Report: Pension Committee - September 28, 2021

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Via Virtual Meeting room

REPORT NUMBER 46 OF THE PENSION COMMITTEE

September 28, 2021

Pursuant to section 33 of By-Law Number 2,
consideration of item 2 took place in camera

To the Governing Council,
University of Toronto.

Your Committee reports that it held a virtual meeting in closed session on Tuesday, September 28, 2021 at 4:00 p.m. with the following members present:

Present:
Cynthia Messenger (Chair), Janet L. Ecker (Vice-Chair), Harvey Botting, David N. Bowden, Colleen Burke, Teo Dechev, Maureen Harquail, Louis Florence, Joan Johnston, Anna Kennedy, Sameer Lal, Rajiv Mathur, Alex D. McKinnon, Kim McLean, Jun Nogami, Danielle Skipp, Maureen Stapleton, Paul Whittam, Lara K. Zink

Regrets:
Andrew Padmos, Terezia Zoric

Non-Voting Assessors:
Kelly Hannah-Moffat (Vice-President, Human Resources and Equity), Scott Mabury (Vice-President, Operations Real Estate Partnerships), Pierre Piché (Interim Chief Financial Officer)

Secretariat:
Anwar Kazimi, Deputy-Secretary, Patrick McNeill, Committee Secretary

In Attendance:
Elizabeth Brown (Brown Mills Klinck Prezioso LLP), Angela Hildyard (Special Advisor to the President), Chuck O’Reilly (President and Chief Investment Officer, University of Toronto Asset Management Corporation (UTAM), Allan Shapira (Plan Actuary, Aon),


The Committee met in closed session

  1. Chair’s Remarks

    The Chair welcomed members and guests to the virtual meeting.

    Professor Messenger noted that this was the first meeting of the Pension Committee since the University of Toronto Pension Plan was converted to the University Pension Plan Ontario [UPP] on July 1, 2021. The Chair added that with the successful conversion to the UPP, the trust assets of and the benefits under University of Toronto Pension Plan had been transferred to and merged into the UPP and the UPP trust fund. The U of T Plan no longer existed as a separate trust or plan. The UPP was being administered by the UPP Board of Trustees, and the Plan was jointly sponsored by the Joint Sponsors. As a result, the U of T Pension Committee had been effectively replaced by the UPP Board of Trustees.

    The Chair stated that while the UofT Pension Committee had some important residual responsibilities, these responsibilities would be fulfilled by the end of 2021 and therefore, there would only be two meetings in 2021.

The Committee Moved In Camera

  1. Reports of the Administrative Assessors

    Professor Angela Hildyard presented an update on the University Pension Plan [UPP], specifically in the context of the “post-conversion” state.

    There were no other reports of the Administrative Assessors.

The Committee Moved back to closed session

  1. Discussion: Orientation and Committee Responsibilities

    Ms Elizabeth Brown presented a view of the new legal landscape as part of the Pension Committee’s annual orientation. The presentation included the following: 1. Role of the Pension Committee; 2. Residual Responsibilities; 3. The Administrator’s Fiduciary Duties and; 4. Support Systems.

    As part of the new legal landscape, Ms Brown highlighted that the University of Toronto had two “new” legal roles related to the UPP:
    • Ongoing – as part of the Employer Sponsor responsible with the Employee Sponsor as Joint Sponsors of the UPP (replaced single sponsor role);
    • Temporary – as Agent acting on behalf of the UPP for certain services related to the investment of former Plan assets and the day to day pension benefits administration for University of Toronto UPP members (replaced legal administrator role); and
    • Pension Committee was not engaged in these roles

      Ms Brown stated that the University of Toronto, as former Administrator of the Plan, had some residual responsibilities related to the Plan, and thus the Pension Committee was engaged.

      There were no questions from members on the orientation materials.
  2. Review of Investment Performance to June 30, 2021

    Dr. Pierre Piché (Interim Chief Financial Officer), provided the Committee with introductory comments, noting that the review provided a calculation of the pension funded status to June 30, 2021. He noted that the results had not yet been audited.

    Mr. Chuck O’Reilly introduced himself in his new role as President and Chief Investment Officer, University of Toronto Asset Management Corporation (UTAM).

    Mr. O’Reilly reported on the investment return targets and the Reference Portfolio (as articulated in the Pension Fund Master Trust Statement of Investment Policies and Procedures (SIPP)) returns for the twelve-month period from July 1, 2020 to June 30, 2021.

