Board of Governors PENSION & BENEFITS …2016/02/26 · Pension and Benefits Committee Report on...

Board of Governors PENSION & BENEFITS COMMITTEE

Friday 26 February 2016 9:30 a.m. to 12:00 noon

NH 3318

OPEN SESSION ACTION

9:30 1. Approval of the 15 January 2016 Minutes* and Business Arising Decision

2. Execution Against the Work Plan* [Grivicic] Information

9:35 3. Update on Government Pension Plan Initiatives [Shapira] Information

9:45 4. Preliminary Valuation Results+ [Shapira/Byron] Decision

11:00

11:20

5. Cost-of-living Increases* [McGrath]a. Pensionersb. Deferred Members

6. Salaries for Pension for Individuals on LTD* [McGrath]

7. Changes to Investment Governance [Huber]a. Proposed changes* circulated to pension plan stakeholder groups

8. New Pension Administration Systems* [McGrath]a. Online Pension Estimator Toolb. Total Retirement Income Estimation Tool

9. Other Business

10. Proceed into Confidential Session

CONFIDENTIAL SESSION

Decision

Decision

Information Information

Information, decision for March meeting

11. Next Meeting: Friday 11 March 2016, 9:30 a.m. – 12:00 noon in NH 3318

*attached** to be distributed

+ distributed separately

Originally issued 19 February 2016 Amended 25 February 2016

Mike Grivicic Assistant University Secretary

Please convey regrets to Cindy Baker at 519-888-4567 x32623 or [email protected]

P&B 26 February 2016, page 1 of 21

mailto:[email protected]

University of Waterloo

Board of Governors PENSION & BENEFITS COMMITTEE

Minutes of the Friday 15 January 2016 Meeting Present: Monika Bothwell, Lori Curtis, Stewart Forrest, Peter Forsyth, Mary Hardy, Dennis Huber, David Kibble, Ramesh Kumar, Ian Orchard, Michael Steinmann, Marilyn Thompson, Christine Wagner, Karen Wilkinson [chair] Regrets: Marta Witer Secretariat: Sian Williams Guests/Resources: Linda Byron, Sarah Hadley, Lee Hornberger, Allan Shapira, Alfrieda Swainston Organization of Meeting: Karen Wilkinson, chair of the committee, took the chair, and Sian Williams, secretary of the committee, acted as secretary. The secretary advised that a quorum was present. The agenda was approved without a formal motion.

OPEN SESSION 1. APPROVAL OF THE 11 DECEMBER 2015 MINUTES and BUSINESS ARISING The committee heard a motion to approve the minutes of the 11 December 2015 meeting as distributed. Wagner and Forsyth. Carried. There was no business arising. 2. EXECUTION AGAINST THE WORK PLAN The report was received for information. 3. UPDATE ON GOVERNMENT PENSION PLAN INITIATIVES Ontario University Sector JSPP. Shapira informed the committee that the group of universities which, along with their employee group representatives, were going to submit a report to the Ontario government by the end of 2015, will now be submitting their report at the end of January 2016. The group of universities currently consists of University of Toronto, Queen’s University, University of Guelph, Wilfrid Laurier University and Trent University. 4. ACTUARIAL VALUATION ASSUMPTIONS Shapira provided a PowerPoint slide presentation to the committee to accompany the hard copy report. The presentation provided a review to the committee in regard to actuarial assumptions for the purpose of setting the actuarial assumptions to use for the January 1, 2016 actuarial valuation of the Registered Pension Plan (RPP) and the Payroll Pension Plan (PPP). It was understood that the January 1, 2016 actuarial valuation of the RPP is not required to be filed with the pension regulators. The next required valuation for regulators must have an effective date no later than January 1, 2017. The committee heard a motion to approve the assumptions as outlined by Shapira in the report which was presented, which are the same as last year, except that the discount rate is reduced from 3.75 percent real to 3.70% real, and that Aon Hewitt shall include in their report a sensitivity analysis on the impact of applying a 3.60% real rate of return. Huber and Forrest. Carried 5. INVESTMENT STATUS OF THE PAYROLL PENSION PLAN Hadley presented a hard copy report for the month ended December 31, 2015. The committee was informed that the payroll pension plan is appropriately funded. 6. NEXT MEETING The next meeting will be held on Friday 26 February 2016 from 9:30 a.m. to 12:00 p.m. in NH 3318.

