside. Canada-Wide Industrial Pension Plan

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1 Canada-Wide Industrial Pension Plan Connections Helping you build a meaningful retirement your 211 annual report Welcome to your 211 Annual Report for the Canada-Wide Industrial Pension Plan (CWIPP). The report, which provides a high-level overview of the Plan s financial health, is designed to keep you up to date on how the Plan is doing, where it s invested and how it s being run. As you can see, this year s report follows the same format as last year s report. In other words, it s short and to the point and written in plain language so you can get the information you need quickly and easily. It s all part of our commitment to provide you with clear, concise, and meaningful communications. Inside Message from the Chair Financial and administrative highlights Year in review Five-year financial review Focus on good governance Our Trustees and advisers The final word Whether you re a pension veteran or a brand new member, your CWIPP pension is a valuable benefit one that can help you build a financially secure future. In fact, if you re a long-standing member, your CWIPP pension may well be your key source of retirement income. So, it s important that you understand how the Plan works and that you monitor your benefit closely. As always, we encourage you to read the report along with your personal annual pension statement. Together, these two documents provide important information you need to plan for a successful retirement. In short, the report and statement are all about your pension, your future. If you have any questions or comments about CWIPP, we d love to hear from you. Send us an at lgodel@eckler.ca or call about your pension pl an The Canada-Wide Industrial Pension Plan was established by the Canadian Labour Congress (CLC) in 197 to give small- and mid-sized organizations access to a cost-effective, professionally managed pension plan, so that unionized employees can build a financially secure future. The Plan is what s known as a target benefit pension plan. This means the Plan is designed to provide you with a target amount of lifetime pension based on a pre-set formula. The target amount, however, is just that a target. It is not guaranteed. Your actual pension could be higher or lower depending on whether your employer group has enough money invested in the Plan to fund the full amount of your benefit. (If your CWIPP participating group has a negotiated benefit level instead of a negotiated contribution rate, the rules are different; changes to your benefit level will be based on the terms of your collective agreement.) Each year, the Plan s Board of Trustees provides you with a pension statement showing the percentage of target pension that is currently funded. (It s important to keep in mind that this percentage can change over time). In addition to a target benefit, the Plan offers several valuable features, such as disability benefits, early retirement options and survivor benefits. Contributions are paid by your employer; member contributions are required if agreed to by your union and employer. 1

2 message from the chair Canadian pension plans faced a number of challenges in 211. Despite these tests, CWIPP s Board of Trustees pushed forward with a number of proactive initiatives designed to protect the financial health of the Plan and your personal pension benefit. On the investment front, the Board faced four key challenges during 211. These included: ongoing market volatility (short-term gains and losses), slow economic growth in developed countries, the continuing debt crisis in Europe, and historically low interest rates. Economic challenges Ongoing market volatility and slow economic growth have led to lower-than-expected investment returns. CWIPP s 211 return was.3%. That falls short of the 6.5% needed to fund the pension benefits being earned by members. At the same time, target benefit pension plans like CWIPP continue to be hard hit by low interest rates. Low interest rates affect both investment income and the cost of funding future benefits. (When interest rates are low, the rate of return generated by some interest-rate sensitive investments, such as bonds, tend to be lower. That, in turn, means higher contributions may be needed to produce the funding required to pay the benefits owing to members in the future.) Taking action In the face of these economic challenges, CWIPP s Board is closely monitoring the financial position of the Plan to ensure it remains strong and affordable going forward. To that end, we took decisive action in 211. After a thorough analysis, we adjusted benefit levels for a number of participating groups to better reflect the contribution rates of those groups. Some groups saw benefit levels go up, some saw them go down. The benefit level adjustments have helped maintain the Plan s funding position, despite challenging investment returns. As of December 31, 211, the Plan as a whole was 94.7% funded (compared to 95.3% at year-end 21). In other words, the Plan had 94.7% of the money needed to fund the future pensions owing to members, based on the service already earned. Given stable investment markets, reasonable interest rates, and proactive Plan management, we re optimistic that CWIPP s funded position will improve over time. Moving forward CWIPP continued to move forward on several other fronts during 211. For example, we: restructured the Plan s foreign investment portfolio to reduce investment risk and take advantage of growth in emerging markets; conducted an annual valuation (financial check-up ) to closely monitor the Plan s funded status; responded to survey results and enhanced direct communication with members; and reinforced our governance framework and investment platform, so we are prepared to navigate future challenges. Building a stronger CWIPP During 211, CWIPP s Board welcomed three new Trustees and said sad farewells to three others who had served the Plan well for many years. I am grateful for the experience, dedication and commitment of Trustees current and past. They all have shown a steadfast commitment to serving the best interests of members. Even though 211 was a busy and challenging year, we accomplished a great deal. That work will continue throughout 212 as we labour to build a stronger CWIPP for members. It s all about making the tough decisions today, to help provide meaningful financial security tomorrow. Bob Baldwin Bob Baldwin Board Chair and Facilitator For details on the Plan s many achievements in 211, refer to the Year in review on page 4. 2

