PENSION & BENEFITS COMMITTEE Friday 19 May 2017 9:30 a.m. … · 2017. 5. 15. · Board of Governors PENSION & BENEFITS COMMITTEE Friday 19 May 2017 9:30 a.m. to 12:00 noon NH 3318

Board of Governors PENSION & BENEFITS COMMITTEE

Friday 19 May 2017 9:30 a.m. to 12:00 noon

NH 3318

OPEN SESSION ACTION

9:30 1. Approval of the 10 March 2017 Minutes (Open Session)*and Business Arising

2. Execution Against the Work Plan* [Grivicic]

Decision

Information

9:35

9:40

10:10

10:40

11:10

11:15

3. Update on Government Pension Plan Initiatives [Shapira]

4. Annual Audit of Pension Plan Fund Financial Statements* [Hadley]

5. Quarterly Pension Risk Management Dashboard – to 31 March 2017*[Byron]

6. Draft Application for Stage 2 Solvency Funding Relief* [Byron/Shapira]

7. Group Benefits Program – Outcomes from March 2017 Meeting*[Hornberger]

8. Previous Years’ Fees and Expenses* [Huber]

Information

Decision

Information

Discussion/ Decision

Information

Information

9. Other Business

10. Proceed into Confidential Session

CONFIDENTIAL SESSION

11. Approval of the 10 March 2017 Minutes (Confidential)+ and Business Arising

12. Member Communication re: Health Plan Maxima+ [Hornberger]

Next Meeting: Friday 16 June 2017 from 9:30 a.m. – 12:00 noon in NH 3318

Decision

Discussion

*attached** to be distributed

+ distributed separately

15 May 2017 Mike Grivicic Assistant University Secretary

Please convey regrets to Melissa Holst at 519-888-4567 x36125 or [email protected]

Future Agenda Items a. Pension Contribution for Members of LTDb. Level of LTD coverage vs. practical requirementsc. Discussion of $3,400 cap appropriateness, and potential RPP/PPP combinationd. Holistic Review of Benefits Available to Employees

PB 19 May 2017, page 1 of 73

mailto:[email protected]

University of Waterloo

Board of Governors

PENSION & BENEFITS COMMITTEE

Minutes of the 10 March 2017 Meeting

Present: Karen Wilkinson (chair), Monika Bothwell, Stewart Forrest, Mary Hardy, Dennis Huber, Ranjini Jha,

David Kibble, Ramesh Kumar, Alan Macnaughton, Ian Orchard, Michael Steinmann, Marilyn Thompson,

Christine Wagner

Administration: Lee Hornberger

Consultants: Linda Byron, Allan Shapira

Guests: Sally Gunz, Michael Herz, Jackie Serviss

Secretariat: Mike Grivicic

Organization of Meeting: Karen Wilkinson took the chair and Mike Grivicic acted as secretary. The secretary

advised that a quorum was present. The agenda was approved without a formal motion.

1. MINUTES OF THE 24 FEBRUARY 2017 MEETING AND BUSINESS ARISING

Members noted that the filing date in item 4 is 31 December 2017, and that the members of Finance & Investment

Committee were both members from the community and external board members. A motion was heard to approve

the minutes as amended. Wagner and Kumar. Carried with one abstention. There was no business arising from the

minutes.

2. EXECUTION AGAINST THE WORK PLAN

Grivicic noted that the committee is generally on track with the work plan.

3. UPDATE ON GOVERNMENT PENSION PLAN INITIATIVES

Shapira observed that the CPP legislation has been given royal assent, and that there is no update on solvency relief

initiatives.

4. ACTUARIAL VALUATION RESULTS (RPP AND PPP) Byron and Shapira spoke to the material distributed for items 4 and 5, and clarified for members: assumptions for

valuation were previously approved by the committee; sensitivity set at 0.1%; stage 2 solvency relief will be

brought to an upcoming meeting; previous filing allowed a provision for adverse deviation of 0.40%; additional

payments may be made to either the RPP or PPP; two methods available for amortizing solvency deficit, and

specific elections for making special payments would be made in the future; if there is no application for stage 2

relief, the amortization would occur over five years; Income Tax Act provides caps for benefits and the protocol is

to display that there are no hidden liabilities; potential for RPP cap to rise to the level where it would effectively

subsume the PPP; not common practice to utilize dollar caps in registered plans; very few PPPs remain in the

sector, and those remaining PPPs have some cap to control plan liabilities; going concern valuation is somewhat

subjective, and future service costs can impact this. A motion was heard to approve the reports in items #4 and #5

for posting on the University website. Macnaughton and Kibble. Carried. It was understood that the report would

be adapted to include content on funded ratios and Stage 2 solvency funding relief.

5. REVIEW OF CONTRIBUTION AND PROTOCOL CAPS See discussion under item #4.

6. GROUP BENEFITS PROGRAM – ANNUAL RENEWAL EFFECTIVE MAY 1, 2017

Hornberger provided an overview of each item, with member discussion and highlights including: previous

approval and practices in utilizing up to 10% of the now $1 million unrestricted deposit account; discussion of

vision care and a broader discussion of benefits holistically would be germane for this group, as this has not

occurred in a number of years; negotiations between the university and insurers on rate increases, with advice and

support from Aon; recent negotiations may suggest this is a good occasion to go to market and examine benefits

offerings as a whole, which may be a very beneficial exercise; the benefits on LTD can be considered generous in

comparison to comparators. Members heard motions for the following sections:

PB 19 May 2017, page 2 of 73

Pension & Benefits Committee

10 March 2017 page 2 of 3

a. A motion was heard to approve a life insurance contract rate of $0.117 per $1,000 for an annual premium of

$1,177,914 plus 8% tax, as described in the report. Wagner and Bothwell. Carried.

b. A motion was heard to approve an increase to the long term disability premium of 7.5% for the upcoming year,

and to notify the insurer that the university will examine the plan design. Huber and Macnaughton. Carried. It was

made clear that the university will not commit to the three year timeline as proposed by the insurer.

c. A motion was heard to approve the changes to the healthcare benefits ASO fees and charges as described in the

report. Forrest and Macnaughton. Carried.

d. A motion was heard to approve the changes to the healthcare benefits budget rates as described in the report.

Forrest and Kumar. Carried.

Members went to a short recess.

7. UPDATE ON REGISTERED PENSION PLAN INVESTMENT SUBCOMMITTEE

Orchard observed: recent discussion at Finance & Investment Committee; members that withdrew from RPPI are

very happy to volunteer their time only when they feel they are adding value; discussion at Governance

Committee; the president has tasked the provost and Huber to reach out to constituencies on how to move forward.

Members and guests discussed: acknowledgement that RPPI was not working well in most recent iterations;

presidents of various constituencies have met on this topic, and view that a working group to examine options is

needed; significant sense of ownership by constituencies with regard to the pension plan and its investments, and

those groups will want their input to be reflected in the structure going forward; no attempt to repopulate RPPI at

this time, and efforts are directed at examining the RPPI structure going forward; in the interim, Finance will

continue to conduct the necessary due diligence; varying opinions on the efficacy of the group and of the

respective contributions from the constituencies from which RPPI members were drawn; benefits of combining the

array of experience and expertise that could be potentially available to RPPI. By consensus, members agreed to

form a group to generate proposals with the following membership: Forrest, Huber, Jha, Kibble and Orchard.

8. OTHER BUSINESS

a. Committee Self-Assessment. Members were encouraged to complete their self-assessment and provide the

form to the secretary.

b. Members recognized and wholeheartedly thanked outgoing members Kumar, Wagner and Wilkinson for their

service to the committee and to the university.

9. PROCEED INTO CONFIDENTIAL SESSION

With no additional business in open session, the committee proceeded into confidential session.

NEXT MEETING

The next meeting is on Friday 19 May 2017 from 9:30 a.m. – 12:00 p.m. in Needles Hall Room 3318.

15 May 2017 Mike Grivicic

Assistant University Secretary

PB 19 May 2017, page 3 of 73

D = deferred

Execution against Work Plan

Pension & Benefits Committee, Board of Governors, University of Waterloo

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.

Task Frequency (Target month)

20 May 2016

17 Jun 2016

9 Sept 2016

7 Oct 2016

11 Nov 2016

9 Dec 2016

20 Jan 2017

24 Feb 2017

10 Mar 2017

19 May 2017

Approval of Actuarial Valuation Assumptions Annual (Jan)

Investment Status of PPP Annual (Jan)

Preliminary Valuation Results (RPP and PPP) Annual (Feb)

Cost-of-living Increase for Pensioners Annual (Feb)

Pensions for Deferred Members Annual (Feb)

Salaries for Pension Purposes for Individuals on Long-term Disability

Annual (Feb)

Actuarial Valuations (RPP and PPP) Annual (Mar)

Benefits Plan Premium Renewals Annual (Mar)

Indexing of Long-term Disability Plan Benefits and Maxima

Annual (Mar)

Review of Contribution and Protocol Caps (RPP and PPP)

Annual (Mar)

Annual Committee Self-Assessment Annual (Mar)

Budget Overview Annual (May) D

Previous Years’ Fees and Expenses Annual (May)

Annual Audit of the Pension Plan Fund Financial Statements

Annual (May)

PB 19 May 2017, page 4 of 73

Pension & Benefits Committee – Execution Against Work Plan

1 Most recent item was May 2014, then June 2013 2 Most recent report was published in September 2015 for the 2014-15 year

Task Frequency 20 May 2016

17 Jun 2016

9 Sept 2016

7 Oct 2016

11 Nov 2016

9 Dec 2016

20 Jan 2016

24 Feb 2017

10 Mar 2017

19 May 2017

Benefits/Financial Analysis Report Annual (June)

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

Annual (June)

Flexible Pension Plan1 Annual (Sept)

Indexing of Health and Dental Plan Maxima Annual (Nov)

Cost-of-living adjustment to payroll pension plan limit

Annual (Dec)

Indexation of Retiree Life Insurance Annual (Dec)

Total Fund Overview (provided under reports from RPPI)

Quarterly

Investment Manager Review (provided under reports from RPPI)

Semi-annually

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

Annual 1

Annual Report to the Community2 Annual

Actuarial Filing Minimum every three years

PB 19 May 2017, page 5 of 73

The Fund of the University of WaterlooPension Plan for Faculty and Staff31 December 2016

PB 19 May 2017, page 6 of 73

A member firm of Ernst & Young Global Limited

Members of the Pension & Benefits Committee ofThe University of Waterloo Pension Plan for Faculty and Staff

19 May 2017

We are pleased to provide the required communications related to our audit of the Fund of the University ofWaterloo Pension Plan for Faculty and Staff (the Fund).

Our audit was designed to express an opinion on the statement of net assets available for benefits and thestatement of changes in net assets available for benefits as at 31 December 2016 and for the year then ended.We received the full support and assistance of your personnel in conducting our audit. Open and candiddialogue with you is a critical step in the audit process and in the overall corporate governance process and weappreciate this opportunity to share the insights from our audit with you.

This report is intended solely for the information and use of the Pension & Benefit Committee andManagement. It is not intended to be, and should not be, used by anyone other than these specified parties.We disclaim any responsibility to any third party who may rely on it. Further, this report is a by-product of ouraudit and indicates matters identified during the course of our audit. Our audit did not necessarily identify allmatters that may be of interest to the Pension & Benefits Committee in fulfilling its responsibilities.

If you have any questions or comments, please do not hesitate to contact us.

Sincerely

Per: Blaine Hertzberger, CPA, CA, LPA Kristina Tubbs, CPA, CAPartner Senior Manager519 571 3339 519 571 7657

PB 19 May 2017, page 7 of 73

2016 pension fund audit results

Page 2

EY services

Our primary deliverable was to express an opinion on the statement of net assets available for benefits and thestatement of changes in net assets available for benefits of the Fund. We have completed substantially all ofour audit procedures and expect to issue an unqualified audit opinion upon finalization of the following matters:

Receipt of signed letter of representation from Management Approval of the financial statements by the Pension & Benefits Committee

Auditor’s responsibility under Canadian generally accepted auditing standards(GAAS)

The financial statements are the responsibility of Management. Our audit is designed in accordance withCanadian GAAS to obtain reasonable, rather than absolute, assurance about whether the financial statementsare free of material misstatement.

Independence

We confirm our independence to Management and the Pension & Benefits Committee pursuant to CAS 260.We are not aware of any relationships that may reasonably be thought to bear on our independence and wereconfirm our independence up to the date of this report.

Summary of the audit approach

For the purpose of the audit of the financial statements, our audit plan is developed after considering theinherent risks and control risks and the effectiveness of the Fund’s internal controls. A variety of factors areconsidered when establishing the audit scope including size, specific risks, the volumes and types oftransactions processed, changes in the business environment, and other factors. Our audit strategy focuses onthose financial statement items that may be more vulnerable to material misstatement, including the risk offraud. Our procedures for your Fund were primarily of a substantive nature.

