UNIVERSITY OF SASKATCHEWAN AND FEDERATED
COLLEGES
NON-ACADEMIC PENSION PLAN
FINANCIAL STATEMENTS
For the Year Ended December 31, 2014
PROVINCIAL AUDITOR
INDEPENDENT AUDITOR'S REPORT
To:
The Members of the Legislative Assembly of Saskatchewan
I have audited the accompanying financial statements of the University of Saskatchewan and
Federated Colleges Non-Academic Pension Plan (Plan), which comprise the statement of financial
position as at December 31, 2014, and the statement of changes in net assets available for benefits,
and the statement of changes in pension obligations for the year then ended, and a summary of
significant accounting policies and other explanatory information.
Management's Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial statements in
accordance with Canadian accounting standards for pension plans, and for such internal control as
management determines is necessary to enable the preparation of financial statements that are free
from material misstatement, whether due to fraud or error.
Auditor's Responsibility
My responsibility is to express an opinion on these financial statements based on my audit. I
conducted my audit in accordance with Canadian generally accepted auditing standards. Those
standards require that I comply with ethical requirements and plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures
in the financial statements. The procedures selected depend on the auditor's judgment, including the
assessment of the risks of material misstatement of the financial statements, whether due to fraud or
error. In making those risk assessments, the auditor considers internal control relevant to the entity's
preparation and fair presentation of the financial statements in order to design audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of
accounting policies used and the reasonableness of accounting estimates made by management, as
well as evaluating the overall presentation of the financial statements.
I believe that the audit evidence I have obtained is sufficient and appropriate to provide a basis for my
audit opinion.
Opinion
In my opinion, the financial statements present fairly, in all material respects, the financial position of
the Plan as at December 31, 2014 and, the changes in net assets available for benefits and changes in
pension obligations for the year then ended in accordance with Canadian accounting standards for
pension plans.
Regina, Saskatchewan
June 23, 2015
1501 ) C11,1 wan Thwc.F - 19 ?.() I iro, iLl St a,et Regina. Saskatchewan S-11' .3k
t 106.787.6398 f 306.7!..7,i,381 c info ganditor.slcca
)
www.nuditonsk.ca
Judy Ferguson, FCPA, FCA
Provincial Auditor
UNIVERSITY OF SASKATCHEWAN AND FEDERATED COLLEGES
NON-ACADEMIC PENSION PLAN
STATEMENT OF FINANCIAL POSITION
As at December 31
Statement 1
2014
2013
Assets
Investments (Note 4):
Short-term
Bonds
Equities
Pooled funds
$
1,664,615
37,391,360
119,795,211
141,160,893
300,012,079
Receivables:
Employee contributions
Employer contributions
Accrued investment income
Other Receivables
$
1,995,515
28,790,551
106,734,809
135,681,629
273,202,504
421,324
806,073
391,220
1,669,011
3,287,628
405,381
541,516
328,434
1,332,708
2,608,039
2,347,445
2,171,681
305,647,152
277,982,224
Accounts payable
2,178,359
1,910,047
Total liabilities
2,178,359
1,910,047
Net Assets Available for Benefits (Statement 2)
303,468,793
276,072,177
Pension Obligations (Statement 3)
309,556,200
284,640,200
Cash
Total assets
Liabilities
(Deficit)
$
(See accompanying notes)
(6,087,407)
$
(8,568,023)
UNIVERSITY OF SASKATCHEWAN AND FEDERATED COLLEGES
NON-ACADEMIC PENSION PLAN
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
For The Year Ended December 31
Statement 2
2014
2013
Increase in Assets
Investment income:
Interest
Dividends - equities
Distributions - pooled funds
1,401,951
2,332,872
3,439,854
7,174,677
$
1,372,696
2,044,590
3,236,718
6,654,004
23,365,706
34,591,862
5,068,153
9,685,153
14,753,306
5,140,349
6,773,981
11,914,330
45,293,689
53,160,196
2,143,025
1,814,985
13,330,727
11,829,502
60,279
1,073,714
1,289,328
2,423,321
23,195
5,418,246
980,540
6,421,981
17,897,073
20,066,468
27,396,616
33,093,728
Net assets available for benefits at beginning of year
276,072,177
242,978,449
Net assets available for benefits at end of year (to Statement 1) $