3 financial and administr ative highlights Value of the pension fund vs. Cost of pensions owing (at December 31; in millions of dollars) Annual rate of return: Return for our fund vs. the typical balanced fund (Before investment expenses) Our fund Value of the pension fund 1 Cost of pensions earned by members 2% Typical balanced fund 1 (millions) 15% 25 1% 2 5% 15 % % % % -2% 1. These figures have been calculated using smoothing. Smoothing spreads market gains or losses over an extended period in this case, five years by averaging actual and expected investment returns. 1. A balanced fund is an investment fund that invests in both stocks and bonds. Asset mix (at December 31, 211) Service activity Cash 2.7% Canadian equity 31.4% Lump-sum payments 1 1, Pensions started Member information sessions 13 8 On-site employer visits Fixed income 4.3% Foreign equity 25.6% 1. Includes payments to members who leave the Plan before retirement and to the beneficiaries of members who die before retirement. Membership (based on active participating employers at December 31, 211) Sector Members Active Inactive Pensioners Total Manufacturing automotive 1, ,599 3,712 Manufacturing other ,78 2,239 Service 2, ,181 3,425 Other ,7 Total 5, ,135 1,446 Participating employers (active) 94 3

4 year in review Administration The Board approved a Plan change that will allow the members of participating groups to contribute to the Plan, provided their union and employer negotiate member contributions. (If member contributions are negotiated then all the members of that participating group must contribute; member contributions cannot exceed employer contributions). Member contributions will be used to enhance the pension benefits of the participating group. Benefit levels were adjusted to better reflect the contribution rates of participating groups. Benefit levels went up for those members contributing more than required and down for those members contributing less than the amount needed to fund the benefits being earned by members. The Board lifted a suspension on benefit level increases introduced in December 28. As a result of this change, benefit level increases can now be considered for participating groups that have a contribution rate high enough to fund the benefits being earned by members. Services In response to member feedback gathered during the 21 survey, CWIPP introduced direct member communications. This means that all communications including CWIPP annual statements are now being sent to members at their home address. In the past, CWIPP relied on employers to distribute communications to members. CWIPP launched Connections, a newsletter for members. The first issue of Connections was mailed to members in February 211 and summarized the results of a recent member survey. The decision to produce Connections confirms CWIPP s commitment to build member understanding and appreciation. CWIPP launched Dispatches, a newsletter-style communiqué for participating unions and employers. Dispatches is designed to help keep employers up-to-date with CWIPP-related news and information. CWIPP reformatted its annual report as an issue of Connections so that it could be printed and distributed to all members in their annual statement package. In the past, the report was only available online. Providing every member with their own copy of the report, which provides an overview of the Plan s financial position, demonstrates CWIPP s commitment to open and clear communication. CWIPP held eight member education sessions, to help members better understand the workings and value of their pension plan. Investment To better manage risk, CWIPP split its foreign investment portfolio between two asset managers, both with a strong track record. (Previously, the portfolio was managed by a single asset manager who failed to meet investment targets.) Funding An annual valuation (financial check-up ) was conducted to ensure the Plan will have over the long term the funds it needs to pay the pensions owing to members. Governance The Board reviewed the Plan s investment and funding policies to ensure they continue to reflect the Plan s long-term investment goals and funding needs. To ensure new Board Trustees have a solid understanding of CWIPP, the Board held Trustee education sessions. Sessions were designed to reinforce CWIPP s commitment to governance best practices and emphasized the legal responsibility of Trustees to represent the best interest of Plan members. 4