Our principal areas of focus were:

Completeness and measurement of pension contributions Measurement and occurrence of benefit payments Completeness and occurrence of investment income Valuation of investments, and Transfers of funds

While the majority of our procedures were substantive procedures, we have relied on the Service OrganizationControl (SOC1) report issued for CIBC Mellon, the Fund’s custodian.

At the conclusion of the audit, we formulate our opinion on the financial statements of the Fund as to their fairpresentation in all material respects. Our estimation of materiality requires professional judgment andnecessarily takes into account qualitative as well as quantitative considerations. Materiality for the 2016 auditwas set at approximately 2% of net assets.

PB 19 May 2017, page 8 of 73


Page 3

Critical policies, estimates, areas of audit emphasis, and significant risks

Disclosure requirements

In February 2013, the Financial Services Commission of Ontario (FSCO) issued disclosure requirements forfinancial statements filed pursuant to Regulation 909 s. 76 for fiscal years ending on or after 1 July 2013.These disclosures were updated in March 2014 with minor differences from the prior year. These changes didnot have a significant impact on the disclosures included in the financial statement notes. There were nochanges made to the disclosure requirements in Fiscal 2016.

Auditing the valuation of fixed income investments

Canadian auditing standards require us to perform additional procedures to audit the valuation of fixed incomeinvestments with higher valuation risk or measurement uncertainty risk by performing the following:

Document an understanding of Management’s investment strategy Understand how the investment portfolio is priced and which pricing sources are used Understand the types of securities that compose the portfolio and evaluate them to determine the

appropriate classification as higher or lower estimation uncertainty, and For securities classified as higher uncertainty estimation, if applicable, perform additional procedures to

gain comfort over the appropriateness of the valuations

EY reviewed the individual fixed income securities held in the plans for any that may be considered to havehigher estimation uncertainty and performed additional procedures where necessary. We did not identify anyissues with the valuation of fixed income investments.

Auditing the valuation of equity investments

We updated our understanding of how the fair values of the Fund’s investments have been determined andtested the fair values to determine the appropriateness of these fair values. We confirmed all investments heldat year-end with the custodian (CIBC Mellon) and respective investment managers. In addition, we obtainedthe CIBC Mellon Service Organization Control report and were able to place reliance on the custodian’scontrols as no significant deficiencies were identified within the report.

On a sample basis, we tested the market values of equity investments held by the Fund. EY noted no issueswith the investment valuation when compared to independent market information. As a result of the proceduresperformed, we did not identify any issues with the valuation of equity investments.

Employer contributions

We updated our understanding of the employer contributions process. With reference to the latest actuarialfunding valuation report, we verified that the employer contributions made by the Fund were in accordance withthe recommendations of the actuary.

We tested and recalculated on a sample basis the employee and employer contributions. No issues werenoted.

PB 19 May 2017, page 9 of 73


Page 4

Benefit payments

We confirmed our understanding of the benefit payments process and examined, on a test basis, benefitpayments to verify they were accurately processed. We performed an analytical review of benefit paymentsand investigated variances from the prior year. In addition, we confirmed that members who withdrew from thepension plan in the current year, but had not yet received payment were properly accrued for at year-end. Noissues were noted.

Accounting estimates

There are no significant judgments or estimates required to prepare the financial statements where actualamounts are likely to be significantly different from the estimates.

Fraud considerations and the risk of Management override

We are responsible for planning and performing our audit to obtain reasonable assurance about whether thefinancial statements are free of material misstatement, whether caused by error or by fraud (CAS 240, TheAuditor’s Responsibilities Relating to Fraud in an Audit of Financial Statements).

Our audit procedures encompassed the requirements of CAS 240: brainstorming, gathering information tofacilitate the identification of and response to fraud risks and performing certain procedures to address the riskof Management override, including examining journal entries, reviewing accounting estimates and evaluatingthe business rationale of significant unusual transactions.

We are not aware of any fraud or non-compliance with laws and regulations involving Senior Management orany fraud or non-compliance with laws and regulations that could cause a material misstatement of thefinancial statements.

Summary of audit differences (SAD)

During the course of our audit, we accumulate differences between amounts and disclosures recorded by theFund, and amounts and disclosures that we believe are required to be recorded under Canadian accountingstandards for pension plans. In fiscal 2016, no audit adjustments were identified relating to the audit.

Summary of significant disclosure deficiencies

During the course or our audit, we identify those significant disclosures required in the financial statements ofthe Fund, that we believe were not adequately reflected. We did not identify any significant disclosuredeficiencies.

PB 19 May 2017, page 10 of 73


Page 5

Other required communications

There were no major issues discussed with the Pension & Benefits Committee or those charged withgovernance in connection with our initial or recurring retention as the auditors, including, among othermatters, any discussions regarding the application of accounting principles and auditing standards, thescope of the audit, financial statement disclosures and the wording of the auditors’ report.

There were no disagreements with Management about matters that individually or in the aggregate couldbe significant to the Fund’s financial statements or the auditors’ report.

We are not aware of any instances where Management consulted with other accountants about auditing oraccounting matters.

There were no serious difficulties encountered in dealing with Management related to the performance ofthe audit.

We are not aware of any significant unusual transactions recorded by the Fund or of any significantaccounting policies used by the Fund related to controversial or emerging areas for which there is a lack ofauthoritative guidance.

We are not aware of any related party transactions that are not in the normal course of operations and thatinvolve significant judgments made by Management concerning measurement or disclosure.

There were no material alternative accounting treatments that have been discussed with Managementduring the current audit period.

There were no significant matters arising during the audit in connection with the Fund’s related parties.

There are no other findings or issues arising from the audit that are, in our judgment, significant andrelevant to those charged with governance regarding the oversight of the financial reporting process.

Based on our inquiries of Management and those charged with governance, we are not aware of anysubsequent events which might affect the financial statements.

PB 19 May 2017, page 11 of 73

EY | Assurance | Tax | Transactions | Advisory

About EY

EY is a global leader in assurance, tax, transaction and advisory services.The insights and quality services we deliver help build trust and confidencein the capital markets and in economies the world over. We developoutstanding leaders who team to deliver on our promises to all of ourstakeholders. In so doing, we play a critical role in building a better workingworld for our people, for our clients and for our communities.

EY refers to the global organization and may refer to one or more of themember firms of Ernst & Young Global Limited, each of which is aseparate legal entity. Ernst & Young Global Limited, a UK company limitedby guarantee, does not provide services to clients. For more informationabout our organization, please visit ey.com.

© 2014 Ernst & Young LLPAll Rights Reserved.

Proprietary and confidential. Do not distribute withoutwritten permission.

ey.com

PB 19 May 2017, page 12 of 73

BSC# 2264525 26/04/2017 10:31:55 AM DRAFT FOR DISCUSSION

Financial statements

University of Waterloo Pension Planfor Faculty and Staff[Ontario Registration Number 0310565]December 31, 2016

PB 19 May 2017, page 13 of 73


Independent auditors’ report

To the Pension and Benefits Committee of theUniversity of Waterloo Pension Plan for Faculty and Staff

We have audited the accompanying financial statements of the University of Waterloo Pension Plan for Facultyand Staff [Ontario Registration Number 0310565], which comprise the statement of net assets available forbenefits as at December 31, 2016, and the statement of changes in net assets available for benefits for the yearthen ended, and a summary of significant accounting policies and other explanatory information. The financialstatements have been prepared by management based on the financial reporting provisions of Regulation 909,Section 76 of the Pension Benefits Act (Ontario).

Management’s responsibility for the financial statements

Management is responsible for the preparation and fair presentation of these financial statements in accordancewith the financial reporting provisions of Regulation 909, Section 76 of the Pension Benefits Act (Ontario), and forsuch internal control as management determines is necessary to enable the preparation of financial statementsthat are free from material misstatement, whether due to fraud or error.

Auditors’ responsibility

Our responsibility is to express an opinion on these financial statements based on our audit. We conducted ouraudit in accordance with Canadian generally accepted auditing standards. Those standards require that we complywith ethical requirements and plan and perform the audit to obtain reasonable assurance about whether thefinancial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in thefinancial statements. The procedures selected depend on the auditors’ judgment, including the assessment of therisks of material misstatement of the financial statements, whether due to fraud or error. In making those riskassessments, the auditors consider internal control relevant to the entity’s preparation and fair presentation of thefinancial statements in order to design audit procedures that are appropriate in the circumstances, but not for thepurpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includesevaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates madeby management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our auditopinion.

Opinion

In our opinion, these financial statements present fairly, in all material respects, the net assets available for benefitsof the University of Waterloo Pension Plan for Faculty and Staff as at December 31, 2016, and the changesin its net assets available for benefits for the year then ended in accordance with the financial reporting provisionsof Regulation 909, Section 76 of the Pension Benefits Act (Ontario).

PB 19 May 2017, page 14 of 73


– 2 –

Basis of accounting and restriction on use

Without modifying our opinion, we draw attention to note 1 to the financial statements, which describes the basisof accounting. The financial statements are prepared to assist the Pension and Benefits Committee to meet therequirements of the Financial Services Commission of Ontario. As a result, the financial statements may not besuitable for another purpose. Our report is intended solely for the Pension and Benefits Committee and theFinancial Services Commission of Ontario and should not be used by parties other than the Pension and BenefitsCommittee or the Financial Services Commission of Ontario.

Kitchener, Canada Chartered Professional AccountantsMay 19, 2017 Licensed Public Accountants

PB 19 May 2017, page 15 of 73

University of Waterloo Pension Plan for Faculty and Staff[Ontario Registration Number 0310565]

As at December 31

2016 2015$ $

AssetsInvestment income receivable 3,721,545 3,537,078HST receivable 203,255 —Unrealized gain on forward foreign exchange contracts [note 4[e]] 7,480,041 —Investments, at fair value [note 4[a]] 1,510,870,144 1,413,563,784Total assets 1,522,274,985 1,417,100,862

LiabilitiesBenefits payable Retirement 1,311 1,562 Termination 436,561 775,154Management and administrative fees payable [note 7[b]] 1,262,708 1,144,243Unrealized loss on forward foreign exchange contracts [note 4[e]] 3,078,328 14,207,303Total liabilities 4,778,908 16,128,262Net assets available for benefits 1,517,496,077 1,400,972,600

See accompanying notes

Statement of net assets avaliable for benefits

BSC# 2264525 12/04/2017 3:02:55 PM DRAFT FOR DISCUSSION

PB 19 May 2017, page 16 of 73

University of Waterloo Pension Plan for Faculty and Staff

Year ended December 31

2016 2015$ $

Increase in net assetsEmployee contributions

Required 29,217,369 27,586,988Employer contributions

Current service 30,590,585 28,750,520Special 17,088,541 16,252,454

Transfers from other plans [note 8] 2,077,536 1,797,795Interest income [note 4[d]] 19,748,325 20,269,232Dividend income [note 4[d]] 19,510,788 15,565,859Realized and unrealized gains on investments 80,171,061 —Unrealized foreign exchange gains — 39,896,690Total increase in net assets 198,404,205 150,119,538

Decrease in net assetsBenefit expenses

Retirement benefits 53,807,115 50,241,992Terminations benefits 5,879,154 6,819,291Death benefits 968,475 795,581

Realized and unrealized losses on investments — 2,334,082Unrealized foreign exchange losses 16,645,204 —Management and administrative expenses [note 7[a]] 4,580,780 4,289,794Total decrease in net assets 81,880,728 64,480,740

Net increase in net assets for the year 116,523,477 85,638,798Net assets available for benefits, beginning of year 1,400,972,600 1,315,333,802Net assets available for benefits, end of year 1,517,496,077 1,400,972,600

See accompanying notes

Statement of changes in net assets avaliable for benefits

BSC# 2264525 12/04/2017 3:02:55 PM DRAFT FOR DISCUSSION

PB 19 May 2017, page 17 of 73


Notes to financial statements

December 31, 2016

\

BSC# 2264525 26/04/2017 10:31:55 AM DRAFT FOR DISCUSSION 1

1. Basis of presentation

These financial statements of the University of Waterloo Pension Plan [the “Plan”] have been prepared on agoing concern basis and in accordance with the significant accounting policies set out below that comply with thefinancial reporting provisions prescribed by the Financial Services Commission of Ontario for financialstatements under Regulation 909, Section 76 of the Pension Benefits Act (Ontario). The basis of accountingused in these financial statements materially differs from Canadian accounting standards for pension plans inSection 4600, Pension Plans, in Part IV of the CPA Canada Handbook in part because it excludes the Plan’spension obligations and related disclosures. Consequently, these pension fund financial statements do notpurport to show the adequacy of the Plan’s assets to meet its pension obligations. These financial statementspresent the information of the Plan as a separate reporting entity independent of the Sponsor and Planparticipants.