17 February 2016 /mg

Sian E. Williams Associate University Secretary/ Senior Legal Counsel


Pension & Benefits Committee, Board of Governors, University of Waterloo Execution against Work Plan

The below represents the annual responsibilities of the P&B Committee and has been prepared as an aid to planning only. The committee’s activities are much broader, however, and include: legislative changes, plan changes and improvements; selection of managers and service providers; and requests from the UW community regarding pension and benefits plans.

1 The 2015 version of the SIPP was approved by the Board of Governors at its 27 October 2015 meeting. There is also a need to consult with the community on the incorporation of environmental, social and governance factors into investment decision-making. So the annual review of the SIPP will be deferred until after consultation takes place. 2 1 January 2014 Actuarial Valuation Report was filed in July 2014.

Task Frequency 27 Mar 2015

22 May 2015

19 Jun 2015

11 Sept 2015

09 Oct 2015

13 Nov 2015

11 Dec 2015

15 Jan 2016

26 Feb 2016

Approval of Actuarial Valuation Assumptions Annual

Approval of the Statement of Investment Policies and Procedures (SIPP)

Annual 1

Preliminary Valuation Results (RPP and PPP) Annual

Actuarial Valuations (RPP and PPP) Annual

Actuarial Filing2 Minimum every three years

Cost-of-living adjustment to payroll pension plan limit

Annual

Cost-of-living Increase for Pensioners Annual

Pensions for Deferred Members Annual

Salaries for Pension Purposes for Individuals on Long-term Disability

Annual

Benefits Plan Premium Renewals Annual

Indexing of Long-term Disability Plan Benefits and Maxima

Annual


Pension & Benefits Committee – Execution Against Work Plan

3 Conducted online in May (new procedure implemented for all Board committees starting spring 2014)

Investment Status of PPP Annual

Review of Contribution and Protocol Caps (RPP and PPP)

Annual

Budget Overview Annual

Benefits/Financial Analysis Report Annual

Cost of Removing Life-time Maximum on Out-Of-Province Health Care Coverage for Retirees

Annual

Investment Manager Review Twice

Total Fund Overview Quarterly

Flexible Pension Plan Annual

Previous Years’ Fees and Expenses Annual

Annual Audit of the Pension Plan Fund Financial Statements

Annual

Annual Report to the Community Annual

Indexing of Health and Dental Plan Maxima Annual

Committee Evaluation3 Annual


Pension and Benefits Committee Report on COLA Submitted February 2016 by Sue McGrath, Manager, Pension Services

Cost-of-Living-Adjustment (COLA) Effective May 1, 2016

100% CPI = 1.13%; 75% CPI = 0.8475%

5a. Pensioners – Exhibit for Information Purposes Only Each May 1st automatic cost-of-living adjustments (COLA) are applied to monthly pensions in pay (Article 7). The automatic increase is equal to the ratio of the percentage increase of the Consumer Price Index (CPI) for the preceding calendar year over the percentage increase of CPI for the previous calendar year (COLA Ratio), to a maximum of 5%. Effective January 1, 2014 COLA for pension benefits earned after December 31, 2013 is equal to 75% of the CPI Ratio, and pension benefits earned up to December 31, 2013 attract 100% of the CPI Ratio. If in any year the above ratio is in excess of 5%, the Committee must decide if the adjustment will be restricted to 5% or whether the higher ratio will be applied. If the increase is limited to 5% in any given year, a catch-up increase will be given on a cumulative and compounded basis in the following year or as soon as the Plan resources permit, but there will be no retroactivity in any catch-up increase. Annual Pension Subject to 100% COLA: $ 51.8 million Annual Pension Subject to 75% COLA: $ 0.3 million Action Required: None