5 fi v e - year financial review (in millions of dollars) Assets available for benefits at beginning of year Contributions from employers Net gains (losses) from the sale of assets (5.7) Net gains (losses) based on the market value of assets (1.8) (52.2) (8.1) Investment income Other Total income (27.8) 25.9 Pension payments Termination payments Transfers to other plans Operating expenses Total disbursements Assets available for benefits at end of year The increase in termination payments in 29 was due to an economic downturn that resulted in an unusually high number of layoffs and business closures in the manufacturing sector. 2 Amounts shown are based on market value; they have not been smoothed. Numbers may not add up exactly due to rounding Actuarial liabilities Liabilities are as of December 31 and assume that the Canada-Wide Industrial Pension Plan will continue to operate over the long term. Some of the economic and demographic assumptions used to project future returns and pension costs may change from year to year. 4 Restated based on final versus preliminary year-end results. Annual rate of return 5.3% 8.7% 17.7% -18.5% 2.5% Typical balanced fund 6 -.6% 9.9% 15.7% -15.7% 1.6% 5 Before expenses Source: Eckler Ltd. universe of funds (before expenses). 5

6 focus on good governance To help ensure that the Plan is managed effectively on behalf of all members, your Canada-Wide Industrial Pension Plan uses a clear and effective governance model that reflects industry best practices. In a nutshell, here s how it works: The Plan is governed by an independent Board of Trustees. Currently, the Board has six members, including three industry-appointed Trustees and three union-appointed Trustees. The Trustees appoint an independent Facilitator to act as Board Chair. In the event of an impasse, the Facilitator can be called on to make a final decision. The Board is responsible for all aspects of the Plan, including Plan changes, establishing investment policy, monitoring investment performance, and overseeing Plan administration. The Board selects and monitors the professional advisers that support the Plan. Trustees have a fiduciary duty legal obligation to act in the best interests of all Plan members. The Board delegates day-to-day administration of the Plan to the Plan administrator a dedicated team at Eckler Ltd., one of Canada s leading pension consulting firms. Investment of the Plan s Trust Fund has been delegated to five separate investment firms. Investment managers are regularly monitored throughout the year and must adhere to the Board s Statement of Investment Policies & Procedures. With a solid governance structure in place, we have what it takes to make sure your pension is invested wisely, is managed efficiently, complies with legislation, and serves your best interests now and in the future. our trustees and advisors BOARD OF TRUSTEES Clayton Dahl Retired Dennis Bolden RB&W Corporation of Canada Cara MacDonald CAW Canada Terry Moore hrdownloads.com Jeff Richardson United Steelworkers Chris Roberts Canadian Labour Congress BOARD FACILITATOR & CHAIR Bob Baldwin (Board Facilitator and Chair) Consultant BOARD ADVISERS Auditors Deloitte & Touche Actuary Eckler Ltd. Trustee/Custodian RBC Dexia Investor Services Fund Managers Aberdeen Asset Management Jarislowsky Fraser Ltd. Fiera Sceptre Inc. Walter Scott J. Zechner Associates Inc. Plan Administrator Eckler Ltd. The final word This bulletin is intended to inform members of the Canada-Wide Industrial Pension Plan about certain aspects of their pension plan. Complete descriptions of the Plan are contained in the official Plan documents. Every effort has been made to provide an accurate summary of Plan features. If there are any differences between the information contained in this bulletin and the legal documents, the legal documents will rule. While it is our intention to continue offering a pension plan indefinitely, the Plan s Board of Trustees reserves the right to change, amend or terminate the Plan at any time, and may be required to do so if there are changes in legislation. 6