In accordance with Section 4600, Canadian accounting standards for private enterprises in Part II of the CPACanada Handbook have been adopted for policies that do not relate to the Plan’s investment portfolio to theextent that those standards do not conflict with the requirements of Section 4600.

2. Description of the plan

The Plan is a contributory defined benefit pension plan covering employees of the University of Waterloo [the“University” or the “Sponsor”]. The Board of Governors of the University is the administrator of the Plan [the“Administrator”]. The University’s Pension and Benefits Committee has been appointed by the Board ofGovernors to administer the Plan. CIBC Mellon Trust Company is the custodian and trustee of the Plan. Theassets of the Plan are held “in trust” within CIBC Mellon Trust Company. Aon Hewitt has served as the actuaryof the Plan during 2016. The Plan is registered under the Pension Benefits Act (Ontario) under RegistrationNumber 0310565.

Funding policy

The Plan is open to all full-time and part-time salaried employees who meet certain eligibility requirements.Under the terms of the Plan, the employees are required to contribute 6.25% of base earnings up to the CanadaPension Plan’s Yearly Maximum Pensionable Earnings [“YMPE”] limit, plus 8.95% of base earnings exceedingthe YMPE and up to two times the YMPE, plus 9.95% of base earnings exceeding two times the YMPE. TheUniversity contributes the balance of the cost required to fund the Plan, as determined by an actuarial valuationof the Plan.

Funding valuation

The most recent actuarial valuation filed with the Financial Services Commission of Ontario was as at January 1,2014 and was prepared by Aon Hewitt. The rate of compensation increase used was 5.00% per year for oneyear and 4.25% thereafter and the discount rate was 6.00%. The next required actuarial valuation is as atJanuary 1, 2017.

PB 19 May 2017, page 18 of 73



December 31, 2016

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Benefits

On the normal retirement date, a member is entitled to an annual pension equal to 1.4% of his or her FinalAverage Earnings [“FAE”] up to the YMPE average, plus 2.0% of his or her FAE in excess of the YMPE averagemultiplied by his or her years of credited service. FAE is the member’s average annual base earnings during theaveraging period’s continuous months of highest earnings during the member’s last 10 years of employment atthe University. Effective January 1, 2014, the averaging period for FAE will increase by one month each monthuntil it is a 60-month averaging period. The YMPE average is determined by averaging the YMPE in the year ofretirement plus the YMPE in the four preceding years.

Effective May 1, 2014, the Plan adjusted its guaranteed indexation related to post-retirement cost of livingadjustments. Any pension benefits earned as at December 31, 2013 will be indexed at 100% of the ConsumerPrice Index [“CPI”] to a maximum of 5%, and any pension benefit earned as of an employee’s date of retirementless the pension benefit earned as at December 31, 2013 will be indexed at 75% of CPI to a maximum of 5%.

Vested retirement benefits of the Plan are payable upon satisfaction of early retirement eligibility requirements[as early as age 55] and prior to the member’s normal retirement date [age 65]. Vested retirement benefits arealso payable in the case of termination of employment prior to retirement. A death benefit is payable to thebeneficiary of a member as designated.

Income taxes

The Plan is a Registered Pension Trust as defined in the Income Tax Act (Canada) and, as such, is not subjectto income taxes.

3. Summary of significant accounting policies

Recognition of contributions and benefits

All contributions from the Sponsor and the Plan participants are reflected in the year of the related participant’searnings.

Contributions and benefits payable are recognized on the accrual basis of accounting. Termination benefitspayable consist of amounts owing but not yet paid to employees who were terminated from the Plan before theyear end. Retirement benefits payable consist of amounts owing but not yet paid to employees who retiredbefore the year-end.

Lump-sum payments or transfers out of the Plan are accounted for in the period in which the election to effectsuch payment or transfer is made.

Investments

Investments are recorded at fair market value on the statement of net assets available for benefits.

PB 19 May 2017, page 19 of 73



December 31, 2016

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Fair value is the amount of consideration that would be agreed upon in an arm’s length transaction betweenknowledgeable, willing parties who are under no compulsion to act. The fair value of investment assets isdetermined as follows:

[a] Cash and short-term deposits are valued at amortized cost which approximates fair value.

[b] Bonds, debentures, equities, preferred shares and derivative financial instruments are valued by referenceto quoted market prices.

[c] Investments in pooled funds are valued based on fair value information provided by the fund managers.

Investment liabilities are stated at fair value and represent liabilities that are incurred by the Plan in investment-related activities. These may include, but are not limited to, derivatives in a liability position, repurchaseagreements, financial instruments sold but not yet purchased, and cash collateral received from counterparties.

Net realized gains or losses on disposal and unrealized changes in fair value for the year are recognized in thestatement of changes in net assets available for benefits. Interest earned on investments is recorded on anaccrual basis. Dividend income is recorded on the ex-dividend date. Transaction costs are expensed as incurred.

Foreign currency translation

Investments denominated in foreign currencies are translated into Canadian dollars at rates of exchange as atthe year-end date. Transactions of investments denominated in foreign currencies are translated into Canadiandollars at rates of exchange applicable on the transaction dates.

Use of estimates

The preparation of financial statements requires the Plan’s Administrator to make estimates and assumptions.These estimates and assumptions affect the reported amounts of assets and liabilities and disclosure ofcontingencies as at the date of the financial statements, and the reported amounts of increases and decreases innet assets available for benefits during the reporting period. Actual results could differ from those estimates.

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4. Investments

[a] Summary of investments

Investments are comprised of the following:

2016 2015Fair value Cost Fair value Cost

$ $ $ $

EquitiesCanadian companies 206,556,173 147,049,180 162,496,305 138,958,082Foreign companies 167,831,040 137,033,078 159,855,811 126,639,800

Foreign equity pooled funds 362,976,127 222,879,827 321,328,557 189,075,679737,363,340 506,962,085 643,680,673 454,673,561

Bonds, cash and short-term depositsCanadian fixed-term bonds 310,794,178 312,278,966 219,367,043 219,899,397Foreign fixed-term bonds — — 118,290,816 84,066,363Bond pooled funds 295,379,995 282,331,203 262,164,126 241,299,796Cash and short-term deposits 167,332,631 167,278,792 170,061,126 169,847,711

773,506,804 761,888,961 769,883,111 715,113,2671,510,870,144 1,268,851,046 1,413,563,784 1,169,786,828

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[b] Investment managers

The investments are managed by the following investment managers:


$ $ $ $

TD Asset ManagementBondsCanadian fixed-term bonds 310,794,178 312,278,966 219,367,043 219,899,397Foreign fixed-term bonds — — 118,290,816 84,066,363Bond pooled funds 295,379,995 282,331,203 262,164,126 241,299,796

Foreign equity pooled funds 15,392,525 15,352,755 — —Cash and short-term deposits 2,433,839 2,433,839 3,636,058 3,636,058

624,000,537 612,396,763 603,458,043 548,901,614

University of Waterloo managed fundEquities

Canadian equities [infrastructure andreal estate] 149,421,401 98,727,329 114,806,083 90,738,081

Cash and short-term deposits 137,756,995 137,756,995 142,523,671 142,523,660287,178,396 236,484,324 257,329,754 233,261,741

SionnaEquities Canadian companies 57,134,772 48,321,848 45,455,055 45,678,036Cash and short-term deposits 1,885,598 1,885,598 1,574,054 1,574,054

59,020,370 50,207,446 47,029,109 47,252,090

Trilogy Global AdvisorsEquities

Canadian companies — — 2,235,166 2,541,964Foreign companies 167,831,040 137,033,078 159,855,762 126,639,757

Cash and short-term deposits 5,875,787 5,821,951 5,915,652 5,702,241173,706,827 142,855,029 168,006,580 134,883,962

Oldfield PartnersEquities

Foreign equity pooled funds 136,777,517 75,418,555 117,528,634 73,423,745

Walter Scott & PartnersEquities

Foreign equity pooled funds 210,806,085 132,108,517 203,799,923 115,651,935

PB 19 May 2017, page 22 of 73



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$ $ $ $

Operating fund at CIBC Mellon TrustCompany

Cash and short-term deposits 19,380,412 19,380,412 16,411,741 16,411,741Total investments 1,510,870,144 1,268,851,046 1,413,563,784 1,169,786,828

[c] Significant investments

The Plan contains the following individual investments, which exceed 1% of the cost or market value of the totalinvestments as at December 31, 2016:

Fair value Cost$ $

Short-term depositsCIBC Mellon cash sweep 0.05% 19,380,412 19,380,412TD BA 0.69% due January 9, 2017 87,956,880 87,956,880Royal Bank BA 0.69% due January 9, 2017 50,949,023 50,949,023

Pooled fundsTD Emerald Canadian Bond Index Fund 295,379,995 282,331,203Overstone Global Equity Fund 136,777,517 75,418,555Walter Scott & Partners Global Equity Fund 210,806,085 132,108,517

Canadian equitiesBrookfield Infrastructure Partners 103,390,971 49,883,600ishares S&P/TSX Capped REIT 46,030,368 48,843,691

PB 19 May 2017, page 23 of 73



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[d] Investment income by type

2016 2015$ $

Dividend incomeCanadian equities 9,453,928 6,463,860Foreign companies 3,343,277 3,708,681Foreign pooled funds 6,713,583 5,393,318

19,510,788 15,565,859

Interest incomeBonds, cash and short-term deposits 1,079,243 1,035,725Canadian fixed term bonds 7,247,292 6,780,180Foreign fixed term bonds 2,590,460 3,508,359Pooled funds 8,831,330 8,944,968

19,748,325 20,269,232

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[e] Forward foreign exchange contracts

The following table summarizes the maturity date, notional amount and fair value related to the Plan’s forwardforeign exchange contracts as at December 31:

2016 2015

MaturityNotionalamount Fair value Maturity

Notionalamount Fair value

$ $ $ $

Assets

Japanese yenJanuary 11,

2017 (55,222,606) 5,069,955 — — —

EuroJanuary 11,

2017 (40,034,173) 2,033,756— — —

British pound sterlingJanuary 11,

2017 (17,443,761) 376,330— — —

(112,700,540) 7,480,041 — — —

Liabilities

United States dollarJanuary 11,

2017 (156,227,098) (3,078,328)January 13,

2016 (166,063,234) (9,731,264)

Japanese yenJanuary 11,

2017 — —January 13,

2016 (54,984,632) (3,074,651)

EuroJanuary 11,

2017 — —January 13,

2016 (35,918,335) (819,303)

British pound sterlingJanuary 11,

2017 — —January 13,

2016 (20,219,307) (582,085)(156,227,098) (3,078,328) (277,185,508) (14,207,303)

5. Fair value measurements

Canadian accounting standards for pension plans require disclosure of a three-Level hierarchy for fair valuemeasurements based on the transparency of inputs to the valuation of an asset or liability as at the financialstatement date. The three levels are defined as follows:

Level 1: Fair value is based on quoted market prices in active markets for identical assets or liabilities. Level 1assets and liabilities generally include equity securities traded in an active market.

Level 2: Fair value is based on observable inputs other than Level 1 prices, such as quoted market prices forsimilar [but not identical] assets or liabilities in active markets, quoted market prices for identical assets orliabilities in markets that are not active, and other inputs that are observable or can be corroborated byobservable market data for substantially the full term of the assets or liabilities. Level 2 assets and liabilitiesinclude debt securities with quoted prices that are traded less frequently than exchange-traded instruments and

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derivative contracts whose value is determined using a pricing model with inputs that are observable in themarket or can be derived principally from or corroborated by observable market data. This category generallyincludes pooled funds, hedge funds, Government of Canada, provincial and other government bonds, Canadiancorporate bonds, and certain derivative contracts.

Level 3: Fair value is based on non-observable inputs that are supported by little or no market activity and thatare significant to the fair value of the assets or liabilities. This category generally includes private equityinvestments and securities that have liquidity restrictions.

There have been no material transfers between any Levels in 2016.

2016Level 1 Level 2 Level 3 Total

$ $ $ $

AssetsCash and short-term deposits — 167,332,631 — 167,332,631Equities 374,387,213 — — 374,387,213Pooled funds — 658,356,121 — 658,356,121Bonds — 310,794,179 — 310,794,179Forward foreign exchange contracts — 7,480,041 — 7,480,041

374,387,213 1,143,962,972 — 1,518,350,185

LiabilitiesForward foreign exchange contracts — 3,078,328 — 3,078,328

— 3,078,328 — 3,078,328

2015Level 1 Level 2 Level 3 Total

$ $ $ $

AssetsCash and short-term deposits 690,736 169,370,390 — 170,061,126Equities 322,352,116 — — 322,352,116Pooled funds — 583,492,683 — 583,492,683Treasury bills — 118,290,816 — 118,290,816Bonds — 219,367,043 — 219,367,043

323,042,852 1,090,520,932 — 1,413,563,784

LiabilitiesForward foreign exchange contracts — 14,207,303 — 14,207,303

— 14,207,303 — 14,207,303

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6. Financial risks and risk management

The Plan’s investment performance is subject to financial risks as a result of its investing activities. Thesefinancial risks could impact net assets available for benefits. These financial risks include credit risk, liquidity risk,interest rate risk, other price risk and foreign exchange risk. The Administrator manages these risks in accordancewith the Statement of Investment Policies and Procedures [the “SIPP”]. The SIPP includes aggregate investmentlimits by asset class in order to achieve the Plan’s investment objectives at an acceptable level of risk. Inaddition, the SIPP outlines individual investment limits and diversification objectives within different assetclasses and permitted investment categories within the asset classes. The Pension and Benefits Committeemonitors adherence to the policy and the performance of investment managers relative to the applicablebenchmarks and action is taken as deemed necessary.

