PENSION & BENEFITS COMMITTEE Friday 6 October 2017 9:30 a ... · 10/6/2017 · community regarding pension and benefits plans. Task Frequency (Target month) 7 Oct 2016 11 Nov 2016

Board of Governors PENSION & BENEFITS COMMITTEE

Friday 6 October 2017 9:30 a.m. to 12:00 noon

NH 3318

OPEN SESSION ACTION

9:30

9:40

9:45

1. Update on Responsible Investing Working Group (Bruce Gordon)

2. Approval of the 8 September 2017 Minutes (Open Session)*and Business Arising

a. Communication to Retirees re: Stage 2 Solvency Funding Relief[Hornberger]

3. Execution Against the Work Plan* [Grivicic]

4. Update on Government Pension Plan Initiatives [Shapira]

Information

Decision

Information

Information

Information

9:55

10:30

11:00

11:30

5. Holistic Benefits Review, Proposed Approach and Costing*[Hornberger, Scott Palmer of Aon]

6. Actuarial Valuation as at January 1, 2017* – for filing year[Byron, Shapira]

7. Amendments to Statement of Investment Policies and Procedures, andAnnual Review/Approval for 2017* [Huber, Nick DeLisi, Barb Lomnicki]

8. Update on Registered Pension Plan Investment Subcommittee

Discussion and/or decision

Recommend to BOG

Recommend to BOG

Information

11:40

11:50

9. Other Business

10. Proceed into Confidential Session

CONFIDENTIAL SESSION

11. Approval of the 8 September 2017 (Confidential) + and Business Arising Decision

Next Meeting: Friday 10 November 2017 from 9:30 a.m. – 12:00 noonin NH 3318

*attached** to be distributed

+ distributed separately

29 September 2017 (amended 2 October 2017)

Mike Grivicic Associate University Secretary

Please convey regrets to Melissa Holst at 519-888-4567 x36125 or [email protected]

Future Agenda Items a. Pension Contribution for Members of LTDb. Level of LTD coverage vs. practical requirementsc. Discussion of $3,400 cap appropriateness, and potential RPP/PPP combination

PB 6 October 2017 v2, page 1 of 104

mailto:[email protected]

University of Waterloo Board of Governors

PENSION & BENEFITS COMMITTEE Minutes of the 8 September 2017 Meeting

[in agenda order]

Present: Kathy Bardswick, Ted Bleaney, Monika Bothwell, George Dixon, Stewart Forrest, Mike Grivicic (secretary), Mary Hardy, Dennis Huber, Ranjini Jha, Alan Macnaughton, Michael Steinmann, Mary Thompson, Marilyn Thompson (chair)

Regrets: David Kibble

Consultants: Linda Byron, Allan Shapira

Administration: Lee Hornberger

Guests: Jackie Serviss

Organization of Meeting: Marilyn Thompson took the chair and Mike Grivicic acted as secretary. The secretary advised that a quorum was present. The agenda was approved without a formal motion.

1. APPROVAL OF THE MINUTES OF 16 JUNE 2017 MINUTES (OPEN SESSION) ANDBUSINESS ARISING

A motion was heard to approve the minutes as distributed. Hardy and Bleaney. Carried. a. Communications re: Stage 2 Solvency Funding Relief in June 2017. This was received forinformation, and members will ascertain what communications are to be sent to retirees at the next meeting.

2. EXECUTION AGAINST THE WORK PLANThis item was received for information.

3. UPDATE ON GOVERNMENT PENSION PLAN INITIATIVESShapira observed that the province committed to bring forward pension legislation in the fall, and that it is not clear what level of detail might be revealed on an enhanced going concern model. IMCO will offer investment management products to public sector plans with an array of different asset classes available that plans may choose to invest in amounts determined by the individual plan. There is no indication of what the fees would be for these services. Stage 2 solvency funding approval is expected to be secured in October or November, and Aon is aware of one other plan that has a separate application and the province would aim to approve both with a single regulation. It is anticipated that the plan’s actuarial report may need to be approved with the presumption of approval for Stage 2 solvency relief.

4. QUARTERLY PENSION RISK MANAGEMENT DASHBOARD – TO 30 JUNE 2017Byron provided an overview: January 2017 figures differ from 31 Dec 2016 figures in valuation; funded status increased from 96% to 98%, and funded ratio (market) stands at 98.5% with the actuarial funded ratio at 95.7%; special payments are ongoing and the plan is building reserves; the risk premium stands at $898 million; solvency funded ratio is at 86.5%, where the rules require a ratio greater than 85%; liabilities increased due to movements in rate of risk-free returns, credit spreads and accruals. This item was received for information.

5. PENSION FUNDINGShapira noted a number of points that are germane to pension funding for the plan moving forward, in the current scenario where the minimum solvency payments may decrease but the recommended funding may exceed the minimum required: with solvency ratio around 85%, need to decide how to address solvency in this scenario; by custom payments are often shared equally between members and employer, though these may not be the case formally; investment returns are needed to fund the plan, and need to ascertain how the risk-free benchmark plays into investment approaches; establish a target level of reserves; planning to deal with “25% events”; is there a level of contributions that are unacceptable to members and/or the university; what to do regarding changes to the CPP. More on these considerations will be brought to the next meeting. Members discussed: plan is nearly fully funded by the ~$900 million at risk, but may want to increase reserves if the full amount doesn’t materialize; need to understand what a 50/50 share of current service cost might look like, and need to ensure there is a robust funding


Pension & Benefits Committee 8 September 2017 page 2 of 3

policy in place that is fair in all events; culture of employees taking ownership of pension contributions when called upon in the past; changes could be differentiated by income levels; may need to examine predicates that the university revenue model will stay the same going forward, whereas funding and enrollments may change as time passes; affordability of plan is very important; question of what to do if/when the plan deficit is addressed; discussion of contributions and caps should come together; downside risk is important and putting special payments into the plan annually is helpful to deal with risk of adverse deviation; some concern at having interest-only payments for three years, and uncertainty as to the state of the plan once that time elapses; if market value of assets increase, payments will stay the same and the plan can shorten the time for addressing any deficit, where if market value of assets decreases then the stream of payments will be determined by a valuation of the plan at that time. A motion was heard to elect a three (3) year deferral period followed by a seven (7) year amortization after the deferral period for the plan’s Stage 2 solvency funding relief application, as described in the solvency relief application to the province. Members accepted a friendly amendment to the motion to add that the plan shall maintain as a minimum the additional contribution to bring University contribution to 163% of member contributions (~$2.2 million per year in 2017) over the applicable three year deferral period. The amending motion was carried. Members clarified and examined the impacts of a variety of market and funding scenarios. The main motion was called, and was carried as amended.

6. INVESTMENT FUND PERFORMANCE REPORTS FROM AONHuber spoke to the document and noted that over a ten year period the plan has been able to achieve returns sufficient to meet the actuarial assumptions. A member noted that the investment manager with the highest fee is among the worst performing of the group; Huber indicated that staff monitoring of investment performance is ongoing, and that any proposals for changes to investment managers would be brought to this committee as well as the Finance & Investment Committee. This item was received for information.

7. BENEFITS UTILIZATION REPORTMembers discussed: employee & family assistance program (EFAP) is recently implemented and replaces access to on-campus counselling services; committee to review Policy 67 is underway; benefits to looking at the university’s experience in this space over a longer period of time. Hornberger will bring figures pertaining to the university’s experience of the EFAP once those are available. This item was received for information.

8. IMPACT OF REMOVING MAXIMA FOR OUT-OF-PROVINCE RETIREESHornberger noted that one individual is currently over the maximum, with two approaching the maximum and the rest unlikely to reach the maximum. By consensus, the committee agreed to remove this item from the annual work plan, and directed that staff in Human Resources monitor this and bring forward any concerns for the committee’s attention. This item was received for information.

9. POTENTIAL PHARMACARE SAVINGSHornberger provided an overview of the document, which was received for information.

10. UPDATE ON REGISTERED PENSION PLAN INVESTMENT SUBCOMMITTEEJha described the work done over the summer months: framework is not finished but key elements are being considered; central importance of investment management, including rate of return as well as consideration for liability matching; recognition of the breadth of constituencies and importance of their inclusion; good to have expertise available for investment decisions; decision making benefits from broad consensus; need to be agile when circumstances require e.g. responding to market events; aim to bring forward report in Fall term.

11. OTHER BUSINESSThere was no other business.

12. PROCEED INTO CONFIDENTIAL SESSIONWith no additional business in open session, the committee proceeded into confidential session.

NEXT MEETING The next meeting is on Friday 6 October 2017 from 9:30 a.m. – 12:00 p.m. in Needles Hall Room 3318.

29 September 2017 Mike Grivicic Associate University Secretary


D = deferred

Execution against Work Plan

Pension & Benefits Committee, Board of Governors, University of Waterloo

The below represents the annual responsibilities of the P&B Committee and has been prepared as an aid to planning only. The committee’s activities are much broader, however, and include: legislative changes, plan changes and improvements; selection of managers and service providers; and requests from the UW community regarding pension and benefits plans.

Task Frequency (Target month)

7 Oct 2016

11 Nov 2016

9 Dec 2016

20 Jan 2017

24 Feb 2017

10 Mar 2017

19 May 2017

16 June 2017

8 Sept 2017

6 Oct 2017

Approval of Actuarial Valuation Assumptions Annual (Jan)

Investment Status of PPP Annual (Jan)

Preliminary Valuation Results (RPP and PPP) Annual (Feb)

Cost-of-living Increase for Pensioners Annual (Feb)

Pensions for Deferred Members Annual (Feb)

Salaries for Pension Purposes for Individuals on Long-term Disability

Annual (Feb)

Actuarial Valuations (RPP and PPP) Annual (Mar)

Benefits Plan Premium Renewals Annual (Mar)

Indexing of Long-term Disability Plan Benefits and Maxima

Annual (Mar)

Review of Contribution and Protocol Caps (RPP and PPP)

Annual (Mar)

Annual Committee Self-Assessment Annual (Mar)

Budget Overview Annual (May) D

Previous Years’ Fees and Expenses Annual (May)

Annual Audit of the Pension Plan Fund Financial Statements

Annual (May)


Pension & Benefits Committee – Execution Against Work Plan

1 Most recent report was published in September 2015 for the 2014-15 year

Task Frequency 7 Oct 2016

11 Nov 2016

9 Dec 2016

20 Jan 2016

24 Feb 2017

10 Mar 2017

19 May 2017

16 June 2017

8 Sept 2017

6 Oct 2017

Benefits/Financial Analysis Report Annual (June) D

Indexing of Health and Dental Plan Maxima Annual (Nov)

Cost-of-living adjustment to payroll pension plan limit

Annual (Dec)

Indexation of Retiree Life Insurance Annual (Dec)

Total Fund Overview (provided under reports from RPPI)

Quarterly

Investment Manager Review (provided under reports from RPPI)

Semi-annually

Approval of the Statement of Investment Policies and Procedures (SIPP)

Annual 1

Annual Report to the Community1 Annual

Actuarial Filing Minimum every three years

October 2017 (subject to BOG approval)


Presentation to University of Waterloo

Prepared by Aon Hewitt

Holistic Benefits Plan Review October 6, 2017


Proprietary & Confidential | October 6, 2017 2 Aon Hewitt

Background

At the May 2017 Pension & Benefits Committee meeting, HR received a

mandate to develop a proposal for a holistic benefits review

Aon, UW’s current benefits consultant, was subsequently engaged by HR to

develop a proposal for this project

The proposed holistic benefits review would incorporate the following phases:

– Phase 1 – Plan Benchmarking (pension and benefits)

– Phase 2 – Benefit Plan Redesign

– Phase 3a – Marketing of LTD, Health, and Dental insurance carrier

– Phase 3b – Marketing of Sick Leave Early Referral Assessor



Phase 1 - Plan Benchmarking

Background

Aon’s Benefit Index© benchmarking tool provides a quantitative analysis for

the salaried plans of a specific comparator group of companies to determine

competitiveness of total plan value and employer paid value

– This tool would benchmark UW’s current pension and benefit programs

(active and retiree)

– The specific comparator group used in the study is selected by UW from

Aon’s Benefit SpecSelect© database, which contains the salaried plan

designs of hundreds of organizations in Canada across various industries

A Benefits Index© study measures relative economic value of program, not

perceived value or cost

Core benchmarking analysis can include up to 15 comparators

If UW wishes to benchmark its plan against an organization that is not in Aon’s

SpecSelect© database, Aon would need to solicit that organization’s plan

information, which would require additional time in the project plan



Phase 1 - Plan Benchmarking (continued)

Sample Output

Information regarding Employer and Total Value, including relative rank in the

comparator list, is provided individually for:

– Pension: DB, DC, Total

– Benefits: Life Insurance, Sick Leave/STD, LTD, Medical, Dental

– Pension and Benefits combined



Phase 2 - Benefit Plan Redesign

Background

Aon would lead UW through a redesign project for its active and retiree benefit

plans (Life, Disability, Health, and Dental)

Main project steps would include:

– Objective Setting / Planning

– Solicit Employee Feedback (optional)

– Active Plan Development and Transition Analysis

– Retiree Plan Development and Transition Analysis

– Calculation of Competitive Position of Proposed Plan

Will need to determine stakeholder groups that will need to be included as part

of the redesign process

Ultimate goal would have the active and retiree benefit plans achieve the

objectives set forth at the beginning of this project, including cost

considerations (both UW and employee)



Phase 2 - Benefit Plan Redesign (continued)

Employee Feedback

Several options exist to solicit feedback from employees

UW will need to determine which avenue it wishes to use, as well as timing

Options to solicit employee feedback include a survey or focus groups

UW may wish to solicit feedback prior to beginning the redesign process or

closer to the end once a strawman design has been developed (or both!)

Retiree Benefits Design

There is currently an arrangement in place which states that new retirees are

to receive the same Health plan as active employees

– Would need to review this arrangement and determine whether UW

can/should develop a new retiree benefit plan separate from the active plan

Actuarial modelling will also be required for changes made to the retiree

benefits plan, so that UW’s finance team can take into account the impact of

the change in expense and liability being generated from the new plan



Phase 3 - Marketing (LTD, Health, Dental, and Sick Leave)

Background

UW’s current Life Insurance carrier is Sun Life Financial (Sun Life)

UW’s current LTD, Health, and Dental insurance carrier is Great-West Life

(GWL)

UW’s current sick leave early referral assessor is Morneau Shepell

UW last marketed the LTD, Health, and Dental benefits in 2007, ultimately

moving to GWL effective 2008



Phase 3 - Marketing (LTD, Health, Dental, and Sick Leave) (continued)

Rationale for Benefit Plan Marketing

Fulfill governance obligation through verification of the competitiveness of

insurance providers for the group benefits program

– Typically public sector organizations perform a full marketing exercise every

5-10 years

Benchmark costs with the goal of reducing expenses and

organization/employee expenditure

Achieve budget stability and promote long-term sustainability through rate

guarantees

Partner with a provider that delivers superior service capabilities to UW and its

employees

Partner with a provider that will enhance the employee experience with the

benefits plan

Partner with a provider best suited to adjudicate, insure, and administer UW’s

redesigned benefits plans (active and retiree)



Phase 3 - Marketing (LTD, Health, Dental, and Sick Leave) (continued)

Process

Objective Setting / Planning

Development of Request for Proposal (RFP)

Release of RFP to Carriers and Respond to Questions

Analyze Proposals

– Both qualitative and quantitative

Carrier Finalist Meeting(s)

Decision

Implementation

Notes:

– RFPs for LTD/Health/Dental insurer and sick leave early referral assessor

can run concurrently, as several organizations offer all services

– Proposal is not to market the Life Insurance benefits (which are currently

part of the University Life Insurance Program (ULIP))



Timelines

Phase Activities Estimated Timing

1 Plan Benchmarking Oct2017 – Jan2018

2 Benefit Plan Redesign Spring to Winter 2018

3a Marketing of LTD, Health, and Dental

insurance carrier

Spring to Fall 2019;

Implementation from Fall 2019

to May 1, 2020 3b

Marketing of Sick Leave Early Referral

Assessor

Notes:

Objective is to have new benefit plans go into effect May 1, 2020 with the new

insurance carrier / sick leave assessor



Next Steps

P&B Committee to approve Aon’s engagement in conducting the Holistic

Benefits Review

P&B Committee to confirm comparators to include in Plan Benchmarking

analysis



Legal Disclaimer

© 2017 Aon Hewitt Inc. All Rights Reserved.

