Report: Pension Committee - December 10, 2019

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Simcoe Hall, 27 King’s College Circle, Governing Council Chamber 2nd Floor

REPORT NUMBER 39 OF THE PENSION COMMITTEE
December 10, 2019


To the Governing Council,
University of Toronto.

Your Committee reports that it held a meeting in closed session on Tuesday, December 10, 2019 at 4:00 p.m. in the Council Chamber, Simcoe Hall, with the following members present:

Present:
Janet L. Ecker, Chair; Alex D. McKinnon, Vice-Chair; David Bowden; Colleen Burke; Joan Johnston; Anna Kennedy; Leanne MacMillan; Kenneth MacDonald; Kim McLean; Joanne McNamara; Cynthia Messenger; John Paul Morgan; Arthur G. Rubinoff; Maureen Stapleton; Andrew Szende; Bruce Winter;

Regrets:
Louis Florence, Brian D. Lawson

Non-Voting Assessors:
Sheila Brown, Chief Financial Officer; Kenneth Corts, Acting Vice-President, University Operations; Kelly Hannah-Moffat, Vice-President, Human Resources and Equity (VPHRE)

Secretariat:
Patrick McNeill, Committee Secretary

In Attendance:
Elizabeth Brown, Brown Mills Klinck Prezioso LLP; Rosalyn Figov, Chief Operations Officer, Office of the VPHRE; Francis Low, External Auditor, Ernst & Young; Steve Moate, Senior Legal Counsel, Office of the President;
Pierre Piché, Controller and Director of Financial Services; Stella Qiao, External Auditor, 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

  1. Chair’s Remarks

    The Chair welcomed members and guests to the meeting.
  2. Closure and Conversion of the University of Toronto Pension Plan [“the current UofT Pension Plan”]; and Proposal for the Establishment of the University Pension Plan Ontario [“the UPP”]

    The Chair referred members to the updated presentation and FAQ in the agenda materials and described the governance path for the UPP item noting that it would be considered for approval by the Governing Council at its meeting on December 12, 2019.

    Members received an update for information from Professors Kelly Hannah-Moffat and Angela Hildyard. Professor Hildyard reported that following a comprehensive national search, the UPP Joint Sponsors – comprising the Employee Sponsor (Faculty Associations, United Steel Workers locals, and CUPE locals) and the Employer Sponsor (University of Toronto, University of Guelph and Queen’s University) had announced the selection of Ms. Gale Rubenstein as the inaugural Chair of the UPP Board of Trustees. She stated that members of the UPP Employer Sponsor Committee had been selected – all six members had expertise in finance, investments and human resources. She added that the membership of the UPP Employee Sponsor group would be announced at a later date.

    Members of the Committee expressed their deep gratitude to the administration and employee groups for their dedicated time and commitment to bring this complex proposal forward – a process that was truly collegial with the interests of Pension Plan members together with the University, centre-stage.

    The Chair thanked Professors Hannah-Moffat and Hildyard for their comments.
  3. Registered Pension Plan: Audited Financial Statements for Year Ended June 30, 2019

    Sheila Brown reported that the Audit Committee met on December 3, 2019 with the external auditors, reviewed the audited financial statements and recommended them to the Pension Committee for approval.

    Andrew Szende, member of the Audit Committee and Pension Committee, provided an additional report of the discussions at the Audit Committee. He 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; and that the Committee received a presentation from management that highlighted the following:

• the methodology used to determine the plan deficit of $226 million;
• the simplification of the derivative financial instruments note; and
• the impact on interest rate and credit risk note disclosures resulting from UTAM’s substitution of its bond repurchase program with a bond swap program.

The Committee also reviewed the adequacy of the revised Jointly Sponsored Pension Plan (JSPP) note disclosure, and discussions focused on the level of fees and expenses. In addition, the Audit Committee received a presentation from the external auditor who reviewed their audit communications with the Committee and confirmed the fair presentation of the pension financial statements.

Francis Low 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 referred members to the detailed notes contained in the Statements and the addition of an emphasis of matter paragraph in the report with respect to the proposed JSPP, and their satisfaction with the financial instrument disclosures.

Ms Brown stated that the Statements would be filed with the Financial Services Commission of Ontario by the end of the year.

