April 8 2020 Coffee Conversation VIII Pension Introduction

April 8, 2020 Coffee & Conversation VIII Pension

Introduction & Purpose Coffee & Conversation VIII Gautam Das LUFA President April 8, 2020 2

LUFA Member Engagement - Pensions Coffee & Conversation VIII Ken Hartviksen LUFA Chief Negotiator April 8, 2020 3

Themed Conversations TSX Composite – YTD - 2020 Coffee & Conversation VIII 4

To the end of February 2020 YTD return = -4. 35% https: //www. lakeheadu. ca/faculty-and-staff/departments/services/finance/pension/pp-returns 5

Pension – Related Issues Raised in Past Sessions Coffee & Conversation VIII § Impact of Bill C 124 § Exceptions to Bill C 124 ü Salary offsets to support conversion from SEPP to JSPP ü Faculty renewal 6

Bill C 124 – Protecting A Sustainable Public Sector for Future Generations Act, 2019 Legislative Update Coffee & Conversation VIII ￮ Royal Assent - November 7, 2019 ￮ Retroactive to June 5, 2019 (day Bill was introduced) ￮ Legal Challenge – Ontario Federation of Labour + OCUFA ￮ Arbitration Awards to date – consistent with the ACT 7

Bill C 124 – Protecting A Sustainable Public Sector for Future Generations Act, 2019 3 Year Period of ‘Salary Increase Moderation’ Maximum Negotiated ‘Salary’ Increases 1% - 1%

Exceptions For Voluntary Exit Bill C 124 – Protecting A Sustainable Public Sector for Future Generations Act, 2019 VOLUNTARY EXIT PROGRAMS Approved by Management Board of Cabinet ‘FACULTY RENEWAL’

Exceptions For Salary Offset Bill C 124 – Protecting A Sustainable Public Sector for Future Generations Act, 2019 ‘Salary Increases to Offset cost of Pension Contribution Increases for Members’ Section 80. 4 or 81. 0. 1 of the Pension Benefits Act

Issues - Current Pension q q q q Contribution Rates Normal Form Pension Factor Mortality Tables Lack of indexing for inflation Inequities within and between groups Need for negotiated improvements Uncompetitive + FSCO/FSRA challenge by retirees 11

Contribution Rates No change in LUFA member rates since 1990 12

Contribution Rates No change in gross contribution rates by employer since 2005 13

Ontario University Pension Contribution Rates Lakehead University has the lowest Pension Contribution Rates in the Province (net of CPP) 14

Decoupling CPP from Employer Pension Contributions

Employer’s Rate of Contribution Net rate of contribution by employer < employee (6. 5%)

Decoupling CPP Impact on net employer contributions Decoupling has greatest impact on lower income members

Bill C 124 Limitations CONCLUSION BILL C 124 WILL NOT ALLOW DECOUPLING OF CPP FOR EMPLOYER CONTRIBUTIONS OVER A 3 YEAR CONTRACT Salary increase in excess of 1%

Normal Form Pension Factor 19

Normal Form Pension Factor What is the Problem? ￮ ￮ ￮ 10 year Government of Canada Bond Yields have been ‘artificially’ moved lower through Central Bank Quantitative easing Results in a compromised ‘benchmark’ rate used to price retirement annuities at Lakehead Produces a non-competitive ‘starting’ monthly retirement annuity if LUFA members wish to take a pension from the University Pension Plan Result? ￮ The Pension Plan has become a ‘de-facto’ savings account…not a true pension plan 20

Lakehead Professional Pension Plan Normal Form Pension Factor ￮ Driven by falling 10 -year Government Bonds Yields ￮ 1. 75% base rate – March 2020 – an all time low 21

Pensions L. U. Normal Form Pension Factor ￮ ‘All-time low’ of 1. 75% reached in March 2020 ￮ It now takes 3 times the amount of capital to produce $1. 00 in retirement compared to 2002 (when the base rate was at 6%) To produce $50, 000 in Annual Retirement Income: TODAY - $2, 500, 000 versus 2002 and years prior - $830, 000 3 TIMES MORE CAPITAL IS REQUIRED IN 2020! 22