303,468,793
Current period change in fair values of investments
Contributions:
Employee
Employer
Total increase in assets
Decrease in Assets
Plan expenses (Note 7)
Pension benefits paid
Refunds and transfers:
Retirement benefits
Termination benefits
Death benefits
Total decrease in assets
Increase in net assets
(See accompanying notes)
$
276,072.177
UNIVERSITY OF SASKATCHEWAN AND FEDERATED COLLEGES
NON-ACADEMIC PENSION PLAN
STATEMENT OF CHANGES IN PENSION OBLIGATIONS
For the Year Ended December 31
Statement 3
2014
(Note 8)
$
Pension Obligations, beginning of year
Increase in Pension Obligations:
Interest on pension obligations
Benefits accrued with interest
Change in assumptions
Plan experience
Decrease in Pension Obligations:
Benefits paid with interest
Pension Obligations, end of year (to Statement 1)
$
284,640,200
2013
(Note 8)
$
258,732,500
18,786,300
10,420,800
9,118,000
2,856,500
41,181,600
17,464,400
10,341,200
12,824,800
4,134,700
44,765,100
16,265,600
16,265,600
18,857,400
18,857,400
309,556,200
(See accompanying notes)
$
284,640,200
UNIVERSITY OF SASKATCHEWAN AND FEDERATED COLLEGES
NON-ACADEMIC PENSION PLAN
NOTES TO THE FINANCIAL STATEMENTS
December 31, 2014
1. Description of the Plan
The following description of the University of Saskatchewan and Federated Colleges
Non-Academic Pension Plan (Plan) is a summary only. For more complete
information, reference should be made to the Plan agreement.
a) General
The Plan is registered under The Pension Benefits Act, 1992 (Saskatchewan)
and the Income Tax Act (Canada).
The Plan is a contributory defined benefit pension plan open to all Non-Academic
employees of the University of Saskatchewan who are employed on a permanent
full time, seasonal full time or permanent part time basis. Participation in the plan
is compulsory after completing one year of service.
b) Administration
The Non-Academic Pension and Benefits Committee (Committee), composed of
an equal number of appointees of the Board of Governors and the University of
Saskatchewan Employees Union, provides oversight for the Plan as delegated by
the Board of Governors. The Committee provides recommendations to the
Board of Governors in matters of Plan amendments and investment policy and
also maintains liaison with all those concerned with the operations of the Plan,
including the Board of Governors, the trustee, the investment advisors, the
actuary and the members of the Plan.
c) Retirement Benefits
The normal retirement date of a member is the first day of the month immediately
following their 65th birthday. The annual amount of pension is determined as 2%
of the member's best four years average pensionable salary multiplied by the
member's service.
The above is a normal form of pension which provides for monthly payments for
life with a minimum of 120 monthly payments being guaranteed.
d) Disability Retirement Benefits
The annual amount of pension is determined by applying the regular retirement
benefit formula. Section 4.01(2) of the Plan provides that during a period of
disability the member will be deemed to have received earnings at the member's
full normal rate of pay.
2
e) Termination Benefits
A member becomes locked-in upon completion of two years of continuous
service.
A member who terminates employment with the University prior to being lockedin is entitled to an amount equal to their accumulated contributions with interest.
Upon termination of employment after achieving locked-in status and before
retirement eligibility, a member may elect:
i) to receive a deferred retirement benefit; or
ii) a locked-in transfer equal to the greater of:
a) the commuted value of the member's accrued pension; or
b) two times the member's required contributions with interest.
iii) to receive a partial cash refund of 50% of their accumulated contributions with
interest to December 31, 1993, in which case the member's deferred
retirement benefit or transfer amount will be reduced accordingly.
f)
Death Benefits
The beneficiary of an employee who dies before retirement will be entitled to
receive the greater of a refund of two times the required contributions made by
the member with interest or the commuted value of the retirement benefit
accrued by the employee to the date of death.
