Report: Pension Committee - December 09, 2020

Via Virtual Meeting


December 9, 2020

To the Governing Council,
University of Toronto.

Your Committee reports that it held a virtual meeting in closed session on Wednesday, December 9, 2020 at 4:00 p.m.

Cynthia Messenger, Chair; Janet L. Ecker, Vice-Chair; David N. Bowden; Louis Florence; Joan Johnston; Sameer Lal; Rajiv Mathur; Alex D. McKinnon; Kim McLean; Jun Nogami; Andrew Szende; Maureen Stapleton; Paul Whittam; Bruce Winter; Lara Zink; Terezia Zoric

Colleen Burke; Anna Kennedy; Andrew Padmos

Non-Voting Assessors:
Sheila Brown, Chief Financial Officer; Scott Mabury, Vice-President, Operations and Research Partnerships 

David Walders, Secretary

In Attendance:
Pierre Piché, Controller and Director of Financial Services; Elizabeth Brown, Brown Mills Klinck Prezioso LLP; Angela Hildyard, Presidential Special Advisor; Francis Low, Ernst & Young; Allan Shapira, Plan Actuary, Aon
Daren Smith, President and Chief Investment Officer, University of Toronto Asset Management Corporation (UTAM)

The Committee met in closed session

Pursuant to section 33 of By-Law Number 2, 
consideration of item 12 took place in camera

  1. Chair’s Remarks

    The Chair welcomed members and guests to the meeting.
  2. Registered Pension Plan: Audited Financial Statements for the Year Ended June 30, 2020

    Sheila Brown reported that the Audit Committee met on December 1, 2020 with the external auditors, reviewed the audited financial statements and recommended them to the Pension Committee for approval. She noted that, if approved, the Statements would be filed with the Financial Services Commission of Ontario by the end of the calendar year.

    Mr Francis Low then informed the Committee that he and his audit team at Ernst & Young were comfortable with all of the disclosures in the Audited Financial Statements. He stated that there were no significant issues reported, and no errors or adjustments had been made. Mr. Low drew members attention to the addition of an emphasis of matter paragraph in the report with respect to the proposed JSPP, and noted that he was satisfied with the financial instrument disclosures. Finally, he noted that despite being conducted remotely, the audit proceeded very smoothly with the full cooperation of management.

    Ms Janet Ecker, Chair of the Audit Committee, provided a report of the discussions at the Audit Committee. She noted that the Audit Committee had a full and complete discussion of the pension plan’s audited financial statements in order to ensure that they were fairly presented. External auditors were present at the meeting. The auditors had performed additional procedures to satisfy themselves of the authenticity of documentation provided since this year’s audit was performed remotely.  Procedures were also conducted to ensure that the disclosure of the impact of COVID-19 was appropriate.

    Ms Ecker noted that the Committee had also received a detailed written commentary from the external auditors that reported on all areas of audit emphasis and provided the Committee with a summary of audit procedures and discussions with management that support their unqualified audit opinion.  Inquiries were also made with respect to the risk of material misstatements due to fraud and suspected fraud. There were no significant matters that arose from the audit and no corrected or uncorrected errors noted. The Committee was also informed by the auditors that they received excellent and on-going cooperation from management. All required audit communications were provided to the Committee by the auditors. The Committee had no concern that would call into question the integrity of the financial statements. 

    A member inquired as to whether additional language could be added to Note 8 of the Statements (“Capital Management”) with respect to Environmental, Social and Governance (ESG) factors. Ms Brown replied that this would be taken back for consideration when preparing the Statements for the following year. 

    On motion duly moved, seconded and carried


    THAT the audited financial statements for the University of Toronto Pension Plan for the year ended June 30, 2020, be approved
  3. Pension Plans: Actuarial Valuation Results at July 1, 2020