This document contains confidential information and trade secrets protected by

copyrights owned by Aon Hewitt. The document is intended to remain strictly

confidential and to be used only for your internal needs and only for the purpose

for which it was initially created by Aon Hewitt. No part of this document may be

disclosed to any third party or reproduced by any means without the prior written

consent of Aon Hewitt.


Aon Proprietary and Confidential

Risk. Reinsurance. Human Resources.

Actuarial Valuation as at January 1, 2017 for the University of Waterloo Pension Plan Canada Revenue Agency Registration Number: 0310565 Provincial Registration Number: 0310565

October 2017



Actuarial Valuation as at January 1, 2017 for the University of Waterloo Pension Plan 2

Table of Contents Executive Summary 3

Section 1: Introduction 6

Section 2: Going Concern Valuation Results 8

Section 3: Solvency Valuation Results 13

Section 4: Hypothetical Wind Up Valuation Results 17

Section 5: Contribution Requirements 19

Section 6: Actuarial Certificate 26

Appendix A: Assets 28

Appendix B: Membership Data 31

Appendix C: Going Concern Assumptions and Methods 37

Appendix D: Solvency and Hypothetical Wind Up Assumptions and Methods 45

Appendix E: Summary of Plan Provisions 51

Appendix F: Glossary of Terms 59

Appendix G: Administrator Certification 63




Executive Summary An actuarial valuation has been prepared for the University of Waterloo Pension Plan (the "Plan") as at January 1, 2017 for the primary purpose of establishing a funding range in accordance with legislative requirements for the Plan until the next actuarial valuation is performed. This section provides an overview of the important results and the key valuation assumptions which have had a bearing on these results. The next actuarial valuation for the purposes of developing funding requirements should be performed no later than as at January 1, 2020. This valuation report is based on the Stage Two solvency relief measures for pension plans in the broader public sector pursuant to Ontario Regulation 178/11.

Summary of Principal Results

Financial Position

January 1, 2017 Going Concern Solvency Hypothetical

Wind Up

Assets $ 1,473,514,8881 $ 1,517,379,9331 $ 1,517,379,9331 Liabilities 1,585,567,596 1,744,213,228 2,551,998,731 Financial Position $ (112,052,708) $ (226,833,295) $ (1,034,618,798)

January 1, 2014 Going Concern Solvency Hypothetical

Wind Up

Assets $ 1,156,065,428 $ 1,194,275,6071 $ 1,194,275,6071 Liabilities 1,305,570,459 1,270,650,784 2,041,789,760 Financial Position $ (149,505,031) $ (76,375,177) $ (847,514,153)

Legislative Ratios January 1, 2017 January 1, 2014 Solvency ratio 0.87 0.94 Transfer ratio 0.59 0.59

1 Net of all estimated wind up expenses and smoothing adjustments and deferrals, where applicable




Normal Cost January 1, 2017 January 1, 2014 Total normal cost $ 67,244,568 $ 53,202,405 Required member contributions (31,234,780) (25,986,716) University normal cost $ 36,009,788 $ 27,215,689 As a % of pensionable earnings 8.51% 7.66% As a % of member contributions 115.3% 104.7%

Minimum Contribution Requirements Considering the funding and solvency status of the Plan, the minimum University contributions for the period from January 1, 2017 to January 1, 2020 in accordance with legislative requirements and the University funding commitment, are as follows:

2017 2018 2019

Total normal cost $ 67,244,568 $ 69,934,351 $ 72,731,725 Required member contributions (31,234,780) (32,484,171) (33,783,538) University normal cost $ 36,009,788 $ 37,450,180 $ 38,948,187 Special payments toward amortizing unfunded liability 12,684,720 12,684,720 12,684,720 Adjustments 0 0 0 Minimum Required University Contribution Under Regulation $ 48,694,508 $ 50,134,900 $ 51,632,907 Additional contribution to bring University contribution to 163% of required member contributions 2,218,183 2,814,299 3,434,260 Total Required University Contribution under University Funding Commitment1

$ 50,912,691 $ 52,949,199 $ 55,067,167

As a % of required member contributions 163% 163% 163%

1 The University has committed to contributing a minimum of 163% of required member contributions for the period covered by this

valuation




Key Assumptions The principal assumptions to which the valuation results are most sensitive are outlined in the following table.

Going Concern January 1, 2017 January 1, 2014

Discount rate 5.50% per year 6.00% per year Inflation rate1 2.00% per year 2.25% per year Increase in pensionable earnings 4.00% per year 5.00% per year for one year;

4.25% per year thereafter Mortality table 2014 Canadian Pensioners’ Mortality

(“CPM2014”) table combined with mortality improvement Scale CPM-B

Same

Increase in Year’s Maximum Pensionable Earnings (YMPE)

2.75% per year 3.00% per year

Increase in Income Tax Act maximum pension


Retirement rates Age 64, but no earlier than one year after valuation date

Same

Solvency/ Hypothetical Wind-Up January 1, 2017

January 1, 2014

Discount rate – Solvency

Annuity purchases: 3.12% per year Transfers: 2.30% per year for 10 years; 3.70% per year thereafter


Discount rate – Hypothetical wind-up (Pre-2014 Benefits)

Annuity purchases: -0.09% per year Transfers: 1.30% per year for 10 years; 1.60% per year thereafter


Discount rate – Hypothetical wind-up (Post-2013 Benefits)


Annuity purchases: n/a Transfers: n/a

Mortality table CPM2014 table combined with mortality

improvement Scale CPM-B 1994 Uninsured Pensioner Mortality Table with generational improvements using Scale AA

1 Pensions in payment and deferred pension amounts accrued prior to January 1, 2014 are assumed to increase at 100% of inflation rate. Pensions accrued on and after January 1, 2014 are assumed to increase at 75% of inflation rate.




Section 1: Introduction

Purpose and Terms of Engagement We have been engaged by the University of Waterloo (the “University”) Pension and Benefits Committee (the “Committee”) to conduct an actuarial valuation of the Plan, registered in Ontario, as at January 1, 2017 for the general purpose of determining the minimum and maximum funding contributions required by pension standards, based on the actuarial assumptions and methods summarized herein. Specifically, the purposes of the valuation are to:

Determine the financial position of the Plan on a going concern basis as at January 1, 2017;

Determine the financial position of the Plan as at January 1, 2017 on a solvency and hypothetical wind up basis;

Determine the funding requirements of the Plan as at January 1, 2017; and

Provide the necessary actuarial certification required under the Pension Benefits Act (Ontario) (the “Act”) and the Income Tax Act.

The results of this report may not be appropriate for accounting purposes or any other purposes not listed above.

Solvency Funding Relief Applicable to Pension Plans in the Broader Public Sector On June 23, 2017, the University submitted an application for the Plan to participate in Stage Two of the two-stage solvency funding relief measures applicable to broader public sector pension plans. In November, 2017, the Plan was accepted into Stage Two through amended Regulation 178/11.

In accordance with Section 9(4) of the Ontario Regulation 178/11 the University has made an election to liquidate any solvency deficiency determined in this report using the three-year deferral/seven-year amortization option. In accordance with regulation, the University will also defer the start of the deferral period by twelve months until January 1, 2018.

In accordance with Section 9(5) of the Ontario Regulation 178/11, the next required valuation will be as at January 1, 2020.

Summary of Changes Since the Last Valuation The last such actuarial valuation in respect of the Plan was performed as at January 1, 2014. Since the time of the last valuation, we note that the following events have occurred:

The real return bonds were sold in October 2014 at a market value of $216,935,034 compared to an actuarial value of $172,569,989, a gain of $44,365,045. This gain will be held as a reserve in the going concern valuation at January 1, 2017 until such time as the proceeds are fully deployed into the investment strategy.




Effective October 1, 2015, the commuted value basis prescribed under Section 3500 (Pension Commuted Values) of the Canadian Institute of Actuaries’ (“CIA”) Standards of Practice was updated, including the use of the CPM2014 table combined with mortality improvement Scale CPM-B. This basis will be used for calculating commuted values for the purposes of Section 21 of the Act. This change has been reflected in this valuation.

The solvency and hypothetical wind up assumptions guidance published by the CIA on November 3, 2015 for valuations with effective dates on or after September 30, 2015, recommended the use of the new promulgated mortality table and projection scale for the annuity purchase proxy basis. The solvency and hypothetical wind-up results at January 1, 2017 contained in this report reflect this change.

Effective with this valuation, a number of changes have been made to the going concern assumptions and methods including:

– Changes to key economic assumptions (i.e. discount rate, inflation, increase in pensionable earnings);

– Changes to the determination of actuarial value of assets to defer the gain from the sale of the real return bonds.

University Information and Inputs In order to prepare our valuation, we have relied upon the following information:

A copy of the previous valuation report as at January 1, 2014;

A copy of the Statement of Investment Policies and Procedures for the University;

Membership data compiled as at January 1, 2017 by the University;

Asset data taken from the Plan’s unaudited and audited financial statements; and

A copy of the latest Plan text and amendments up to and including January 1, 2017.

Furthermore, our actuarial assumptions and methods have been chosen to reflect our understanding of the University’s desired funding objectives with due respect to accepted actuarial practice and regulatory constraints.

Subsequent Events As of the date of this report, we have not been made aware of any subsequent events which would have an effect on the results of this valuation. However, the following points should be noted in this regard:

Actual experience deviating from expected after January 1, 2017 will result in gains or losses which will be reflected in the next actuarial valuation report.

To the best of our knowledge, the results contained in this report are based on the regulatory and legal environment in effect at the date of this report and do not take into consideration any potential changes that may be currently under review. To the extent that actual changes in the regulatory and legal environment transpire, any financial impact on the Plan as a result of such changes will be reflected in future valuations.




Section 2: Going Concern Valuation Results

Going Concern Financial Position of the Plan The going concern valuation provides an assessment of the Plan's financial position at the valuation date on the premise that the Plan continues on into the future indefinitely.

The selection of the applicable actuarial assumptions and methods reflect the Plan's funding objectives, as communicated by the University, actuarial standards of practice, and pension standards.

On the basis of the Plan provisions, membership data, going concern assumptions and methods, and asset information described in the Appendices, the going concern financial position of the Plan as at January 1, 2017 is shown in the following table. The results as at January 1, 2014 are also shown for comparison purposes.

Going Concern Financial Position

January 1, 2017 January 1, 2014 Assets

Market value of assets1 $ 1,517,879,933 $ 988,945,217 Actuarial value of real return bonds 0 167,120,211 Smoothing/deferral adjustment (44,365,045) 0

Actuarial Value of Assets $ 1,473,514,888 $ 1,156,065,428 Going Concern Liabilities

Active members $ 861,751,361 $ 702,327,498 Disabled and suspended members 13,322,113 17,175,900 Deferred vested members 32,000,324 27,199,975 Retired members and beneficiaries 666,888,709 551,387,278 Additional voluntary contribution balances 744,583 959,189 Member flex contributions 1,164,723 1,251,748 Cost of living increase effective May 1st 9,695,783 5,268,871

Total Liabilities $ 1,585,567,596 $ 1,305,570,459 Going Concern Position $ (112,052,708) $ (149,505,031) Prior year credit balance 0 0 Surplus/(Unfunded Liability) $ (112,052,708) $ (149,505,031) Funded Ratio 0.93 0.89

1 Market value of assets other than real return bonds at January 1, 2014




On the basis of the Plan provisions, membership data, going concern assumptions and methods and asset information described in the Appendices, the going concern normal cost of the Plan as at January 1, 2017 is shown in the following table. The normal cost as at January 1, 2014 is also shown for comparison purposes.

Going Concern Normal Cost January 1, 2017 January 1, 2014 Normal Cost

Total current service cost $ 67,244,568 $ 53,202,405 Required member contributions (31,234,780) (25,986,716)

University Normal Cost $ 36,009,788 $ 27,215,689 Total pensionable earnings1 $ 423,325,493 $ 355,351,815 University Normal Cost

As a % of total pensionable earnings 8.51% 7.66% As a % of member contributions 115.3% 104.7%

1 In year following the valuation date




Change in Financial Position The major components of the change in the surplus/(unfunded liability) for the period from January 1, 2014 to January 1, 2017 are summarized in the following table (in millions of dollars).

2014 2015 2016 Surplus/(Unfunded Liability) at January 1 $ (149.5) $ (112.1) $ (106.1) University contributions 42.4 45.0 47.7 Member contributions 26.0 27.6 29.2 Total normal cost (53.3) (56.5) (61.9) Interest at discount rate (8.5) (6.0) (5.6) Expected Surplus/(Unfunded Liability) at End of Year $ (142.9) $ (102.0) $ (96.7) Change in liabilities due to experience gains/(losses):

Return on actuarial value of assets $ 82.2 $ (4.4) $ 19.1 Increase in salaries 1.5 1.6 2.5 Increase in ITA maximum pension/YMPE 0.7 0.6 0.2 Indexation of benefits 2.0 5.5 4.0 Retirement experience 4.2 5.0 6.2 Mortality experience (1.1) (1.8) (1.0) Termination experience (2.4) 0.1 (0.7) Data adjustments / article 12 transfers 1.3 0.6 (0.6) Additional deferred year of COLA 1.0 (0.5) (0.5) Miscellaneous experience (0.5) (0.5) (0.6)

Surplus/(Unfunded Liability) After Experience Gains/(Losses) at End of Year $ (54.0) $ (95.8) $ (68.1) Change due to change in economic assumptions $ (13.7) $ (10.3) $ (44.0) Change due to change in asset valuation method (44.4) 0.0 0.0 Surplus/(Unfunded Liability) at End of Year $ (112.1) $ (106.1) $ (112.1)




Discussion of Changes in Assumptions The Committee performed interim actuarial valuations during the three-year period at January 1, 2015 and January 1, 2016. The reconciliation of the going concern financial position for the period since January 1, 2014 shows the impact of the change in assumptions in 2014, 2015 and 2016. The numbers are presented in this manner for consistency with valuation reports that were prepared for Plan management purposes which were not filed with the Financial Services Commission of Ontario (FSCO) or Canada Revenue Agency (CRA).

The following economic and demographic assumptions were updated in the interim valuation reports.

Assumption January 1, 2014 January 1, 2015 January 1, 2016 January 1, 2017 Inflation 2.25% 2.00% 2.00% 2.00% Discount Rate 6.00% 5.75% 5.70% 5.50% Increase in YMPE 3.00% 2.75% 2.75% 2.75% Increase in ITA maximum pension

3.00% 2.75% 2.75% 2.75%

Increase in Pensionable Earnings

5.00% for one year; 4.25%

thereafter

4.00% 4.00% 4.00%

The updates to the economic assumptions made at January 1, 2015 increased the accrued liability at January 1, 2015 by $13.7 million and the total normal cost by $1.3 million. The update to the economic assumptions at January 1, 2016 further increased the accrued liability by $10.3 million and the total normal cost by $0.7 million. The update to the discount rate at January 1, 2017 increased the accrued liability by $44.0 million and the total normal cost by $2.8 million at January 1, 2017.

Asset Valuation Method In 2014, the Real Return Bonds were sold. The resulting gain of $44.4 million is being held as a funding reserve until such time as the proceeds from the sale are fully deployed into the investment strategy.




Going Concern Valuation Sensitivity Results In accordance with the CIA Standards of Practice specific to pension plans, the table below presents the sensitivity of the going concern liabilities and the total normal cost of using a discount rate 1% lower and 1% higher than that used for the going concern valuation.

January 1, 2017

Effect $ %

Going concern liabilities $ 1,585,567,596 Going concern liabilities (discount rate – 1%) $ 1,840,831,233 $ 255,263,637 16.1% Going concern liabilities (discount rate + 1%) $ 1,382,183,859 $ (203,383,737) (12.8%) Total normal cost $ 67,244,568 Total normal cost (discount rate – 1%) $ 84,312,507 $ 17,067,939 25.4% Total normal cost (discount rate + 1%) $ 54,460,830 $ (12,783,738) (19.0%)




Section 3: Solvency Valuation Results

Solvency Financial Position of the Plan The solvency valuation is a financial assessment of the Plan that is required by the Act and is performed in accordance with requirements prescribed by that legislation. It is intended to provide an assessment of the Plan's financial position at the valuation date on the premise that certain obligations as prescribed by the Act are settled on the valuation date for all members. The liabilities must be calculated based on a postulated scenario that maximizes liabilities on wind up of the Plan. Contingent benefits are included in the liabilities that would be payable under the postulated scenario, unless permitted to be omitted under the definition of solvency liabilities under the Regulations to the Act. All assumptions for the solvency valuation are listed in Appendix D.