5b. Deferred Members – Exhibit to Support Committee Decision COLA applicable to deferred pensions is determined in accordance with Article 7.03(d) of the Plan Text, which requires the cost of living factor to be determined by the Pension Committee each year. The full deferred pension of a member who terminated employment prior to January 1, 2008 is eligible for COLA adjustment. For members who terminated employment on or after January 1, 2008, if as of the termination date the member is within 10 years of normal retirement date or has 20 or more years of continuous service, the full deferred pension is eligible for any COLA adjustment. Otherwise, the pension benefit earned for service on or after January 1, 2008 would not be eligible for the COLA adjustment. Number of Deferred Members entitled to:

100% COLA on entire pension 237 100% COLA on pre 2008 pension only 134 100% COLA on pre 2014 and 75% COLA on post 2013 pension 19 No COLA 111

Total Deferred Members as at December 31, 2015: 496 In November 2015, the Committee approved the following guiding principles for deciding the COLA applied to deferred pensions:

All deferred pension accruals currently eligible for indexation should be treated the same with respect to indexation decisions, subject to any future plan provision changes that provide otherwise;

If indexation is granted in a particular year, it will be at 100% of the increase in the consumer price index (CPI) for pre-2014 service and 75% of CPI for post January 1, 2014 service;

The post retirement cost of living factor “catch up” provision for pensions in payment takes precedence over indexation of deferred members’ pensions; and

Financial status of the plan should be considered by the Pension & Benefits Committee before deciding on deferred indexation (no specific metrics).

Value of COLA adjustment to deferred pensions in 2016 is $0.3 million. Note that this amount is already included in the going concern liability. Action Required: Decision



6. Pensionable Earnings of Individuals receiving Long Term Disability (LTD) Benefits – Exhibit to Support Committee Decision

The pension plan provides that pensionable earnings for members on LTD be adjusted annually by an amount to be determined by the Pension Committee, taking into consideration other factors including the cost of living adjustment awarded to pensioners and the salary increases awarded to active faculty and staff, subject to the Income Tax Act limits. In November 2015, the Committee approved the following guiding principles for deciding the COLA applied to salaries for pension purposes for members on LTD:

Members on LTD are more like active members than other groups receiving COLA increases; and

Therefore, salaries for pension purposes for members on LTD should be indexed by the lesser of 100% of CPI and the range increase for active employees.

As of December 31, 2015, there were 86 individuals in receipt of LTD benefit payments. The range increase effective May 1, 2016 is 1.95% for all employee groups. Value of COLA adjustment to pensionable earnings is $0.2 million. Note that this amount is already included in the going concern liability. Action Required: Decision


UNIVERSITY OF WATERLOO

Committee Governance Consultation respecting proposed changes to the mandates of

Finance & Investment Committee

And Pension & Benefits Committee

of the Board of Governors

Introduction: University administration has become increasingly concerned about the division of responsibilities between the Finance & Investment Committee (“F&I”) and the Pension & Benefits Committee (“P&B”) of the Board of Governors (the “Board”). The Governance Committee of the Board has asked administration to consult with pension plan stakeholders with a view to bringing a final proposal for change to Governance Committee at its March meeting. At that time a recommendation could be considered for sending to the Board at its meeting scheduled for 5 April 2016, and, if approved by Governance Committee and the Board, new mandates for both committees could be in place for the next round of meetings.

Background:

Responsibility for all properties and revenues of the University is vested in the Board by virtue of The

University of Waterloo Act, 1972 (the “Act”). Section 9 of the Act reads as follows:

The funds of the University not immediately required for its purposes and the proceeds of all

property which comes to the hands of the Board of Governors, subject to any trusts affecting

the same, may be invested and reinvested in such investments as the Board of Governors shall

deem advisable.

In addition, the Board has a general residual power to manage and govern the University, except to the

extent that autonomous authority is assigned to Senate. This general power is found in the opening

language of section 14 of the Act. With respect to oversight of the University’s investments, there is

nothing in the powers of Senate (section 22 of the Act) to diminish the Board’s comprehensive

responsibility.

Board committee members share the Board’s fiduciary responsibility for the University’s investments,

but only during the period of committee service, and only to the extent delegated to the relevant

committee through the Board resolution establishing terms of reference.

