2013 Report to the Community

The Pension & Benefits Committee is pleased to present its 2013 update to the community. Since the last update in October 2011, the committee has been working hard on initiatives related to both the pension and benefits plans. In 2012, the committee took steps to improve the long-term sustainability of the pension plan and address the going concern deficit, including recommending increases in university and member contributions, plan design changes, and changes to the pension fund’s investment portfolio. On the benefits side, the committee obtained Board of Governors’ approval to extend coordination of benefits to couples where both partners work at the University of Waterloo. The committee also formed a working group to look at the competitiveness, sustainability and relevance of the current benefits plan. This working group will be engaging with the community in the coming months to solicit your feedback, so please look for opportunities to contribute. For more information on the activities of the Pension & Benefits Committee over the past year, please see the links below.

Page Contents:

Pension Plan

Benefits Plan

The Committee and its Members

Pension Plan:

Education and monitoring. The committee receives regular reports from the pension plan’s consulting actuary on legislative, policy and other government initiatives which may affect the pension plan. The committee uses this information to consider new opportunities, respond to requests from the government for feedback, implement legislated changes to the pension plan and prepare for upcoming issues. Some of the government initiatives the committee has been monitoring over the past year are the proposal to have public sector pension plans pool their assets, 50:50 cost-sharing between plan members and their employer, the proposal to merge university pension plans into a single pension plan for the sector, changes to the Canada Pension Plan, and solvency funding relief for public sector plans.

The consulting actuary also keeps the committee up to date on changes being made by other public sector defined benefit plans (to the extent this information is public). This information is used to assess whether the pension plan is competitive, consider options which may be appropriate for the pension plan and test whether decisions made by the committee are reasonable.

Throughout the year, the committee monitors the economic and demographic context for the pension plan, as well as the overall health of the pension plan, through the review of the actuarial valuation report (produced annually), the actuarial valuation assumptions (reviewed and approved annually), and the quarterly reports on the total fund return and investment manager performance.

Changes to actuarial assumptions. During the discussion of the actuarial valuation assumptions in January 2012, the committee was asked to consider whether certain actuarial assumptions needed to be changed to reflect shifts in economic and demographic trends. Guided by the consulting actuary, the committee decided to make changes to the economic assumptions (i.e., assumed inflation rate, salary increases and investment return) and to adopt a mortality table that builds in generational improvements in mortality. This mortality table is now the practice standard. The new actuarial assumptions were used for the January 1, 2012 actuarial valuation report. At the January 18, 2013 meeting, the committee completed its annual review of the actuarial assumptions and agreed to continue using the actuarial assumptions approved in 2012 for the January 1, 2013 valuation report.

Changes to pension plan. Given the ongoing low interest rate environment, volatile and generally lower investment returns, and increasing longevity, the pension plan had and continues to have a significant deficit. After consultation with the executive from each employee stakeholder group, several information sessions with pension plan members and communications with the community, the committee finalized recommendations regarding changes to the pension plan and presented the recommendations to the university’s Board of Governors in October 2012. Because these changes have been discussed at length in other reports to the community, this report will not go into any details. Pension plan members are welcome to review existing materials on the Pension & Benefits Committee webpage.  

Review of pension plan protocols and development of new protocol. In response to feedback from members on the 2012 pension plan changes, the committee agreed to develop a protocol setting out the parameters under which the Committee would increase the level of indexation for pensioners covered under the new plan provisions. At the committee’s January 2013 meeting, members reviewed existing protocols and agreed to hold a special meeting in April 2013 to focus on the development of the new protocol, as well as committee education.

Changes to investment portfolio. The committee has made some changes to the registered pension plan’s investments since the last report to the community, including increasing investments in Canadian equity, adding infrastructure and real estate investments, and selling the 30-year U.S. treasuries.

In 2011, the university liquidated its investments with two Canadian equity managers due to concerns regarding performance and changes in ownership. This left the pension fund with a large cash position and minimal exposure to Canadian equities. The Registered Pension Plan Investments Subcommittee conducted a search for new Canadian equity managers in early 2012, resulting in the pre-approval of Sionna Investment Managers and Burgundy Asset Management as Canadian equity managers for the pension plan. In March 2012, the committee approved placing $20 million with Sionna, and, in October 2012, approved a further $20 million investment. No funds have been placed with Burgundy yet.

During 2011 and 2012, the Registered Pension Plan Investments Subcommittee arranged information sessions, which were open to the committee, subcommittee and the Finance & Investment Committee, with Aon Hewitt on different options for investing in infrastructure and real estate. Following the information sessions and research into several firms, the subcommittee recommended the appointment of Brookfield Asset Management as an investment manager for the registered pension plan; the committee has since approved investments totaling $40 million in Brookfield’s publicly traded infrastructure product. The subcommittee also recommended making a laddered investment of $10 million per quarter over four quarters in the iShares XRE S&P/TSX Capped REIT Index Fund (real estate), which was approved by the committee in October 2012.

In June 2012, the pension fund’s 30-year U.S. treasuries were sold when the yield fell to 2.454% (below the sell target of 2.5%), resulting in proceeds of $114 million (a gain of $29 million over the purchase price). While a positive result, the sale of the 30-year U.S. treasuries added to the cash position of the pension fund. The pension fund is currently holding more cash (14.7%) than the Statement of Investment Policies and Procedures allows (10%), so the committee and its Registered Pension Plan Investments Subcommittee continue to look for suitable investments.