On the basis of the Plan provisions, membership data, solvency assumptions and methods and asset information described in the Appendices, as well as the requirements of the Act, the solvency financial position of the Plan as at January 1, 2017 is shown in the following table. The solvency financial position of the Plan as at January 1, 2014 is shown for comparison purposes.

Solvency Financial Position January 1, 2017 January 1, 2014 Assets

Solvency assets $ 1,517,879,933 $ 1,194,775,607 Estimated wind up expenses (500,000) (500,000)

Total Assets $ 1,517,379,933 $ 1,194,275,607 Solvency Liabilities

Active members $ 981,453,639 $ 698,081,399 Disabled and suspended members 16,095,461 18,314,293 Deferred vested members 39,764,670 29,470,839 Retired members and beneficiaries 704,990,152 522,573,316 Additional voluntary contribution balances 1,164,723 1,251,748 Member flex contributions 744,583 959,189

Total Liabilities $ 1,744,213,228 $ 1,270,650,784 Solvency Position $ (226,833,295) $ (76,375,177) Prior year credit balance 0 0 Present value of special payments 69,855,540 69,509,814 Solvency Surplus/(Deficiency) $ (156,977,755) $ (6,865,363) Solvency ratio 0.87 0.94




Solvency Concerns A report indicates solvency concerns under the Act if the ratio of the solvency assets to solvency liabilities is less than 0.85.

Where a report indicates solvency concerns, the effective date of the next valuation that needs to be filed under the Act is one year from the valuation date of the valuation that gave rise to the solvency concerns.

Since the ratio of solvency assets to solvency liabilities ($1,517,879,933 / $1,744,213,228) is equal to 0.87, this report does not indicate solvency concerns.

Furthermore, in accordance with Section 9(5) of the Ontario Regulation 178/11, the next required valuation is as at January 1, 2020.

Solvency Asset Adjustment The present value of scheduled special payments for solvency valuation purposes has been calculated by discounting the annual special payments to be remitted up to the end of their amortization period (to a maximum of six years), at the weighted solvency discount rate of 2.90% per year compounded monthly in arrears determined proportionately by the solvency discount rates used to determine the solvency liabilities.

Nature of Deficiency Effective Date End Date

Months Included

Annual Special

Payment

Present Value as of

January 1, 2017

Going concern January 1, 2014 December 31, 2028 72 $ 12,684,720 $ 69,855,540




Solvency Valuation Sensitivity Results In accordance with the CIA Standards of Practice specific to pension plans, the table below presents the sensitivity of the solvency liabilities to using a discount rate of 1% lower and 1% higher than that used for the solvency valuation.

January 1, 2017 Effect

$ %

Solvency liabilities $ 1,744,213,228 Solvency liabilities (discount rate – 1%) $ 2,014,848,203 $ 270,634,975 15.5% Solvency liabilities (discount rate + 1%) $ 1,534,607,783 $ (209,605,445) (12.0%)

Incremental Cost on a Solvency Basis The incremental cost on a solvency basis represents the present value at January 1, 2017 of the expected aggregate change in the solvency liabilities between January 1, 2017 and the next calculation date, that is, January 1, 2020. Appendix D gives more details on the calculation methodology and on assumptions.

Based on this methodology and on these assumptions, the incremental cost on a solvency basis can be found in the following table.

2017 2018 2019

Incremental cost on a solvency basis $ 98,107,502 $ 110,639,555 $ 112,054,973




Pension Benefits Guarantee Fund (“PBGF”) The development of the PBGF Assessment Base is as follows:

PBGF Assessment Base January 1, 2017

(1) Solvency assets $ 1,517,879,933 (2) PBGF liabilities $ 1,744,213,228 (3) Solvency liabilities $ 1,744,213,228 (4) Ontario asset ratio: [(2) divided by (3)] 1.0000 (5) Ontario portion of fund: [(1) multiplied by the ratio in (4)] $ 1,517,879,933 PBGF assessment base: [(2) subtract (5); if negative, enter zero] $ 226,333,295




Section 4: Hypothetical Wind Up Valuation Results

Hypothetical Wind Up Financial Position of the Plan A hypothetical wind up valuation is performed to determine the financial position of the Plan as at the valuation date on a wind up basis, reflecting market settlement rates as of the valuation date. Unlike the solvency valuation, all benefits are included that would be payable under the postulated scenario that would maximize benefits. The hypothetical wind up valuation is determined using benefit entitlements on the assumption that the Plan has neither a surplus nor a deficit. Contingent benefits are included in the liabilities that would be payable under the postulated scenario. Assets are set equal to market value net of estimated wind up expenses. All assumptions for the hypothetical wind up valuation are listed in Appendix D.

On the basis of Plan provisions, membership data, hypothetical wind up assumptions and methods, and asset information described in the Appendices, as well as the requirements of the Act, the hypothetical wind up financial position of the Plan as at January 1, 2017 is shown in the following table. The hypothetical wind up financial position of the Plan as at January 1, 2014 is shown for comparison purposes.

Hypothetical Wind Up Financial Position January 1, 2017 January 1, 2014 Assets

Hypothetical wind up assets $ 1,517,879,933 $ 1,194,775,607 Estimated wind up expenses (500,000) (500,000)

Total Assets $ 1,517,379,933 $ 1,194,275,607 Hypothetical Wind Up Liabilities

Active members $ 1,486,593,840 $ 1,208,126,587 Disabled and suspended members 24,973,468 30,399,783 Deferred vested members 80,833,562 63,374,932 Retired members and beneficiaries 957,688,555 737,677,521 Additional voluntary contribution balances 744,583 959,189 Member flex contributions 1,164,723 1,251,748

Total Liabilities $ 2,551,998,731 $ 2,041,789,760 Hypothetical Wind Up Surplus/(Deficiency) $ (1,034,618,798) $ (847,514,153)




Transfer Ratio The transfer ratio is determined as follows:

January 1, 2017 January 1, 2014

(1) Hypothetical wind up assets $ 1,517,879,933 $ 1,194,775,607

Prior year credit balance (A) $ 0 $ 0 Total University normal cost and required special payments until next mandated valuation (B) $ 150,462,315 $ 130,540,169

(2) Asset adjustment: Lesser of (A) and (B) $ 0 $ 0 (3) Hypothetical wind up liabilities $ 2,551,998,731 $ 2,041,789,760 Transfer Ratio [(1)-(2)] / (3) 0.59 0.59




Section 5: Contribution Requirements

Contribution Requirements in Respect of the Normal Cost The annual going concern cost of benefits in respect of service accruing after the valuation date is known as the normal cost. The following table sets out:

The development of the rule to determine the normal cost;

An estimate of the normal cost for the three years following the valuation date; and

The portion of the going concern normal cost that is to be paid by the members.

2017 2018 2019 Normal Cost

Total normal cost $ 67,244,568 $ 69,934,351 $ 72,731,725 Required member contributions (31,234,780) (32,484,171) (33,783,538)

University Normal Cost $ 36,009,788 $ 37,450,180 $ 38,948,187 Total pensionable earnings $ 423,325,493 $ 440,258,513 $ 457,868,853 University Normal Cost

As a % of pensionable earnings 8.51% 8.51% 8.51% As a % of member contributions 115.3% 115.3% 115.3%

In the event an updated funding range in accordance with legislative requirements is not certified before January 1, 2020, the rule for determining the University normal cost contributions outlined in the above table will continue to be appropriate for the plan year commencing on the next valuation date of January 1, 2020. Adjustment to the University contributions may be required once the next actuarial funding range in accordance with legislative requirements is certified.




Minimum Special Payments Under Solvency Relief Measures Applicable to Broader Public Sector Pension Plans Stage One of Solvency Funding Relief Measures as at January 1, 2014 Pursuant to Ontario Regulation 178/11 made under the Pension Benefits Act, the Plan was approved to participate in the first stage of the solvency funding relief measures applicable to broader public sector pension plans.

Under the solvency funding relief measures, the minimum special payment each year during the Stage One period was determined as the greater of the two tests below: Test No. 1 Interest on Solvency Deficit $76,375,177 x 3.70%1 = $2,825,882

Test No. 2 Solvency Assets - 80% of Solvency Liabilities $1,194,775,607 - 0.8 x $1,270,650,784 > $0 Amortization of 50% of above result (if less than $0) over 4 years at 3.70% = Nil

The University began going concern special payments immediately effective January 1, 2014. The annual going concern special payments of $14,985,678 exceeded the minimum solvency special payments required under Stage 1 solvency funding relief measures.

1 Liability-weighted average of interest rates used for solvency valuation




Stage Two of Solvency Funding Relief Measures as at January 1, 2017 Amended Ontario Regulation 178/11 under the Pension Benefits Act (i.e., Regulation 307/13) requires the University to make special payments to the Plan to liquidate any solvency deficiency determined in the Stage Two Valuation Report (i.e., January 1, 2017 actuarial valuation report) according to the following rules:

Rule 1 – Amortize the solvency deficiency identified in the Stage Two Valuation Report over a period of 10 years, and make such monthly special payments for three years starting no later than 12 months after the Stage Two Valuation Date.

Rule 2 – The minimum monthly special payments during that three-year period is the greater of zero and (i) minus (ii) where (i) and (ii) are defined as follows:

(i) Interest on solvency deficiency (without regards to estimated wind-up expenses), payable on a monthly basis,

(ii) The monthly special payments to liquidate the going concern unfunded liability.

Rule 3 – During the remaining seven-year period, special payments must be made to liquidate the solvency deficiency as at January 1, 2017.

Rule 1 will result in a solvency deficiency payment of $12,704,025 starting January 1, 2018.

Rule 2 will result in $0 determined as follows:

(i) Interest on the solvency deficiency (without regards to estimated wind-up expenses) of $6,563,666 ($226,333,295 x 2.9%1) minus

(ii) The special payments of $12,684,720 to liquidate the Unfunded Accrued Liability

but not less than zero.

Rule 3 will result in a solvency deficiency payment of $18,976,662 starting January 1, 2021.

Therefore, special payments of $12,684,720 to fund the Unfunded Accrued Liability of $112,052,708 as at January 1, 2017 will be contributed from January 1, 2017 to January 1, 2021 (three years after the one year deferral period from the effective date of the Stage 2 Valuation Report as at January 1, 2017). Starting January 1, 2021, the special payments will increase to $31,661,382 ($12,684,720 plus $18,976,662).

1 Liability-weighted average of interest rates used for solvency valuation




Development of Special Payments The following table summarizes the amortization schedules of special payments prior to the application of the Stage Two solvency relief funding measures.

Nature of Deficiency Effective Date End Date

Present Value as of

January 1, 2017

Annual Special Payment

For Going Concern

Valuation1 For Solvency

Valuation2

Going concern January 1, 2014 December 31, 2028 $ 12,684,720 $ 112,052,708 $ 69,855,540 Solvency January 1, 20183 December 31, 2022 34,711,200 n/a 156,977,755 $ 47,395,920 $ 112,052,708 $ 226,833,295

The following table summarizes the amortization schedules of special payments after application of the Stage Two solvency relief funding measures under the 10-year amortization period. In accordance with Regulation, the University will defer all new going concern and solvency special payments established as at January 1, 2017 by 12 months. The University has the option to amortize the solvency deficit over 10 years or to defer funding for three years and amortize the remaining solvency deficiency over seven years. This schedule is for the benefit of the report only. The University has not elected this option.

Nature of Deficiency Effective Date Revised End Date

Present Value as of

January 1, 2017 Revised Annual

Special Payment

For Going Concern


Valuation2


The following table summarizes the amortization schedules of special payments after application of the Stage Two solvency relief funding measures under the three-year deferral/seven-year amortization option, which the University has elected.

Nature of Deficiency Effective Date Revised End Date

Present Value as of

January 1, 2017 Revised Annual

Special Payment

For Going Concern


Valuation2


1 The values in the table were developed using the going concern interest rate of 5.50% per year compounded monthly in arrears. 2 The values in the table were developed using the weighted average solvency interest rate of 2.90% per year compounded

monthly in arrears. For the present value of the going concern special payments, a maximum of six years of such payments were considered in the calculation except for streams established under Stage Two solvency relief measures, in which case, a maximum of 11 years of such payments were considered.

3 In accordance with Regulation, the University will defer new going concern and solvency payments established at January 1, 2017 by 12 months




Prior Year Credit Balance (“PYCB”)

The Plan has no PYCB as of January 1, 2017.

Excess Surplus The Income Tax Act requires that any excess surplus first be applied to reduce or eliminate the University contribution requirements. Excess surplus is defined in Section 147.2(2)(d) of the Income Tax Act, as the portion of surplus (if any) that exceeds 25% of the going concern liabilities.

Since the Plan has an unfunded liability, there is no excess surplus and therefore it does not impact the development of the University contribution requirements.




Development of Minimum Required University Contribution The table below presents the development of the minimum required University contribution for each of the plan years covered by this report under legislation including temporary solvency funding relief, taking into consideration the University funding commitment.

The University has committed to contribute a minimum of 163% of required member contributions during the period covered by this valuation report.

While we have shown a fixed University normal cost in the table below, the University may actually fund the normal cost as a percentage of member contributions. 2017 2018 2019

University normal cost $ 36,009,788 $ 37,450,180 $ 38,948,187 Special payments toward amortizing unfunded liability 12,684,720

12,684,720

12,684,720

Special payments toward amortizing solvency deficiency 0 0 0 Required application of excess surplus 0 0 0 Permitted application of surplus 0 0 0 Minimum Required University Contribution Under Legislation $ 48,694,508 $ 50,134,900 $ 51,632,907 Additional contribution to bring University contribution to 163% of member contributions 2,218,183 2,814,299 3,434,260 Minimum Required University Contribution Under Funding Commitment $ 50,912,691 $ 52,949,199 $ 55,067,167

As a % of required member contributions 163% 163% 163%




Development of Maximum Deductible University Contribution The table below presents the development of the maximum deductible University contribution for each of the plan years covered by this report.

The maximum deductible University contribution presented in the table below for a given plan year is calculated assuming that the University makes the maximum deductible University contribution in the first plan year covered by this report.

While we have shown a fixed University normal cost in the table below, the University may actually fund the normal cost as a percentage of required member contributions. 2017 2018 2019

University normal cost $ 36,009,788 $ 37,450,180 $ 38,948,187 Hypothetical wind up deficiency 1,034,618,798 0 0 Required application of excess surplus 0 0 0 Maximum Deductible University Contribution $ 1,070,628,586 $ 37,450,180 $ 38,948,187 If the University wishes to make the maximum deductible University contribution, it is advisable to contact the Plan’s actuary before making such contribution to ensure that the contribution will be permissible and deductible and that any regulatory requirements are considered.




Section 6: Actuarial Certificate

Actuarial Opinion, Advice and Certification for the University of Waterloo Pension Plan

Canada Revenue Agency Registration Number: 0310565 Provincial Registration Number: 0310565

Opinion

This actuarial certification forms an integral part of the actuarial valuation report for the Plan as at January 1, 2017. We confirm that I have prepared an actuarial valuation of the Plan as at January 1, 2017 for the purposes outlined in the Introduction section to this report and consequently:

Our advice on funding is the following:

The University should contribute the amounts within the range of minimum and maximum contribution amounts as outlined in Section 5 of this report, in accordance with legislative requirements.

The next actuarial valuation for the purpose of developing funding requirements should be performed no later than as at January 1, 2020.

We hereby certify that, in our opinion:

The contribution range as outlined in this report is expected to be sufficient to satisfy the Plan’s funding requirements.

The contribution range outlined in this report qualifies as eligible contributions under Section 147.2(2) of the Income Tax Act.

The pre-1990 maximum pension restrictions in Subsection 8504(6) of the Regulations to the Income Tax Act do not apply to any members of the Plan

For the purposes of the valuation:

– The data on which this valuation is based are sufficient and reliable;

– The assumptions used are appropriate; and

– The actuarial cost methods and the asset valuation methods used are appropriate.

This report and its associated work have been prepared, and our opinion given, in accordance with accepted actuarial practice in Canada and in compliance with the requirements outlined in subparagraphs 147.2(2)(a)(iii) and (iv) of the Income Tax Act.




Notwithstanding the above certifications, emerging experience differing from the assumptions will result in gains or losses that will be revealed in subsequent valuations.