For an employee who is deceased after retirement, the surviving beneficiary will
be entitled to receive the benefit outlined by the form of pension elected by the
member at the member's retirement date.
g) Plan Improvements
Section 15 of the Plan makes provision for the use of any actuarial surplus to be
applied firstly to the declaration of bonus pensions to existing pensioners, with
any remaining surplus to be used to improve the benefits of members in the Plan.
h) Required Contributions
In accordance with the terms of the Pension Plan Agreement, members are
required to contribute 8.50% of regular earnings.
3
i) Funding
The University, on the advice of the Actuary, contributes to the Plan such
amounts as are required to maintain the Plan at a level that at least meets the
minimum funding requirements prescribed by The Pension Benefits Act and
which are not less than the amount contributed by the members.
The following table summarizes the total contributions as a percentage of
earnings:
Fixed rate contributions
Employee contribution rate
8.50%
Employer contribution rate
8.50%
Additional employer contributions to fund going concern deficiencies
2009 Unfunded liability (Jan 2010— Dec 2024)
1.62%
2012 Unfunded liability (Jan 2014— Dec 2022)
5.33%
2. Significant Accounting Policies
These financial statements have been prepared in accordance with Canadian
accounting standards for pension plans. These standards include reference to
guidance found in International Financial Reporting Standards with respect to the fair
value measurement for investment assets and liabilities. For accounting policies that
do not relate to its investments or pension obligations, the financial statements
comply with Canadian accounting standards for private enterprises, to the extent that
these standards do not conflict with the standards for pension plans.
The following policies are considered significant:
a) Basis of Presentation
These financial statements are prepared using the accrual basis of accounting
and on the going concern basis and present the aggregate financial position of
the Plan as a separate financial reporting entity independent of the sponsor and
plan members. They are prepared to assist plan members and others in
reviewing the activities of the Plan for the fiscal period but they do not portray the
funding requirements of the plan or the benefit security of individual plan
members.
b) Investments
Investments are classified as held for trading and are stated at fair value. Bonds,
pooled funds, and equities are determined with reference to year end prices from
recognized security dealers. Short-term investments are valued at cost, which
approximates fair value. Investment transactions are recorded on the trade date.
4
c) Foreign Currency Translation
The Plan's financial statements are presented in Canadian dollars. Transactions
conducted in foreign currency are translated into Canadian dollars using the
exchange rate in effect at the transaction date. Monetary assets and liabilities
denominated in foreign currencies are adjusted to reflect exchange rates at year
end.
d) Use of Estimates
The preparation of financial statements require management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenue and expenses during the year.
Actual results could differ from those estimates. Changes in estimates are
recorded in the period when identified. Significant estimates and assumptions are
used primarily in the determination of investments and pension obligations.
3. Capital Management and Investment Performance
The Plan receives capital from employee and employer contributions. The Plan also
benefits from income and market value increases on its invested capital. The
objective of the Plan is to meet future pension obligations and to generate sufficient
cash flow to meet pension payments, while complying with The Pension Benefits Act,
1992 and Canada Revenue Agency regulations.
In accordance with regulatory requirements, the Non-Academic Pension and
Benefits Committee and the Board of Governors has established a Statement of
Investment Policies and Procedures (SIPP) which sets out the investment principles,
guidelines and monitoring procedures. The SIPP sets out benchmarks and asset
allocation ranges that are intended to best secure the obligations for the pension
benefits and result in a reasonable risk-adjusted return on investment. Individual
investment decisions are delegated to investment managers subject to the
constraints of the SIPP and individual manager mandates. As required, the
Committee reviews the SIPP at least annually. With the assistance of an investment
consultant, the Committee regularly monitors the asset mix of each manager to
ensure compliance with the SIPP.
