HRM Pension Plan Town Hall Information Sessions DRAFT HRM Pension Plan Town Hall Information Sessions November 21 & 22, 2012 “Meeting funding challenges” Terri

DRAFT Disclaimer Please note that the information provided in this presentation is based on estimated data and current plan provisions. A formal Actuarial Valuation at December 31, 2012 will be prepared when the required member and financial data is available in late spring of 2013. Terri slide #2

DRAFT Background HRM Pension Plan (HRMPP) is a multi-employer plan governed jointly by the stakeholders: HRM, ATU, CUPE, HRPA, IAFF, NSUPE, NUMEA, and retiree representation Pension Committee is responsible for the administration of the plan, including the results of the Actuarial Valuation: Reviews the adequacy of the HRMPP's funding Recommends contribution rate changes Recommends benefit changes Terri slide #3

The Benefit / Contribution Relationship DRAFT The Benefit / Contribution Relationship A Pension fund is a net accumulation of: *Contributions *Pension Benefits *Investment *Expenses income Terri slide #4

Solvency Exemption - Still waiting on the Province! DRAFT Solvency Exemption - Still waiting on the Province! Estimated Financial Position at 31-Dec-2011 (Solvency) Actuarial value of assets $1,175,502,000 Present value of accrued benefits 1,844,618,000 Solvency deficit $ 669,116,000 Funded ratio 64% Estimated anticipated contribution rates, including Solvency Deficit payment: Current Service Going Concern Solvency Total 16.1% 4.3% 24.6% 45.0% (shared 50/50) Terri slide #5

HRM Master Trust Returns as of September 30, 2012 DRAFT HRM Master Trust Returns as of September 30, 2012 Terri *Effective September 2012, the Policy Benchmark is 8.05 % S&P/TSX Index + 7.40% S&P/TSX 60 + 2.75% S&P 500 Index ($CAN) + 6.55% S&P 500 Index($USD) + 8.35% MSCI EAFE Index ($CAN) + 4.50% MSCI World Index ($CAN) + 4.55% MSCI Emerging Markets (CAN$) + 0.45% MSCI China A-shares Index ($CAN) + 45.20% Canadian Bonds + 12.20% Min. Target Return . Effective Sept 30, 2012, the Canadian Bond Policy was 40.30% DEX Universe Bond Index, 45.10% DEX Long Government Bond Index and 14.60% 3-month Canadian Banker Acceptances. slide #6

Estimated Going Concern Deficit DRAFT Estimated Going Concern Deficit Financial Position at 31-Dec-2011 Actuarial value of assets $1,176,502,000 Present value of accrued benefit obligations 1,311,495,000 Going-concern deficit at 31-Dec-2011 $134,993,000 Funded ratio 90% Expected increased deficit due to projected cost of accrued benefit obligations: $132,332,000 Potential deficit at 31-Dec-2012 $267,325,000 Potential funded ratio at 31-Dec-2012 82% Terri slide #7

DRAFT What Does this Mean? Current member and employer contribution rates (approximately 20.7% of pensionable earnings) are sufficient to fund future benefits and part of the deficit: Potential deficit at 31-Dec-2012 $267,325,000 Cost of future service benefit obligations and part of the deficit $127,991,000 Additional deficit to be addressed $139,334,000 Terri slide #8

DRAFT How to Close the Gap? The additional deficit of approximately $139,334,000 needs to be addressed How? Two options to address the additional deficit: Increase contributions Reduce future service benefits and increase contributions by a smaller amount Terri slide #9

Meeting Funding Challenges DRAFT Meeting Funding Challenges If the gap is to be closed by contribution increases only: Employee contribution rates would increase by approximately 2% of earnings Employer contribution rates would increase by approximately 2% of earnings slide #10

