October 5, 2007
To:
From:
Members of the 1999 Academic Pension Plan
Academic Fringe Benefits Committee
The primary purpose of this report is to review the actuarial valuation of the 1999 Academic
Pension Plan as at December 31, 2006. This report also includes a review of the funding
requirements, investments and investment performance of the Plan in 2006 and for the six
months ending June 30, 2007.
Actuarial Valuation
Going-Concern Financial Position of the Plan
The financial position of the Plan on a going-concern basis is measured by comparing the
market value of assets to the actuarial liabilities assuming the Plan is continuing for the longterm. The actuarial valuation performed as at December 31, 2006 shows that the Plan, on a
going-concern basis, is in a surplus position of $ 15.3 million as per Table 1. Comparative
numbers as at December 31, 2005 are also provided.
Table 1: Going-Concern Financial Position
Assets
Fund Value (net assets available for pension benefits)
2006
$171,640,000
2005
$159,620,000
$105,001,000
$30,846,000
$9,742,000
$1,877,000
$6,163,000
$2,708,000
$156,337,000
$15,303,000
$108,430,000
$24,943,000
$6,465,000
$2,559,000
$6,234,000
$2,800,000
$151,431,000
$8,189,000
Actuarial Liabilities
Present value of accrued benefits for active members (263)
Pensioners (69)
Inactive, deferred and pending terminations (53)
Temporary pensioners (32)
Present value of future benefits to be paid in excess of future contributions
Voluntary and Transferred contributions
Total Liabilities
Surplus as at December 31, 2006
Solvency Position of the Plan
The Pension Benefits Act (Saskatchewan) requires the University to review whether the assets
of the Plan would be sufficient to cover the liabilities of the Plan in the event of a plan windup.
The actuary has concluded that the Plan is solvent as at December 31, 2006 as the market
value of the assets exceeds the actuarial liabilities of the Plan on this date. The solvency
surplus is estimated to be $8.010 million as of December 31, 2006 (solvency surplus at
December 31, 2005 was $0.228 million).
Funding Requirements
The Pension Benefits Act (Saskatchewan) also requires that Plan members must be informed if
Plan surplus will be used to cover future promised benefits that cannot be covered by the
contribution rates that are currently in effect. The actuary has concluded that current
contribution rates are insufficient to pay for the benefits currently accruing to members of the
Plan. It is estimated that the benefits currently accruing to members cost 17.27% of
-1-
pensionable earnings, whereas the current contribution rates amount to 13.64% of pensionable
earnings. The contribution shortfall, 3.63% of pensionable earnings, amounts to $6,163,000
(see Table 1 “Present value of future benefits to be paid in excess of future contributions”) and
has been deducted in calculating the Plan surplus on a going-concern basis.
Since the Plan does not have a solvency deficiency as at December 31, 2006, no additional
employer contributions other than those outlined above are required.
Investments of the Pension Plan
Investments
The long-term investment goal of the Plan is to achieve a minimum annualized rate of return of
3.25% in excess of the Canadian Consumer Price Index. To achieve this goal, the Plan has
adopted an asset mix that has a bias in favour of equity investments. Over the last ten years the
annualized rate of return for the Plan has been 8.1% compared to an annualized increase in the
Consumer Price Index of 2.0%.
The responsibility for investing the assets of the Plan has been delegated to three professional
investment fund managers with different mandates to ensure adequate investment
diversification.
Investment Performance
For 2006
13.4%
13.2%
Plan Return (gross)
Plan Return Benchmark (gross)
Last 4 years
10.3%
10.9%
The Plan’s Return Benchmark is a performance standard developed by the Investment
Consultants, Hewitt Associates. The Fringe Benefits Committee and the Board of Governors
have approved the benchmark. The investment fund managers of the Plan are expected to
meet or surpass the benchmark.
To the end of June, 2007 equity markets were strong, particularly in those areas where oil stocks
comprise a major part of the index. The Canadian stock market was one of the best performers in
the world, and the broader U.S. market was not far behind. The 8.4% gain of the Canadian dollar
during the second quarter caused the U.S. returns to be a negative number when expressed in
Canadian dollars. Global growth continues to be fuelled by the less developed economies; in
particular, China. It was a dismal quarter for the bond market as rising inflation and unexpectedly
strong economic growth moved yields upward across the maturity spectrum.
Inflation is rising and thus the Bank of Canada raised rates 0.25% in July. The consequence of the
Bank of Canada’s action has been an unprecedented rapid rise in the Canadian dollar compared to
the U.S. dollar. The Canadian dollar continues to track the price of oil as high oil prices result in
significant inflows into Canada. It is also boosted by the sizable takeovers of Canadian companies
by foreign investors who must purchase Canadian dollars to complete their transactions (report by
Jarislowsky Fraser Limited – July, 2007).
The six month rate of return earned by the Plan was 0.7% before expenses. During the same
period, the S&P/TSX index returned 9.1%, the S&P 500 (U.S. equities) returned -2.2% and the
Europe, Australia and Far East (EAFE) index, which measures non-North American equities,
increased by 1.2%. The Scotia Bond Universe posted a -0.8% return.
-2-
Investment Fund Managers of the Plan
The managers and the market value of assets controlled by each at December 31, 2006 are
shown below.
Barclay’s Global Investors
Jarislowsky Fraser Limited
Tweedy, Browne Company LLC
$55.4 Million
$91.5 Million
$24.3 Million
The Value of the Pension Plan as at December 31, 2006
Table 2 shows the value of the Pension Plan as at December 31, 2006 by major asset classes.
TABLE 2: Market Value of Pension Plan Assets
Asset Class
Canadian Equities
Non-Canadian Equities
Total Equities
Dec 31, 2006
($000)
$ 34,109
72,988
107,097
Per Cent of
Market Value
19.9%
42.7%
62.6%
Bonds
Short-Term Investments
Total Fixed Income
$ 58,139
5,926
64,065
34.0%
3.5%
37.4%
Market Value of Investments
$ 171,162
100.0%
Accrued Investment Earnings
Total Market Value of the Fund
406
$ 171,568
Note to Table 2:
The market value of the total fund ($171,568,000) reported by the investment fund
managers differs from the fund value ($171,640,000) reported by the actuary. The
investment fund managers report on investment funds only; whereas the actuary includes
accounts payable and contributions receivable with its fund value.
Plan Documents
The AFBC met 14 times during 2006. Copies of the agenda, minutes, auditor’s report, financial
reports and all actuarial reports are on file in the Faculty Association office and the office of the
Director of Benefits. They are available for inspection by any member of the Plan during regular
working hours by prior arrangement.
Please contact the Benefits Office at 966-6633 or any member of the Academic Fringe
Benefits Committee if you have any questions about the items covered.
-3-
Academic Pension Plan Information
Academic Fringe Benefits Committee
Members
Faculty Association Appointees:
Pat Krone
Ron Cuming
Anatomy & Cell Biology
Law
Faculty Association Participant
Daryl Lindsay
Commerce
Board of Governors Appointees:
Laura Kennedy
Bob Elliott
Matt Webster
Financial Services
Financial Services
Financial Services
Observer (ASPA)
Al Rung
Veterinary Medicine
Actuary
AON Consulting
Investment Consultants
Hewitt Associates
Investment Custodian
CIBC Mellon Global Securities
-4-