The current benchmark and ranges are as follows:
Asset class
Equities
Canadian
Global
Real Estate
Fixed Income
Bonds
Short-term
Index
Min
Benchmark
Max
S&P/TSX Capped Composite Index
MSCI World Index (Cdn. $)
10%
20%
0%
20%
40%
5%
30%
60%
10%
FTSE TMX Universe Bond Index
FTSE TMX 91-Day T-Bills
25%
0%
33%
2%
100%
50%
10%
5
The primary long-term investment performance objective is to out-perform the
benchmark portfolio. The following is a summary of the Plan's investment
performance:
As of December 31, 2014
1 year
4 year
Plan Return
Benchmark
11.1%
11.2%
9.2%
9.1%
The annual returns are before deducting investment expenses.
4. Investments
Short-term Investments
Short-term investments are comprised of treasury bills and bankers' acceptances.
The Plan's investment policy states that investments must meet a minimum
investment standard of "R-1 Low", as rated by a recognized credit rating service.
Bonds
The Plan's investment policy states that bonds must meet a minimum quality
standard of BBB as rated by a recognized credit rating service. BBB rated bonds
cannot exceed 15% of the market value of the bond portfolio.
2014
Years to
Federal
Maturity
Provincial
Corporate
Total
Current
Market Value
Yield
1.97%- 4.04%
2.35% - 6.22%
0.00% - 5.76%
Under 5
5— 10
Over 10
$ 2,692,881
4,478,444
2,530,560
$
-4,524,005
22,628,300
$
178,188
265,841
93,141
$ 2,871,069
9,268,290
25,252,001
Market Value
$ 9,701,885
$ 27,152,305
$
537,170
$ 37,391,360
2013
Total
Current
Corporate
Market Value
Yield
138,186
297,395
804,972
$ 1,240,553
$ 1,134,222
8,010,754
19,645,575
$ 28,790,551
1.28%- 4.03%
1.68% - 6.47%
0.00% - 6.10%
Years to
Maturity
Under 5
5— 10
Over 10
Market Value
Federal
$
996,036
3,577,965
287,643
$ 4,861,644
Provincial
$
-4,135,394
18,552,960
$ 22,688,354
$
Actual maturity may differ from contractual maturity because certain borrowers have
the right to call or prepay certain obligations with or without call or prepayment
penalties.
6
Equities
The Plan's investment policy restricts individual holdings to a maximum of 12% of the
market value of the equity portfolio and to a maximum of 10% of the common stock
in any corporation. The average dividend rate is 2.1% (2013— 2.1%).
Canadian
U.S.
Global
2014
2013
$ 56,262,713
44,849,249
18,683,249
$ 51,122,931
39,823,095
15,788,783
$ 106,734,809
$ 119,795,211
Pooled Funds
The Plan holds units in pooled funds which have no fixed interest rate and its returns
are based on the success of the manager. An investment in a pooled fund should
not exceed 10% of the market value of the pooled fund. The Plan's pooled funds are
comprised of the following:
2014
Phillips, Hager & North (PH & N) Institutional
Short Term Investment Fund
PH & N Investment Grade Corporate Bond Trust
PH & N Mortgage Pension Trust Fund
Sprucegrove Global Equity Pooled Fund
Greystone Real Estate Fund
$ 1,884,679
36,711,374
9,093,135
69,910,578
23,561,127
$141,160,893
2013
$ 3,313,413
38,614,480
8,577,538
63,009,918
22,166,280
$135,681,629
Fair Value
The Plan has classified its required fair valued financial instrument holdings using a
hierarchy that reflects the significance of the inputs used in determining their
measurements.
Under the classification structure, financial instruments recorded at unadjusted
quoted prices in active markets for identical assets and liabilities are classified as
Level 1. Instruments valued using inputs other than quoted prices included in Level 1
that are observable for the asset or liability either directly or indirectly are classified
as Level 2. Instruments valued using inputs that are not based on observable market
data are classified as Level 3.
There were no items transferred between levels in 2014 or 2013.
