May 27, 2016Annual Conference Saskatoon Canadian University Pensions A diverse landscape Multiple jurisdictions and rules Undergoing profound change

May 27, 2016Annual Conference Saskatoon Participants in the Pension Game –Pensioners and Sponsors (Employer(s)) –Trustees (appointed by sponsor) –Investment Manager(s) (hired by sponsor) –Plan Administrators –Actuaries (“accountants without the personality”) –Govt. Superintendents of Pensions –Canada Revenue Agency

May 27, 2016Annual Conference Saskatoon Traditional Defined Benefit Plans –Formula of years and salary determines pension –“The Gold Standard” when indexed –Employer/sponsor bears risk Many Defined Contribution Plans –Capital accumulation determines pension –Saskatchewan since 2003? –Employee bears almost all the risk Some Target Benefit Plans –Shared risk, adjustable depending on plan funding

May 27, 2016Annual Conference Saskatoon Governance –Provincial Regulations Dominate –CRA Limits in Income Tax Act –Federal Regulations for Federal Plans –Actuaries’ professional principles limit assumptions wrt liabilities and return on assets Coordination –CAPSA for regulators & trustees –ACPM for sponsors and administrators –PIAC for investment

May 27, 2016Annual Conference Saskatoon Tenets of pension plan operation –The “Pension Promise” Deliver what was contracted –Fiduciary Duty The reasonable person principle for investing Applies to db/dc/tb plans

May 27, 2016Annual Conference Saskatoon Health of a db pension plan –Going concern and solvency tests –Rooted in anachronisms of pensions being funded by bond investments –Low bond rates means more capital required to fund pensions –Very low rates since 2009 have induced huge deficits which must be funded

May 27, 2016Annual Conference Saskatoon Health of a DB Plan (cont’d) –Longevity improvements have increased capital requirements –The need to match investments and benefits becoming more difficult –Few asset classes guarantee long term stability at required ROR CPPIB won’t invest in firms with DB plan

May 27, 2016Annual Conference Saskatoon Bank of of Canada Declaration of April 2016 –“Pension plans in Canada should get used to low interest rates” –In order to encourage economic growth in Canada rates are not going up in the near future (low dollar to assist exports, low rates to enable borrowing)

May 27, 2016Annual Conference Saskatoon Who funds pension plan deficits? –Sponsor for sponsor governed –Sponsor and employees for jointly governed –Maybe pensioners also under some revised legislation/regulations

May 27, 2016Annual Conference Saskatoon University Funding of Pension Plan Deficits –Drain on operating budget subtracts from other expenditures (e.g. salaries/maintenance/libraries vs pensions) –Boards and governments want to minimize or eliminate these special extra payments –Could be catastrophic as %age of operating budget

May 27, 2016Annual Conference Saskatoon Measures to address special payments –Unilateral changes in the government regulations Grant temporary or permanent solvency payment relief (NS, ON) Decrease benefits explicitly or implicitly (NB, PQ (Bill 75)) –Negotiate changes Ontario University Pension Project –Switch to jointly governed model from employer sponsored –Invest jointly for all member universities (Alberta model) »Varying investment experience between universities –Grant permanent solvency relief (the carrot in the mailed fist)

May 27, 2016Annual Conference Saskatoon Other Complicating Factors –Possible expansion of CPP Could reduce benefit level required depending on integrated or stacked with university plan Canada wide except QPP –Possible introduction of Ontario Pension Plan Universities likely exempt

May 27, 2016Annual Conference Saskatoon CURAC Pension Committee Activities –Monitoring new legislation and proposals Providing comment to Board when appropriate –Seeking membership from Manitoba to BC to fill oversight of university plan activities in those provinces

May 27, 2016Annual Conference Saskatoon Questions? Comments?