GENERAL PENSION PLANINFORMATION SESSION

McGill University Pension Plan

Human Resources

The presentation can be accessed in online at: http://www.mcgill.ca/hr/node/2128.

This presentation is intended to inform you about the McGill Pension Plan & the importance of integrating pension investment decisions to your financial management.

This is not financial advice & should not be taken as such. It is meant to alert you to the matters to look into.

Your individual needs & circumstances may not be adequately addressed by the info contained in this presentation.

Understand the design of the McGill University Pension Plan;

Familiarize yourself with investment basics;

Understand the importance of developing a personal investment strategy; and

Learn where to get more information.

Learning Objectives

Why have a pension plan?

Canadians need 60% to 70% income replacement in retirement

How much will I need?Final

salary70% Ret.

YearsAmount Needed

$50,000 $35,000 20 $700,00025 $875,00030 $1,050,000

$75,000 $56,250 20 $1,050,000

25 $1,312,000

30 $1,575,000

Assumption: Indexed and Rate of Return = 2.5%

Where do retirees get their income?

OAS (10%)*QPP (17%)*

Personal SavingsRRSP, TFSA

McGill Pension Plan (49%)

Government Benefits

Personal Savings

Employer-Sponsored

Based on a pre-retirement income of $53,000 at age 65, annualized rateof return of 5.5% and interest rate assumption of 5.0% at settlement.

0 10 20 30 40 50 60 70 80Career Begins Current Average

Age 23 RetirementAge 61

Current Life Expectancy of a 60-year-old:MALE = age 83.2 increasing to age 87FEMALE = age 85.9 increasing to age 90

35+ working years 25+ years inretirement

Why plan for retirement?Because you could spend half your life retired.

¬ How much income do I need at retirement (how much will I spending while I’m retired)?

¬ How much $ do I have to work with?

¬ What rate of return do I need to get there?

¬ What rate of additional savings do I need to make?

Your personal investment strategy

Pension Plan Types

DefinedBenefit

DefinedContribution

• Pension is based on a formula (tied to service and salary)

• Pension based on contributions & investment return accumulated at retirement & market conditions

McGill Pension Plan• Defined Contribution Plan: applies to members

who became eligible to join the Pension Plan on or after January 1, 2009 (“Part B”)

• Hybrid Plan: applies to members who joined the Pension Plan or were eligible to join the Plan prior to January 1, 2009 (“Part A”)

Who can join?R

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Full-time Employees & Part-time Employees Participating in Optional Benefits Package• Join first day of any month• Mandatory participation after 5 years

Part-time Employees not Participating in the Optional Benefits PackageMay join January 1 of each year if in prior calendar year;i. completed >= 700 hours of employment, orii. Basic Earnings >= 35% of YMPE ($18,760 in

2015 to join in 2016)

Assumptions:• Using current contribution rates• Age 30• Earning $50,000• Retiring at age 65• Salary Increase: 3%• Investment Return: 5%

Cost of Waiting

Projected DC balance at age 65

Wait 5Years

$575,000(cost of waiting

$183,000)

StartNOW

$758,000

Wait 1Year

$717,500(cost of waiting

$40,500)

Who pays for your DC pension?R

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You: A & B Part A*• Age 39 or less: 5.0% + 2.2%• Age 40 through 49: 7.0% + 2.2%• Age 50 through 65: 8.0% + 2.2%(less: 1.8% up to QPP earnings limit)

University: A & B Part A*• Age 39 or less: 5.0% - 2.2%• Age 40 through 49: 7.5% - 2.2%• Age 50 through 65: 10.0% - 2.2%(less: 1.8% up to QPP earnings limit)

QPP earnings limit (2016) = $54,900 - $3,500 basic exemption

Max contribution 2016 = lesser of 18% of earnings or $26,010

* University directs contributions towards defined benefit segment.

What does it cost to participate (Part B)?R

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•Deducted before taxes•Immediate tax savings

Example: Age < 40 Before Pension Plan

Gross Pay $2000 $2000Less: Contribution - ($ 64) employeeTaxable Pay $2000 $1936Less: Tax @ 25%* ($500) ($ 484)Net Pay $1500 $1452

Total investment = $128 (University $64 + Employee contribution $64) for a change in net pay of only $48

* Assumes a 25% tax rate for purposes of this example

What happens if I leave McGill?R

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Immediate Vesting

Account value plus Supplementary Pension amount, if any

Subject to locking-in provisions

Can I transfer my existing RRSP into the Pension Plan?