‘Fixes’ - Current Pension ü Decouple Employer Contributions – CPP ü Dramatic Increases in Contribution Rates ü Normal Form Pension Factor - modify q Mortality Tables q Lack of indexing for inflation NOTHING 23

Limits to Fixing Current Pension Scheme q Mortality Tables – NOTHING q New CIA mortality tables will better reflect mortality experience q Monthly retirement annuity payments SHALL DECREASE 24

Fixing the Current Pension Scheme q Lack of indexing for inflation q Need to replace current Quasi-ponzi increases to one that is based on inflation (assuming the starting annuity pricing issues are fixed) 25

ALTERNATIVE to a ‘FIX’ SEPP to JSPP 26

ALTERNATIVE to a ‘FIX’ q q q SEPP to JSPP negotiated – in principle CAAT or UPP or Other? Salary offsets must be negotiated Employer must decouple CPP Supplementary Retirement Account (SRA) 27

JSPP ADVANTAGES q q q Salary offsets possible under Bill C 124 Defined Benefit –rather than DC q Retirement income known in advance q Early retirement without penalty q Bridging benefits (possible) q Indexing Wind-up actuarial solvency test not 28

Supplementary Retirement Account (SRA) q As contribution rates increase Ø CRA maximums hit at lower salaries Ø It is possible to fund an SRA in excess of CRA maximums 29

Pension Offsets q q University of Toronto Trent 30

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Supplementary Retirement Account (SRA) q University of Toronto 32

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Exceptions For Pension Contribution – Salary Offsets Bill C 124 – Protecting A Sustainable Public Sector for Future Generations Act, 2019 SALARY OFFSETS FOR INCREASES IN MEMBER-REQUIRED CONTRIBUTIONS TO PENSION Conversion from a SEPP to a JSPP

QUESTION FOR LUFA MEMBERS § IMPROVE EXISTING SEPP (PENSION PLAN) THROUGH INCREASED MEMBER CONTRIBUTION RATES Coffee & Conversation VIII ? OR § NEGOTIATE SALARY OFFSETS FOR INCREASED MEMBER PENSION CONTRIBUTIONS UNDER BILL C-124 35

Collective Bargaining ONTARIO-BASED JSPPS § UPP ONTARIO § CAAT Coffee & Conversation VIII § OMERS § ONTARIO TEACHERS § HOOP 36

Membership Survey? Member priorities: § § Salaries Employment Benefits Pension Contract Language 37

Collective Bargaining SURVEY OF LUFA MEMBERS § BARGAINING PRIORITIES Coffee & Conversation VIII § PENSION IMPROVEMENTS? a. DECOUPLE CPP FOR EMPLOYER + INCREASE MEMBER CONTRIBUTIONS …. or b. NEGOTIATE MOVE TO A JSPP + SALARY OFFSETS + SUPPLEMENTAL RETIREMENT ACCOUNT 38

Collective Bargaining Coffee & Conversation VIII § § Member engagement Survey of membership – April - May, 2020 Negotiating Team Announced – April - 2020 Commence negotiations – June 1, 2, 23, 24 2020 39

Collective Bargaining Coffee & Conversation VIII 40

Further Consultations Coffee & Conversation VIII § TBA – Survey of Membership Results Please encourage your colleagues to attend. 41

Thank You! Discussion 42

Thank You! You can find me at: ￮ ￮ ken. hartviksen@lakeheadu. ca 343 - 8497 43

Pension Appendices Further Details 44

Abbreviated History The following slide, in very simplified form, attempts to help you understand the sequence of events that have shaped the current Professional Pension Plan at Lakehead University.