In the exercise of its responsibilities as outlined in sections 9 and 14 of the Act, and in keeping with

ordinary corporate law respecting the fiduciary obligation to oversee investment and management of all

university resources (including the endowment fund and the pension fund), the Board has vested certain

responsibilities in F&I and P&B as standing committees of the Board. Consistent with terms of reference


2 | P a g e

passed by resolution of the Board, both committees have limited autonomous authority, and reporting

obligations up to the Board.

Under its current mandate, F&I is:

“To review and recommend to the Board, directly or indirectly through [P&B], all UW

investment policies and guidelines, including rebalancing strategies,” and

“To monitor the performance of all external fund managers, to recommend their appointment

to the Board, as required, and to take actions as may be deemed appropriate.”

P&B, meanwhile, is:

“To recommend to the Board the appointment of custodians/trustees and fund managers with

respect to the pension funds”, and

“To recommend to the Board for approval investment policy as described in the Statement of

Investment Policies and Practices.”

Because both mandates provide for consultation between F&I and P&B where the appointment of

custodians/trustees and fund managers for the pension fund are concerned, and because the P&B

mandate provides for consultation with F&I where investment policy is at issue, a joint sub-committee

was created, called the Registered Pension Plan Investment sub-committee (“RPPI”). It is at meetings of

RPPI where inter-committee consultation is intended to take place.

The administration believes that the standards for, and approaches to, management and oversight of

University investment funds ought to be similar across funds. The level of due diligence, for example,

should not vary because the responsibility for different funds is divided among committees. As such,

draft mandates have been developed for a New F&I and a New P&B. There is a concern that the current

committee structure is not nimble enough to take advantage of market opportunities while respecting

the requirements of due diligence and prudent investing.

Recommended Change in Committee Mandates:

It will be the administration’s recommendation to the Board that responsibility for the University’s

investments be re-allocated in accordance with the following changes to the mandates of F&I and P&B:

New Finance and Investment Committee

Under the new structure, F&I would retain responsibility for oversight of University budget development

and operating results relative to budget. Administration is of the view that budget oversight will not add

significantly to the work of the new F&I.

In addition, F&I will be responsible for:

Providing oversight to the management of University investment funds, including performance of

external delegates and specific investments.


3 | P a g e

Making recommendations to the Board on the hiring and firing of external delegates, investment

policies, procedures and guidelines, and ways to address instances of non-compliance and areas of

significant risk.

Making investment decisions within a named dollar amount, with approved managers and

mandates and within approved types of investments, consistent with the approved investment

policies and procedures and in a manner consistent with approved standards of due diligence.

Anything outside of this scope (in particular, new managers, new mandates and new types of

investments) will require Board approval.

Periodic reporting to the community, the Board, and New P&B on investment results.

With one exception, all members of the new F&I will be appointed by the Board from among

community-at-large or Lieutenant Governor-in-Council members of the Board, or from the community

external to the University. From that group, one member will sit on P & B, and one member will sit on

the Audit & Risk Committee of the Board. The exception is that the Board will appoint one additional

member of P&B to F&I.

Registered Pension Plan Investment sub-committee (RPPI): The mandate of the new F&I would obviate

the need for RPPI and so it would be concluded.

New Pension and Benefits Committee:

Responsibility for pension investments is removed from the mandate of P&B and transferred to F&I.

This is consistent with committee mandates in place at University of Toronto, York University,

University of Ottawa and University of Guelph.

F&I will report for information to P&B on pension investments.

P&B will be able to concentrate on benefits and pension plan administration, areas of oversight that

show the most direct benefit to employee groups and retirees.

Membership of P&B will remain the same, except that two members of P&B (one from among the

community-at-large or Lieutenant Governor-in-Council members, and one other member) will now sit

on F&I.

It is the belief of the administration that the current proposal is in the best interests of the institution,

employee groups and retirees, both for now and for the long term, and the administration looks forward

to input from all employee groups and stakeholders.


