Report: Pension Committee - September 18, 2019

Simcoe Hall, 27 King’s College Circle, Governing Council Chamber 2nd Floor Rm 214

September 18, 2019

To the Governing Council,
University of Toronto.

Your Committee reports that it held a meeting in closed session on Wednesday, September 18, 2019 at 4:00 p.m. in the Council Chamber, Simcoe Hall, with the following members present:

Janet L. Ecker (Chair), Alex D. McKinnon (Vice-Chair), David Bowden, Colleen Burke, Louis Florence, Joan Johnston, Anna Kennedy, Brian D. Lawson, Leanne MacMillan, Joanne McNamara, John Paul Morgan, Arthur G. Rubinoff, Andrew Szende, Bruce Winter

Kenneth MacDonald, Kim McLean, Cynthia Messenger, Maureen Stapleton

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))

Patrick McNeill (Committee Secretary)

In Attendance:
Rosalyn Figov (Chief Operations Officer, Office of the VPHRE), Heather Hunter (Member, Investment Committee), Steve Moate (Senior Legal Counsel, Office of the President), Pierre Piché (Controller and Director of Financial Services), John Prezioso (Brown Mills Klinck Prezioso LLP), 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 3 took place in camera

1. Chair’s Remarks

The Chair welcomed members and guests.

With the Committee’s permission, Item 3 Update: University Pension Plan Ontario [“the UPP”] was moved to the front of the agenda following the Chair’s Remarks.

The Committee Moved In Camera

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

Professor Hannah-Moffat, Vice-President, Human Resources and Equity, provided an update on the proposed University Pension Plan Ontario [“the UPP”].

The Committee returned to Closed Session

2. Pension Fund Master Trust Statement of Investment Policies and Procedures (SIPP), September 18, 2019

The Chair welcomed Heather Hunter, Member of the Investment Committee.

The Chair reminded members that the SIPP was last approved at the May 22, 2019 meeting of the Pension Committee. At that meeting, Sheila Brown had advised members that the Investment Committee had not yet completed its review of the Reference Portfolio and it was possible that additional changes to the SIPP might be presented to the Pension Committee for approval in the Fall.

A member commented that the proposed changes made sense but that it looked like the SIPP had not been fully updated to account for the change in the currency hedging policy. Mr. Smith indicated that he thought the SIPP had been updated and drew the attention of the Pension Committee to the footnote below the table on page 7 of Appendix C (the proposed revised SIPP, clean version) that indicated “Within global equities, 50% of the developed markets currency exposure to be hedged back to Canadian dollars and no hedge on the emerging markets currency exposure.”. Mr. Smith commented that the entire SIPP would be reviewed to make sure that all of the currency references were consistent with the table and footnote on page 7 of Appendix C.1

On motion duly made, seconded and carried

It was Resolved

THAT the Pension Committee approve the Pension Fund Master Trust Statement of
Investment Policies and Procedures dated September 18, 2019, attached as Appendix C, replacing the Statement of Investment Policies and Procedures, attached as Appendix A, which had been approved by the Pension Committee on May 22, 2019.

[1] Subsequent to the Pension Committee meeting, the SIPP was reviewed and the currency section on page 10 of Appendix C was updated to make it consistent with the change shown in the table and footnote on page 7 of Appendix C.

4. Pensions: Review of Investment Performance to June 30, 2019

Ms Brown provided the Committee with an overview of the framework for investment policy, strategy and monitoring for the Pension Master Trust (PMT).

Mr. Smith reported on the evaluation of actual PMT performance against 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, 2018 to June 30, 2019.  He noted that the financial year for the Pension Master Trust (PMT) was July 1 to June 30.

Mr. Smith highlighted the following key points related to the investment performance and the risk dashboard for the fiscal year ending June 30, 2019:

  • The target investment return for the PMT was 6.1%;
  • The actual return for the PMT for the twelve-month period was 3.8%;
  • The return for the Reference Portfolio for the twelve-month period was 6.0%; and
  • All of the reported return percentages were net of all investment fees and expenses, including UTAM expenses.

In response to members’ questions and comments, Mr. Smith responded that pension assets were up over the fiscal year and finished just above $5.3 billion. While capital markets had a difficult period in the first half of the fiscal year, they rebounded strongly in the second half leading to an overall return for Fiscal Year 2019 of 3.8%.  In fiscal year 2019, the Pension portfolio underperformed the target return by 2.3%. However, over 5 and 10-year periods, the portfolio exceeded the target return.  He noted that in fiscal year 2019, manager selection was the main contributor to UTAM’s underperformance.