    Mr. O’Reilly highlighted the following key points related to the investment performance and the risk dashboard for the fiscal year ending June 30, 2021:
  • Pension assets increased by $1,376 million during fiscal year 2021 and the investment portfolio returned 24.1% net of all investment fees and expenses, including UTAM expenses;
  • In FY 2021, the Pension portfolio outperformed the Target Return by17.1%. Over the 10 year period ending June 30, 2021, the Portfolio exceeded the Target Return by 3.6% per year;
  • The Reference Portfolio returned 17.1% in FY 2021, outperforming the Target Return by 10.2%.; and had outperformed the Target Return over the last 1, 5 and 10 year periods ending June 30, 2021;
  • In FY 2021, UTAM added $358.0 million in value-add relative to the Reference Portfolio;
  • In fiscal year 2021, Manager Selection and Strategic Tilts were the main contributors to the positive value-add;
  • Over the past 5 years, annualized value-add had been positive with the largest contribution coming from Manager Selection;
  • At the end of June 30, 2021, Pension was in compliance with all current asset allocations and limits; and
  • Active Risk (0.59% or 59 bps) remained within the “Target Zone” (-50 bps to150 bps).

    In closing, Mr. O’Reilly stated UTAM confirmed that the Pension assets had been managed in compliance with the SIPP during the 12-month period ending June 30, 2021. He also confirmed that all internal liquidity limits were satisfied during the 12-month period ending June 30, 2021.

    The Chair thanked Mr. O’Reilly for his report.
  1. Pensions: Projection of Funded Status to July 1, 2021

    Dr. Piché stated that for the purposes of the projection, the going concern accrued liability for the University of Toronto Pension Plan (RPP) as at July 1, 2021 had been estimated using the proposed assumptions at July 1, 2021. The estimate would be revised and updated when actual July 1, 2021 financial results were finalized.

    Mr. Shapira, Plan Actuary, Aon presented an overview of the estimated fund status, highlighting the following points:
  • Estimated market value of assets as of June 30, 2021 provided by the University (estimated rate of return for period from July 1, 2020 to June 30, 2021 was 24.1% net of fees);
  • Projection of going concern liabilities from July 1, 2020 to July 1, 2021, was based on following three assumptions bases, with no liability experience gains/losses:
    • Same actuarial assumptions as used for the July 1, 2020 actuarial valuation, with PfAD determined as of July 1, 2021 for an Open Plan.
    • Same actuarial assumptions as used for the July 1, 2020 actuarial valuation, with PfAD determined as of July 1, 2021 for a Closed Plan.
    • Actuarial assumptions under the UPP Transfer Agreement

Mr. Shapira stated that there was an estimated surplus of $822,000 at July 1, 2021 under the UPP assumptions as a result of positive investment returns – no solvency special payments would be required under the JSPP rules.

  1. University of Toronto Pension Plans: Actuarial Assumptions

    Mr. Allan Shapira, Senior Partner, Aon, stated that the actuarial assumptions that underpinned the estimation of actuarial results and the actuarial reports had been approved annually by the Pension Committee. This year, the assumptions were provided for information to the Pension Committee as the assumptions were prescribed under the Transfer Agreement between the Governing Council of the University of Toronto and the Employee and Employer Joint Sponsors of the University Pension Plan Ontario (UPP) (“Transfer Agreement”), and therefore did not require approval by the Pension Committee.

    Mr. Shapira reported that for the going concern valuation used in the Asset Transfer and Conversion Report, the following assumption changes were being made:
  • Inflation / Consumer Price Increase (CPI) assumption – Increase from 1.75% to 2.00% to reflect the higher inflation expectations implied in the increasing break-even inflation rate (the spread between the yields on long-term nominal and real return Government of Canada bonds). This increase in the inflation assumption impacts the following economic assumptions which have an inflation component.
  • Cost of Living Adjustment (COLA) assumption – Changes from 1.3125% to 1.50% (75% of CPI).
  • Increase in CPP Maximum Salary and Increase in Income Tax Act Maximum Pension assumptions – Changes from 2.50% to 2.75%.
  • Increase in Salary assumption – Changes from 3.75% (CPI + 2.00%) to 4.00% (CPI + 2.00%).
  • Investment Return (discount rate) assumption – Change from 5.35% (CPI + 3.60% real return) to 5.60% (CPI + 3.60%) net of fees and expenses.

    The Actuarial Assumptions Effective as at July 1, 2021; and the History of the Actuarial Assumptions for the period from 2006 to 2020 were received for information.
  1. Report of the Previous Meeting: Report 45, May 26, 2021

    Report Number 45 of the Pension Committee meeting held on May 26, 2021, was approved.
  2. Business Arising from the Report of the Previous Meeting

    There was no business arising from the previous meeting.
  3. Date of the Next Meeting: December 9, 2021 at 4:00 p.m.

    The Chair confirmed that the next and final meeting of the Committee would be held on December 9, 2021 at 4:00 p.m.
  4. Reports of the Administrative Assessors

    There were no reports of the assessors.
  5. Other Business

    There were no other items of other Business.


The meeting adjourned at 5:23 p.m.


November 23, 2021