Chronology of the Lakehead University Professional Pension Plan 1965 Plan inception Defined Benefit Plan 1973 Amended DB 2% cost of living max. best average earnings (1. 1%/1. 6%) irrevocable employer contributions Amended DB 1. 2%/1. 75% formula retroactive to 1973 + money-purchase distributions 1976 1% of lifetime earnings New Plan Established 1989 New ‘Hybrid’ Plan 1997 Eliminated DB benefit for service after Jan 1, 1997 2000 Contribution Rates schedule to increase 2007 Retirement Annuity accounts created #1, #2, # 3 Short-term Account created DB benefit + Money Purchase options De facto Money Purchase Plan Technically a Combination Plan (solvency test to retirement annuity increases) Both changes ARE objects of ‘appeal’ to the Ontario Pension Regulator (FSCO/FSRA) by retirees of the plan (faculty + non-faculty members. 46

Review of the Lakehead University Professional Pension Plan December 6, 2019 Prepared by Ken Hartviksen, Chair

You Are Encouraged to ￮ Review plan text on your own ￮ For content ￮ For context ￮ Reflect

History of Plan ￮ Interested in the history of the Pension Plan? ￮ ￮ Outlined on pages 3 – 6 Includes description of the last changes in 2006/07

Plan Text Plan Purpose & Board Responsibilities LAKEHEAD UNIVERSITY PROFESSIONAL PENSION PLAN

Plan Text Article 18. 8 – Primary Purpose of the Pension Plan Comment • The pension plan is to be more than an asset accumulation account.

Plan Text Article 17. 7. 9 – Keep the Plan Current Article 17 - Pension Board responsibilities. Comment • One of the responsibilities of the Pension Advisory board is to recommend amendments – and keep it current.

Plan Text Article 18. 7 – Plan Shall Be Reviewed Periodically Comment • Reviewed regularly • Focus of the review – ‘adequacy of benefits’ • Duty to regular review – CFA Code of Conduct Principle 8 for Pension Trustees

2003 - 2006 Review LAKEHEAD UNIVERSITY PROFESSIONAL PENSION PLAN

Past Motion for Review Meeting No. 33 A Held: Wednesday, October 22, 2003 Dean’s Conference Room Time: 4: 30 pm “It was MOVED by _____, SECONDED by ______ that a contract be negotiated with Mercer Human Resource Consulting, not to exceed $75, 000, to carry out the review of the Professional Pension Plan indicated in the letter of October 17, 2003. CARRIED”

Review of 2003 -2006 ￮ Preceded by the formation of a sub-committee to examine pension issues. ￮ Involved questions put to Mercer by HR. ￮ Following the review, a series of changes in plan text were implemented until late 2007.

What Has Changed Since the 2003 -2006 Review? LAKEHEAD UNIVERSITY PROFESSIONAL PENSION PLAN

Changing External Forces/Factors ￮ ￮ ￮ Global financial crisis of 2008/09. Persistently low rates of interest on fixed income securities. Use of CPM 2014 publ mortality tables. Enhancement of the Canadian Pension Plan. Changes in the regulatory environment. ￮ ￮ ￮ (FSCO to FSRA) Changes to Pension Benefits Act A changing landscape forms of retirement benefits including the prospect of deferred annuities. ￮ ￮ ALDA (Advanced Life Deferred Annuity) VPLA (Variable Payment Life Annuities) ￮ The development of a new Joint-Sponsored Pension Plan for the Ontario University sector. ￮ Trend in Ontario universities toward higher and equal pension contribution rates for both employee and employer. Pandemic of 2020

Internal Events Internal events since the last pension review: ￮ ￮ Falling net contribution rates to the Professional Pension Plan because of CPP enhancement Decoupling of Canada Pension Plan for member contributions (only) for a majority of plan members.

Anecdotal Observations Symptoms of pension issues include: ￮ ￮ Falling number of retirees taking retirement annuity Growing proportion of faculty who are working beyond normal retirement age Comment • Faculty renewal may be an issue.

Conclusion ￮ Changes since 2006 have increased the amount of capital required to fund a given retirement income stream.