Credit risk

Credit risk relates to the potential exposure that the other party to a financial instrument will fail to discharge anobligation and cause the Plan to incur a financial loss. Concentration of credit risk exists when a significantproportion of the portfolio is invested in securities with similar characteristics or subject to similar economic,political or other conditions.

The SIPP restrictions require Canadian bonds or debentures to be rated a minimum of BBB or equivalent,establishes a cap of U.S. denominated fixed income securities, and bans the purchase of foreign currency fixedincome securities. In addition, the SIPP states that no single equity shall represent more than 10% of the totalmarket value of any one of the Fund Manager’s equity portfolios.

All of the Plan’s fixed term investments are invested in Canadian short term bonds. The credit risk of theCanadian short-term bonds as at December 31, 2016 and as at December 31, 2015 are detailed in the followingchart:

AAA AA A BBB Total% % % % %

Credit ratingsAs at December 31,2016 .1 40.9 27.8 31.2 100

As at December 31,2015 1.5 38.6 28.5 31.4 100

Liquidity risk

Liquidity risk is the risk that the Plan may be unable to meet pension payment obligations as they come due. TheSIPP requires that all investments should be reasonably liquid so that they can be converted into cash on shortnotice. As such, the Plan’s exposure to liquidity risk is considered negligible.

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The following is a maturity analysis of the fixed-term bonds held by the Plan:

2016 2015$ $

<1 year 15,148,062 12,480,0921-5 years 257,717,878 179,879,8495-10 years 37,928,239 27,007,102>10 years — 118,290,816Total 310,794,179 337,657,859

Interest rate risk

Interest rate risk refers to the adverse consequences of interest rate changes on the Plan’s net assets availablefor benefits and changes in net assets available for benefits. This risk arises as changes in market interest ratesaffect the fair market value of the Plan’s assets as well as the returns that the plan can earn. The SIPP outlines arange of 30% – 70% for fixed income securities. The Administrator adjusts the investment mix in the portfolio inresponse to changes in market interest rates.

The following analysis summarizes the impact on the Plan’s net assets available for benefits, followingreasonably possible changes in interest rates to each bond category to which the Plan has a significant exposure.

Impact of change in interestrates

Market value Duration -1% +1%

Canadian fixed term bonds 310,794,178 2.8 8,702,237 (8,702,237)Bond pooled funds 295,379,995 7.33 21,651,354 (21,651,354)

30,353,591 (30,353,591)

Other price risk

Other price risk is the risk that the value of the investments will fluctuate as a result of changes in market prices.As the Plan records all investments at fair value, investment values reflected in the statement of net assetsavailable for benefits represent the maximum exposure to market risk. The SIPP outlines a range of 30%-70% forequities. The Administrator adjusts the investment mix in the portfolio in response to changes in marketconditions.

Foreign exchange risk

The Plan is exposed to foreign currency fluctuations to the extent that its foreign investments are denominated inforeign currencies. Fluctuations in the value of the Canadian dollar against foreign currencies can have animpact on the fair value of foreign investments. The SIPP allows for hedging of portfolio assets denominated inforeign currencies into Canadian dollars as a strategy to mitigate foreign exchange risk. The Plan targetshedging 67% of U.S. dollar exposure, 75% of euro exposure, 75% of yen exposure and 50% of British pound

PB 19 May 2017, page 28 of 73



December 31, 2016

\


sterling exposure. The hedging strategy utilizes forward foreign exchange contracts that mature in 90 days.Upon maturity of these contracts, the Plan enters into new forward foreign exchange contracts with 90- daymaturities.

The following sensitivity analysis summarizes the impact on the Plan’s net assets available for benefits, followingreasonably possible changes in foreign currency exchange rates, for each currency to which the Plan has asignificant exposure.

Impact of change in exchangerates

+5% -5%

Euro 2,865,625 (2,865,625)United States dollar 11,744,873 (11,744,873)British pound sterling 2,093,083 (2,093,083)Japanese yen 3,571,128 (3,571,128)

Sensitivity analysis

The table below demonstrates the sensitivity of the fair value of the Plan’s investments in equities to a possiblechange of 10% in the relevant equity indices. The beta of each equity mandate, a measure of volatility, has beenapplied in estimating this sensitivity.

Fluctuation of

Impact of %change in fairvalue on net

assets Sensitivity$

Equities

CanadianStock market

indices +10 19,704,459-10 (19,704,459)

ForeignStock market

indices +10 18,803,764-10 (18,803,764)

Pooled fundsStock market

indices +10 33,014,492-10 (33,014,492)

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7. Management and administrative expenses

[a] Management and administrative expenses

Management and administrative expenses consist of the following:

2016 2015$ $

Investment management 2,799,146 2,870,481Custodial 212,791 215,638Actuarial 300,792 261,610Administration 849,976 433,192Audit 19,775 18,483Non-recoverable Harmonized Sales Tax 398,300 490,390

4,580,780 4,289,794

[b] Management and administrative fees payable

Management and administrative fees payable consist of the following:

2016 2015$ $

Investment management 825,946 814,445Custodial 20,039 32,977Actuarial 57,015 108,554Administration 338,577 167,475Audit 21,131 20,792

1,262,708 1,144,243

[c] Contributions

There were no required contributions past due at December 31, 2016.

8. Transfers from other plans

Transfers from other plans represent transfers into the Plan from external pension plans of a previous employer.

9. Capital management

The capital of the Plan is represented by the net assets available for benefits. The Plan’s objectives whenmanaging its capital are to [i] safeguard its ability to continue as a going concern including compliance withregulatory requirements under the Pension Benefits Act (Ontario) and [ii] satisfy its obligations to pay benefits tothe Plan participants. In meeting these objectives, the Sponsor periodically reviews the funding and investmentpolicies of the Plan, the results of the actuarial funding valuation and the level of benefits provided to participants.

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The Administrator has adopted a SIPP which states investment objectives, guidelines and benchmarks used ininvesting the capital of the Plan, permitted categories of investments, asset mix diversification and rate of returnexpectations. The SIPP was last amended in October 2015. The SIPP was amended to add a paragraph on theconsideration of Environmental, Social and Governance factors and for other, less significant updates.

The goal of the Plan per the SIPP is that the annualized rate of return of the Plan must exceed the annualizedrate of increase in the CPI by at least 400 basis points [“bps”], net of the associated investment managementfees over any 10-year period. Reporting from the actuary of the Plan as at December 31, 2016 shows a return of5.29% on the total pension fund, excluding the currency overlay, for the last 10-year period. The Bank of Canadareports total average annual CPI of 1.62% for the relevant 10-year period. The return on the total pension fundfor the last 10-year period exceeds the average annual CPI for the same period by 367 bps and, as such, fallsslightly short of the goal for the annualized rate of return of the Plan for this period.

The SIPP prescribes asset categories that the Plan can invest in along with a targeted asset allocation for eachof these categories. The following table presents the asset categories, the permitted asset mix allocation, and theasset mix allocation as at December 31, 2016.

Asset mixallocation

Asset mixallocation as atDecember 31,

2016% %

Asset categoriesCash and short-term deposits 0-15% 11%Fixed income 30-70% 40%Equities 30-70% 39%Alternatives [Infrastructure and Real Estate Equity] 0-20% 10%

100%

The investments fell within the targeted asset mix ranges as specified in the SIPP at December 31, 2016.

PB 19 May 2017, page 31 of 73


As of March 31, 2017

To protect the confidential and proprietary information included in this material, it may not be

disclosed or provided to any third parties without the approval of Aon Hewitt.

Pension Risk Management Dashboard

PB 19 May 2017, page 32 of 73

2

About This Material

This dashboard was prepared for the University of Waterloo to track changes in funded status of the Pension Plan over successive reporting periods, as well as quantify the amount

of risk to which the Pension Plan is exposed. The report presents the funded status and performs the analysis on three bases:

Risk-Free Benchmark Basis – This liability is calculated using best estimate assumptions for retirement, termination and other demographic experience, and a discount rate and

inflation assumption determined with reference to the risk-free environment. For this report, the liability has been determined at the real return bond yield plus a 40 basis point credit

spread to reflect additional yield that can be achieved with relatively little additional risk. This liability differs from the solvency calculation in that the demographic assumptions are

best estimate and statutory “grow-in” provisions are not included.

Going Concern Basis – This liability is calculated using the going concern assumptions at the most recent valuation. The analysis is performed using the market value of assets

without regard to the Funding Reserve established in the most recent valuation. This Funding Reserve was established to reflect gains from the sale of the real return bonds. A

separate line item showing the funded ratio reflecting the funding reserve is included on page 3.

Solvency Basis – This liability is calculated using assumptions determined in accordance with the Canadian Institute of Actuaries Annuity Purchase guidance and Commuted Value

standards in effect at each measurement date shown in this report. A summary of these assumptions is included on page 13.

This dashboard also contains a reconciliation that compares the going concern liability with the liability calculated using the risk-free benchmark. The difference between the two

liabilities represents the amount of return expected to be provided by taking on risk in the investment portfolio. Over successive quarters the tool helps quantify how that risk

changes as the underlying interest rates change.

On both bases the following information is shown:

■ Current Funded Status and Historical Asset Liability Performance

— How well funded is the plan?

— What has been the return on plan assets and liabilities?

■ Detailed Asset and Liability Performance Attribution

— What factors drove the performance of assets and liabilities over the prior period?

— What is the relative impact of these factors on the assets and liabilities in isolation and in combination?

For the Risk-Free Benchmark Basis, the following information is also shown:

■ Scenario Testing

— What risk exposures does the plan face?

— What would be the impact of a downside event for each risk factor?


As of March 31, 2017PB 19 May 2017, page 33 of 73

3

Executive Summary – Going ConcernFunded Status

Asset-Liability Return

Highlights for the Quarter-Ending 3/31/2017The plan's funded ratio remained flat at 98.0% at 3/31/2017. This result was primarily

due to the combined effects of:

■ Asset performance exceeding expectations,

■ Contributions of $13.2 million, and

■ An increase in liabilities primarily due to interest growth and a decrease in the

discount rate from 5.70% to 5.50% and the impact of the new actuarial valuation

Asset Liability Return for Quarter-Ending 3/31/2017Assets returned 3.8% during the quarter while liabilities returned 3.7%, resulting in a

funded status that remained level.

Values in $1,000,000 (CAD)

3/31/16 6/30/16 9/30/16 12/31/16 3/31/17

g Market Value of Assets $ 1,409.3 $ 1,442.9 $ 1,499.0 $ 1,519.2 $ 1,576.1g Going Concern Liability 1,483.8 1,505.1 1,526.1 1,549.5 1,609.1g Surplus/(Deficit) $ (74.5) $ (62.2) $ (27.1) $ (30.3) $ (33.0)g

g Periodic Contributions $ 19.2 $ 19.5 $ 19.6 $ 13.2g Effective Interest Rate 5.70% 5.70% 5.70% 5.70% 5.50%g

g

g Funded Ratio (Market): 95.0% 95.9% 98.2% 98.0% 98.0%

Funded Ratio

(Actuarial): 92.0% 92.9% 95.3% 95.2% 95.2%

Asset Duration: 1.8 2.1 2.1 2.0 2.0

Going Concern Liability

Duration: 14.0 14.0 14.0 14.0 14.1

Periodic

Return/Change

Cumulative

12 Month6/30/16 9/30/16 12/31/16 3/31/17

gMarket Value of

Assets Return 11.1% 2.2% 3.7% 1.0% 3.8%g

gGoing Concern

Liability:g Return 8.1% 1.4% 1.4% 1.4% 3.7%

gFunded Ratio

Change (Market) 3.0% 0.9% 2.3% -0.2% 0.0%



* Trailing Twelve Months

PB 19 May 2017, page 34 of 73

4

Executive Summary – Risk-Free BenchmarkFunded Status


Highlights for the Quarter-Ending 3/31/2017The plan's funded ratio increased to 64.1% at 3/31/2017. This result was primarily due

to the combined effects of:



■ A decrease in liabilities due to a decrease in inflation expectations and the impact

of the new actuarial valuation

Asset Liability Return for Quarter-Ending 3/31/2017Assets returned 3.8% during the quarter while liabilities returned -2.2%, resulting in a

funded status increase of 3.3%.


