1999 Academic Pension Plan Annual Report to Membership July, ACTUARIAL VALUATION at December 31, 2012

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1 1999 Academic Pension Plan Annual Report to Membership July, 2013 The primary purpose of this report is: to review the actuarial valuation information and contribution requirements of the 1999 Academic Pension Plan as at December 31, 2012 to review investments and investment performance of the Plan in 2012 to report on the activities of the Academic Defined Benefit Pension Committee (ADBPC) ACTUARIAL VALUATION at December 31, 2012 Membership Data Active members Other members (inactive, deferred, pending transfers) Average age of membership 58.7 years 58.1 years Average pensionable service 20.3 years 19.6 years Average pensionable salary $123,612 $119,583 Expected average remaining service 6.0 years 6.3 years Pensioners & Beneficiaries Average annual pension $39,327 $39,280 Number of temporary pensioners Average temporary monthly pension $3,962 $4,202 Average temporary pension total number of payments remaining 31.9 months 30.9 months Going-Concern Financial Position of the Plan The financial position of the Plan on a going-concern basis is measured by comparing the market value of assets to the actuarial liabilities assuming the Plan is continuing for the long-term. The actuarial valuation performed as at December 31, 2012 shows that the Plan, on a going-concern basis, is in a deficit position of $8.8 million as per the summary table below. Comparative numbers as at December 31, 2011 are also provided. 1

2 Going-Concern Financial Position Assets Fund value (net assets available for benefits) $ 151,158,000 $ 143,560,000 Liabilities Present value of accrued benefits for active members $ 94,327,000 $ 94,443,000 Pensioners 48,775,000 42,284,000 Temporary pensioners 2,646,000 2,280,000 Other members (inactive, deferred, pending transfers) 6,133,000 8,155,000 Present value of future benefits to be paid in excess of future contributions 3,656,000 3,642,000 Voluntary and transferred contributions 1,842,000 1,793,000 Defined contribution account balances 417, ,000 Transfer deficiency holdbacks 2,244,000 1,358,000 Total actuarial liabilities $ 160,040,000 $ 154,373,000 Surplus/(Deficit) $ (8,882,000) $ (10,813,000) Contribution Requirements The Plan last filed a valuation report with the regulators at December 31, The going concern deficiency established at December 31, 2009 is being amortized over a period of fifteen years, or until the next funding valuation is certified, with monthly payments being paid by the University. The December 31, 2012 valuation is required to be filed with the regulators by September 30, Contribution Requirements based on actuarial valuation at the prior year end December 31 st % of Earnings Total going-concern current service cost 20.90% 20.51% 17.72% Member fixed rate contributions 8.50% 8.50% 8.50% Employer fixed rate contributions 8.50% 8.50% 8.50% Additional employer current service contributions 3.90% 3.51% 0.72% Funding Requirements The actuary has concluded that current contribution rates continue to be insufficient to pay for the benefits currently accruing to members of the plan. The valuation report at December 31, 2012 revealed a current service cost deficiency of 3.90%. Total payments to the plan for the current service cost deficiencies based on the last filed valuation report at December 31, 2009 are outlined in the following table. Payments for Jan 1, 2014 and onward will be updated once the valuation report has been finalized and filed with the regulators. 2

3 Required Monthly Special Payments (With Solvency Relief) Monthly deficit required contributions Jan 1, 2013 to Dec 31, 2013 Jan 1, 2012 to Dec 31, 2012 Current Service Cost Deficiency $2,753 $2,753 Total Annual Payments $33,036 $33,036 Solvency Position of the Plan (Hypothetical Wind-Up) The Pension Benefits Act (Saskatchewan) requires the University to review whether the assets of the Plan would be sufficient to cover the liabilities of the Plan in the event of a plan wind-up. The actuarial valuation performed as at December 31, 2012 shows that the Plan, on a hypothetical wind-up basis, is in a deficit position of $54.2 million. The solvency ratio at December 31, 2012 is 74%. Solvency Financial Position Solvency assets $ 151,158,000 $143,560,000 Solvency liabilities 205,401, ,615,000 Surplus (Deficit) $(54,243,000) $(51,055,000) Solvency ratio(assets/liabilities) Temporary Solvency Deficiency Payment Relief In 2010, The Pension Benefits Regulations, 1993 was amended to provide temporary relief from solvency deficiency funding for sponsors of defined benefit plans. The university undertook to elect for temporary solvency relief in compliance with regulations for the valuation report filed at December 31, This relief provided for a three year moratorium from funding a solvency deficiency and was in effect until December 31, 2012 when an actuarial valuation must be filed with the regulators. In the spring of 2012 the Saskatchewan Financial Services Commission, Pensions Division released a Consultation Paper New Funding Regime for Public Sector Plans for comment. The intent of the paper was to seek feedback on establishing new funding rules for all public sector plans. New regulations have been drafted for Public Sector Pension Plans, proposing the elimination of the solvency funding test, but with enhanced going-concern payments whereby payments are required over a 10 year period as opposed to the current 15 year amortization period. To date, the new regulations have not been approved by the provincial government; however through discussions with the Pension Division, we are confident that the regulations will be approved as drafted. Once that occurs, the valuation report will be finalized and filed with the regulatory authorities. 3