7
The Plan's investments at year end are classified as follows:
2014
Level 1
Short-Term
Level 2
$
$
Bonds
1,664,615
Total
$
37,391,360
Equities
1,664,615
37,391,360
119,795,211
119,795,211
Pooled Funds
Fixed Income
47,689,188
47,689,188
Equities
69,910,578
69,910,578
Real Estate
23,561,127
23,561,127
Total Investments
$ 119,715,211
$ 180,216,868
$
300,012,079
2013
Level 1
Short-Term
$
$
Bonds
Equities
Level 2
1,995,515
Total
$
28,790,551
1,995,515
28,790,551
106,734,809
106,734,809
Pooled Funds
Fixed Income
50,505,431
50,505,431
Equities
63,009,918
63,009,918
Real Estate
22,166,280
22,166,280
Total Investments
$ 106,734,809
$ 166,467,695
$
273,202,504
5. Financial Risk Management
The nature of the Plan's operations results in a statement of financial position that
consists primarily of financial instruments. The risks that arise are credit risk, market
risk (consisting of interest rate risk, foreign exchange risk and equity price risk) and
liquidity risk.
Financial risks are related to the Plan's investments. These financial risks are
managed by having an investment policy, which is approved by the Board of
Governors based on the recommendation of the Committee. The investment policy
provides guidelines to the Plan's investment managers for the asset mix of the
portfolio regarding quality and quantity of fixed income and equity investments. The
asset mix helps to reduce the impact of market value fluctuations by requiring
8
investments in different asset classes and in domestic and foreign markets. The
Committee reviews regular compliance reports from its investment managers as to
their compliance with the investment policy.
Credit risk
Credit risk is the risk that one party does not pay funds owed to another party. The
Plan's credit risk arises primarily from certain investments. The maximum credit risk
to which it is exposed at December 31, 2014 is limited to the carrying value of the
financial assets summarized as follows:
2014
Accounts receivable
Investments 1
2013
$ 3,287,628
$ 2,608,039
86,745,163
81,291,498
1 includes short term investments, bonds and fixed income pooled funds.
Credit risk within investments is primarily related to bonds and fixed income pooled
funds. It is managed through the investment policy that limits fixed income
investments to those of high credit quality (minimum rating for bonds is BBB, and for
money market instruments is R-1 Low ) along with limits to the maximum notional
amount of exposure with respect to any one issuer.
Within bond investments, there are no holdings from one issuer, other than the
Government of Canada or government guaranteed agencies, over 10% of the market
value of the combined bond and short-term investment portfolios.
Market risk
Market risk represents the potential for loss from changes in the value of financial
instruments. Value can be affected by changes in interest rates, foreign exchange
rates and equity prices. Market risk primarily impacts the value of investments.
Interest rate risk
The Plan is primarily exposed to changes in interest rates in its bond investments.
Duration is a measure used to estimate the extent market values of fixed income
instruments change with changes in interest rates. Using this measure, it is
estimated that a 1% change in interest rates would change net assets available for
benefits by $5,990,000 representing 7.2% of the fair value of $83,196,000.
Foreign exchange
The Plan is subject to changes in the U.S./Canadian dollar exchange rate through its
U.S. investments. Also, the Plan is exposed to EAFE (Europe, Australia and Far
East) currencies through its international investments. At December 31, 2014, the
Plan's exposure to U.S. equities was 14.9% (2013 — 14.6%) and its exposure to nonNorth American equities was 29.5% (2013— 28.8%).
9
At December 31, 2014, a 10% change in the Canadian dollar versus U.S. dollar
exchange rate would result in approximately a $4,485,000 change in the net assets
available for benefits. A 10% change in the Canadian dollar versus the EAFE
currencies would result in approximately a $8,859,000 change in the net assets
available for benefits.
Equity Prices
The Plan is exposed to changes in equity prices in Canadian, U.S. and EAFE
markets. At December 31, 2014 equities comprise 63.2% (2013 — 62.1%) of the fair
value of the Plan's total investments. Individual stock holdings are diversified by
geography, industry type and corporate entity. No one investee represents greater
than 10% of the fair value of the Plan.