3/31/16 6/30/16 9/30/16 12/31/16 3/31/17

g Market Value of Assets $ 1,409.3 $ 1,442.9 $ 1,499.0 $ 1,519.2 $ 1,576.1g Risk-Free Liability 2,441.0 2,552.0 2,627.9 2,497.3 2,460.5g Surplus/(Deficit) $ (1,031.7) $ (1,109.1) $ (1,128.9) $ (978.1) $ (884.4)g

g Periodic Contributions $ 19.2 $ 19.5 $ 19.6 $ 13.2g Discount Rate 0.89% 0.70% 0.59% 0.91% 1.08%g

g Funded Ratio: 57.7% 56.5% 57.0% 60.8% 64.1%

Asset Duration: 1.8 2.1 2.1 2.0 2.0

Risk-Free Liability

Duration: 18.6 19.0 19.1 18.6 18.3

Periodic

Return/Change

Cumulative

12 Months 6/30/16 9/30/16 12/31/16 3/31/17

gMarket Value of

Assets Return 11.1% 2.2% 3.7% 1.0% 3.8%g

g Risk-Free Liability:g Return -2.0% 3.8% 2.3% -5.7% -2.2%

gFunded Ratio

Change 6.4% -1.2% 0.5% 3.8% 3.3%



57.7%56.5% 57.0%

60.8%

64.1%

$0

$500

$1,000

$1,500

$2,000

$2,500

$3,000

$3,500

3/31/16 6/30/16 9/30/16 12/31/16 3/1/17


PB 19 May 2017, page 35 of 73

5

Reconciliation of Risk-Free Benchmark and Going Concern Funded Status

*Going Concern

The difference between the Risk-Free Liability and the Going Concern Liability is a measure of the amount of risk premium on

which the Pension Plan funding is based.


3/31/16 6/30/16 9/30/16 12/31/16 3/31/17

g Market Value of Assets $ 1,409.3 $ 1,442.9 $ 1,499.0 $ 1,519.2 $ 1,576.1

g Going Concern Liability $ 1,483.8 $ 1,505.1 $ 1,526.1 $ 1,549.5 $ 1,609.1g Risk Premium 957.2 1,046.9 1,101.8 947.8 851.4

Risk-Free Liability $ 2,441.0 $ 2,552.0 $ 2,627.9 $ 2,497.3 $ 2,460.5



Assets

GC*

RiskPremium

$0

$500

$1,000

$1,500

$2,000

$2,500

$3,000

3/31/2016 6/30/2016 9/30/2016 12/31/2016 3/31/2017

PB 19 May 2017, page 36 of 73

6

Executive Summary – Solvency Funded Status


Highlights for the Quarter-Ending 3/31/2017The plan's funded ratio increased to 89.3% at 3/31/2017. This result was primarily due

to the combined effects of:



■ An increase in liabilities primarily due to a decrease in risk-free rates and accruals,

offset by the impact of the new actuarial valuation.

Asset Liability Return for Quarter-Ending 3/31/2017Assets returned 3.8% during the quarter while liabilities returned 0.3%, resulting in a

funded status increase of 2.4%.


3/31/16 6/30/16 9/30/16 12/31/16 3/31/17

g Market Value of Assets $ 1,409.3 $ 1,442.9 $ 1,499.0 $ 1,519.2 $ 1,576.1g Solvency Liability 1,749.6 1,806.9 1,855.0 1,747.7 1,764.4

gSurplus/(Deficit) (Before

Expenses) $ (340.3) $ (364.0) $ (356.0) $ (228.5) $ (188.3)g

g Periodic Contributions $ 19.2 $ 19.5 $ 19.6 $ 13.2g Effective Interest Rate 2.86% 2.77% 2.69% 3.13% 3.16%g

g Funded Ratio: 80.6% 79.9% 80.8% 86.9% 89.3%

Assets Duration: 1.8 2.1 2.1 2.0 2.0

Solvency Liability

Duration: 14.7 14.9 15.0 14.4 14.2

Periodic

Return/Change

Cumulative

12 Months6/30/16 9/30/16 12/31/16 3/31/17

gMarket Value of

Assets Return 11.1% 2.2% 3.7% 1.0% 3.8%g

g Solvency Liability:g Return -1.6% 2.7% 2.1% -6.4% 0.3%

gFunded Ratio

Change 8.7% -0.7% 0.9% 6.1% 2.4%



80.6% 79.9% 80.8%

86.9%89.3%

$0

$500

$1,000

$1,500

$2,000

$2,500

3/31/16 6/30/16 9/30/16 12/31/16 3/1/17


PB 19 May 2017, page 37 of 73

7

Appendix



8

Actuarial AttestationThis document is intended to provide to the University of Waterloo a summary of the performance of the Pension Plan as of 3/31/2017.

This analysis is intended to assist University of Waterloo with a review of the associated issues and options, and its use may not be appropriate for other purposes. This analysis has

been prepared solely for the benefit of University of Waterloo. Any further dissemination of this report is not allowed without the written consent of Aon Hewitt.

In conducting the analysis, we have relied on plan design, demographic and financial information provided by other parties, including the plan sponsor. While we cannot verify the

accuracy of all the information, the supplied information was reviewed for consistency and reasonableness. As a result of this review, we have no reason to doubt the substantial

accuracy or completeness of the information and believe that it has produced appropriate results.

Experience different than anticipated could have a material impact on the ultimate costs of the benefits. In addition, changes in plan provisions or applicable laws could have a

substantial impact on cost. Actual experience may differ from our modeling assumptions.

May 2017

Actuarial Methods & AssumptionsOur analysis of the estimated financial position of the Pension Plan is based on the following:

Plan Provisions & Membership DataSame as in the Actuarial Valuation Results as of January 1, 2017 presentation to the Pension and Benefits Committee Meeting dated March 2, 2017

3/31/16 6/30/16 9/30/16 12/31/16 3/31/17

Going Concern

Discount Rate 5.70% 5.70% 5.70% 5.70% 5.50%

Inflation 2.00% 2.00% 2.00% 2.00% 2.00%

Risk-Free Benchmark

Discount Rate 0.89% 0.70% 0.59% 0.91% 1.08%

Solvency

Annuity Purchase Interest Rate 2.87% 2.84% 2.76% 3.12% 3.18%

Effective Date of Annuity Purchase Guidance Used 12/31/15 6/30/16 6/30/16 12/31/16 3/31/171

Lump Sum Value Interest Rate (Years 1-10)2 1.90% 1.70% 1.60% 2.30% 2.20%

Lump Sum Value Interest Rate (Years 10+)2 3.40% 3.10% 3.00% 3.70% 3.70%

Mortality CPM2014 CPM2014 CPM2014 CPM2014 CPM2014

Underlying Canadian Reference Data

CANSIM v39054 (7 Year) 1.01% 0.77% 0.76% 1.40% 1.31%

CANSIM v39056 (30 Year Long Term) 2.00% 1.72% 1.66% 2.31% 2.31%

CANSIM v39057 (30 Year Real Return) 0.49% 0.30% 0.19% 0.51% 0.68%

CANSIM v39062 (Over 10 Years) 1.86% 1.63% 1.55% 2.21% 2.17%

All other assumptions and methods are the same as those shown in the Actuarial Valuation Results as of January 1, 2017 presentation to the Pension and Benefits Committee Meeting

dated March 2, 2017. For the Risk-Free Benchmark basis, all other assumptions and methods are the same as those used for the Going Concern basis.

1 As of the date of issue of this report, the annuity purchase guidance effective March 31, 2017 is considered to be preliminary, pending approval from the CIA Practice Council.2 Lump Sum Value Interest Rates are based on rates in effective on the first day of the month following quarter end (i.e. January 1st, April 1st, July 1st and October 1st).



9

Liabilities

Assets

Asset-Liability Performance Attribution– Going Concern

■ Overall, assets returned 3.8% during this quarter, as opposed to an expected

growth assumption of about 1.2% per quarter.

■ The fixed income assets gained value due to a decrease in the underlying risk-

free rates (in general) and shrinking credit spreads.

■ The plan's return-seeking assets were a significant contributor to the

performance of the portfolio.

■ $13.2 million in contributions were made during the quarter and the trust paid

$13.8 million in benefits to the participants.

■ Liabilities as of 3/31/2017 are based on 5.50%.

■ Liabilities were expected to grow by $21.1 million due to interest cost during

the quarter.

■ New benefit accruals increased the liability by $16.1 million during the quarter.

■ Plan liabilities decreased by $13.8 million during the quarter as benefits were

paid.

■ Other changes include the impact of a decrease in the discount rate from

5.70% to 5.50%, and demographic changes uncovered in the most recent

actuarial valuation.


Funded Ratio

■ Overall assets returned 3.8% during the quarter as opposed to an expected

growth assumption of about 1.2% per quarter. Combined with the impact of the

decrease in the discount rate, there was an increase in funded status of 0.4%.

■ Benefit accruals exceeded contributions during the quarter, resulting in a net

decrease of 0.2% in the funded status.



10

60.8% 64.1%at 12/31/16 at 3/31/17

+0.3% +1.9% +0.1% +0.8% +0.0% +0.3%+0.1% -0.2% +0.0%54%

56%

58%

60%

62%

64%

ExpectedGrowth

Risk-FreeRates

Inflation CreditSpreads

ExcessReturnSeekingAssets

Contributionsand

Accruals

BenefitPayments

Expenses Other

$2,497.3 $2,460.5at 12/31/16 at 3/31/17

$17.0 ($78.4) $0.0 $0.0 $21.6 $16.8 $0.0 ($13.8) $0.0 $2,200

$2,300

$2,400

$2,500

$2,600

$2,700

ExpectedGrowth

Risk-FreeRates



Accruals BenefitPayments

Expenses Other

$1,519.2 $1,576.2at 12/31/16 at 3/31/17

$17.8 $0.0 $2.2 $20.1 $13.2 $17.7 $0.7 ($13.8) ($1.0)$1,200

$1,300

$1,400

$1,500

$1,600

ExpectedGrowth

Risk-FreeRates



Contributions BenefitPayments

Expenses Other

Liabilities

Assets

Asset-Liability Performance Attribution – Risk-Free Benchmark










the quarter.

■ While in general, risk-free rates decreased slightly, the 30-year benchmark

risk-free rate used for this measure remained unchanged.

■ Inflation expectations decreased, resulting in a $78.4 million decrease in the

liability.



paid.

■ Other changes include the impact of demographic changes uncovered in the

most recent actuarial valuation.


Funded Ratio

■ Overall, the difference in exposure to risk-free rates between assets and

liabilities combined with changes in inflation resulted in an increase in funded

status of 2.0%.

■ Changes in credit spreads resulted in an increase in funded status of 0.1%.

■ Return-seeking assets experienced gains during the quarter in excess of

expected, adding 0.8% to the plan's funded status during the period.



11

Liabilities

Assets

Asset-Liability Performance Attribution – Solvency










the quarter.

■ Risk-free rates (in general) decreased, and the annuity purchase spread

widened, resulting in a net decrease of $4.9 million ($-10.1 million + $15.0

million).



paid.

■ Other changes include the impact of demographic changes uncovered in the

most recent actuarial valuation.


Funded Ratio

■ Overall, the difference in exposure to risk-free rates between assets and

liabilities combined with changes in risk-free rates resulted in a decrease in

funded status of 0.5%.

■ Changes in credit spreads between and the annuity purchase spread resulted

in an increase in funded status of 0.9%.

■ Return-seeking assets experienced gains during the quarter in excess of

expected, adding 1.1% to the plan's funded status during the period.

■ Benefit accruals exceeded contributions during the quarter, resulting in a net

decrease of 0.5% in the funded status.



12

Asset Allocation and Benchmarking

Asset Class 3/31/2017

Alternatives

■ MSCI USA REIT Index 3.0%

■ MSCI USA Infrastructure Index 7.7%

Fixed Income

■ FTSE TMX Universe Bond Index 49.5%

Equities

■ MSCI World Index 36.0%

■ S&P TSX 3.9%

Total 100.0%



13

Glossary of Terms

■ Funded Status and Asset-Liability Return

— Liability Return reflects the growth in liability due solely to interest rate movements and excludes the impact of Accruals and Benefit Payments.

■ Asset Liability Performance Attribution

— Expected Growth reflects assets growing at the expected annual return and liabilities increasing at the interest rate.

— Risk-Free Rates splits out the expected movement in assets and liabilities based on movements in federal bond yields.

— Inflation splits out the expected movement in assets and liabilities based on movements in implied inflation, determined based on real and nominal federal bond yields.

— Credit Spreads splits out the expected movements in corporate and provincial bond yields in excess of federal bond yields.

— Excess Return-Seeking Assets defines the movement in the Return-Seeking assets based on benchmark returns in excess of expectations. The expectations are defined by

the long-term capital market assumptions of the plan and are reflected in "expected growth".