4 Transfer Deficiency Requirements Because the solvency relief provisions do not apply to lump-sum payments, as the plan has a solvency ratio of 0.85 (determined in the valuation at December 31, 2009), it is necessary to withhold 15% of any lump-sum payments. The amount withheld, referred to as the transfer deficiency, will be paid out with interest at the end of the five-year period following the date of original payout (or earlier in the event of plan surplus). This provision does not impact members retiring and commencing a pension from the plan. Once the valuation at December 31, 2012 is filed with the regulators, the solvency ratio will change to 0.74 and 26% of all lump-sum payments will be withheld. Transfer Deficiency Payout Example Applies to individuals who terminate employment and elect to transfer the lump sum value of their entitlement out of the plan When a plan has a solvency deficiency, legislation requires that a portion of every lump sum (LS) payment be held back Transfer Deficiency = Portion of LS held back = (1- solvency ratio) x total LS entitlement Example Date of termination = May 30, 2013 Total LS entitlement = $200,000 Solvency ratio = 0.85 LS payment on May 30, 2013 = 0.85 x $200,000 = $170,000 Transfer Deficiency payment on May 30, 2018 = (1 0.85) x $200,000 = $30,000 (plus interest) INVESTMENTS of the PENSION PLAN at December 31, 2012 Market Value of Pension Plan Assets By Asset Classes 2012 ($000) % of Market Value Canadian Equities $ 23, Non-Canadian Equities 62, Total Equities $ 86, Bonds $ 61, Short term investments 3, Total Fixed Income $ 64, Total Market Value $ 151,

5 By Investment Manager 2012 ($000) % of Market Value Jarislowsky Fraser Limited $ 51, BlackRock Asset Management 81, Tweedy Browne 18, Investment Performance The long-term investment goal of the Plan is to achieve a minimum annualized rate of return of 4.25% in excess of the Canadian Consumer Price Index. To achieve this goal, the Plan has adopted an asset mix that has a bias in favour of equity investments. The responsibility for investing the assets of the Plan has been delegated to three professional investment fund managers with different mandates to ensure adequate investment diversification. The Plan s Return Benchmark is a performance standard developed by the Plan s Investment Consultant, Aon Hewitt. The Academic Defined Benefit Pension Committee and the Board of Governors have approved the benchmark. The investment fund managers of the Plan are expected to meet or surpass the benchmark. Investment Performance 2012 Last 4 years Last 10 years Plan return (gross) 9.8% 8.0% 6.0% Plan return benchmark (gross) 8.6% 7.7% 5.6% Consumer Price Index 0.8% 1.7% 1.8% ACADEMIC DEFINED BENEFIT PENSION COMMITTEE (ADBPC) Committee Members Faculty Association Appointees: Board of Governor Appointees: E. Cristina Echevarria, Economics Laura Kennedy, Financial Services Rob Roy, Bioresource Policy Business & Martin Gonzalez, Consumer Services Economics Marion Van Impe, Financial Services (retired) Gordon Sarty, Psychology Observer: Al Rung, ASPA Meetings of the Committee The Academic Defined Benefit Pension Committee met 7 times during the year. Acting in its capacity as managing fiduciary, the Committee is responsible for the oversight of the 1999 Academic Pension Plan operations, including funding, investment, and administration of the Plan. The Committee activities over the past year in fulfilling these responsibilities are outlined in the following table. 5

6 Meeting Date Time Purpose allocated September 20, hours *Quarterly Investment Performance Review to June 30 th * Investment Manager presentation: Jarislowsky Fraser * Annual General Meeting Review November 20, hours *Quarterly Investment Performance Review to Sept 30 th * Statement of Investment Policies & Procedures review January 25, hours * Liability Driven Investing education session *Investment Manager review of Jarislowsky Fraser: Aon Hewitt * 2012 Annual Credited Interest Rate approval March 11, hours *Quarterly Investment Performance Review to Dec 31 st *Investment Manager presentation: Tweedy Browne April 16, hours *2012 Actuarial Valuation Review *Funding Policy Review May 22, hours *Quarterly Investment Performance Review to Mar 31 st *Investment Manager presentation: BlackRock June 12, hours *Financial Statements at December 31, 2012 Review 1999 ACADEMIC PENSION PLAN INFORMATION Plan Documents Copies of the following documents are on file in the Faculty Association office and the office of the Director of Pensions (Financial Services). They are available for inspection by any member of the Plan during regular working hours by prior arrangements. Plan Text * Actuarial Reports Financial Statements * Auditor s Reports Committee meeting agendas and minutes Other Agents of the Plan Actuary: Investment Consultant: Custodian: Aon Hewitt, Saskatoon Aon Hewitt, Regina CIBC Mellon Global Securities Pension Administration & Support: Pensions Office, Financial Services Room 220, Research Annex, 105 Maintenance Road Please contact the Pensions Office at or any member of the Academic Defined Benefit Pension Committee if you have any questions about the items covered in this newsletter. 6