The following table indicates the approximate change that could be anticipated to the
net assets available for benefits based on changes in the Plan's benchmark indices
at December 31, 2014:
10% increase
$ 5,626,000
4,485,000
8,859,000
S&P/TSX Composite Index
S&P 500 Index
MSCI EAFE Index
10% decrease
$ (5,626,000)
(4,485,000)
(8,859,000)
Liquidity risk
Liquidity risk is the risk that the Plan is unable to meet its financial obligations as they
fall due. Cash resources are managed on a daily basis based on anticipated cash
flows.
6.
Fair Value of Financial Instruments
Accounts payable and receivables are non-interest bearing and are due or payable
within the next year. Due to their immediate or short-term maturity, the fair value of
these financial instruments approximates carrying value.
Fair values of investments are disclosed in note 4.
7.
Plan Expenses
Budget
$1,486,660
2014
Actual
$1,519,943
2013
Actual
$1,401,217
Actuarial fees
130,000
100,133
123,121
Trustee fees
158,400
161,135
155,294
70,000
69,242
77,525
315,400
292,572
57,828
$2,160,460
$2,143,025
$1,814,985
Investment management fees
Investment consulting fees
Administration fees
Total
10
8. Pension Obligations
The present value of pension obligations was determined using the projected benefit
method prorated on service and management's best estimate assumptions approved
by the Committee. An actuarial valuation of the Plan was performed by Aon Hewitt
as at December 31, 2014 and December 31, 2013. The next actuarial valuation is
expected to be performed at December 31, 2015. Significant long-term actuarial
assumptions used in the valuation were:
2014
2013
Discount rate
6.35%
6.60%
Inflation rate
2.50%
2.50%
Salary escalation rate
Mortality table
3.00%
3.00%
CPM 2014 Private
CPM 2014 Private
(unadjusted) with
(unadjusted) with
mortality improvements in
mortality improvements in
accordance with CPM
accordance with CPM
Improvement Scale B
Improvement Scale B
The actual rates may vary significantly from the long-term assumptions used. The
following illustrates the effect of changing certain assumptions from assumed rates
of: discount rate of 6.35%, inflation rate of 2.5% and salary 3.0%.
Assumption
Discount rate
Inflation
Salary
Change Made
Plus 1%
Change in Accrued
Percentage Change
Liability
in Accrued Liability
$ (33,862,700)
(10.9%)
Minus 1%
41,695,600
13.5%
Plus 1%
(27,749,000)
(9.0%)
Minus 1%
Plus 1%
33,122,900
7,408,000
10.7%
Minus 1%
(6,656,000)
(2.1%)
2.4%
The plan experience of $2,856,500 was attributable to several factors, which include
retirement, termination and death experience different than expected and
pensionable earnings increases different than expected.
The change in the discount rate assumption resulted in an increase to the pension
obligations of $9,118,000.
The assets, including any potential surplus in the Plan, are for the benefit of the
members and their beneficiaries. There is no provision that allows the withdrawal of
the surplus by the University.
11
The pension obligations disclosed in these statements differ from that used to
determine funding requirements. An actuarial valuation for funding purposes was
performed as at December 31, 2012 by Aon Hewitt and was filed with regulatory
authorities. The next valuation to be filed with regulatory authorities will be required
effective December 31, 2015.
The pension liability is long-term in nature and there is no market for settling these
pension obligations. Therefore, determination of the fair value of the pension liability
is not practical.
9. Related Parties
The Plan is related to the University of Saskatchewan and other pension plans
sponsored by the University of Saskatchewan.
The Plan pays for plan expenses, including certain administration fees and
miscellaneous expenses, which the University of Saskatchewan incurs and charges
the Plan. The expenses charged by the University of Saskatchewan in 2014 were
$292,572 (2013 -$57,828).
Account balances resulting from the above transactions are included in the
statement of net assets available for benefits and are settled on normal trade terms.
Other transactions are disclosed separately in these financial statements.