— Benefit Payments displays the expected decrease in assets and liabilities due to benefit payments during the period.

— Contributions/Accruals displays the expected increase in assets and liabilities due to employer contributions and new benefit accruals, respectively.

— Other includes fixed income returns due to coupons and other active management effects, from the asset perspective. From a liability perspective, this bucket includes all

liability changes not explained by financial movements during the period.



1

June xx, 2017

Broader Public Sector Pensions Policy Branch

Ministry of Finance

1st Floor, Frost Building South

7 Queen's Park Crescent

Toronto ON M7A 1Y7

RE: UNIVERSITY OF WATERLOO PENSION PLAN FOR FACULTY AND STAFF;

REGISTRATION NUMBER 0310565

Dear Sir/Madam:

This application by the University of Waterloo is for Stage 2 solvency funding relief for the University of

Waterloo Pension Plan for Faculty and Staff (the “Plan”) under Ontario Regulation 178/11 under the

Pension Benefits Act.

The Stage 1 Valuation Date for the Plan was as at January 1, 2014. The Stage 2 Valuation Date for the

Plan is as at January 1, 2017.

Background on Plans

The Plan is a contributory defined benefit pension plan covering all employees at the University and its federated university and affiliated university colleges. A brief summary of the benefit provisions of the Plan is provided in Appendix A to this application.

A summary of the actuarial assumptions used in the January 1, 2014 and January 1, 2017 actuarial valuations is provided in Appendix B to this application.

The members of the Plan include faculty represented by the Faculty Association, staff represented by the Staff Association and employees for whom CUPE Local 793 is the collective bargaining agent. However, the Plan is not subject to bargaining.

The University through its Board of Governors (the “Board”) is the administrator of the Plan. The Board has delegated the responsibility for and control of the administration of the Plan to the Pension & Benefits Committee (the “Committee”). The Committee is a standing committee of the Board.

Summary of Application

The Savings Targets included in the application approved for Stage 1 for the Plan was 10.3%. The

changes made to the Plan that have been included in the savings target calculation achieved a savings

under the specified calculation methodology of 20.3%. Therefore, the Plan has met the Savings Target

test to be admitted to Stage 2.

PB 19 May 2017, page 45 of 73

2

Between January 1, 2014 and December 31, 2016, the University made annual going concern special payments of $14,985,700 to the Plan to meet the minimum special payment requirements under Stage 1 rules. In addition, the University has remitted additional special funding of $3,363,600 in order to improve the funded status of the Plan. Effective with the January 1, 2017 actuarial valuation, the annual special payments are outlined in the table below. The going concern special payment is effective January 1, 2017. The solvency special payment will start January 1, 2018 as the University intends to elect to defer the start of any solvency special payment by 12 months.

Starting January 1, 2018 Going Concern Solvency Total

Without Stage 2 Solvency Funding

Relief

$ 12,562,600 $ 34,621,300 $ 47,183,900

(for 5 years)

With Stage 2 Solvency Funding Relief:

10-year amortization $ 12,562,600 $ 12,712,600 $ 25,275,200

With Stage 2 Solvency Funding Relief:

3-year deferral period $ 12,562,600 $ 0 $ 12,562,600

(for 3 years)

7-year amortization after deferral

period

$ 12,562,600 $ 18,989,500 $ 31,552,100

(for 7 years starting

January 1, 2021)

The University intends to elect the 3-year deferral/7-year amortization option if the Plan is accepted for Stage 2 of the solvency funding relief measures and will defer the start of new special payments for twelve months following the 3-year deferral period.

PB 19 May 2017, page 46 of 73

3

Going Concern Valuation Results as of January 1, 2014 and January 1, 2017 The going concern valuation results as of January 1, 2014 and January 1, 2017 for the Plan are

summarized below. More details, including the actuarial assumptions and methods used for the valuation,

membership and asset data, and plan provisions can be found in the actuarial report as at

January 1, 2014 and the Appendices of this application.

As of

January 1, 2014

(000’s)

As of

January 1, 2017

(000’s)

Past Service

Actuarial Value of Assets $ 1,156,0651 $ 1,474,5942

Less: Accrued Liability 1,305,570 1,585,568

Surplus/(Unfunded Accrued Liability) $ (149,505) $ (110,974)

Market Value of Assets $ 1,194,776 $ 1,518,959

Current Service

Total Current Service Cost $ 53,202 $ 67,245

Less: Required Participant Contributions 25,987 31,235

University Current Service Cost $ 27,215 $ 36,010

As a % of Required Member Contributions

As a % of Pensionable Earnings

104.7%

7.66%

115.3%

8.51%

Pensionable Earnings $ 355,352 $ 423,325

Solvency Valuation Results as of January 1, 2014 and January 1, 2017 The solvency valuation results as of January 1, 2014 and January 1, 2017 for the Plan are summarized

below. More details, including the actuarial assumptions and methods used for the solvency valuation,

membership and asset data, and plan provisions, can be found in the actuarial report as at

January 1, 2014 and the Appendices of this application.

As of

January 1, 2014

(000’s)

As of

January 1, 2017

(000’s)

Solvency Assets3 $ 1,194,276 $ 1,518,459

Less: Solvency Liability 1,270,651 1,744,213

Solvency Excess/(Deficit) $ (76,375) $ (225,754)

Solvency Ratio 0.94 0.87

1 Market value for all assets except for real return bonds which are valued as cash flows discounted at valuation rate (3.75% real) 2 Market value of assets less funding reserve from sale of real return bonds 3 Net of provision of $500,000 for estimated wind-up expense

PB 19 May 2017, page 47 of 73

4

Going Concern Special Payments as at January 1, 2017 The Unfunded Accrued Liability is $110,974,000 as at January 1, 2017. The amortization of the Unfunded

Accrued Liability generates annual special payments of $12,562,600. The present value of these

payments is shown for solvency valuation purposes. The 6-year present value amount does not reflect

Stage 2 solvency relief. The 11-year present value reflects Stage 2 solvency relief.

Nature of

Deficiency Effective Date

Revised

End Date

Present Value as of

January 1, 2017

Annual

Special

Payment

For Going

Concern

Valuation1

For Solvency

Valuation2

Going Concern

January 1, 2014 December 31, 2028 $ 12,562,600 $ 110,974,000 $ 69,183,000

(6 years)

$ 118,428,900

(11 Years)

1 The values in the table were developed using the going concern interest rate of 5.50% per year compounded monthly in arrears. 2 The values in the table were developed using the weighted average solvency interest rate of 2.9% per year, compounded monthly

in arrears. For the present value of the going concern special payments, a maximum of six years’ of such payments were considered in the calculation; except for streams established under Stage 2 solvency relief measures in which case, a maximum of 11 years of such payments were considered.

PB 19 May 2017, page 48 of 73

5

Minimum Special Payments for Plans Under Stage 2 of Solvency Funding Relief Measures as at January 1, 2017 Amended regulation 178/11 under the Pension Benefits Act requires the Plan provide for the University to make

special payments to liquidate any solvency deficiency determined in the Stage 2 Valuation Report according to

the following rules:

Rule 1 – Amortize the solvency deficiency identified in the Stage 2 Valuation Report over a period of 10

years; and make such monthly special payments for three years starting no later than 12 months after the

Stage 2 Valuation Date

Rule 2 – The minimum monthly special payments during that three-year period is the greater of zero and

(i) minus (ii) where (i) and (ii) are defined as follows:

i. Interest on solvency deficiency (without regards to estimated wind-up expenses), payable on

a monthly basis,

ii. The monthly special payments to liquidate the going concern unfunded liability.

Rule 3 – During the remaining seven year period, special payments must be made to liquidate the

solvency deficiency as at January 1, 2017

Rule 1 will result in a solvency deficiency payment of $12,712,600 starting January 1, 2018.

Rule 2 will result in a solvency payment of $0 determined as follows:

Greater of $0 and:

i. Interest on the solvency deficiency (without regards to estimated wind-up expenses) of

$6,532,400 ($225,254,000 x 2.9%1) minus

ii. The special payments of $12,562,600 to liquidate the Unfunded Accrued Liability

Rule 3 will result in a solvency deficiency payment of $18,989,500 starting January 1, 2021.

Therefore, special payments of $12,562,600 per year to fund the Unfunded Accrued Liability of

$110,974,000 as at January 1, 2017 will be contributed from January 1, 2017 to December 31, 2020 (three

years after the one year deferral period from the effective date of the Stage 2 Valuation Report as at

January 1, 2017). Starting January 1, 2021, the special payments will increase to $31,552,000

($12,562,600 plus $18,989,500).

1 Liability-weighted average of interest rates used for solvency valuation

PB 19 May 2017, page 49 of 73

6

Savings Target as at January 1, 2014 Under Stage 1 of Solvency Funding Relief Measures As established under the Solvency Funding Relief application for Stage 1, the Savings Target was

calculated as follows.

Going Concern Funded Ratio Solvency Funded Ratio

Valuation Date

Market Value of Assets/

Going Concern Liabilities

Market Value of Assets/

Solvency Liabilities

January 1, 2012

(proxy for January

1, 2014)

0.846 0.823

January 1, 2011 0.888 0.963

January 1, 2010 0.853 0.937

January 1, 2008 1.017

(capped at 1.00)

1.142

(capped at 1.00)

Average 0.897 0.931

Savings Target = 1 – (lesser of 0.897 and 0.931)

= 1 – 0.897

= 0.103 or 10.3%

Plan Amendments

The Committee spends a considerable amount of time on the matter of Plan sustainability. This is reflected in the actions the Committee has taken in the past few years to address Plan sustainability, both in terms of member and University contribution levels and benefit changes. The changes made in the five year period prior to the Stage 1 valuation (between January 1, 2009 and January 1, 2014) are included in the measurement of the progress against the savings target and are summarized below.

Increase in Member Contribution Rates

Between January 1, 2009 and January 1, 2014, member contributions increased in two steps to the current rate of 6.25% up to the YMPE, 8.95% on pensionable earnings between the YMPE and two times the YMPE, and 9.95% of pensionable earnings in excess of two times the YMPE. This increase took place in two steps as shown below:

Contribution Rates on Salary:

Effective Date

Up to YMPE

Between YMPE and

2x YMPE

Above 2x YMPE (up to ITA maximum

contribution)

July 1, 2008 (Baseline) 5.05% 7.85% 9.20% May 1, 2009 5.80% 8.30% 9.65% January 1, 2013 6.25% 8.95% 9.95%

PB 19 May 2017, page 50 of 73

7

Changes to Benefit Provisions

Between January 1, 2009 and January 1, 2014, the following benefit plan changes have been implemented:

Effective Date Change in Provision

January 1, 2012 Interest credited on member contributions changed from 4-year average rate of

return on pension fund to CANSIM five-year fixed-term deposit rate

January 1, 2014 Averaging period for final average earnings lengthened from 36 months to

60 months, transitioned over a two-year period

Guaranteed indexation on pension benefits accrued on or after January 1, 2014

reduced from 100% to 75% of increase in CPI up to a maximum increase in CPI

of 5%

Elimination of commuted value option for retirement-eligible members

Sustainability Test Under Stage 2

In accordance with the requirements of the sustainability test under Stage 2 of Solvency Funding Relief,

the tables below provide the savings achieved for the Plan, calculated as at January 1, 2017 and based

on the actuarial assumptions and methods as at January 1, 2014, with and without plan amendments.

As at January 1, 2017

Before Plan Amendments (0)

(000’s)

After Plan Amendments (n)

(000’s)

Present Value of Benefits For Future

Service (PVFB)

$ 741,741 $ 690,338

Portion From University Contributions

(ER PVFNC)

$ 445,796 $ 345,487

Portion From Member Contributions

(EE PVFNC)

$ 295,945 $ 344,851

Actuarial Liability (AL) $ 1,556,036 $ 1,505,402

Savings Achieved = (ER PVFNC(0) – ERPVFNC(n)) + (AL(0) – AL(n))

PVFB(0)

= ($445,796 – $345,487) + ($1,556,036 – $1,505,402)

$741,741

= 20.3%

The changes to the Plan made from January 1, 2009 through January 1, 2014 have resulted in savings

larger than the 10.3% Savings Target established in the Stage 1 solvency relief application.

PB 19 May 2017, page 51 of 73

8

Confirmation

This application has been delivered to the bargaining agents representing members prior to its filling and

has been posted for active members of the Plan on the University’s website. The application will also be

shared with retired members of the Plans.

Questions/Additional Information

Please direct questions or requests for additional information to my attention.

Thank you for your consideration. We look forward to your response to this application.