Linda Byron, FCIA, FSA Allan H. Shapira, FCIA, FSA Senior Partner Managing Partner Aon Hewitt 225 King Street West, Suite 1600 Toronto, Ontario M5V 3M2 October 2017




Appendix A: Assets

Asset Data The Plan’s assets are held by CIBC Mellon. The asset information presented in this report is based on the financial statements of the pension fund prepared by CIBC Mellon and statements audited by Ernst & Young.

Tests of the sufficiency and reliability of the asset data were performed and the results were satisfactory. The tests included:

A reconciliation of actual cash flow with expected cash flow from the previous actuarial report; and

A reconciliation of any anticipated benefit payments (for retirees, terminated or deceased employees) against the financial statements of the pension fund for confirmation of payments.

Market Value of Assets The following is a summary of the composition of the Plan’s assets by asset type as reported by CIBC Mellon as at January 1, 2017. For comparison purposes, the composition at the previous valuation date of January 1, 2014 is also shown.

January 1, 2017 January 1, 2014 Cash and short term 11% 12% Fixed income 40% 34% Foreign equities 39% 17% Infrastructure 7% 3% Real estate 3% 5% Total 100% 100%

Target Asset Mix The following chart shows the long-term target asset mix under the Statement of Investment Policies and Procedures.

Target Asset Mix

Canadian equities 15% Global equities 40% Fixed income/cash 35% Real estate 5% Infrastructure 5% 100%




Reconciliation of Changes in Market Value of Assets The table below reconciles changes in the market value of assets between January 1, 2014 and January 1, 2017.

2014 2015 2016

Market Value of Assets, Beginning of Plan Year $1,194,775,607 $1,316,509,737 $1,402,751,131 Contributions During Plan Year

Required member contributions $ 26,037,174 $ 27,586,988 $ 29,217,369 University contributions 42,373,222 45,002,974 47,679,126

Total $ 68,410,396 $ 72,589,962 $ 76,896,495 Benefit Payments During Plan Year

Non-retired members1 $ 14,448,430 $ 7,026,171 $ 7,185,587 Retired members 47,012,723 50,256,977 53,808,001

Total $ 61,461,153 $ 57,283,148 $ 60,993,588 Transfers During Plan Year

Into plan $ 1,552,320 $ 1,655,420 $ 2,219,963 Out of plan 0 0 0

Total $ 1,552,320 $ 1,655,420 $ 2,219,963 Fees/Expenses

Investment fees/expenses $ 2,138,520 $ 2,768,574 $ 2,850,683 Non-investment fees/expenses 1,409,332 1,349,912 1,795,451

Total $ 3,626,142 $ 4,118,486 $ 4,646,134 Investment Income $ 116,780,419 $ 73,397,646 $ 102,784,971 Market Value of Assets, End of Plan Year (unaudited) $1,316,509,737 $1,402,751,131 $ 1,519,012,838 Adjustment to bring unaudited value equal to audited value2 (1,078,889) Market Value of Assets, December 31, 2016 (audited) $ 1,517,933,949 Rate of return, net of fees/expenses 9.4% 5.2% 7.0%

1 Includes members who have terminated employment or died 2 Calculated as $1,517,496,077 as per audited statements, plus $437,872 of in-transit benefit payments that for valuation purposes

are included in the liabilities




Development of Adjusted Market Value of Assets The adjusted market value of assets is equal to the market value of assets adjusted to reflect any contributions, benefit payments, transfers and fees/expenses in-transit as of the valuation date. The development of the adjusted market value of assets is shown below.


Market value of assets $ 1,517,933,949 $ 1,194,775,607 Contributions receivable 0 0 Benefits payable (54,016) 0 Transfers (payable)/receivable 0 0 Fees/expenses payable 0 0 Adjusted Market Value of Assets $ 1,517,879,933 $ 1,194,775,607

Development of Actuarial Value of Assets Effective at the previous valuation, the actuarial value of assets other than real return bonds, was set equal to the adjusted market value of assets. The actuarial value of the real return bonds was determined by discounting their projected cash flow using a discount rate of 3.75%, equal to the real rate of return assumption incorporated in the going concern actuarial assumptions at January 1, 2014, the previous valuation.

The real return bonds were sold in October 2014 at a market value of $216,935,034 compared to an actuarial value of $172,569,989, a gain of $44,365,045.

Effective this valuation, the actuarial value of assets is set equal to the adjusted market value of assets less a reserve equal to the gain on the sale of the real return bonds.


Adjusted market value of assets $ 1,517,879,933 $ 1,194,775,607 Market value of real return bonds 0 (205,830,390) Actuarial value of real return bonds 0 167,120,211 Reserve on sale of real return bonds (44,365,045) 0 Actuarial Value of Assets $ 1,473,514,888 $ 1,156,065,428




Appendix B: Membership Data

Source of Data This valuation was based on member data provided by the University as of January 1, 2017. Tests of the sufficiency and reliability of the member data were performed and the results were satisfactory. The tests included:

A reconciliation of membership status against the membership status at the last valuation. This test was performed to ensure that all members were accounted for. A summary of this reconciliation follows on the next page;

A reconciliation of birth, hire, and participation dates against the corresponding dates provided for the last valuation to ensure consistency of data;

A reconciliation of credited service against the corresponding amount provided for the last valuation to ensure that no member accrued more than three years of credited service from January 1, 2014. This test also revealed any members who accrued less than three years of credited service;

A reconciliation of pensionable earnings against the corresponding amounts provided for the last valuation to identify any unusual increases or decreases;

A reconciliation of accrued benefits against the corresponding amounts provided for the last valuation to identify any unusual benefit accruals;

A reconciliation of any stated benefit payments (for retired, terminated or deceased employees) against the financial statements of the pension fund for confirmation of the payments; and

A reconciliation of inactive member benefit amounts against the corresponding amounts provided for the last valuation to ensure consistency of data.

There was no information missing from the data, so no assumptions were required with respect to such data.

A copy of the administrator certification certifying the accuracy and completeness of the member data (and the Plan provisions summarized in this report) is included in Appendix G of this report.




Membership Summary The table below reconciles the number of members as of January 1, 2017 with the number of members as of January 1, 2014 and the changes due to experience in the period.

Active Disabled Suspended Retired and

Beneficiaries Deferred

Vested MMO

Deferred Total

Members, January 1, 2014 3,891 97 11 1,603 484 9 6,095 Changes due to: New entrants 1,127 - - - - - 1,127

Termination Non-vested - - - - - - - Deferred vested (148) (2) - - 150 - - Lump sum (253) (3) (3) - (104) (1) (364)

Death

No further benefits (4) (8) - (106) - - (118) Remaining guarantee - - - (1) - - (1) Surviving beneficiary - (1) - (38) (1) - (40)

New beneficiary - - - 40 - - 40 Retirement (272) (32) - 346 (38) (4) - Disability (44) 44 - - - - - Return from Disability 21 (21) - - - - - Transfer to Suspended (4) - 4 - - - - Re-Entry Into Plan 2 - (2) - - - - New Certain Only Beneficiary - - - 1 - - 1 Certain Only Payments Ceased - - - (6) - - (6) Data correction 10 - - (2) (6) - 2

Net change 435 (23) (1) 234 1 (5)

641 Members, January 1, 2017 4,326 74 10 1,837 485 4 6,736




Active Members (Including Leaves) January 1, 2017 January 1, 2014

Number 4,326 3,891 Average age 47.4 47.6 Average credited service 10.4 10.6 Average Pensionable Earnings $ 96,884 $ 89,973 Proportion female 48.3% 51.6%

Disabled Members January 1, 2017 January 1, 2014

Number 74 97 Average age 55.9 56.4 Average credited service 17.6 18.1 Average Pensionable Earnings $ 56,818 $ 55,769 Proportion female 75.7% 73.2%

Suspended Members January 1, 2017 January 1, 2014

Number 10 11 Average age 33.6 32.6 Average credited service 2.3 2.7




Retired Members and Beneficiaries January 1, 2017 January 1, 2014

Number 1,837 1,603 Average age 74.4 74.2 Average Annual Pension $ 30,029 $ 28,577 Total Annual Pension $ 55,162,643 $ 45,809,128

Deferred Vested Members—Subject to COLA January 1, 2017 January 1, 2014

Number 477 475 Average age 50.6 48.9 Average Annual Pension $ 6,701 $ 5,964 Total Annual Pension $ 3,196,322 $ 2,832,823

Deferred Vested Members—Others January 1, 2017 January 1, 2014

Number 8 9 Average age 67.6 64.5 Average Annual Pension $ 980 $ 872 Total Annual Pension $ 7,838 $ 7,850




Active/Disabled/Suspended Membership Distribution The following table provides a detailed summary of the active, disabled and suspended membership at the valuation date by years of credited service and by age group. For privacy reasons, average pensionable earnings are not shown for groups with two or less members.

Age < 5 5–10 10–15 15–20 20–25 25–30 >=30 Total

< 30 203 11 214 $56,524 $67,626 $57,031 30–35 309 115 6 430 $71,113 $71,234 $64,958 $71,250 35–40 369 137 58 8 572 $79,607 $91,922 $88,721 $87,505 $83,676 40–45 219 185 140 49 2 595 $83,696 $106,594 $111,378 $85,943 * * 45–50 180 152 166 105 21 4 628 $75,637 $91,699 $108,160 $107,686 $99,185 $72,970 $94,251 50–55 126 121 142 222 62 16 1 690 $84,059 $95,211 $97,077 $100,103 $115,102 $82,728 * * 55–60 106 102 102 110 196 68 9 693 $80,785 $98,678 $105,268 $107,848 $102,173 $116,238 $106,184 $101,176 60–65 38 64 62 75 40 146 37 462 $103,003 $94,953 $86,766 $86,959 $84,889 $109,745 $131,038 $99,912 >=65 19 15 14 14 8 17 39 126 $115,111 $100,079 $114,268 $114,507 $144,993 $143,110 $168,357 $135,317 Total Count 1,569 902 690 583 329 251 86 4,410 Average pensionable earnings $76,496 $93,516 $102,297 $100,222 * $111,456 * $92,458




Deferred Vested and Retired Membership Distribution The following table provides a detailed summary of the deferred vested and retired membership at the valuation date by age group.

Age Deferred Pensions Retired Members and

Beneficiaries

< 50 225 $ 4,785 50–55 81 $ 7,233

55–60 79 25 $ 10,307 $ 15,543

60–65 77 151 $ 8,651 $ 23,458

65–70 14 456 $ 3,764 $ 28,976

70–75 5 432 $ 976 $ 34,542

75–80 1 341 $ 85 $ 35,167 >=80 3 432 $ 1,230 $ 25,706 Total Count 485 1,837 Average annual pension $ 6,607 $ 30,029




Appendix C: Going Concern Assumptions and Methods

Assumptions and Methods A member's entitlements under a pension plan are generally funded during the period over which service is accrued by the member. The cost of each member's benefits is allocated in some fashion over the member's service. An actuarial valuation provides an assessment of the extent to which allocations relating to periods prior to a valuation date (often referred to as the actuarial liabilities) are covered by the plan's assets.

The going concern valuation provides an assessment of a pension plan on the premise that the plan continues on into the future indefinitely based on assumptions in respect of future events upon which a plan's benefits are contingent and methods that effectively determine the way in which a plan's costs will be allocated over the members' service. The true cost of a plan, however, will emerge only as experience develops, investment earnings are received, and benefit payments are made.

This appendix summarizes the going concern assumptions and methods that have been used for the going concern valuation of the Plan at the valuation date. The going concern assumptions and methods have been chosen to reflect our understanding of the Plan's funding objectives with due respect to accepted actuarial practice and regulatory constraints. For purposes of this valuation, the going concern methods and assumptions were reviewed and changes as indicated were made.




The actuarial assumptions and methods used in the current and previous valuations are summarized below and described on the following pages.

January 1, 2017 January 1, 2014 Economic Assumptions Discount rate 5.50% per year 6.00% per year Inflation rate 2.00% per year 2.25% per year Post-retirement indexation

Pre-2014 pensions Post-2013 pensions



Increases in pensionable earnings Active members Disabled members


5.00% per year for 1 year; 4.25% per year thereafter 2.25% per year

Increases in year's maximum pensionable earnings 2.75% per year 3.00% per year Increases in maximum pension limit $2,914.44 in 2017;

then 2.75% per year up to $3,200

$2,770.00 in 2014; then 3.00% per year up to $3,200

Interest on member contributions 3.00% per year Same Interest rate used to calculate 50% rule

1.30% per year for 10 years; 1.60% per year thereafter1

1.70% per year for 10 years; 2.30% per year thereafter

Expenses Discount rate is net of all expenses

Same

Demographic Assumptions Mortality rates CPM2014 combined with

mortality improvement Scale CPM-B

Same

Retirement age Age 64, but no earlier than one year after the valuation date

Same

Termination rates Table A following Same Disability rates None Same

1 1.50% per year for 10 years; 2.10% per year thereafter for 75% of CPI indexed benefits




January 1, 2017 January 1, 2014 Methods Actuarial cost method Projected unit credit

(prorated on benefit) Same

Asset valuation method Market value of assets adjusted to reflect contributions and benefit payments in-transit as of the valuation date less reserve for gain on sale of real return bonds

Non-RRB: Market value of assets adjusted to reflect contributions and benefit payments in-transit as of the valuation date. RRB: Projected cash flows discounted to valuation date at 3.75% real rate of return.




Table A—Termination Rates Sample terminations per 1,000 are shown in the following table:

Age Male and Female

20 100 25 100 30 56 35 32 40 22 45 17 50 12 55 7 60 2 65 0




Justification of Actuarial Assumptions and Methods

Margins for Adverse Deviations

Margins for conservatism or provisions for adverse deviation have been built into the going concern valuation where appropriate.

The margins have been chosen so as to balance the need for financial security for existing plan members against overly conservative contribution requirements that potentially result in intergenerational inequity among members and unnecessary financial strain on the plan sponsor.

Margins are addressed through the asset reserve being held and the University funding policy under which the University is contributing at a higher rate than the statutorily required minimum.

The going concern assumptions do not include margins for adverse deviations, except as noted above.

Economic Assumptions

Discount Rate The overall expected return (“best-estimate”) of 5.60% was developed based on an inflation rate of 2.00% per year, using best-estimate returns for each major asset class in which the pension fund is invested, using the target asset mix. A Monte Carlo simulation is performed over 30 years, where the portfolio returns are projected assuming annual rebalancing. The average 30-year geometric return is used to develop an overall best-estimate rate for the entire pension fund. Gains from rebalancing and diversification are implicit to this return. Investment expenses are based on passive management expenses. There are no additional returns assumed to be derived from active management, net of investment fees for active management.

The following table lays out the adjustments that have been made to the overall expected rate of return in order to arrive at our going concern discount rate assumption:

Development of Discount Rate

Overall expected return 5.60% Non-investment expenses (0.10)% Margin for adverse deviations (0.00)% Unrounded Discount Rate 5.50% Rounded Discount Rate 5.50%

Inflation Rate The inflation rate assumption reflects our best estimate of future inflation considering current economic and financial market conditions and reflects the midpoint of Bank of Canada target inflation.




Productivity Increases The productivity increase assumption of 0.75% reflects our best estimate of future increases considering current economic and financial market conditions, and is consistent with historical real economic growth.

Increases in Pensionable Earnings The assumption for increases in pensionable earnings reflects the assumed rate of inflation, plus allowances for the effect of productivity growth, individual employee merit and promotion.

Increases in YMPE As the benefits paid to a member from the Plan are dependent on the future YMPE, it is necessary to make an assumption regarding the future increases in the YMPE.

The assumed increase in the YMPE reflects the assumed rate of inflation plus the productivity increase assumption.

Increases in the Maximum Pension Limit Pensions are limited to the maximum limits under the Income Tax Act. The Income Tax Act specifies both a dollar limit, and in addition pensions cannot exceed 2% of indexed highest average compensation per year of credited service. The assumed increase in the dollar limit reflects the assumed rate of inflation plus the productivity increase assumption.

Interest on Member Contributions Interest is credited on member contributions with the rate credited by chartered banks on five-year personal fixed term deposits. The assumption for interest on member contributions reflects our expected increase in these rates.

Expenses Since the discount rate has been established net of all expenses, no explicit assumption is required for expenses.