Goal of a Review Questions that Could Be Posed LAKEHEAD UNIVERSITY PROFESSIONAL PENSION PLAN

Goal of a Review To examine the ‘adequacy of benefits’ offered by the Professional Pension Plan at Lakehead University and recommend possible amendments to keep it current with respect to other Ontario Universities and major Ontario Employers.

Questions for a Reviewer Possible Questions About the Existing Plan: ￮ Is there a target contribution rate for both active members and the employer that would help to achieve competitive retirement income levels? ￮ Are there modifications that could be made to the Normal Form Pension Factor that would competitively price the initial retirement annuity offered to retirees? ￮ Are there modifications to the system used to grant annuity increases which could help to mitigate the effects of inflation on existing pensions without jeopardizing the solvency of the retirement accounts? ￮ Are there additional retirement income options that should be considered?

Questions for a Reviewer Alternatives to the Existing Pension Plan: ￮ Is there a case for conversion of the Professional Pension Plan to an Ontario-based JSPP such as ￮ CAAT ￮ OMERS ￮ HOOPP ￮ Ontario Teachers, or ￮ UPP

Motion ￮ To open discussion of the topic of external review of the Professional Pension Plan it may be appropriate to debate a motion Moved by _____Seconded by _____ that a contract for a review of the Professional Pension Plan be negotiated in accordance with the report to the Pension Board dated December 6, 2019; and that the focus of the review be on the adequacy of retirement benefits compared to other Ontario Universities and major Ontario employers.

Discussion

Index ￮ Agenda ￮ Goals of a Review ￮ Questions for a Review ￮ Possible Motion ◙ ◙ ￮ La. Porte & Neudorf – plan docs ◙ ￮ CFA – Pension Trustees ◙ ￮ Quorum ◙ ￮ In camera meetings ◙ ￮ Plan Amendments ◙ ￮ Ontario University Contribution Rates Compared ￮ Alternative Contribution Rate Scenarios ◙ ￮ Normal Form Pension Factor ◙ ￮ Bond Yields – V 122487 ◙ ￮ CPP Rates over time ◙ ￮ Pension Savings Required ￮ Robert’s Rules of Order ◙ ￮ Financial Position Pension ◙ ￮ Bill C 124 – exception ◙ ￮ Resources ◙ Appendices ◙ ◙

Normal Form Pension Factor DESCRIBED – TRACKED – CRITIQUED

Use of Canadian Government Bond Yields ￮ George Chun-Ming details the inequities resulting from the use of discount rates based on Government of Canada Bond Yields. He shows that monies that should go a particular cohort of pensioners are diverted to later cohorts. ￮ The paper is found on the CIA website at http: //www. ciaica. ca/publications/publicationdetails/218041

Use of Canadian Government Bond Yields ￮ In 2011 the CIA published an educational note that discussed the use of discount rates based on long-term Aa rated corporate bonds and long-term Aa rated provincial bonds (http: //www. cia-ica. ca/docs/defaultsource/2011/211088 e. pdf? sfvrsn=2). ￮ The current CIA committee that deals with discount rates has written a revised statement about this issue in 2018 (http: //www. cia-ica. ca/docs/defaultsource/2018/218086 e. pdf). ￮ The 2018 paper acknowledges the paucity of long term corporate bonds in Canada on which to make projections for pensions. It recommends that a greater weight be placed on provincial bonds but retains the basic approach that was recommended in 2011.

Use of Canadian Government Bond Yields ￮ Morneau Shepell presents the results of a survey of the discount rates used in the defined benefit pension plans of 100 Canadian public companies at: https: //www. morneaushep ell. com/permafiles/91328/ 2018 -survey-economicassumptions. pdf. ￮ The median discount rate was 3. 50% in 2017. ￮ Morneau Sheppell point out in the appendix that 25 bps can amount to a 5% increase in a pension.

History of the Canada Pension Plan CONTRIBUTION RATES THROUGH TIME