    Mr. Allan Shapira from Aon provided an overview of the Actuarial Valuation Results. He noted that because the July 1, 2020 valuation would be filed with the regulator, and because the previous filing had been at July 1, 2017, this year’s valuation showed a three-year comparison. He provided a summary of those changes. He also highlighted the changes from July 1, 2019, the date of the previous valuation approved by the Pension Committee:
  • Going concern market deficit of the RPP increased from $239.8 million at July 1, 2019 to $931.6 million at July 1, 2020. This was an increase of $691.8 million, $537.3 million of which was due to the introduction of the PfAD (provision for adverse deviation) requirement under the new provincial funding rules, and $154.5 million of which was primarily due to investment returns of 2.30% which was below the target return for the period, and to changes in actuarial assumptions (particularly to the mortality table),partially offset by employer special payments totaling $72.4 million.
  • The solvency ratio as at July 1, 2020 was 73.8% compared to 79.9% as at July 1, 2019.
  • As part of the transfer agreement to the UPP, a set of actuarial assumptions had been fixed as of the date of the transfer as at July 1, 2021.
  • As a result, the going concern deficit would be crystalized as of that date and fixed special payments would be made for a 15-year period. 

    During the discussion, a member enquired about the possible impact of interest rate declines on pension plans. In reply, Mr. Shapira noted that declining interest rates could, over time, impact the discount rates pensions plans used for their valuations, as well as impact the asset mix of pension plan investments. In reply to the member’s concern regarding the deficit, Mr. Shapira noted that the currently budgeted level of special payments would have room to accommodate a somewhat larger deficit than the deficit calculated using the UPP funding assumptions as at July 1,2020. Ms Brown noted that the increase in the going concern deficit at July 1, 2020 was largely the result of the recent provincial requirement to fund for PfAD and that  applicable funding regulations would be different under the multi-employer UPP, as opposed to the current single-employer RPP. 

    On motion duly moved, seconded and carried


    Be it Resolved

1) THAT the actuarial valuation for the University of Toronto Pension Plan as at July 1, 2020, attached as Appendix A, be approved; and

2) THAT the actuarial valuation for the Supplemental Retirement Arrangement as at July 1, 2020, attached as Appendix B, be approved.

  1. Pension Plan Annual Financial Report for Year Ended June 30, 2020

    Ms Brown stated that the Report brought together in one place, and placed in historical perspective, information on the funded status of the now combined registered pension plan, plan liabilities (including participants, benefit provisions and assumptions) and plan assets (including contributions, investment earnings, fees and expenses, and payments to pensioners).

    There were no questions from members. 

    On motion duly moved, seconded and carried


    THAT the Pension Plan Annual Financial Report for the Year Ended June 30, 2020, be approved.
  2. Pension Plan Fees and Expenses for the Period 2006 to 2020

    Ms Brown advised members that the report provided a historical summary of fees and expenses specifically allocated to the University of Toronto Pension Plan, and that when returns were reported, it was always net of fees and expenses.  The report was updated each year and looked back over the past 15 years.

    In the ensuing discussion, members asked questions concerning active versus passive investment strategies, allocations to private markets and portfolio liquidity.  In reply, Mr. Daren Smith reported that UTAM considered very carefully about whether to pursue active management strategies, paying particular attention to fees and expected returns compared to benchmarks. Most mid-large size pension plans, like that of the U of T, pursued active management strategies as part of their investment approach. Mr. Smith noted that these strategies had, over the long term, yielded positive results, and the Investment Committee, which is advisory to the President of the University, oversees UTAM’s investment strategy.  

    Turning to allocations to private equity markets, Mr. Smith noted that around 10% of the portfolio was invested in this area, and that there were a relatively concentrated number of managers (6-8) who accounted for most of these investments. Regarding liquidity, Mr. Smith outlined the many safeguards which were in place to prevent liquidity issues from arising in response to calls on private investments or for other reasons.  These included oversight by a dedicated Chief Risk Officer, a comprehensive liquidity policy, and routine stress-testing of the investment portfolio.  
  3. Report of the Previous Meeting: Report 42, September 23, 2020

    Report Number 42 of the Pension Committee meeting held on September 23, 2020, was approved.
  4. Business Arising from the Report of the Previous Meeting

    There was no business arising from the previous meeting.
  5. Date of the Next Meeting: March 24, 2021 at 4:00 p.m.

    The Chair confirmed that the next meeting of the Committee would be held on March 24, 2021, at 4:00 p.m. 
  6. Reports of the Administrative Assessors

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

    There were no other items of other Business.

The Committee moved in camera.

  1. Update: University Pension Plan Ontario [“the UPP”]

    Professor Angela Hildyard, Presidential Special Advisor, provided an update on the UPP

The Committee moved back into closed session. 

The meeting adjourned at 5:38 p.m.