Demographic Assumptions

Mortality During 2014, the CIA completed a study of Canadian pensioner mortality levels and trends. The 2014 study published mortality rates split by sector and included Public, Private and Combined tables, as well as possible pension size adjustment factors. A generational projection scale, CPM-B, was also developed to allow for improvements in mortality after 2014. The continued use of this mortality table and projection scale are considered reasonable.

Retirement A single-point retirement age of 64 has been used for all members. Pension benefits are payable on an unreduced basis at age 62. However, the nature of the workforce is such that we do not expect a significant proportion of members to commence pension payments prior to age 65. We monitor actual experience against this assumption at each valuation and consider this retirement age appropriate.

Termination of Employment The rates of termination of employment before retirement represent a best estimate of termination rates for a plan of this size and workforce characteristics of the Plan. Table A was developed by a previous actuary for the Plan. We have been using this table as our assumption since our first valuation in 2005. The resulting gains and losses have been relatively small. Therefore, we continue to find this table appropriate.

Option Elections on Termination We have assumed all members will elect a deferred annuity on termination.

Disability If an active Plan member becomes disabled, credited service continues to accrue until normal retirement date, but employee contributions are waived. Since this benefit is substantially the same as the benefit that accrues to an active member, no disability assumption has been used. Use of an actual disability assumption in this case would reduce liabilities slightly, so a nil disability incidence assumption represents a small element of conservatism. The disability assumption has very little impact on the valuation results.

Proportion of Members with Spouses and Spousal Age Differential

There is no percent married assumption or age difference assumption required since the Plan does not offer a subsidized joint and survivor pension at retirement, nor any specific preretirement death benefit for a spouse that is not offered to any other beneficiary.




Other

Actuarial Cost Method An actuarial cost method is a technique used to allocate in a systematic and consistent manner the expected cost of a pension plan over the years of service during which Plan members earn benefits under the Plan. By funding the cost of a pension plan in an orderly and rational manner, the security of benefits provided under the terms of the Plan in respect of service that has already been rendered is significantly enhanced.

The projected unit credit prorated on benefit actuarial cost method has been used for this valuation. Under this method, the actuarial present value of benefits in respect of service prior to the valuation date, but based on pensionable earnings projected to retirement, is compared with the actuarial asset value, revealing either a surplus or an unfunded actuarial liability.

With respect to service after the valuation date, the expected value of benefits for service in the year following the valuation date (i.e., the normal cost) net of any required employee contributions is expressed as a percentage of the expected value of participating payroll for that year. The employer normal cost contributions are determined each year by applying this percentage to the actual participating payroll for the year.

When calculating the actuarial present value of benefits at the valuation date, the present value of all retirement, withdrawal and preretirement death benefits are included. For each member, the retirement, withdrawal and preretirement death benefits for a particular period of service are first projected each year into the future taking into account future vesting, early retirement entitlements and minimum pension/value entitlements. These projected benefits for each future year are then capitalized, multiplied by the probability of the member leaving the Plan in that year and discounted with interest and survivorship to the valuation date. The actuarial present value of benefits for the particular period of service is then determined by summing the present values of these projected benefits.

The pattern of future contributions necessary to pre fund future benefit accruals for any one particular individual will increase gradually as a percentage of their pensionable earnings as the individual approaches retirement. For a stable population (i.e., one where the demographics of the group remain constant from year to year), the normal cost will remain relatively level as a percentage of payroll. The projected unit credit prorated on benefit actuarial cost method therefore allocates contributions among different periods in an orderly and rational manner for a stable population group.

In the event of future adverse experience, contributions in addition to the normal cost calculated under the projected unit credit actuarial cost method may be required to ensure that the Plan’s assets are adequate to provide the benefits. Conversely, favourable experience may generate surplus which may serve to reduce future contribution requirements.

Asset Valuation Method The asset valuation method for this valuation is market value of assets less the gain from the sale of real return bonds. All other gains and losses have been fully recognized.

The deferral of the gain from the sale of real return bonds recognizes these assets have not yet been fully deployed into other asset classes. Once these assets are fully deployed and the actual asset mix is closer to target this deferred gain will be recognized.




Appendix D: Solvency and Hypothetical Wind Up Assumptions and Methods

Valuation Assumptions January 1, 2017 January 1, 2014

Economic Assumptions Discount Rates—Solvency

Transfer value basis



Annuity purchase basis 3.12% per year 3.83% per year Duration used to determine annuity purchase basis

11.24 10.00

Blended rate used to determine solvency special payments


Discount Rates—Hypothetical Wind-Up Transfer value basis 100% CPI Indexed 75% CPI Indexed

1.30%per year for 10 years; 1.60% per year thereafter 1.50% per year for 10 years; 2.10% per year thereafter

1.70% per year for 10 years; 2.30% per year thereafter N/A

Annuity purchase basis 100% CPI Indexed 75% CPI Indexed

-0.09% per year 0.71% per year

0.15% per year N/A

Demographic Assumptions Mortality table

CPM2014 combined with mortality improvement Scale CPM-B

1994 Uninsured Pensioner Mortality Table With generational mortality improvements using Scale AA

Retirement age Age between 55 and 65 that produces highest value

Same

Termination Immediate Same




January 1, 2017 January 1, 2014 Other Wind up expenses $500,000 Same Actuarial cost method Unit credit Same Asset valuation method Market value of assets adjusted

to reflect contributions and benefit payments in-transit as of the valuation date

Same

Incremental Cost The assumptions for the expected benefit payments and decrement probabilities, service accruals, and projected changes in benefits and/or pensionable earnings

Same as going concern Same

Based on the CIA’s Guidance and information such as pension legislation, Plan provisions and Plan experience, we have made the following assumptions regarding how the Plan’s benefits would be settled on Plan wind up:

Percent of Liability Assumed to be Settled By

Purchase of Annuities

Percent of Liability Assumed to be Settled By

Lump-Sum Transfer Active Members

Not retirement eligible 0% 100% Retirement eligible 100% 0%

Deferred Vested Members

Not retirement eligible 100% 0% Retirement eligible 100% 0%

Retired Members and Beneficiaries 100% 0%

Postulated Scenario

The postulated scenario is the assumption of immediate termination of employment for the active group at the valuation date. Therefore, no allowance for future salary increases or demographic experience are reflected.




Benefits Valued Solvency Valuation Hypothetical Wind Up Valuation

Vesting We have treated all accrued benefits as

vested on Plan wind up. We have treated all accrued benefits as vested on Plan wind up.

Consent Benefits None. None. Grow-in Benefits Active members with 55 age-plus-

continuous service points as of the valuation date are assumed to grow into the enhanced early retirement reductions of the Plan.

Active members with 55 age-plus-continuous service points as of the valuation date are assumed to grow into the enhanced early retirement reductions of the Plan.

Exclusions In accordance with the Pension Benefits Act (Ontario), the solvency liability excludes the value of future escalated adjustments (future indexation) for both the preretirement and postretirement period.

The hypothetical wind up liability includes the value of future escalated adjustments (future indexation) for both the preretirement and postretirement period as provided for in the Plan.

Post-valuation Date Benefit Increases

Not applicable Not applicable

Indexing Excluded Included




Justification for Valuation Assumptions Non-indexed rates

Lump-sum discount rate for 10 years = V1225421 + 90 bps = 1.44% + 0.90% = 2.34% (rounded to 2.30%) per year

Lump-sum discount rate thereafter = V1225441 + 0.5 x (V1225441 – V1225421) + 90 bps = 2.35% + 0.5 x (2.35% – 1.44%) + 0.90% = 3.71% (rounded to 3.70%) per year

Annuity purchase discount rate = V39062 + Duration Adjustment2 = 2.21% + 0.91% = 3.12% per year

Indexed rates

Theoretical Yield on 7-year RRGCB (r7) = V1225531 x (V1225421 / V1225441) = 0.58% + (1.44% / 2.35%) = 0.36% per year

Lump-sum discount rate for 10 years = r7 + 90 bps = 0.36% + 0.90% = 1.26% (rounded to 1.30%) per year

Lump-sum discount rate thereafter = V1225531 + 0.5 x (V1225531 – r7) + 90 bps = 0.58% + 0.5 x (0.58% – 0.36%) + 0.90% = 1.59% (rounded to 1.60%) per year

Annuity purchase discount rate = V39057 – 60 bps = 0.51% – 0.60% = -0.09% per year

We have set the aforementioned assumptions based on guidance prepared by the CIA Committee on Pension Plan Financial Reporting (“PPFRC”) in the Educational Note Assumptions for Hypothetical Wind Up and Solvency Valuations with Effective Dates Between December 31, 2016 and December 30, 2017 (“CIA Guidance”) released on March 1, 2017

For benefit entitlements that are expected to be settled by lump-sum transfer, we based the assumptions on Section 3500 (Pension Commuted Values) of the CIA Standards of Practice, using rates corresponding to a valuation date of January 1, 2017.

For benefit entitlements that are expected to be settled by purchase of annuities, we based the assumptions on information compiled by the PPFRC from insurance companies active in the group annuity market as described in the educational note.

1 CANSIM Series (annualized) 2 The duration of the annuity purchase portion of the liabilities is estimated to be 11.24




Mortality Table The derivation of the discount rate above is in conjunction with CPM2014 Combined Table with mortality improvement Scale CPM-B in accordance with the CIA Guidance.

Preretirement Mortality We have made no allowance for preretirement mortality. The impact of including such an assumption would not have a material impact on the valuation, since the value of the death benefit is approximately equal to the value of the accrued pension.

Assumptions Not Needed The following are not relevant to the solvency or hypothetical wind up valuation:

Increases in pensionable earnings;

Termination of employment rates;

Increases in the YMPE; and

Increases in Income Tax Act maximum pension limit

Estimated Wind Up Expenses

Plan wind up expenses would normally include such items as fees related to preparation of the actuarial wind up report, fees imposed by a pension supervisory authority, legal fees, administration, custodial and investment management expenses. We have assumed these fees would be $500,000. We have not made an allowance for expenses related to surplus or deficit resolution. We have assumed that the University will still be solvent on the wind up of the Plan.

Calculation of Special Solvency Payments We used a discount rate of 2.90% per year to calculate the special payments necessary to liquidate the solvency deficiency. This rate is a weighted average of the solvency discount rates based on the relative proportions of benefit entitlements that are expected to be settled by purchase of annuities and lump-sum transfer.

Unisex Assumption The liabilities are valued on a sex-distinct basis. The determination of the unisex percentage used in the payment of commuted values to members eligible for portability is based on the proportion of active and deferred vested liabilities for males and females. As such, the determination of commuted value liabilities on a sex-distinct basis in the solvency/hypothetical wind-up valuation is appropriate.

Actuarial Cost Methods Unit credit (accrued benefit) cost method as prescribed.

Asset Valuation Method Considerations Assets for solvency purposes have been determined using market value.




Incremental Cost

The incremental cost represents the present value, at the calculation date (time 0), of the expected aggregate change in the liabilities between time 0 and the next calculation date (time t), adjusted upwards for expected benefit payments between time 0 and time t.

An educational note was published in December 2010 by the CIA Committee on PPFRC to provide guidance for actuaries on the calculation of this new information.

The calculation methodology can be summarized as follows:

The present value at time 0 of expected benefit payments between time 0 and time t, discounted to time 0,

plus

Projected liabilities at time t, discounted to time 0, allowing for, if applicable to the pension plan being valued:

– expected decrements and related changes in membership status between time 0 and time t,

– accrual of service to time t,

– expected changes in benefits to time t,

– a projection of pensionable earnings to time t,

minus

The liabilities at time 0.

The projection calculations take into account the following assumptions and additional considerations:

The assumptions for the expected benefit payments and decrement probabilities, service accruals, and projected changes in benefits and/or pensionable earnings would be consistent with the assumptions used in the pension plan’s going concern valuation.

The assumptions used to calculate the projected liability at time t are consistent with the assumptions for the liabilities at time 0, assuming that interest rates remain at the levels applicable at time 0, that the select period is reset at time t for interest rate assumptions that are select and ultimate and that the Standards of Practice for the calculation of commuted values and the guidance for estimated annuity purchase costs in effect at time 0 remain in effect at time t.

– Active and inactive Plan members as of time 0 are considered in calculating the incremental cost.




Appendix E: Summary of Plan Provisions This funding valuation was based on Plan design information provided by the University as of January 1, 2017. The following is a summary of the main provisions of the Plan.

Plan Provisions Effective Date January 1, 2011 (last restatement of the Plan document). Jurisdiction of Registration Ontario Eligibility for Membership Faculty and Staff Employees are eligible to join the Plan on the

first day of any month coincident with or next following the date of employment with the University. An eligible Employee must join the Plan no later than the first day of the calendar year coincident with or next following attainment of age 35, or their appointment (if already age 35). Faculty Employees employed as lecturers may elect not to join the Plan. However, a lecturer who has attained age 35 must join the Plan on the first day of the month coincident with or next following the earlier of promotion to a higher rank or completion of five years of service with the University. Any Employee who has either earned at least 35% of the Year’s Maximum Pensionable Earnings (YMPE) under the Canada Pension Plan or worked at least 700 hours in each of the two immediately preceding calendar years, shall be eligible to join the Plan on the first day of any month coincident with or next following the date on which such conditions are satisfied.

Normal Retirement Eligibility First day of the month coincident with or next following

attainment of age 65. Benefit Effective May 1, 1998 on retirement, a member receives an

annual pension equal to the sum of the following: 1.4% of Final Average Earnings up to the Average Year’s Maximum Pensionable Earnings, plus, 2.0% of Final Average Earnings in excess of the Average Year’s Maximum Pensionable Earnings

for each year and completed month of Credited Service under the Plan.




The Final Average Earnings is determined based on 36 consecutive months of earnings for retirements on or before January 1, 2014. The averaging period is increased by one month for each month in 2014 and 2015 so that the averaging period is 60 consecutive months for all retirements after December 31, 2015. The Average Year’s Maximum Pensionable Earnings is determined over a five-year period. On retirement prior to May 1, 1998, a member received an annual pension equal to the sum of the following: 1.3% of Final Three-Year Average Earnings up to the Average Year’s Maximum Pensionable Earnings, plus, 2.0% of Final Three-Year Average Earnings in excess of the Average Year’s Maximum Pensionable Earnings. for each year and completed month of Credited Service under the Plan. The Average Year’s Maximum Pensionable Earnings was determined over a three-year period. Maximum Pension The annual benefit payable in the Normal Form under the Plan for a member determined at the time of pension commencement cannot exceed the lesser of: the lesser of (a) and (b): (a) the defined benefit limit for the year as defined in the

Income Tax Act; and

(b) $3,200.00 times the Member’s Credited Service; and 2.0% of the Member’s highest indexed compensation times

Credited Service.

For service prior to January 1, 1992, a member’s Credited Service shall not exceed 35 years. Regulation 8504(6) imposes a lower maximum benefit limit in respect of any pre-1990 service that is granted after June 8, 1990 (e.g., buy-back or granting of years of pre-1990 service that was not previously counted as Credited Service).




Early Retirement Eligibility Within ten years of normal retirement date and retire from

active service. Benefit For Members who retired on an early retirement date prior to

May 1, 2000, the pension payable on early retirement is reduced by ⅓ of 1% for each of the first 60 complete months by which early retirement precedes the normal retirement date plus ½ of 1% for each additional complete month. For Members who retire on an early retirement date on or after May 1, 2000, the pension payable on early retirement is reduced by 1/2 of 1% for each complete month by which early retirement date precedes the first day of the month coincident with or next following age 62. In any event, the reduced pension cannot be less than the actuarial equivalent of the Member’s accrued pension.

Postponed Retirement Eligibility Any age after normal retirement date; pension commencement

under the Plan may not be postponed beyond the end of the calendar year in which the Member attains age 71.

Benefit The Member continues to make required contributions, his or

her service continues to accrue and the Member will receive a pension on his or her postponed retirement date based on Credited Service, Final Average Earnings and Average Year’s Maximum Pensionable Earnings at that date, subject to the paragraphs below. A Member who is a Faculty Employee employed by the University since prior to January 1, 1969 is permitted, if he or she elects on or before normal retirement date to postpone retirement by no more than three years following the first of the month coincident with or next following the end of the contract year during which he or she attains age 65, to elect on or before normal retirement date to cease making any further contributions to the Plan. Such Member shall receive a pension equal to the actuarial equivalent of the pension they would have received at normal retirement date. A Member who is a non-union Staff Employee employed by the University since prior to January 1, 1969 is permitted, if he or she elects on or before normal retirement date to postpone retirement by no more than three years following the first of the month coincident with or next following the normal retirement date, to elect on or before normal retirement date to cease




making any further contributions to the Plan. Such Member shall receive a pension equal to the actuarial equivalent of the pension they would have received at normal retirement date.