Yours truly,

Dennis Huber


Vice President, Administration and Finance

Telephone:

E-mail:

cc: Ms. Linda M. Byron, Aon Hewitt

Mr. Allan H. Shapira, Aon Hewitt

PB 19 May 2017, page 52 of 73

9

Appendix A - Plan Provisions

Effective Date January 1, 2011 (last restatement of the Plan document). Eligibility for Membership Faculty and Staff Employees are eligible to join the Plan on

the first day of any month coincident with or next following the date of employment with the University. An eligible Employee must join the Plan no later than the first day of the calendar year coincident with or next following attainment of age 35, or their appointment (if already age 35). Faculty Employees employed as lecturers may elect not to join the Plan. However, a lecturer who has attained age 35 must join the Plan on the first day of the month coincident with or next following the earlier of promotion to a higher rank or completion of five years of service with the University. Any Employee who has either earned at least 35% of the Year’s Maximum Pensionable Earnings (YMPE) under the Canada Pension Plan or worked at least 700 hours in each of the two immediately preceding calendar years, shall be eligible to join the Plan on the first day of any month coincident with or next following the date on which such conditions are satisfied.

PB 19 May 2017, page 53 of 73

10

Plan Provisions (continued)

Normal Retirement

Eligibility First day of the month coincident with or next following attainment of age 65.

Benefit Effective May 1, 1998 on retirement, a member receives an

annual pension equal to the sum of the following:

1.4% of Final Average Earnings up to the Average

Year’s Maximum Pensionable Earnings, plus,

2.0% of Final Average Earnings in excess of

the Average Year’s Maximum Pensionable Earnings.

for each year and completed month of Credited Service under the Plan. The Final Average Earnings is determined based on 36 consecutive months of earnings for retirements on or before January 1, 2014. The averaging period is increased by one month for each month in 2014 and 2015 so that the averaging period is 60 consecutive months for all retirements after December 31, 2015. The Average Year’s Maximum Pensionable Earnings is determined over a five-year period. On retirement prior to May 1, 1998, a member received an annual pension equal to the sum of the following:

1.3% of Final Three-Year Average Earnings up to

the Average Year’s Maximum Pensionable Earnings,

plus,

2.0% of Final Three-Year Average Earnings in excess of

the Average Year’s Maximum Pensionable Earnings. for each year and completed month of Credited Service under the Plan. The Average Year’s Maximum Pensionable Earnings was determined over a three-year period.

PB 19 May 2017, page 54 of 73

11


Normal Retirement (continued)

Benefit (continued) Maximum Pension The annual benefit payable in the Normal Form under the Plan for a member determined at the time of pension commencement cannot exceed the lesser of:

the lesser of (a) and (b): (a) the defined benefit limit for the year as defined in

the Income Tax Act; and

(b) $3,200.00

times the Member’s Credited Service; and

2.0% of the Member’s highest indexed compensation

times Credited Service. For service prior to January 1, 1992, a member’s Credited Service shall not exceed 35 years. Regulation 8504(6) imposes a lower maximum benefit limit in respect of any pre-1990 service that is granted after June 8, 1990 (e.g., buy-back or granting of years of pre-1990 service that was not previously counted as Credited Service).

PB 19 May 2017, page 55 of 73

12


Early Retirement

Eligibility Within ten years of normal retirement date. Benefit For Members who retired on an early retirement date prior

to May 1, 2000, the pension payable on early retirement is reduced by ⅓ of 1% for each of the first 60 complete months by which early retirement precedes the normal retirement date plus ½ of 1% for each additional complete month. For Members who retire on an early retirement date on or after May 1, 2000, the pension payable on early retirement is reduced by 1/2 of 1% for each complete month by which early retirement date precedes the first day of the month coincident with or next following age 62. In any event, the reduced pension cannot be less than the actuarial equivalent of the Member’s accrued pension.

Postponed Retirement

Eligibility Any age after normal retirement date; pension commencement under the Plan may not be postponed beyond the end of the calendar year in which the Member attains age 71.

Benefit The Member continues to make required contributions, his

or her service continues to accrue and the Member will receive a pension on his or her postponed retirement date based on Credited Service, Final Average Earnings and Average Year’s Maximum Pensionable Earnings at that date, subject to the paragraphs below. A Member who is a Faculty Employee employed by the University since prior to January 1, 1969 is permitted, if he or she elects on or before normal retirement date to postpone retirement by no more than three years following the first of the month coincident with or next following the end of the contract year during which he or she attains age 65, to elect on or before normal retirement date to cease making any further contributions to the Plan. Such Member shall receive a pension equal to the actuarial equivalent of the pension they would have received at normal retirement date.

PB 19 May 2017, page 56 of 73

13


Postponed Retirement (continued)

Benefit (continued) A Member who is a non-union Staff Employee employed by the University since prior to January 1, 1969 is permitted, if he or she elects on or before normal retirement date to postpone retirement by no more than three years following the first of the month coincident with or next following the normal retirement date, to elect on or before normal retirement date to cease making any further contributions to the Plan. Such Member shall receive a pension equal to the actuarial equivalent of the pension they would have received at normal retirement date.

Disability

Eligibility Any age prior to age 65. Benefit Members who are in receipt of income disability benefits

under the long-term disability insurance plan of the University cease to contribute while disabled but continue to accrue Credited Service for pension purposes. Starting July 1, 1984, accrued pensions for LTD Members are based on pensionable earnings, to date of disability, increased each year by a percentage which is determined annually by the Committee.

PB 19 May 2017, page 57 of 73

14


Termination Benefits

Eligibility Any age prior to early retirement date. Benefit A Member whose service terminates is entitled to a locked-

in fully vested deferred pension commencing at his normal retirement date. The early retirement reduction applicable if the former Member commences receipt of the pension prior to normal retirement date, on or after early retirement date, is equal to 1/3 of 1% for each of the first 60 complete months by which early retirement precedes the normal retirement date plus ½ of 1% for each additional complete month. A Member who terminates employment and is entitled to a locked-in vested deferred pension may request that an amount equal to the commuted value of the deferred pension entitlement be transferred to another registered pension plan, to a prescribed locked-in retirement savings arrangement or to an insurance company for the purchase of a life annuity that will not commence benefit payments prior to the Member’s early retirement date. Different provisions applied for those members who terminated employment prior to July 1, 2012

Death Benefits

Eligibility Any age. Benefit On the death of a Member while in the service of

the University, a refund of the commuted value of the accrued pension, subject to the 50% minimum employer cost rule plus any additional voluntary contributions, are paid to the Member’s spouse, or if no spouse, the Member’s designated beneficiary or estate. Different pensions applied prior to July 1,2012.

Minimum Employer Cost On retirement, death, or termination, the Required Member

Contributions with credited interest cannot provide more than 50% of the commuted value of the benefit. In the event that the Required Member Contributions with credited interest provide for more than 50%, the excess will be refunded to the Member or the Member’s beneficiary or estate, as applicable or in the case of retirement be used to increase the lifetime pension.

PB 19 May 2017, page 58 of 73

15


Normal Form of Pension The normal form of pension payable to a Member is a life annuity with a ten-year guarantee period. For Members who terminated prior to May 1, 1998 and are entitled to a deferred pension under the Plan, the normal form is a life annuity with a five-year guarantee period.

Cost-of-Living Adjustments The pension of each Member receiving pension payments

on May 1 of any year shall be adjusted by the Postretirement Cost-of-Living Factor for each year, provided that the Member has received at least one regular pension payment prior to May 1. For any pension benefits accrued prior to January 1, 2014, this factor is obtained by dividing the average Consumer Price Index for the preceding calendar year by the average index for the next preceding calendar year. In the first year of retirement, the increase will be provided on a pro-rata basis subject to the Income Tax Act rules. However, if this factor exceeds 105% and if the financial position of the Plan is not sufficient to provide for this increase, the factor may be reduced, within certain limits, to maintain the solvency of the Plan. For any pension benefits accrued on and after January 1, 2014 this factor is obtained by dividing the average Consumer Price Index from the preceding calendar year by the average index for next preceding calendar year, and then multiplying the result by 0.75. However, if this factor exceeds 103.75% and if the financial position of the plan is not sufficient to period for this increase, the factor may be reduced, within certain limits, to maintain the solvency of the Plan. In 2009, the date of the annual adjustment changed from July 1 to May 1, with the first such adjustment as of May 1, 2009 prorated to reflect the ten-month period since the prior adjustment. All terminated Members who are entitled to a terminated vested pension except for those who terminated between July 1, 1977 and December 31, 1986 shall have their terminated vested pensions adjusted on May 1 (July 1 prior to 2009) of each year by a cost-of-living factor to be determined annually by the Committee, subject to the Income Tax Act Rules. Notwithstanding the foregoing, if a Member terminates employment on or after January 1, 2008 and is not within ten years of his or her Normal Retirement Date, or has not completed 20 years or more of continuous employment, the Cost of Living Factor shall only apply to the terminated vested member’s pension earned in respect of Credited Service prior to January 1, 2008.

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16


Member Contributions Effective January 1, 2013, members are required to contribute 6.25% of annual earnings up to the YMPE, 8.95% of annual earnings that exceed the YMPE but are less than two times the YMPE, and 9.95% of annual earnings in excess of two times the YMPE, subject to the amount permitted under the Income Tax Act for the year. Effective May 1, 2009, Members were required to contribute 5.80% of annual Earnings up to the YMPE, 8.30% of annual Earnings that exceed the YMPE but are less than two times the YMPE, and 9.65% of annual Earnings in excess of two times the YMPE, subject to the amount permitted under the Income Tax Act for the year. Effective July 1, 2008, Members were required to contribute 5.05% of annual Earnings up to the YMPE, 7.85% of annual Earnings that exceed the YMPE but are less than two times the YMPE, and 9.20% of annual Earnings in excess of two times the YMPE, subject to the maximum amount permitted under the Income Tax Act for the year. Effective July 1, 2007, Members were required to contribute 4.80% of annual Earnings up to the YMPE, 7.175% of annual Earnings that exceeds the YMPE but are less than two times the YMPE, and 7.85% of annual Earnings in excess of two times the YMPE, subject to the maximum amount permitted under the Income Tax Act for the year. For the period January 1, 2003 to June 30, 2007, Members were required to contribute 4.55% of annual Earnings up to the YMPE and 6.50% of the excess of Earnings above the YMPE, subject to the maximum amount permitted under the Income Tax Act for the year. Prior to May 1, 1998, Members were required to contribute 4.875% of annual Earnings up to the YMPE and 6.50% of the excess of annual Earnings above the YMPE, subject to the maximum amount permitted under the Income Tax Act for the year. Between May 1, 1998 and January 1, 2003, there were temporary reductions in these member contribution rates. These contributions are credited with interest each year at the four-year arithmetical average rate of return on the pension fund, excluding real return bonds, calculated at December 31st of the prior year. Effective January 1, 2012, the interest credit will be the CANSIM rate.

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Member Flexible Pension Plan Contributions

Prior to January 1, 2014, members are permitted to make additional flexible Pension Plan contributions on December 31st of each year up to the maximum deductible contribution permitted by the Income Tax Act.

On retirement or termination of membership, a Member’s flexible Pension Plan contribution balance may be used to purchase additional ancillary benefits under the Pension Plan, up to the maximum ancillary benefits permitted by the Income Tax Act.

Flexible contributions that cannot be used to purchase ancillary benefits will be forfeited by the Member.

Transfers to the Pension Fund A new Member may transfer the value of his or her benefits

earned under the registered pension plan of a previous employer into the pension fund. The terms and conditions of such transfer and the benefits that will be payable are determined in accordance with Article 12 of the Plan, as amended from time to time.

Definitions

Credited Service Member’s years and completed months of continuous employment with the University while a member in the Plan. For service of a member employed on a part-time basis, the period of service is multiplied by the proportion the member’s reduced work load bears to a regular full-time work load.

Earnings Staff Employees

Base salary, excluding overtime pay, reimbursement for expenses, special payments, shift premiums, week-end provisions, special allowances and other like payments. Faculty Employees Base salary, excluding reimbursement for expenses, administrative stipends, faculty research fellowships, seasonal stipends, summer teaching stipends, special payments, consulting fees, special allowances and other like payments.

PB 19 May 2017, page 61 of 73

18

Appendix B - Actuarial Assumptions at January 1, 2017 and

January 1, 2014

Going Concern Valuation

Retirement Age Age 64, but no earlier than one year after the valuation date. For Terminated Vested Members—age 65.

Mortality Rates 2014 Canadian Pensioner Mortality Combined Table

(“CPM 2014 Combined”) with Improvement Scale CPM-B. Withdrawal Rates Table A following. Disability Rates None assumed. Increase in Consumer Price Index (CPI) 2.00% per annum at January 1, 2017; 2.25% at

January 1, 2014. Increase in Year’s Maximum Pensionable Earnings

2.75% per annum at January 1, 2017; 3.00% at January 1, 2014 (CPI+0.75%).

Increase in Income Tax Act Maximum Pension $2,914.44 in 2017;

Maximum Pension Limit increases at 2.75% per annum at January 1, 2017 thereafter to the plan maximum of $3,200.00; 3.00% per annum at January 1, 2014.