Advantages: • Access to MUPP investment fund options• Management Expense Ratio on MUPP investment funds

Disadvantages:• May not access funds prior to retirement/termination• No Home Buyers’ Plan & Lifelong Learning Plan

withdrawals permitted • Limited investment fund options • Fees may be levied by transferring institution & possible

costs associated with liquidating holdings

Group RSP/Group LIRAR

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Contributions subject to CRA limits

Per pay amounts via payroll deductions –benefit from immediate tax relief or lump-sum payments

Withdrawals permitted anytime –Homebuyer’s Plan, Lifelong Learning Plan

Transfers in from RRSPs or LIRAs

Investment choices – similar to those offered in the Pension Plan + Glide Paths

To view your account balances:www.mcgill.ca/hr/node/2122(McGill University Savings Programs)

Login using your McGill username & password (firstname.lastname@mcgill.ca).

If you forget your McGill Username or McGill Password, try logging into Minerva with your 9-digit McGill ID number and PIN. Once you have logged in successfully, go to the Personal Menu > Password for McGill Username. Here, you can view your McGill Username, and choose a new McGill Password. If you have forgotten both your McGill Password and Minerva PIN, please contact the ICS Service Desk (514-398-3398) assistance.

Account Access

Retirement Income Calculator - online

Retirement Income Calculator

GENERAL INVESTMENT PLANNINGSource: Investor Education Fund (www.investored.ca)

InvestorProfile

Monitoring

InvestmentDecisions

InvestmentGoals

AssetAllocation

Your Investor Profile

Your Investment Strategy: Age Net Worth Time Horizon Personal Situation Liquidity Requirements Risk Tolerance (ability/willingness) Investment Objectives Investment Knowledge Links to questionnaires

Members are advised to seek advice regarding their particular circumstances from a personal financial advisor.

3 MAJOR OBJECTIVES

Safety of Principal: highest degree of safety is required

Income: maximize the rate of income return

Growth of Capital: looking for long-term capital growth versus income

3 MAJOR ASSET CLASSES

Money Market Securities:Short-term financial obligations issued by

governments & corporations (Treasury bills)

Fixed Income Securities:Debt instruments issued by governments &

corporations paying a rate of interest with terms up to 30 years

Equities (stocks):Ownership in companies domiciled in and

outside of Canada

MAJOR ASSET CLASSES

Equities Fixed Income

MoneyMarket

Higherexpectedreturns

Lower expected returns

Lowest expected returns

Highestvolatility

Less volatility Leastvolatility

Early Earning Years

Mid Earning Years

Peak Earning Years

Retirement Years

•Growth

Age35 55 65

Net

Wor

th

Investment Objectives

•Growth

•Tax Minimization

•Safety •Safety

•Income

•Concern for inflation protection

Retirement Planning

Estate Planning

LIFE CYCLE ANALYSISCaution: Your individual situation may differ significantly

Some degree of risk is always present

What is “RISK”?

Actual returns vs. expected rate of return Frequency of negative deviations Short-term volatility Inflation risk (loss of purchasing power) Credit risk Impact of changes in interest rates Assess risk against your objectives

Why DIVERSIFY?

Many Experts Say: “Don’t put all your eggs in one basket”

Different asset classes have differing investment return expectations

Results depend on length of time horizon for the investment

Minimize overall risk of your portfolio

McGill’s Range of Investment Options

BalancedAccount

EquityPool

FixedIncome

Pool

SociallyResponsibleInvestment (SRI) Pool

MoneyMarketPool

Glide Path Options

Equity Pool

This fund aims to:

Provide long-term capital appreciation and income by investing in a diversified portfolio of Canadian, foreign equity securities and alternative assets.

Equity Pool – change - January 15/16Effective January 15, 2016 Alternative Assets which include Absolute Return Strategies, Private Equity and Real Assets will be no longer form part of the Equity Pool. Those wishing to continue to hold Alternative Assets can do so via the Balanced Account or Glide Path Options.

For additional information, please refer to the document titled "Segregation of Alternative Assets from the Equity Pool and Glide Path Options“ –available at: http://www.mcgill.ca/hr/bp/pensions/invest

Equity Pool Composition – Mar 31/16

Canadian Equities, 28.0%

Global Equities, 71.0%

Cash & Cash Equivalents, 1.0%

Fixed Income Pool

This fund aims to:

Provide a predictable source of interest income, to reduce volatility of investment returns and to provide a hedge against deflation by investing in a diversified portfolio of primarily Canadian fixed income and floating rate securities.