Termination Benefits Eligibility Immediate (prior to early retirement date) Benefit A Member whose service terminates is entitled to a locked-in

fully vested deferred pension commencing at his normal retirement date. The early retirement reduction applicable if the former Member commences receipt of the pension prior to normal retirement date, on or after early retirement date, is equal to 1/3 of 1% for each of the first 60 complete months by which early retirement precedes the normal retirement date plus ½ of 1% for each additional complete month. A Member who terminates employment and is entitled to a locked-in vested deferred pension may request that an amount equal to the commuted value of the deferred pension entitlement be transferred to another registered pension plan, to a prescribed locked-in retirement savings arrangement or to an insurance company for the purchase of a life annuity that will not commence benefit payments prior to the Member’s early retirement date. Different provisions applied for those members who terminated employment prior to July 1, 2012

Death Benefits Eligibility Immediate Benefit On the death of a Member while in the service of the

University, a refund of the commuted value of the accrued pension, subject to the 50% minimum employer cost rule plus any additional voluntary contributions, are paid to the Member’s spouse, or if no spouse, the Member’s designated beneficiary or estate. Different pensions applied prior to July 1, 2012.

Disability Eligibility Immediate (prior to age 65) Benefit Members who are in receipt of income disability benefits under

the long-term disability insurance plan of the University cease to contribute while disabled but continue to accrue Credited Service for pension purposes. Accrued pensions for LTD Members are based on pensionable earnings, to date of disability, increased each year by a




percentage which is determined annually by the Committee. Normal Form of Payment The normal form of pension payable to a Member is a life

annuity with a ten-year guarantee period. For Members who terminated prior to May 1, 1998 and are entitled to a deferred pension under the Plan, the normal form is a life annuity with a five-year guarantee period.

Cost-of-Living Adjustments The pension of each Member receiving pension payments on

May 1 of any year shall be adjusted by the Postretirement Cost-of-Living Factor for each year, provided that the Member has received at least one regular pension payment prior to May 1. For any pension benefits accrued prior to January 1, 2014, this factor is obtained by dividing the average Consumer Price Index for the preceding calendar year by the average index for the next preceding calendar year. In the first year of retirement, the increase will be provided on a pro rata basis subject to the Income Tax Act rules. However, if this factor exceeds 105% and if the financial position of the Plan is not sufficient to provide for this increase, the factor may be reduced, within certain limits, to maintain the solvency of the Plan. For any pension benefits accrued on and after January 1, 2014 this factor is obtained by dividing the average Consumer Price Index from the preceding calendar year by the average index for next preceding calendar year, and then multiplying the result by 0.75. However, if this factor exceeds 103.75% and if the financial position of the plan is not sufficient to period for this increase, the factor may be reduced, within certain limits, to maintain the solvency of the Plan. In 2009, the date of the annual adjustment changed from July 1 to May 1, with the first such adjustment as of May 1, 2009 prorated to reflect the ten-month period since the prior adjustment. All terminated Members who are entitled to a terminated vested pension except for those who terminated between July 1, 1977 and December 31, 1986 shall have their terminated vested pensions adjusted on May 1 (July 1 prior to 2009) of each year by a cost-of-living factor to be determined annually by the Committee, subject to the Income Tax Act Rules. Notwithstanding the foregoing, if a Member terminates employment on or after January 1, 2008 and is not within ten years of his or her Normal Retirement Date, or has not completed 20 years or more of continuous employment, the Cost of Living Factor shall only apply to the terminated vested




member’s pension earned in respect of Credited Service prior to January 1, 2008. Increases in the Consumer Price Index and the corresponding postretirement cost-of-living factors for 2017 and the previous years are shown below1:

Year Increase in Prior Year

Consumer Price Index (%) Postretirement

Cost-of-Living Factor (%)

1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 20091

- -

4.50 3.30 2.90 4.80 7.70

10.90 10.80 7.50 7.99 8.91 9.15

10.16 12.49 10.76 5.83 4.35 3.96 4.17 4.37 4.04 4.97 4.76 5.64 1.49 1.84 0.19 2.17 1.56 1.63 0.97 1.74 2.68 2.56 2.23 2.77 1.88 2.17 2.04 2.20 1.94

2.50 3.00 4.50 2.00 2.30 4.80 6.40

10.90 10.80 7.50 5.00 8.91 9.15

10.16 10.00 10.76 5.83 4.35 3.96 4.17 4.37 4.04 4.97 4.76 5.64 1.49 1.84 0.19 2.17 1.56 1.63 0.97 1.74 2.68 2.56 2.23 2.77 1.88 2.17 2.04 2.20 1.94

1 Cost of living factors only shown for pre-2014 accrued benefits




2010 2011 2012 2013 2014 20152 2016 2017

0.29 1.78 2.91 1.52 0.94 1.91 1.13 1.43

0.29 1.78 2.91 1.52 0.94 1.91 1.13 1.43

Member Contributions Effective January 1, 2013, members are required to contribute

6.25% of annual earnings up to the YMPE, 8.95% of annual earnings that exceed the YMPE but are less than two times the YMPE, and 9.95% of annual earnings in excess of two times the YMPE, subject to the amount permitted under the Income Tax Act for the year. Effective May 1, 2009, Members were required to contribute 5.80% of annual Earnings up to the YMPE, 8.30% of annual Earnings that exceed the YMPE but are less than two times the YMPE, and 9.65% of annual Earnings in excess of two times the YMPE, subject to the amount permitted under the Income Tax Act for the year. Effective July 1, 2008, Members were required to contribute 5.05% of annual Earnings up to the YMPE, 7.85% of annual Earnings that exceed the YMPE but are less than two times the YMPE, and 9.20% of annual Earnings in excess of two times the YMPE, subject to the maximum amount permitted under the Income Tax Act for the year. Effective July 1, 2007, Members were required to contribute 4.80% of annual Earnings up to the YMPE, 7.175% of annual Earnings that exceeds the YMPE but are less than two times the YMPE, and 7.85% of annual Earnings in excess of two times the YMPE, subject to the maximum amount permitted under the Income Tax Act for the year. For the period January 1, 2003 to June 30, 2007, Members were required to contribute 4.55% of annual Earnings up to the YMPE and 6.50% of the excess of Earnings above the YMPE, subject to the maximum amount permitted under the Income Tax Act for the year. Prior to May 1, 1998, Members were required to contribute 4.875% of annual Earnings up to the YMPE and 6.50% of the excess of annual Earnings above the YMPE, subject to the

1 Effective May 1, 2009 the indexation date was changed from July 1 to May 1. Therefore, the indexation adjustment made in 2009

is prorated for ten months since the prior adjustment 2 Pensions earned up to December 31, 2013 are indexed annually at 100% of the postretirement cost-of-living factor; pensions

earned on and after January 1, 2014 are indexed at 75% of the postretirement cost-of-living factor




maximum amount permitted under the Income Tax Act for the year. Between May 1, 1998 and January 1, 2003, there were temporary reductions in these member contribution rates. Prior to January 1, 2012, these contributions were credited with interest each year at the four-year arithmetical average rate of return on the pension fund, excluding real return bonds, calculated at December 31st of the prior year. Effective January 1, 2012, the interest credit is the CANSIM rate.

Member Flexible Pension Plan Contributions

Prior to January 1, 2014, members are permitted to make additional flexible Pension Plan contributions on December 31st of each year up to the maximum deductible contribution permitted by the Income Tax Act. On retirement or termination of membership, a Member’s flexible Pension Plan contribution balance may be used to purchase additional ancillary benefits under the Pension Plan, up to the maximum ancillary benefits permitted by the Income Tax Act. Flexible contributions that cannot be used to purchase ancillary benefits will be forfeited by the Member.

Transfers to the Pension Fund A new Member may transfer the value of his or her benefits

earned under the registered pension plan of a previous employer into the pension fund. The terms and conditions of such transfer and the benefits that will be payable are determined in accordance with Article 12 of the Plan, as amended from time to time.

Definitions Pensionable earnings Staff Employees

Base salary, excluding overtime pay, reimbursement for expenses, special payments, shift premiums, week-end provisions, special allowances and other like payments. Faculty Employees Base salary, excluding reimbursement for expenses, administrative stipends, faculty research fellowships, seasonal stipends, summer teaching stipends, special payments, special allowances and other like payments.

Credited service Member’s years and completed months of continuous

employment with the University while a member in the Plan. For service of a member employed on a part-time basis, the period of service is multiplied by the proportion the member’s reduced work load bears to a regular full-time work load.




Appendix F: Glossary of Terms The actuarial value of assets is the asset value used for going concern valuation purposes.

Smoothing methods are sometimes used to smooth investment gains and losses over a certain period.

The estimated wind up expenses is an estimate of the administrative and other expenses expected to be charged against the pension fund if the Plan were to terminate on the valuation date.

The going concern liabilities are the actuarial present value of benefits earned in respect of service prior to the valuation date. The actuary may choose to omit indexing liabilities (i.e., “escalated adjustments”) from the going concern liabilities as per Section 11(1) of the Act. However, if escalated adjustments are omitted from the going concern liabilities, the amount of payment of an escalated adjustment that is made from the pension fund, to the extent that it has not been funded, must be included in the normal cost pursuant to Section 11(2) of the Regulation to the Act. The going concern liabilities are calculated using the going concern assumptions and methods summarized in Appendix C of this report.

The going concern position is the difference between the actuarial value of assets and the going concern liabilities. Escalated adjustments may be omitted from the determination of the surplus/(unfunded liability) pursuant to Section 11(3) of the Regulation to the Act.

The maximum deductible company contribution refers to an eligible contribution pursuant to Section 147.2(2) of the Income Tax Act. Under Subsection 8502(b) of the Regulations to the Income Tax Act, each University contribution made after January 1, 1991 in respect of a defined benefit provision of a registered pension plan must be such eligible contribution.

In a company’s fiscal year, the following contributions are eligible under Section 147.2(2) of the Income Tax Act.

– The company normal cost, eligible under Section 147.2(2) subject to certification by the actuary and approval by the Canada Revenue Agency; plus

– Special payments eligible under Section 147.2(2) up to the amount of the unfunded liability, the solvency deficiency, or the hypothetical wind up deficiency, whichever is greater, subject to certification by the actuary and approval by the Canada Revenue Agency; less

– Required application of excess surplus.

The company normal cost and special payments for this Plan will be deductible under Section 147.2(2) of the Income Tax Act, subject to the approval of the Canada Revenue Agency.

Note that contributions to a plan are still permissible and deductible if there is an excess surplus, providing there is simultaneously a solvency or hypothetical wind up deficiency in the Plan or the contributions are required as minimum contributions under provincial or federal Act legislation, pursuant to Subsections 8516(2) and (3) of the Regulations to the Income Tax Act.

One restriction under the Income Tax Act is that if there is an excess surplus, and a solvency or hypothetical wind up deficiency, the maximum deductible contribution is restricted to the full amount of the deficiency without allowance for interest or any other contributions such as company normal cost and/or transfer deficiency payments.

In order to be deductible in a given fiscal year, company contributions must be made not later than 120 days after the end of the fiscal year.




The minimum required company contribution for each plan year is equal to:

– The company normal cost; plus – Special payments toward amortizing any unfunded liability over 15 years beginning no later than

12 months from the date on which the unfunded liability was established; plus – Special payments toward amortizing any solvency deficiency over five years beginning no later

than 12 months from the date on which the solvency deficiency was established (this period of years may be longer if the University has participated in Stage Two solvency funding relief); less

– Required application of excess surplus; less – Permitted application of surplus; less – Permitted application of PYCB. In order to satisfy the requirements of the Act and its Regulations, contributions to the fund must be made in accordance with the following rules:

– Required member contributions (if any) must be remitted to the pension fund within 30 days following the month in which the contributions were received from the member or deducted from his or her remuneration.

– University normal cost contributions must be remitted to the pension fund within 30 days after the end of the month for which the contributions are payable.

– Special payments must be remitted to the pension fund in the month for which they are payable. The prior year credit balance is

– The PYCB stated in the last report in respect of the Plan under the Regulation; plus – The total amount of contributions made to the Plan by the University after the valuation date of

the last report in respect of the Plan and before the valuation date for the report being prepared; less

– The total minimum amount of contributions required to have been made after the valuation date of the last report in respect of the Plan and before the valuation date for the report being prepared, if the contributions had been calculated without reference to any PYCB.

The company may choose to set the PYCB between nil and the amount as calculated above, but may not recapture the amount forfeited at any time.

Solvency/Hypothetical wind up assets are the market value of pension fund assets adjusted to reflect contributions, benefit payments, transfers and fees/expenses in-transit at the valuation date.

The solvency asset adjustment is an adjustment that may be made to the solvency assets to reflect:

– The impact of using an averaging method that stabilizes short-term fluctuations in the market value of the Plan’s assets calculated over a period of not more than five years; plus

– The present value of any remaining special payments required to liquidate any unfunded liability (for service not previously recognized for benefit determination purposes) established after December 31, 1987; plus

– The present value of any remaining special payments other than those above that are scheduled for payment within six years after the valuation date. This period of years may be longer if the University has participated in Stage Two solvency funding relief.




The solvency liabilities are the actuarial present value of benefits earned in respect of service prior to the valuation date determined as if the Plan were wound up on the valuation date and taking into account Section 74 of the Act (i.e., grow-in). In calculating the solvency liabilities, which includes plant closure benefits or permanent layoff benefits that would be immediately payable if the Plan sponsor’s business was discontinued on the valuation date, the Act and its Regulations permit the exclusion of the following benefits:

– Any escalated adjustments; – “Excluded plant closure benefits” that the University1:elected on November 26, 1992 to exclude; – “Excluded permanent layoff benefits” that the University elected on November 26, 1992 to

exclude; | – Special allowances other than those where the member has met all age and service eligibility

requirements; – Consent benefits other than those where the member has met all eligibility requirements except

the consent of the employer, or in the case of a jointly sponsored pension plan, the consent of the employer or the administrator;

– Prospective benefit increases; – Potential early retirement window benefit values; and – Pension and ancillary benefits payable under a qualifying annuity contract. The solvency liabilities are determined using benefit entitlements on the assumption that the Plan has neither a surplus nor a deficit. The solvency liabilities are calculated using the solvency valuation assumptions summarized in Appendix D of this report.

The solvency liability adjustment is an adjustment that may be made to the solvency liabilities to reflect the impact of using a solvency valuation discount rate for discounting the liability that is the average of market discount rates calculated over the same period of time as that used in the calculation of the solvency asset adjustment.

The solvency position is the difference between the solvency assets (net of estimated wind up expenses) and the solvency liabilities.

The solvency ratio compares the solvency assets to the solvency liabilities for purposes of Subsections 14(2) and (3) of the Regulations of the Act to determine the latest effective date of the next required valuation.

The solvency surplus/(deficiency) is the solvency position, increased by the solvency asset adjustment and the solvency liability adjustment, then decreased by the PYCB.

The special payments are payments required to liquidate the unfunded liability and/or solvency deficiency:

– The going concern special payments are payments required to liquidate the unfunded liability, with interest at the going concern valuation discount rate, by equal monthly instalments over a period of 15 years beginning no later than 12 months from the valuation date of the report in which the going concern unfunded liability was determined.

– The solvency special payments are payments required to liquidate the solvency deficiency, with interest at the solvency valuation discount rate, by equal monthly instalments over a period of five years beginning no later than 12 months from the valuation date of the report in which the solvency deficiency was determined. This period of years may be longer if the University has participated in Stage Two solvency funding relief.




The surplus/(unfunded liability) is the difference between the actuarial value of assets and the sum of the going concern liabilities and the PYCB.

The total normal cost is the actuarial present value of benefits expected to be earned in respect of service for each year starting on the valuation date. Required member contributions (if any) are deducted from the total normal cost to determine the company normal cost. The total normal cost is calculated using the going concern valuation assumptions and methods summarized in Appendix C of this report.