On motion duly moved, seconded and carried

IT WAS RESOLVED

THAT the audited financial statements for the University of Toronto Pension Plan for the year ended June 30, 2019, be approved.

  1. Pension Plans: Actuarial Valuation Results at July 1, 2019

Sheila Brown stated the actuarial valuation as at July 1, 2019 was not being filed with the regulator and used the same actuarial assumptions as those used at July 1, 2018. She reported that the solvency deficit of the Registered Pension Plan (RPP) increased from $901.6 million at July 1, 2018 to $1.3 billion at July 1, 2019 mainly due to an overall drop in the prescribed discount rates and investment returns over the year that were less than target returns.
Allan Shapira provided an additional overview of the Actuarial Valuation Results, highlighting the following points:

• as of July 1, 2019, there was an unfunded liability at $239 million (going concern market deficit of the RPP increased from $211.8 million at July 1, 2018 to $239.8 million at July 1, 2019;
• the solvency ratio as at July 1, 2019 was 80.3%;
• contributions to the pension plans for 2018-19 were made up of $82.7 million in member contributions, $119.7 million in University current service contributions, and $72.4 million in University special payments;
• the University’s funding strategy had been consistent and remained unchanged.
• the next actuarial valuation at July 1, 2020 will be prepared for filing purposes in accordance with the new Ontario funding rules.

On motion duly moved, seconded and carried

IT WAS RESOLVED

  1. THAT the actuarial valuation for the University of Toronto Pension Plan as at July 1, 2019, attached as Appendix A, be approved; and
  2. THAT the actuarial valuation for the Supplemental Retirement Arrangement as at July 1, 2019, attached as Appendix B, be approved.
  1. Pension Plan Annual Financial Report for Year Ended June 30, 2019

    Sheila 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). The Report was made available on the Pension Plan website for viewing by members of the Plan.

    Ms Brown reported that at June 30, 2019, the RPP had a market deficit of $239.8 million, an increase of $28.0 million in the market deficit from June 30, 2018.

    In response to a member’s comment, Ms Brown stated that the University was careful not to make comparisons to other plans (i.e. OMERS, Teacher’s Plan, etc.) – such comparisons were difficult because of demographic variances and different discount rates being used. She noted that CAUBO undertook a review for plan administrators to compare strategies.

    A member commented on the excellent quality of the Report and public website posting.

    On motion duly moved, seconded and carried

    IT WAS RESOLVED

THAT the Pension Annual Financial Report for the Year Ended June 30, 2019, be approved.

  1. Pension Plan Fees and Expenses for the period 2005 to 2019

    Sheila Brown stated that the report on Pension Plan Fees and Expenses for the period from 2005 to 2019 provided a historical summary of fees and expenses specifically allocated to the University of Toronto Pension Plan (it excluded fees and expenses related to the SRA, which was managed together with the University endowments) since 2004. It was updated each year and looked back over the past 15 years.

    In response to a member’s question regarding the growth in management fees in the 2019 year when returns were below reference and target returns, Ms Brown explained that certain fees were paid upfront for investments related to private market commitments.

    Daren Smith added that for the 5-year period from June 30, 2014 to June 30, 2019 total external manager fees plus UTAM fees were $202.6 million, value added before these fees was $392.7 million, and value added after subtracting these fees was $190.2 million. In other words, for this 5-year period, the Pension Master Trust spent $202.6 million on external manager fees and UTAM fees and received $190.2 million in additional assets into the plan over what would have been received if all of the assets had been invested passively in the benchmark portfolio at no cost.

    The Report was received for information.
  2. Report of the Previous Meeting: Report Number 38, September 18, 2019

    On motion duly moved, seconded, and carried

    YOUR COMMITTEE RESOLVED

    THAT Report Number 38, from the meeting of September 18, 2019, be approved.
  3. Business Arising from the Report

    There was no business arising from the report of the previous meeting.
  4. Date of Next Meeting: Wednesday, March 25, 2020 at 4:00 p.m.

    The date of the next Pension Committee was scheduled for Wednesday, March 25, 2020 at 4:00 p.m.
  5. Reports of the Administrative Assessors

    There were no reports of the Administrative Assessors.
  6. Other Business

    There were no items of other Business.

The meeting adjourned at 4:49 p.m.


December 15, 2019