Fixed Income Pool Composition – Mar 31/16

Federal Bonds, 19.0%

Provincial Bonds, 25.0%

Derivatives, 2.0%

Corporate Bonds, 40.0%

Mortgages, 9.0%Cash & Other, 5.0%

Balanced Account

Asset Classes Equity Pool (65%) Fixed Income Pool (35%)

This fund aims to:

Optimize capital accumulation over the long-term through allocations to the Equity & Fixed Income Pools

Balanced Account Composition – Mar 31, 2016

Canadian Equities, 13.0%

Global Equities, 33.0%

Real Assets, 6.0%

Private Equity, 6.0%

Absolute Return Strategies, 9.0%

Listed Real Assets, 2.0%

Nominal Bonds, 29.0%

Cash, Cash Equivalents (including currency …

Socially-Responsible Investment Pool

• Asset Classes – long-term asset mix35% Canadian equities25% International equities (including US)35% Fixed income securities5% Cash equivalents

• This fund aims to: optimize capital accumulation over the long-term in a socially responsible manner through allocations to equity and fixed income investments with a target asset mix of 65% equity securities and 35% fixed income securities

SRI Pool Composition – March 31, 2016

Canadian Equity, 31.0%

US Equity, 18.0%Non‐North 

American Equity, 12.0%

Canadian Fixed Income, 37.0%

Cash & Cash Equivalents, 2.0%

Money Market Pool

Asset Classes Cash Cash equivalents Bonds (short term)

This fund aims to:

Preserve capital, provide stable returns and maintain liquidity

Money Market Pool Composition – March 31, 2016

Government  Issued T‐Bills, 3.0%

Repurchase Agreements, 10.0%

Canadian Bankers' Acceptances, 20.0%

Corporate Commercial Paper, 49.0%

Fixed Income, 18.0%

Performance ReturnsYear-to-Date as at March 31, 2016

Investment Pool Return Benchmark

Balanced Account -0.5% -0.5%

Equity Pool -1.2% -0.8%

Fixed Income Pool 1.7% 1.4%

Socially Responsible Investment (SRI) Pool 0.5% -0.4%

Money Market Pool 0.2% 0.1%

Performance returns are gross of fees.

Glide Path Profiles & Returns – Q1 2016

Group LIRA & Group LIF

Investment Options:

• Glide Path• Equity Pool – TD Asset Management

– Canadian Equity (30%)– US Equity (40%)– Non-North American Equity (30%)

• Fixed Income Pool – Philips, Hager & North (PH&N)– Bond Fund (100%)

49

Investment Selection

90% of return derived from asset allocation • Does the investment suit your investor profile,

needs & objectives?• Do you understand the investment & inherent

risks?• What is the historical performance & future

outlook?• What conditions will impact its performance?• What are the associated fees/costs?

Spot the Problem

Balanced Account: 20%Equity Pool: 20%Fixed Income Pool: 20%SRI: 20%Money Market Pool: 20%

Common Mistakes

• Do not set goals & plan • Procrastinate in starting to save• Do not save enough • Do not understand risk• Do not understand asset classes & asset

allocation• Are confused by choice in investment options• Chase past returns• Do not review & follow-up

i. Understand the decisions that you need to make

ii. Select investment option(s) which are right for you

iii. Review – investment returns, – changing circumstances

Your Investment Responsibility

When do I re-evaluate risk and investment strategy?

Change drivers:• Life events – personal & professional• Change in financial situation

– Sale/purchase home– Spouse starts/stops working– Inheritance……

• Market conditions– Inflation, abnormal volatility, corrections……

Do compare “MER”sManagement Expense Ratio (MERs) for MUPP

• Money Market Pool• Fixed Income Pool• Equity Pool• Balanced Account• SRI Pool

* Estimated fees include investment management, actuarial, custodial fees and administrative expenses not covered by the University and exclude record keeping fees. Actual expenses may vary over time.

0.30%

0.43%

1.03%

0.85%

0.48%

Record Keeping Fees – as of January 2016

• Part A Member• Part B Member• Group RSP• Group LIF• Cheque Issuance

* Record keeping fees will be charged directly to your account on a monthly basis. Annual indexation will also apply.

$104.65/per annum + tax

$50.23/per annum + tax

$48.14/per annum + tax

$43.95/per annum + tax

$20/per payment

Change in Investment Distribution

• Online at: www.mcgill.ca/hr/node/2122

• Subsequent changes can be made 3 months following the effective date of the previous change.

Online Benefits Enrolment

Pension Plan Beneficiary Designation

• Designation is subject to the prior rights of the spouse, if any• Spouse - Married

- Civil union

- Conjugal relationship (same or opposite sex) i) 3 years or, ii) 1 year if at least one child

• Spousal waiver (form available from Pension Administration)

• Designation of married or civil union Spouse will lapse in the event of:divorce, annulment of marriage or civil union. If not married nor in civil union, a cessation of conjugal relationship may affect your spouse’s entitlement.

• Revocable/irrevocable status • No spouse: appoint anyone

• Form: Online at: www.mcgill.ca/hr/node/2122

Where can I get more information?

• Employee Pension Plan Brochures

• Annual Report and Financial Statements

• McGill University Savings Programs Call Centre: • Web Site: www.mcgill.ca/hr/node/2122• Phone: 1-855-687-2111• One-on-one: 688 Sherbrooke St. West

Suite 1420

• Independent investment advisor or financial planner