The transfer ratio compares the solvency assets, minus the lesser of the PYCB and the required company contributions until the next required valuation (before application of the PYCB), to the solvency liabilities plus the liability of any excluded benefits (except for pension benefits and ancillary benefits payable under a qualifying annuity contract). If the transfer ratio is less than 1.00, lump-sum transfers from the pension fund under Section 42 of the Act are limited to the commuted value of the member’s pension multiplied by the transfer ratio. The administrator may transfer the entire commuted value if:

– The administrator is satisfied that an amount equal to the transfer deficiency has been remitted to the pension fund; or

– The aggregate of transfer deficiencies for all transfers made since the last valuation date does not exceed 5% of the Plan’s assets at that time.

In accordance with Policy T800-402 as related to Subsection 19 of the Regulations of the Act there are additional restrictions for payment of commuted values under certain circumstances.



Appendix G: Administrator Certification With respect to the University of Waterloo Pension Plan, forming part of the actuarial report as at January 1, 2017, I hereby certify that, to the best of my knowledge and belief:

The asset data provided or made available to the actuary is complete and accurate;

The membership data and subsequent query answers provided or made available to the actuary are complete and accurate for all persons who are entitled to benefits under the terms of the Plan in respect of service up to the date of the valuation;

The Plan provisions provided or made available to the actuary are complete and accurate;

The actuary has been notified of all relevant events subsequent to the valuation measurement date; and

The terms of engagement contained in Section 1 of this report are accurate and reflect the plan administrator's direction.

Name (print) of Authorized Signatory Title

Signature Date




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University of Waterloo Pension Plan (2011) Summary of changes to the Statement of Investment Policy and Procedures (January 1, 2017)

The SIPP has been updated to reflect changes required/suggested by the regulator (FSCO) in order to meet current regulations and/or best practices. All changes made in the SIPP were as a result of meeting these new regulations and best practices. Changes were also made to accommodate current objectives and governance at the University of Waterloo. No changes were made that result in a change of pension plan management or philosophy.

New SIPP Section Old SIPP Section Comments

Section 1.01 Section 1

Section 1.02 n/a New section – regulator best practice

Section 1.03 n/a New section – regulator requirement

Section 1.04 Section 1 Consolidation


Section 2.01 n/a New section – regulator best practice

Section 2.02 2.02 (a) from Section 4, 2.02 (b) n/a

2.02 (b) regulator best practice

Section 2.03 Section 4 Updated return expectation


Section 2.05 Section 4 Asset mix table now more encompassing


Section 3.01 n/a New section – regulator best practice. Claims compliance with legislation

Section 3.02 Section 5 Increased robustness of language/format

Section 3.03 Section 5 Increased robustness of language/format

Section 3.04 Section 5 Maximum in BBB rated securities changed from 10% to 15% to reflect increase in Index composition

Section 3.05 Section 5 Renumbering of ESG section – text unchanged

Section 3.06 n/a New section – regulator best


practice

Section 3.07 Section 8 Streamlined language

Section 3.08 n/a New section –regulator requirement



Section 4.01 Section 3 Replaced references to RPPI with more generalized “UW”

Section 4.02 Section 4 More robust language and transparency added



Section 5.01 Section 7 More robust language added







Section 6.01 Section 7 More robust language added


Appendix A Appendix A Removed reference to RPPI


To protect the confidential and proprietary information included in this material, it may not be disclosed or provided to any third parties without the approval of Aon Hewitt.

Statement of Investment Policies and Procedures

University of Waterloo Pension Plan (2011)

Registration number: 0310565

Effective January 1, 2017

APPROVED on this day of , 2017

on behalf of the University of Waterloo.

Replaces previous version which was last revised and effective on January 1, 2015.


i

Contents

Section 1— Overview 1

1.01 Purpose of Statement 1

1.02 Standard of Care 1

1.03 Objective of the Plan 1

1.04 Administration 1

1.05 Background of the Plan 1

Section 2 — Asset Mix and Diversification Policy 3

2.01 Risk/Return Considerations 3

2.02 Investment and Risk Philosophy 3

2.03 Portfolio Return Expectations 4

2.04 Expected Volatility 4

2.05 Asset Mix 4

2.06 Management Structure 5

Section 3 — Permitted and Prohibited Investments 6

3.01 General Guidelines 6

3.02 Permitted Investments 6

3.03 Minimum Quality Requirements 7

3.04 Maximum Quantity Restrictions 8

3.05 Environmental, Social and Governance (“ESG”) Factors 8

3.06 Prior Notice Required 8

3.07 Securities and Cash Lending 9

3.08 Short Selling 9

3.09 Liquidity 9

3.10 Borrowing 9

Section 4 — Monitoring and Control 10

4.01 Delegation of Responsibility 10

4.02 Performance Measurement 12

4.03 Compliance Reporting by Investment Manager 13

4.04 Audit 13

Section 5 — Administration 14

5.01 Conflicts of Interest 14

5.02 Monitoring of Asset Mix 14

5.03 Selecting Fund Managers 14

5.04 Monitoring Manager Performance 15

5.05 Dismissal of an Investment Manager 15

5.06 Voting Rights 15

5.07 Valuation of Investments Not Regularly Traded 15


ii

Section 6 — General Provisions 16

6.01 Related Party Transactions 16

6.02 Policy Review 17

Appendix A — Investment Manager Compliance Letter 18


1

Section 1— Overview

1.01 Purpose of Statement This Statement of Investment Policies and Procedures (the “Policy”) provides the framework for the investment of the assets for the University of Waterloo Pension Plan (2011), registration number 0310565 (the “Plan”). The University of Waterloo (“UW”) is the sponsor and legal administrator of the Plan.

This Policy is based on the “prudent person approach” to ensure the prudent investment and administration of the assets of the Plan. The Plan will be managed in accordance with the parameters set out in the Income Tax Act (Canada) (“ITA”) and the Pension Benefits Act (Ontario) (“PBA”), including their respective Regulations and all subsequent amendments, and any other applicable federal or provincial legislation and regulations governing the investment of pension funds, including Schedule III to the Pension Benefits Standards Regulation, 1985 (Canada) (“PBSA”).

This Policy also seeks to establish ongoing communication between UW and others engaged in the administration of the Plan. It is intended to summarize and explain the investment beliefs but does not supersede the formal plan documents or the applicable provisions of the Acts governing the Plan. In case of any dispute between this document and the formal Plan documents, the formal Plan documents shall prevail.

1.02 Standard of Care This Policy is based on the “prudent person approach” to ensure the prudent investment and administration of the assets of the Plan within the parameters set out in the PBA and the Regulations thereunder. UW shall exercise the care, diligence and skill in the administration and investment of the Plan that a person of ordinary prudence would exercise in dealing with the property of another person. Such persons must further use all knowledge and skill that they possess or ought to possess.

1.03 Objective of the Plan The objective of the Plan is to provide members of the Plan with the retirement benefits prescribed under the terms thereof.

1.04 Administration UW is the sponsor and legal administrator of the Plan and is therefore responsible for all matters relating to the administration, interpretation and application of the Plan.

1.05 Background of the Plan The Plan is a contributory defined benefit plan, based upon an individual’s final average salary and years of participation in the Plan prior to retirement.

Most pensions paid under the Plan are escalated annually by the cost-of-living factor described in the Plan. For benefits accrued prior to January 1, 2014, liabilities will grow in direct relation to the


2

increase in the Consumer Price Index (“CPI”). For benefits accrued on or after January 1, 2014, liabilities will increase by 75% of the increase in CPI. A protocol has been developed to set out the parameters under which the Pension and Benefits Committee (“P&B Committee”), which has been set up by the Board to assist with the management of the pension plan, would increase the level of indexation beyond 75%. Notwithstanding the foregoing, if the increase in CPI in a given year exceeds 5%, then the indexation paid in that year will be determined by the P&B Committee, in its discretion, taking into account the Plan’s ability to afford such an increase.

Thus, to provide pensions at a reasonable cost, it is necessary to strive for sufficient/appropriate real investment returns on the Plan assets over medium- and long-term periods. The investment philosophy, policies and procedures adopted in this document will assist in the achievement of this goal in a prudent and effective manner.

This Policy has been developed taking into account factors such as:

a) The nature of the Plan’s liabilities;

b) The allocation of such liabilities between active and retired members;

c) The funded and solvency positions of the Plan;

d) The net cash flow position of the Plan;

e) The investment horizon of the Plan;

f) Historical and expected capital market returns; and

g) The benefits of investment diversification.


3

Section 2 — Asset Mix and Diversification Policy

2.01 Risk/Return Considerations Investment objectives for the Plan have been established (a minimum return of CPI +3.5% net of expenses) with regard to the:

a) Structure and design of, and benefits provided by, the Plan;

b) Rate of return which would provide appropriate appreciation on the assets in the Plan;

c) Financial position of the Plan, as provided by actuarial valuations and projections;

d) The risk tolerance which is acceptable to UW in the Plan;

e) Demographics of the Plan membership; and

f) Special factors, if any, which UW considers significant.

2.02 Investment and Risk Philosophy UW recognizes that, based on historical data, the asset classes most likely to produce the greatest return over time are also likely to exhibit the most volatility. Conversely, the asset classes likely to be the least volatile are likely to produce the lowest returns over time. Therefore, the investment philosophies and strategies must take into account both return and risk objectives.

a) Investment Philosophy

Active equity fund managers are to apply the long-term value approach by investing in companies at prices below their underlying long-term values to protect capital from loss and earn income over time. The fund managers will attempt to identify financially-sound companies with good potential profitability which are selling at a discount to their intrinsic value. Appropriate measures of low prices may consist of: low price-earnings, high dividend yields, significant discounts to book value and low price to free cash flow. Downside protection is obtained by seeking a margin of safety in terms of sound financial position and a low price in relation to intrinsic value. Appropriate measures of financial integrity include debt/equity ratios, financial leverage, asset turnover, profit margin, return on equity, and interest coverage. It is anticipated that purchases will be made when economic and issue-specific conditions are less than ideal and sentiment is uncertain or negative. Conversely, it is expected that gains will be realized when issue-specific factors are positive and sentiment is buoyant. Assets of the Fund are administered and managed on a combined basis through specialist portfolios. Fund managers will be expected to generate a rate of return in the first quartile or better over a market cycle.

b) Risk Philosophy

In order to achieve their long-term investment goals, the Plan must invest in assets that have uncertain returns. However, UW attempts to reduce the overall level of risk by diversifying the asset classes and further diversifying within each individual asset class.


4

2.03 Portfolio Return Expectations The annualized rate of return of the Plan must exceed the annualized rate of increase in the CPI by at least 350 basis points net of the associated investment management fees over rolling ten-year period.

2.04 Expected Volatility The volatility of the assets of the Plan is directly related to its asset mix. Since the fund managers do not have authority to make any type of leveraged investment on behalf of the Plan, the volatility of the assets of the Plan should be similar to the volatility of the Benchmark Portfolio set out in section 4.02 (Performance Measurement).

2.05 Asset Mix The following benchmark portfolio is used by the Consulting Actuary to calculate the return assumptions for the Plan. At all times, the market value of the individual asset classes will be within the minimum and maximum aggregate investment limits as listed.

Assets Minimum % Maximum % Benchmark Portfolio %

Benchmark

Cash 0.0 15.0 2.0 FTSE TMX Canada 91-Day T-Bill

Fixed Income 30.0 70.0 33.0 FTSE TMX Universe Bond

Total Fixed Income

30.0 70.0 35.0

Canadian Equity 15.0 S&P/TSX Composite

Global Equity 40.0 MSCI World (CAD)

Total Equity 30.0 70.0 55.0

Infrastructure 5.0 UBS 50/50 (CAD)

Real Estate 5.0 FTSE EPRA/NAREIT Developed (CAD)

Total Alternatives 0.0 20.0 10.0

For the purpose of the total asset mix described above, the fund managers’ asset class pooled funds are deemed to be 100% invested, even though these funds may contain a portion held in cash and cash equivalent instruments.

The asset mix may deviate from the above mix, within the limits prescribed in the Policy. The monitoring of the asset mix and rebalancing guidelines are set out in Section 5.02 (Monitoring of Asset Mix). In order to ensure that the assets operate within the minimum and maximum ranges, UW shall review the asset mix on a quarterly basis. Rebalancing will be conducted as required.


5

2.06 Management Structure A diversified management structure has been adopted for the Plan consisting of several managers. This structure has been adopted as it is believed that the different investment mandates will result in increased diversification, while reducing the ‘manager risk’ effect for the Plan.

The investment management structure employs a mix of active and passive management styles. Active management has been adopted for portions of the assets as it provides the opportunity to outperform common market indices over the long-term, while controlling active risk levels. Passive management has been adopted for portions of the assets as it minimizes the risk of underperformance relative to a benchmark index and is generally less expensive than active management.


6

Section 3 — Permitted and Prohibited Investments

3.01 General Guidelines The investments of the Plan must comply with the requirements and restrictions imposed by the applicable legislation, including but not limited to the requirements of the ITA, the PBA and their respective Regulations, any other applicable federal or provincial legislation and regulations governing the investment of pension funds, including Schedule III to the PBSA and this Policy.

3.02 Permitted Investments In general, and subject to the restrictions in this section (Section 3), the investment manager may invest in any of the following asset classes and in any of the investment instruments listed.

a) Total Plan Level

i. UW shall not, directly or indirectly, lend or invest moneys of the Plan to or in any one person, any associated persons or any affiliated persons if:

˗ 10% or more of the total market value of the Plan’s assets has already been lent or invested in total to, or in, the person, the associated persons or the affiliated corporations; or

˗ 10% or more of the total market value of the Plan’s assets would be lent or invested in total to, or in, the person, the associated persons or the affiliated corporations as a result of the loan or investment.

ii. UW shall not, directly or indirectly, invest the moneys of the Plan in the securities of a corporation to which are attached more than 30% of the votes that may be cast to elect the directors of the corporation.

b) Cash and Short Term Investments

Cash on hand, demand deposits, treasury bills, short-term notes and bankers’ acceptances, commercial paper, term deposits and guaranteed investment certificates having a term of less than or equal to one year.

c) Fixed Income

Bonds, debentures, or other debt instruments of corporations, Canadian Governments, Government agencies, or guaranteed by Governments, supranationals, federal real return bonds, mortgage-backed securities, mortgages, asset-backed securities, non-convertible preferred shares, term deposits, guaranteed investment certificates, insurance contracts, private placements and bonds where capital, interest or both are linked to increases in the cost-of-living (i.e. real return bonds).

d) Equities

Common shares, preferred shares, American Depository Receipts, Foreign Depository Receipts, rights, warrants, installment receipts, index units, income trust units (including real estate investment trusts) and securities convertible into common shares.


7

e) Derivatives

The pooled funds in which the Plan invests may invest directly in derivatives to create synthetic exposures, or for hedging purposes, if their objectives and strategies permit, and if the exposure to derivatives is subject to limits based on the intended use and strategies for derivatives and the risks associated with them. Derivatives may also be used to hedge currency. Derivatives may not be used for speculative trading or to create a portfolio with leverage. Investment funds that invest in derivatives must comply with all applicable statutory provisions and regulations, including the Prudent Person Rule and must be invested and managed in accordance with regulatory derivatives best practices.

f) Pooled Funds

Investments in open-ended or closed-ended pooled funds provided that the assets of such funds are permissible investments under this Policy. While the guidelines in this Policy are intended to guide the management of the assets, it is recognized that, where pooled funds are held, there may be instances where there is a conflict between this policy and the investment policy of a pooled fund. In that case, the pooled fund policy shall dominate, subject to the compliance reporting procedures outlined in Section 4.03. However, the investment manager is expected to advise UW in the event of any material discrepancies between the above guidelines and the pooled fund’s own investment guidelines. In addition, the investment manager will ensure that UW has received a copy of the most recent version of the pooled fund policy and of any amendments made to the pooled fund policy.

3.03 Minimum Quality Requirements a) Quality Standards

Within the investment restrictions for individual portfolios, all portfolios should hold a prudently diversified exposure to the intended market.

i. The minimum quality standard for individual bonds and debentures is ‘BBB’ or equivalent as rated by at least two Recognized Bond Rating Agencies, at the time of purchase. Where an investment in the portfolio is downgraded below a ‘BBB’ rating, the following steps will be taken:

˗ The investment manager will notify UW of the downgrade by telephone at the earliest possible opportunity;

˗ Within ten business days of the downgrade, the investment manager will advise UW in writing of the course of action taken or to be taken by the investment manager, and its rationale; and

˗ Immediately upon downgrade, the investment manager will place the asset on a Watch List subject to monthly review by the investment manager with UW until such time as the security matures, is sold or until it is upgraded to a level consistent with the purchase quality standards as expressed in the guidelines mentioned above.

ii. In cases in which the Recognized Bond Agencies to do not agree on the credit rating, the bond will be classified according to the methodology used by FTSE TMX, which states:

˗ If two agencies rate a security, use the lower of the two ratings;

˗ If three agencies rate a security, use the most common; or


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˗ If all three disagree, use the middle rating.

b) Rating Agencies

For the purposes of this Policy, the following rating agencies shall be considered to be ‘Recognized Bond Rating Agencies:’

i. Dominion Bond Rating Agency;

ii. Standard and Poor’s; and

iii. Moody’s Investors Services.