Mr. Smith added that as part of UTAM’s compliance statement, he confirmed that the Pension assets had been managed in compliance with the University’s Pension Fund Master Trust Statement of Investment Policies and Procedures (SIPP) during the 12-month period ending June 30, 2019; and that all internal liquidity limits were satisfied for the same period.

The Chair thanked Mr. Smith for his report.

5. Pension Plans – Projection of Funded Status to July 1, 2019

Ms Brown stated that for the purposes of this estimate, the going concern accrued liability for the University of Toronto Pension Plan (RPP) as at July 1, 2019 had been estimated using the proposed assumptions at July 1, 2019.  She added that it was important to note that the estimate had been prepared using a roll-forward of demographic data at July 1, 2018 and that the actual experience for the 2018-19 year had not been reflected in the estimated accrued liability.  The estimate would be revised and updated when actual July 1, 2019 financial results were finalized.

Mr. Shapira presented an overview of the estimated fund status, highlighting the following points:

  • Valuation of the plan was examined from two perspectives: going concern and solvency;
  • At July 1, 2019, the going concern accrued liability for the RPP is estimated to be about $5.549 billion, and the market value of assets are estimated to be about $5.313 billion; and
  • The unfunded accrued liability was estimated to be about $236.0 million ($5.549B - $5.313B).

Mr. Shapira stated that the estimated unfunded liability of $236.0 million at July 1, 2019 was an increase from 2018, due to investment returns lower than target returns, offset by substantial pension special payments in accordance with the Business Board-approved pension contribution strategy.

Ms Brown reiterated that the figures presented were early estimates – the Committee would consider the actuarial valuation results (July 1, 2019) of the University of Toronto Pension Plan and the Supplemental Retirement Arrangement at the December meeting.

6. University of Toronto Pension Plans:  Actuarial Assumptions

The Chair stated that the actuarial assumptions themselves were presented for approval while the historical look at actuarial assumptions was included for information only. She

referred members to the background materials on Determining Pension Liabilities and Assets, which included information on the following:

  • Prefunding Pension Obligations
  • Definition of Pension Liabilities
  • Factors Determining the Amounts Ultimately Payable to Pensioners
  • Key Benefit Provisions
  • Actuarial Assumptions for Going Concern Valuation
  • Discount Rate

Cash Flow and Liability Projection (from 2018)

b) History of Actuarial Assumptions, 2004 to 2018

The History of the Actuarial Assumptions for the period from 2004 to 2018 was received for information.

c) Proposed Actuarial Assumptions at July 1, 2019

Ms Brown reported that a complete and thorough review was conducted by the Plan Actuary and the University’s administration.

Mr. Shapira reported that given the distribution of the pensioner mortality experience across age groups, further analysis on a liability-weighted basis would be performed with the data from the July 1, 2019 actuarial valuation. With that information, consideration might be given to using the 95% of the CPM 2014 Public Sector Mortality Table the for the July 1, 2019 actuarial valuation.   It was reported that the 5.55% nominal investment return assumption would continue to be used for the July 1, 2019 actuarial valuation, unless a decision was made to file the actuarial valuation with the pension regulator (FSRA). If the actuarial valuation was going to be filed, the valuation would have to be prepared in accordance with the new Ontario funding rules.

Ms Brown stated that the solvency and hypothetical wind-up assumptions were largely prescribed by Ontario regulation and were heavily affected by current market conditions, particularly interest rates – they were updated to reflect the requirements at July 1, 2019.

On motion duly made, seconded and carried

It was Resolved

THAT, effective July 1, 2019, that the going concern, solvency and hypothetical wind-up assumptions contained in Attachment 1 to the memo from Sheila Brown, Chief Financial Officer, dated August 31, 2019, be adopted for the University of Toronto Pension Plan and the Supplemental Retirement Arrangement.


On motion duly moved, seconded, and carried

It was resolved

THAT the consent agenda be adopted and items approved.

7. Report of the Previous Meeting: Report Number 37, May 22, 2019

Report Number 33 of the Pension Committee meeting held on May 22, 2019, was approved.

6. Business Arising from the Report of the Previous Meeting

There was no business arising from the previous meeting.

7. Calendar of Business for 2019-20

The Calendar of Business for 2019-20 was received for information.

8. Date of Next Meeting

The date of the next Pension Committee meeting was scheduled for Tuesday, December 10, 2019 at 4:00 p.m.

9. Reports of the Assessors

There were no reports of the assessors.

10. Other Business

There were no other items of other Business.

The meeting adjourned at 6:29 p.m.

September 30, 2019