Meeting Funding Challenges DRAFT Meeting Funding Challenges Gap could be decreased by reducing future service benefits. Possible benefit reductions explored: Benefit Current Consideration Average earnings period Best 3 consecutive years Best 5 consecutive years Unreduced early retirement Earlier of age 60 and Rule of 80 (Rule of 75 for some PSO Members) Earlier of age 60 and Rule of 85 (Rule of 80 for some PSO Members)* Earlier of: age 60 and 10 or 15 years service Rule of 85 (Rule of 80 for some PSO Members)* The Rule of 80 refers to a provision of the plan which allows members to retire with an unreduced pension when the total of their age and continuous years of employment (including partial years) total 80. Some members in public safety occupations (police officers and firefighters) have a Rule of 75. PSO members who have the Rule of 75 contribute more to the pension plan. When we talk about the Rule of 80 or the Rule of 75, we may refer to “points”. This is simply the sum of your age and continuous service. If you’re 40 years old now and you’ve been continuously employed for 20 years, you would currently have 60 points. PSO = Public Safety Occupation (police officers and firefighters) *Rule of 85 with a minimum retirement age of 55 or Rule of 80 with a minimum retirement age of 50 slide #11

Meeting Funding Challenges Proposed benefit changes will not affect your pension earned for past service None of the proposed changes to unreduced early retirement will affect you if, on the effective date of the amendment,: you have reached your Normal Retirement Date (age 60 for PSO members/age 65 for non-PSO members); you already meet the Rule of 85 (employment service + age) and you are 55 years of age or older; you are a Rule of 75 PSO member with more than 80 points and you are 50 years of age or older; or you are a non-PSO member age 60 or over with 15 years of credited service. slide #12

Meeting Funding Challenges - Decision Increase contribution rate by approximately 2% of pensionable earnings, OR Increase contribution rate by less than 2% of pensionable earnings and reduce benefits: 5 year best average earnings Unreduced pension at: Age 60 or Rule of 85 (Rule of 80 for current Rule of 75 PSO members), or Age 60 with min 10/15 years service or Rule of 85 (Rule of 80 for current Rule of 75 PSO members) slide #13

MEETING FUNDING CHALLENGES slide #14

MEETING FUNDING CHALLENGES slide #15

MEETING FUNDING CHALLENGES Note: removing the minimum early retirement age would reduce the contribution savings from 0.5% to 0.45% and require a contribution rate increase of approx. 1.55% slide #16

MEETING FUNDING CHALLENGES Note: removing the minimum early retirement age would reduce the contribution savings from 0.6% to 0.55% and require a contribution rate increase of approx. 1.45% slide #17

MEETING FUNDING CHALLENGES Note: removing the minimum early retirement age would reduce the contribution savings from 1.0% to 0.95% and require a contribution rate increase of approx. 1.05% slide #18

Meeting Funding Challenges Implementation of a benefit change Final service calculations will be split between current benefit rules and the amended benefit rules slide #19

Calculation Example Age Service Prior to Change Service After Change Rule of 80/85 points Pension calc. #1 Prior Service Pension calc. #2 Post Service Total Example#1 - Rule of 80 changes to Rule of 85. Member has reached both thresholds at point of retirement. 40 (current) 57 (retired) 12 17 86 BAE ($50,000) x 2% x 12 = $12,000 BAE ($50,000) x 2% x 17 = $17,000 $29,000 Example#2 - Rule of 80 changes to Rule of 85. Member has reached Rule of 80 threshold on prior amendment service, but was short of the Rule of 85 on post amendment service. Post amendment service subject to early retirement reduction. 55 (retired) 15 82 BAE ($50,000) x 2.0% x 15 = $15,000 – (18 mos. x 0.5% = 9.0%) $1,350 = $13,650 $12,000 + $13,650 = $25,650 slide #20

Next Steps Stakeholder unions vote if there is a benefit reduction proposed; If a benefit reduction is accepted by all stakeholder unions* and HRM; then HRM Council needs to approve benefit reduction; then Approval by regulators; then Implementation *If one union or HRM does not approve the proposed benefit reduction, the default is contribution increases slide #21