3.04 Maximum Quantity Restrictions a) Total Plan Level

No one holding shall represent more than 10% of the market value of the Plan’s assets.

b) Fixed Income

i. Maximum 15% of the market value of the Canadian fixed income securities shall be invested in BBB bonds or debentures

ii. Maximum 10% of the actively managed fixed income portfolio may be invested in debt denominated US currency, including debt issued by the US Government, its agencies and instrumentalities. No other foreign currency debt will be purchased.

c) Equities

No one equity holding shall represent more than 10% of the total market value of the manager’s portfolio.

3.05 Environmental, Social and Governance (“ESG”) Factors Consistent with its obligation to act in the best interest of the Plan, UW chooses investments and fund managers that it believes will deliver superior financial performance over the longer term. In this regard, UW does not consider ESG factors in choosing fund managers with whom it invests the assets of the Plan. UW recognizes, however, that some fund managers may consider ESG factors as a way of determining which investments will have the best economic outcome, but this is not a factor considered by UW when choosing fund managers nor are the Fund Managers instructed to consider the policies and practices of the various investments relating to ESG factors. In order to protect and enhance the value of the Plan’s investments, when choosing fund managers, UW considers criteria that include the fund managers’ business, staff, historical performance, and investment process. For the purposes of this section, ESG factors refer to the environmental, social and governance factors relevant to an investment that may have a financial impact on that investment.

3.06 Prior Notice Required The fund managers shall not make investments in asset categories other than those explicitly permitted in the Policy, unless UW first consents in writing. Each fund manager’s portfolio shall also comply with all requirements and constraints in any supplementary document provided by UW.


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3.07 Securities and Cash Lending The fund managers and custodian may participate in securities lending programs for the purpose of generating revenue, subject to the provisions of the PBA, the ITA and their applicable Regulations, as applicable.

Such loans must be secured by cash and/or readily marketable government bonds, treasury bills and/or letters of credit, discount notes, banker’s acceptances of Canadian chartered banks or high quality, liquid equities. The amount of collateral taken for securities lending should reflect OSFI standards and best practices in local markets. This market value relationship must be calculated at least daily.

Fund managers and custodian participating in securities lending will make available the terms and conditions of any securities lending program(s) with UW.

3.08 Short Selling Short selling and/or pair trading are not permitted.

3.09 Liquidity Investments should be liquid enough so that they can be sold in a reasonable period of time. The investments should be valued at least monthly and selected to ensure sufficient liquidity to meet transaction needs.

3.10 Borrowing The Plan shall not borrow money, except to cover short-term contingency and the borrowing is for a period that does not exceed ninety days, subject to the PBA, the ITA and the written permission of UW.


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Section 4 — Monitoring and Control

4.01 Delegation of Responsibility The Board of Governors of the University of Waterloo (the “Board”) has established a Finance and Investment Committee (“F&I Committee”) to assist in the determination of UW’s overall investment philosophy, policies, objectives and strategies, and a P&B Committee to assist in the management of the pension fund. UW assists in carrying out the responsibilities listed below.

a) UW will:

i. review this document annually;

ii. review pension fund performance on at least a semi-annual basis;

iii. review Fund Manager performance on at least a semi-annual basis; and

iv. report to P&B Committee.

b) UW will make recommendations to P&B Committee and F&I Committee on:

i. the content of this document;

ii. the selection of Fund Managers; and

iii. the purchase of specific investments.

c) Working with the F&I Committee with respect to investment philosophy, policies, objectives and strategies and taking into consideration the recommendations of UW, the P&B Committee will make recommendations to the Board in the following areas:

i. the content of this document after its annual review;

ii. the selection of a Consulting Actuary;

iii. the selection of Fund Managers; and

iv. the selection of a Custodian/Trustee to hold the pension fund assets.

d) In addition, the P&B Committee will:

i. review this document annually, taking into consideration any recommended changes from UW and F&I Committee;

ii. consider reports from UW on pension fund performance on at least a semi-annual basis;

iii. consider reports from UW on Fund Manager performance on at least a semi-annual basis;

iv. provide cash flow information to the Fund Managers, if necessary;

v. be responsible for the delegation of any responsibilities not specifically mentioned;

vi. report to Plan members on at least an annual basis; and

vii. review and approve the purchase of specific investments.

e) The Fund Managers will:

i. forward to UW quarterly reviews of investment performance, expectations of future returns on various asset classes and proposed investment strategies for the following 12 to 24 months;


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ii. upon direction of the P&B Committee, invest in passive asset classes such as indexed bond funds, indexed equity funds, real-return bonds, etc.;

iii. manage asset mix and select securities within each asset class, subject to applicable legislation and the philosophy and other constraints set out in this document;

iv. advise the P&B Committee immediately of any changes in its senior investment personnel and/or significant changes in the size or mix of assets managed;

v. comply with all relevant laws concerning the investment of the pension fund; and

vi. complete and deliver a compliance report (see page 10) to the P&B Committee and the Fund’s Consulting Actuary each quarter. The compliance report will indicate whether or not the Fund Manager was in compliance with this Statement during the quarter. In the event that the Fund Manager is not in compliance with this Statement, the Fund Manager is required to advise the P&B Committee immediately, detail the nature of the non-compliance and recommend the appropriate course of action to remedy the situation.

vii. comply, at all times and in all respects, with the Code of Ethics and Standards of Professional Conduct as promulgated by the CFA Institute.

viii. manage the assets with the care, diligence and skill that an investment manager of ordinary prudence would use in dealing with pension plan assets.

ix. use all relevant knowledge and skill that they possess or ought to possess as a prudent investment manager.

f) The Consulting Actuary (or his/her delegate approved by P&B Committee and UW) will:

i. assist in the preparation and subsequent annual reviews of this document;

ii. participate in all reviews of the Fund Managers and the Plan;

iii. report, at least semi-annually, on the performance of the Fund Managers and the Plan;

iv. comment on any changes in the Plan’s benefits, membership or contribution flow which may affect how the Plan’s assets are invested;

v. comment on the impact of potential investment opportunities/strategies/legislative changes which may affect how the Plan’s assets are invested;

vi. assist in the implementation of this Statement;

vii. monitor the performance of the Plan and the Fund Managers on a regular basis, and contact the chair of the P&B Committee immediately if there are adverse changes of any kind, which warrant further review and/or investigation;

viii. support UW and the P&B Committee on matters related to investment management and administration of the Plan; and

ix. meet with UW and the P&B Committee as required.

g) The Custodian/Trustee will:

i. fulfill the regular duties required by law of a Custodian/Trustee and perform the specific duties required of the Custodian/Trustee pursuant to agreements entered into from time to time with UW; and


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ii. provide UW with monthly portfolio printouts of all assets of the Plan and transactions during the period.

4.02 Performance Measurement For purposes of evaluating the performance of the Plan and the fund managers, all rates of returns are measured over rolling four-year periods. Return objectives are net of fees and include realized and unrealized capital gains or losses plus income from all sources.

(a) Total Fund

Investment weightings and results for the Plan are to be tested regularly against a long-term Benchmark Portfolio comprising:

Benchmark %

FTSE TMX Canada 91-Day T-Bill 2.0

FTSE TMX Universe Bond 33.0

S&P/TSX Composite 15.0

MSCI World (CAD) 40.0

UBS 50/50 (CAD) 5.0

FTSE EPRA/NAREIT Developed (CAD) 5.0

(b) Investment Manager Mandates

Fund managers are subject to the following objectives on a gross of fees basis and over rolling four year periods:

Investment Manager and Mandate Objective

TDAM Universe Bond Index Tracking error within +/- 6 basis points of index return

TDAM Short Term Corporate Bond Index + 50 basis points

TDAM Emerald US Equity Index Tracking error within +/- 8 basis points of index return

TDAM Emerald International Equity Index Tracking error within +/- 20 basis points of index return

Sionna Canadian Equity Index + 100 basis points

Oldfield Global Equity Index + 200 basis points

Trilogy Global Equity Index + 200 basis points

Walter Scott Global Equity Index + 200 basis points

(c) Qualitative Monitoring

In addition to performance criteria, the following qualitative factors will also be monitored and evaluated:

i. Stability of the investment firm (personnel, assets under administration, operational capabilities, etc.);

ii. Investment objective and portfolio composition;


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iii. Changes in the investment philosophy used in the investment fund;

iv. Consistency of style or approach; and

v. Adherence to investment policy statement.

4.03 Compliance Reporting by Investment Manager The investment manager is required to complete and deliver a compliance report to UW and the Plan’s investment consultant each quarter. The compliance report will indicate whether or not the investment manager was in compliance with this Policy during the quarter.

In the event that an investment manager is not in compliance with this Policy, the investment manager is required to advise UW immediately, detail the nature of the non-compliance and recommend an appropriate course of action to remedy the situation.

The Plan invests in pooled funds with separate investment policies. Should a conflict arise between those investment policies and this Policy, the investment manager’s pooled fund policy shall dominate. However, the investment manager is required to advise UW immediately, detail the nature of the conflict and recommend an appropriate course of action to remedy the situation.

4.04 Audit At such time as an audit is required by the regulatory authorities, the Plan shall be audited annually as at the fiscal year of the Plan, by external auditors appointed by UW.


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Section 5 — Administration

5.01 Conflicts of Interest a) Responsibilities

This standard, which is consistent with UW Policy 69 (Conflict of Interest) applies to UW and the members of UW, as well as to all agents employed by them, in the execution of their responsibilities under the PBA (the “Affected Persons”).

An “agent” is defined to mean a company, organization, association or individual, as well as its employees who are retained by UW to provide specific services with respect to the investment, administration and management of the assets of the Plan.

b) Disclosure

In the execution of their duties, the Affected Persons shall disclose any material conflict of interest relating to them, or any material ownership of securities, which could impair their ability to render unbiased advice, or to make unbiased decisions, affecting the administration of the Plan assets.

Further, it is expected that no Affected Person shall make any personal financial gain (direct or indirect) because of his or her fiduciary position. However, normal and reasonable fees and expenses incurred in the discharge of their responsibilities are permitted if documented and approved by UW

No Affected Person shall accept a gift or gratuity or other personal favour, other than one of nominal value, from a person with whom they deal with in the course of performance of his or her duties and responsibilities for the Plan.

It is incumbent on any Affected Person who believes that he or she may have a conflict of interest, or who is aware of any conflict of interest, to disclose full details of the situation to the attention of UW immediately. UW, in turn, will decide what action is appropriate under the circumstances but, at a minimum, will table the matter at the next regular meeting of the P&B Committee.

No Affected Person who has or is required to make a disclosure as contemplated in this Policy shall participate in any discussion, decision or vote relating to any proposed investment or transaction in respect of which he or she has made or is required to make disclosure.

5.02 Monitoring of Asset Mix In order to ensure that the assets of the Plan operate within the minimum and maximum ranges, as prescribed in the Policy in Section 2.05 (Asset Mix), UW shall review the asset mix at least quarterly. Rebalancing will be conducted as required.

5.03 Selecting Fund Managers In the event that a new investment manager must be selected or additional investment manager(s) added, UW will undertake an investment manager search. The criteria used for selecting an Investment Manager will be consistent with the investment and risk philosophy set out in Section 2.02 (Investment and Risk Philosophy).


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5.04 Monitoring Manager Performance At least quarterly, the P&B Committee and UW will monitor and review:

a) Each investment manager’s staff turnover, consistency of style and record of service;

b) Each investment manager’s current economic outlook and investment strategies;

c) Each investment manager’s compliance with this Policy; and

d) Investment performance of the assets of the Plan in relation to the rate of return expectations outlined in this Policy.

5.05 Dismissal of an Investment Manager Reasons for considering the termination of the services of an investment manager include, but are not limited to, the following factors:

a) Performance results which are below the stated performance benchmarks;

b) Changes in the overall structure of the Plan’s assets such that the investment manager’s services are no longer required;

c) Change in personnel, firm structure or investment philosophy which might adversely affect the potential return and/or risk level of the portfolio; and/or

d) Failure to adhere to this Policy.

The failure to achieve the goals stated in Section 4.02 (Performance Measurement) over a period of four consecutive years will require a reassessment of such goals and/or the appointment of an alternative investment manager.

5.06 Voting Rights The voting rights acquired through the investments held by the Plan are delegated to the fund managers of the securities. Fund managers are expected to exercise all voting rights related to investments held by the Plan in the interests of the Plan’s members.

5.07 Valuation of Investments Not Regularly Traded The following principles will apply for the valuation of investments that are not traded regularly:

a) Equities

Average of bid-and-ask prices from two major investment dealers, at least once every month.

b) Fixed Income

Same as for equities.


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Section 6 — General Provisions

6.01 Related Party Transactions UW, on behalf of the Plan, may not enter into a transaction with a related party unless:

a) The transaction is made for the operation or administration of the Plan under terms and conditions that are not less favourable to the Plan than market terms and conditions and such transaction does not involve the making of loans to, or investments in, the related party; or

b) The combined value of all transactions with the same related party is nominal or the transaction(s) is immaterial to the Plan.

For the purposes of this section, only the market value of the combined assets of the Plan shall be used as the criteria to determine whether a transaction is nominal or immaterial to the Plan. Transactions less than 0.5% of the combined market value of the assets of the Plan are considered nominal.

In addition, the prohibition to entering into transactions with a related party does not apply to investments:

a) In an investment fund in which investors other than the Administrator and its affiliates may invest and that complies with the requirements set out in Sections 9 and 11 of Schedule III to the PBSA;

b) In an unallocated general fund of a person authorized to carry on a life insurance business in Canada;

c) In securities issued or fully guaranteed by the Government of Canada, the government of a province, or an agency of either one of them;

d) In a fund composed of mortgage-backed securities that are fully guaranteed by the Government of Canada, the government of a province, or an agency of either one of them;

e) In a fund that replicates the composition of a widely recognized index of a broad class of securities traded at a marketplace (as that term is defined in the PBSA); and

f) That involve the purchase of a contract or agreement in respect of which the return is based on performance of a widely recognized index of a broad class of securities traded at a marketplace (as that term is defined in the PBSA).

A “related party” in respect of the Plan means:

a) A person who is the administrator of the Plan including any officer, director or employee of the administrator. It also includes the Managers and their employees, a union representing employees of the employer, a member of the Plan, a spouse or child of the persons named previously, or a corporation that is directly or indirectly controlled by the persons named previously, among others. Related party does not include government or a government agency, or a bank, trust company or other financial institution that holds the assets of the Plan, where that person is not the administrator of the Plan;

b) An officer, director or employee of one of the administrators of the Plan;

c) A person responsible for holding or investing the assets of the Plan, or any officer, director or employee thereof;

d) An association or union representing employees of UW, or an officer or employee thereof;


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e) A member of the Plan;

f) The spouse or child of any person referred to in any of paragraphs (a) to (e);

g) An affiliate of UW;

h) A corporation that is directly or indirectly controlled by a person referred to in any of paragraphs (a) to (g); and/or

i) An entity in which a person referred to in paragraph (a) or (b), or the spouse or a child of such a person, has a substantial investment.

6.02 Policy Review The P&B Committee shall review and either confirm or amend this Policy at least annually. The P&B Committee will also provide any amended copy of this Policy to the investment manager and the Plan’s actuary.


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Appendix A — Investment Manager Compliance Letter

To be completed by fund managers immediately prior to each quarterly review.

UNIVERSITY OF WATERLOO _______________, 201_

This is to certify that I/we have adhered to the guidelines contained in the January 2017 version of the “Statement of Investment Policies and Procedures” for the University of Waterloo Pension Plan (2011), approved by the Board of Governors of the University of Waterloo.

Signed _________________________ On behalf of _____________________ Date ___________________________


Documents

PENSION & BENEFITS COMMITTEE Friday 6 October 2017 9:30 a ... · 10/6/2017 · community regarding pension and benefits plans. Task Frequency (Target month) 7 Oct 2016 11 Nov 2016