Application for solvency funding relief. Just prior to the December 7, 2012 meeting of the committee, the Ontario government announced a proposed amendment to Regulation 178/11 to allow pension plans that had not previously filed for solvency funding relief to apply, provided the application was filed before December 31, 2012.

The university’s pension plan was one of the few Ontario university pension plans that had not applied during the previous rounds of solvency funding relief, because its solvency ratio[1] was not below the specified threshold (0.9). With the further decline in interest rates, the solvency ratio as of 1 January 2013 is expected to be below 0.9. If the pension plan solvency ratio continues to be below 0.9 as of the date of the next filed actuarial valuation report (1 January 2014), the solvency deficit[2] would have to be amortized over five years and the university would be required to make additional, significant special payments into the pension plan (over and above the special payments already being made to fund the going concern deficit). If the university is approved for Stage 1 solvency funding relief, the university would have a four year period (starting 1 January 2014) in which it would not be required to fund the solvency deficit, and if the university qualifies for Stage 2[3] after three years (1 January 2017), the solvency deficit can be amortized over ten years.

The university already has a plan to fund the going concern deficit[4] over a fourteen year period. This plan involves the funding already built into the university’s operating budget, as well as the pension plan changes approved by the Board in October 2012. The committee approved the filing of the solvency funding relief application to provide insurance against the university being required to make additional special payments and to allow the university to continue with the execution of the plan to eliminate the deficit over a reasonable time period.

Back to top

Benefits Plan:

Education and monitoring. The committee reviews aspects of the benefits plan on a regular basis, including claims experience, insurance rates and premiums, and annual and lifetime maxima. The committee uses this information in order to see where costs are increasing, to assist with decision-making, and to identify where change may be required. In addition to its regular monitoring and education activities, the committee received a presentation from Aon Hewitt on benefits plan design and commissioned a benchmarking study against ten other benefits plans, including other universities and local employers.

Benefits Review Working Group. In response to feedback received from the community and information received from the committee’s resource people, the committee decided to form a working group to look at the relevance, sustainability and competitiveness of the extended health, employee assistance and dental plans. The working group includes one Pension & Benefits Committee member from each of the employee groups, one of the president’s appointees and the non-voting member from the Federated University and Affiliated University Colleges. The working group will be conducting research and engaging with the benefit plan members throughout 2013 and is expected to deliver a report on its findings to the committee at the end of 2013 or beginning of 2014.

Enhancements to the benefits plan. One of the features of the extended health and dental plans (referred to herein as the benefit plan) that had long been an issue for the university community and the committee was the lack of coordination of benefits for couples where both individuals are employees or retirees of the university. Previously, only one member of a university couple was enrolled in the benefit plan and his/her spouse was named as a dependent. Because of this, university couples were not able to coordinate claims under the benefit plan. For example, if the benefit plan covered one member of a university couple for 80% of a health claim, that member was not able to submit a claim under his/her spouse’s insurance for the remaining 20%. This was not the case for couples where one spouse works at the university and the other works at another employer which permits the coordination of benefits. On the recommendation of the committee, the Board of Governors approved an amendment to the benefit plan to permit the internal coordination of benefits effective November 1, 2012. Human Resources is in the process of updating the information in its systems and contacting plan members. If you have any questions about this change, please contact Human Resources.

Back to top

The Committee and its Members:

The Committee is a standing committee of the Board of Governors responsible for overseeing UW’s pension plans, extended health care and dental plans, self-insured sick leave and long term disability plans, and life insurance plans. The Committee consists of representatives from senior administration, the Board of Governors, retirees, regular staff members, faculty and CUPE Local 793.  For a list of current members and resources, please see the Pension & Benefits Committee webpage. The Committee’s regular meetings are held on a monthly basis (except April, July and August); meetings are generally open to the university community and agendas and minutes are available on the web. Recommendations for changes and improvements to the university’s pension and benefit plans are developed and refined by the Committee and, if agreed by the Committee, forwarded to the Board of Governors for approval. The Committee’s approach to pension and benefit plans is based on the following principles: 

  1. There will be one pension and benefits plan for all members of the UW community regardless of the type of work performed or the employee group to which one belongs.
  2. Benefits are provided for both the employee and his or her family where relevant.
  3. Employees should be covered for catastrophic events.
  4. The current level of benefits should be maintained.
  5. Cost implications to both the university and its employees should be considered.

[1] Solvency ratio is equal to the market value of the pension plan assets divided by the solvency liabilities.

[2] The solvency calculation assumes that the plan is being wound- up and the benefits accrued by plan members settled by purchasing annuities or making lump-sum payments. A solvency deficit occurs when the value of the solvency liabilities (calculated using the foregoing assumptions) is greater than the market value of the pension plan assets.

[3] It is expected that the university will qualify for Stage 2 solvency funding relief as a result of the recent changes made to the pension plan.

[4] The going concern calculation assumes that the plan will continue to operate for the foreseeable future. A going concern deficit occurs when the value of the liabilities (calculated using plan member data, the benefit structure of the plan, and actuarial assumptions) is greater than the market value of the pension plan assets.