Ret i rement P lann ing ToolsSue McGrathManager, Pension Services


Agenda1. Retirement Planning Tools Today2. Ariel Member Portal

• Pension Projection Tool (Included)• Retirement Horizon Tool (Option for Consideration)• Comparison

3. Next Steps


Retirement Planning Tools TodayOrganization & Human Development (OHD) Courses• Retirement 101• Defining Your Financial Future

myPENSIONinfo accessed through myHRinfo


myPENSIONinfo• Self service online pension

estimator• View your personal pension data• Estimate your pension at different

dates• View 5 most recent Annual Pension

Statements• Members age 50 and older,

estimate can include: • Salary increases • Vacation Exchange Program for one

time salary increase


myPENSIONinfo (cont.)

Note: “Print Results” provides a 4-page statement


Ariel Member Portal • Homepage sections:

• Pension Projection • Self service online pension estimator

(replaces myPENSIONinfo)• My Pension

• Shows pension payable at age 65 based on most recent projection

• Includes links to functionality including: • Projection • Enables employees to view

personal data • Annual pension statements

• My Plans (will link to HR Website pages as appropriate)

• Tools


Pension Project ion ToolFor the most part, provides equal or improved functionality compared with myPENSIONinfo:• Allows member to perform pension estimates at 3

different retirement dates/ages, prints the details for 1 estimate at a time

• Uses one set of assumptions for estimate(s) being performed - to change assumptions need to perform a new estimate

• Assumptions include salary increase (1 to 5%), change in full-time equivalent

• Models CPP and OAS benefit estimates - considers member’s earnings level but not eligible years of participation/residency

• Provides single income estimate (UW Pension)

• Flexible inputs and uses ARIEL calculation system for projections

However, does not provide functionality to estimate the impact of entering into the Vacation Exchange Program• Tool could be customized to include @ cost of $50,000

Note: “Print Results” provides a 4-page statement


Retirement Horizon ToolTo support employees’ retirement planning, the Horizon tool could be available through Ariel Member Portal

• Allows member to produce total retirement income estimate at 1 retirement date/age at a time

• Has what-if capabilities and allows member to save each estimate

• Incorporates personal savings (e.g. RRSPs, other DB or DC plans)

• Part of holistic retirement planning framework (learn zone, budget worksheet, investor profile)

• Links market return projections with investor/risk profile

• Models CPP and OAS benefit estimates (member’s earnings level, not eligible years of participation/residency)

• Identifies if on track & offers suggestions to get on track

• Illustrative annual expense/income summary for lifetime

• Flexible inputs, uses ARIEL calculation system projections

Cost to implement this tool is $50,000

Cannot be programmed for Vacation Exchange Program


Comparison of Functional i tyStandard Projection Tool

Allows member to perform pension estimates at 3 different retirement dates/ages, prints the details for 1 estimate at a time

Uses one set of assumptions for estimate(s) being performed - to change assumptions need to perform a new estimate

Models CPP and OAS benefit estimates - considers member’s earnings level but not eligible years of participation/residency

Provides single income estimate (UW Pension)

Flexible inputs and uses ARIEL calculation system for projections

Can be programmed for Vacation Exchange Program, at cost of $50,000ORGeneric wording added to tool at no cost, such as “In order to reflect the impact of your actual or potential participation in the Vacation Exchange Program, please increase the pension estimates shown by #% for each year of participation in the Vacation Exchange Program.”

Retirement Horizon

Allows member to produce total retirement income estimate at 1 retirement date/age at a time

Has what-if capabilities and allows member to save each estimate to refer to later

Incorporates personal savings (capital accumulation plans and other DB plans)

Part of holistic retirement planning framework (learn zone, budget worksheet, investor profile)

Links capital market return projections with investor profile/risk profile on file

Models CPP and OAS benefit estimates - considers member’s earnings level but not eligible years of participation/residency

Identifies if on track & offers suggestions to get back on track

Illustrative annual expense/income summary for lifetime

Flexible inputs and uses ARIEL calculation system for projections

Cannot be programmed for Vacation Exchange Program


Next StepsAvailability of a demonstration of Horizon tool • If of interest, could be scheduled within the next 2 weeks

Discuss options at March 11 P&B meeting


UNIVERSITY OF

WATERLOO

Questions?


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