Increase in Pensionable Earnings Active Members:

4.00% per annum at January 1, 2017; 5.00% per annum for 1 year and 4.25% per annum thereafter at January 1, 2014 (CPI + 2.0% merit and promotion). Members on LTD: 2.00% per annum at January 1, 2017; 2.25% per annum at January 1, 2014.

Interest Rate 5.50% per annum, net of all expenses, at January 1, 2017;

6.00% per annum, net of all expenses, at January 1, 2014. Interest Rate on Required Member Contributions 3.00% per annum. Interest Rate Used to Calculate 50% Rule 1.30% per annum for 10 years; 1.60% per annum

thereafter at January 1, 2017 1.70% per annum for 10 years; 2.30% per annum thereafter at January 1, 2014.

Loading for Administrative Expenses Reflected in interest rate.

PB 19 May 2017, page 62 of 73

19

Actuarial Assumptions (continued)

Going Concern Valuation (continued)

Actuarial Value of Assets At January 1, 2017 the value of assets is set equal to the market value, less a funding reserve equal to the gain on the sale of the real return bonds. At January 1, 2014, the value of real return bonds was set equal to the projected cash flows discounted to valuation date at 3.75% real rate of return. All other assets were set equal to market value.

Actuarial Cost Method Projected unit credit cost method.

PB 19 May 2017, page 63 of 73

20


Solvency Valuation

Retirement Age Active, Suspended and Disabled Members with less than 55-age-plus-service points

Normal Retirement Date.

Active, Suspended and Disabled Members with at least 55 age-plus-service points

Integral age between ages 55 and 65 that produces highest present value.

Mortality Rates 2014 Canadian Pensioners Combined Mortality Table

with Improvement Scale CPM-B at January 1, 2017. 1994 Uninsured Pensioner Mortality Table with

Generational Mortality Improvements under Scale AA at January 1, 2014.

Interest Rates-Without Escalated Adjustment

Active, Suspended and Disabled Members age 55 and over, and Retired Members

3.12% per annum at January 1, 2017; 3.83% per annum at January 1, 2014.

Active Members under age 55 2.30% per annum for 10 years, 3.70% per annum

thereafter at January 1, 2017; 3.10% per annum for 10 years, 4.60% per annum thereafter at January 1, 2014.

Terminated Vested Members 3.12% per annum at January 1, 2017;

3.83% per annum at January 1, 2014. Interest Rates-With Escalated Adjustment

Active, Suspended and Disabled Members age 55 and over, Retired Members, and Terminated Vested Members

-0.09% per annum for 100% indexed benefits and 0.71% per annum for 75% indexed benefits at January 1, 2017; 0.15% per annum at January 1, 2014.

Active, Suspended and Disabled Members under age 55

1.30% per annum for 10 years, 1.60% per annum thereafter for 100% indexed benefits at January 1, 2017 and 1.50% per annum for 10 years, 2.10% per annum for 10 years for 75% indexed benefits at January 1, 2017; 1.70% per annum for 10 years, 2.30% per annum thereafter at January 1, 2014.

PB 19 May 2017, page 64 of 73

21


We have made the following assumptions regarding how the Plan’s benefits would be settled on Plan

wind-up:

Percent of Liability Assumed to be Settled

by Purchase of Annuities

Percent of Liability Assumed to be Settled by Lump-Sum Transfer

Active members—not retirement eligible 0% 100% Active members—retirement eligible 100% 0% Terminated vested members—not retirement eligible 100% 0% Terminated vested members—retirement eligible 100% 0% Retired members and surviving spouse 100% 0%

PB 19 May 2017, page 65 of 73

22


Table A

Withdrawals per 1,000 Participants:

Present Age Rates Present Age Rates

20 100 45 17 21 100 46 16 22 100 47 15 23 100 48 14 24 100 49 13 25 100 50 12 26 90 51 11 27 80 52 10 28 71 53 9 29 63 54 8 30 56 55 7 31 50 56 6 32 45 57 5 33 40 58 4 34 36 59 3 35 32 60 2 36 30 61 1 37 28 62+ 0 38 26 39 24 40 22 41 21 42 20 43 19 44 18

PB 19 May 2017, page 66 of 73

23

Appendix C - Personnel Information at January 1, 2017 and

January 1, 2014

Active Members (Including Leaves)

January 1, 2014 January 1, 2017

Number of Members Males 1,883 2,089 Females 2,008 2,237 Total 3,891 4,326 Average Age Males 48.4 48.2 Females 46.9 46.7 Total 47.6 47.4 Average Years of Credited Service Males 11.4 11.1 Females 9.7 9.7 Total 10.6 10.4 Average Pensionable Earnings for Following Year

$ 89,973 $ 96,884

Total Pensionable Earnings for Following Year $ 350,083,9481 $ 419,120,9832

1 Total Pensionable Earnings for Following Year for Active and Disabled Members is $355,493,493 2 Total Pensionable Earnings for Following Year for Active and Disabled Members is $423,325,492

PB 19 May 2017, page 67 of 73

24

Personnel Information (continued)

Disabled Members


Number of Members Males 26 18 Females 71 56 Total 97 74 Average Age Males 57.1 56.6 Females 56.2 55.7 Total 56.4 55.9 Average Years of Credited Service Males 19.4 19.2 Females 17.7 17.1 Total 18.1 17.6 Average Pensionable Earnings for Following Year

$ 55,769 $ 56,818

Total Pensionable Earnings for Following Year $ 5,409,5451 $ 4,204,5092

Suspended Members


Number of Members 11 10 Average Age 32.6 33.6 Average Years of Credited Service 2.7 2.3

1 Total Pensionable Earnings for Following Year for Active and Disabled Members is $355,493,493 2 Total Pensionable Earnings for Following Year for Active and Disabled Members is $423,325,492

PB 19 May 2017, page 68 of 73

25

Personnel Information (continued)

Retired and Terminated Vested Members

Following are some pertinent characteristics of the retired and terminated vested members’ data as of

January 1, 2014 and January 1, 2017.

Retired Members and Beneficiaries Receiving Lifetime Pensions

Number Average Age Average

Annual Pension Total

Annual Pension

January 1, 2017 1,837 74.4 $ 30,028 $ 55,162,643 January 1, 2014 1,603 74.2 $ 28,577 $ 45,809,128

Deferred Pensioners Subject to COLA



Annual Pension

January 1, 2017 477 50.6 $ 6,701 $ 3,196,322 January 1, 2014 475 48.9 $ 5,964 $ 2,832,823

Deferred Pensioners—Others



Annual Pension

January 1, 2017 8 67.6 $ 980 $ 7,838 January 1, 2014 9 64.5 $ 872 $ 7,850

PB 19 May 2017, page 69 of 73

26

Appendix D: Asset Data

2014 (000’s)

2015 (000’s)

2016 (000’s)

Market Value of Assets, Beginning of Year $ 1,194,776 $ 1,316,510 $ 1,402,751 Plus: University Contributions 42,373 45,003 47,679 Participant Contributions 26,037 27,587 29,217 Incoming Transfers 1,552 1,655 2,220 Net Investment Gain (Loss) 114,532 70,629 99,934 Less: Pensions and lump sum refunds paid (61,351) (57,283) (60,993) Fees1 (1,409) (1,350) (1,795) Market Value of Assets, End of Year $ 1,316,510 $ 1,402,751 $ 1,519,013 Return on Market Value, After Fees and Expenses 9.43% 5.23% 6.95%

1 Includes investment management fees, custodial fees, and administration fees

PB 19 May 2017, page 70 of 73

Pension & Benefits Committee May 12, 2017

Page | 1

Benefits Provided by Great-West Life – Renewal Update Changes effective May 1, 2017

a. Long Term Disability (LTD) – Premium Rate Great-West Life (GWL) initially proposed a premium rate increase of 39% effective May 1, 2017, which would have resulted in an additional employee paid premium of approximately $1.43 million per year. Aon Hewitt was able to negotiate the renewal position to a 15% increase, phased in over a 2-year period with a surplus credit if necessary in the third year.

Insured Earnings

Current Effective May 1, 2017

Change Rate (% of earnings)

Annual Premium

Rate (% of earnings)

Annual Premium

$363,432,245 1.011% $3,674,300 1.087% $3,950,509 $276,209 7.5%

Note: Rates do not include 8% tax; insured earnings based on projected 2016/17 volumes

Illustration of Employee Impact

Sample Salary LTD Monthly Premium for Employees*

2016 2017 Difference

$35,000 $31.85 $34.24 $2.39

$65,000 $59.15 $63.59 $4.44

$100,000 $91.00 $97.83 $6.83

$125,000 $113.75 $122.29 $8.54

Maximum Insured Salary

$170,288 $154.95 $166.59 $11.64

$172,723 $154.95** $168.98 $14.03

*Based on rates that include 8% tax (1.092% for 2016 and 1.174% for 2017) **Premium is capped at the 2016/17 insured earnings maximum of $170,288

Human Resources communicated the new rate and impact from a monthly premium perspective on April 28, 2017 to all employees via email.

Action Required: None

PB 19 May 2017, page 71 of 73

Pension & Benefits Committee May 12, 2017

Page | 2

b. Healthcare Benefits – ASO Fees/Charges Excluding the pooling and Global Medical Assistance (GMA) charges, GWL initially proposed an increase of 6% to the fees and charges effective May 1, 2017, which would have resulted in additional ASO charges of approximately $45,000 per year. Similar to the LTD premium rate negotiations, Aon Hewitt was able to negotiate a more favourable renewal position for the upcoming year with a 3-year deal involving a 10% decrease to the charges for a 2-year period with a 5% increase in the third year. GWL was unwilling to negotiate any changes to their pooling or GMA charges; however, they did offer a unique “surplus sharing” arrangement in which positive experience during the May 2016 to April 2017 period may result in a retroactive credit and downward adjustment to the pooling charge as of July 1, 2017.

The following table provides a summary of the fees and charges for the upcoming year:

ASO Fee/Charge Current Effective May 1, 2017

Change Charge Annual Cost Charge Annual Cost

General Administration 0.80% $90,901 0.72% $81,811 -10.0% ($9,090)

Profit 0.45% $51,699 0.41% $47,104 -8.9% ($4,595)

Claims Settlement

Drug 2.70% $201,577 2.43% $181,419 -10.0% ($20,158)

Other Medical

6.20% $249,248 5.58% $224,323 -10.0% ($24,925)

Dental 3.50% $152,674 3.15% $137,407 -10.0% ($15,267)

Individual Pooling 3.95% $453,800 5.89% $676,600 49.1% $222,800

GMA $0.45 $36,300 $0.45 $36,300 0.0% $0

Combined $1,237,207 $1,384,964 11.9% $147,757

Note: Calculated as a percentage of paid claims except for GMA which is a monthly charge per covered employee or retiree; exhibit is based on projected claims experience and headcounts

Action Required: None

PB 19 May 2017, page 72 of 73

Pension Plan Management and Administrative Fees Incurred in 20161

with 4 prior years of comparative information

Expense Category 2016 ('000s)

2015

('000s)

2014

('000s)

2013

('000s)

2012

('000s)

Investment Management Fees 2

TD Asset Management 504 494 239 149 179

McLean Budden Ltd. 0 0 0 0 -10

Oldfield 876 881 770 647 561

Trilogy Global Advisors 856 857 730 635 504

Walter Scott and Partners Ltd. 1,254 1342 1168 1050 883Sionna Investment Managers 185 178 179 154 62

Total Investment Management Fees $3,675 $3,752 $3,086 $2,635 $2,179

Custodian Fees 213 216 214 203 181

Hewitt - all fees 301 262 243 314 337

Administration Fees5 850 433 498 330 220Ernst & Young - Audit Fees 20 18 20 18 17

Total Pre-Tax Management and Administrative Fees $5,059 $4,681 $4,061 $3,500 $2,934

HST 3

398 490 533 436 201

Total Management and Administrative Fees 4 $5,457 $5,171 $4,594 $3,936 $3,135

1 Amounts from the audited annual financial statements2 TDAM US Treasuries added March 2014 and TDAM Short Term Bond Mandate added December 2014

(TDAM US Treasuries sold in 2016 and proceeds reinvested in other TDAM mandates)3 UW recovers HST paid by the pension fund where possible through HST rebates4 This total exceeds the total management and administrative expenses in the financial statements

by the amount of Oldfield fees noted above. The Oldfield fees are deducted directly from the investment

pool and this presentation (netting against investment income) is followed in the financial statements5 Higher administrative fees relate to costs of new pension system and its implementation

PB 19 May 2017, page 73 of 73

Documents

PENSION & BENEFITS COMMITTEE Friday 19 May 2017 9:30 a.m. … · 2017. 5. 15. · Board of Governors PENSION & BENEFITS COMMITTEE Friday 19 May 2017 9:30 a.m. to 12:00 noon NH 3318