Notes for presentation to the 2008 AGM by your Pension Trust Committee Representative for the Salaried Pension Plan, Les Robb

There are 3 items I want to report on:

• Inflation and indexing
• Restatement of the Plan
• The latest Actuarial Valuation

First, the plan indexing:
Many of you will have been pleasantly surprised to have received increases in excess of inflation last January 1. Those retired for some time received a 4.03% increase while inflation was only at 1.72%. Those who were retired for shorter periods had lost less to past inflation and correspondingly received smaller increases. I have written in more detail about this on the MURA web site.

Our returns for the 9 month period to March 31, 2008 showed a loss (before expenses) of close to 4%. However, since March 31 markets have been strong, particularly the Canadian market where the TSX has rebounded by about 13% since the end of March. There is still a reasonable prospect of a non-negative return for the year, though volatility is high and the market could lose 10% or more between now and July.

What I want to report here, however, is that in spite of weak markets since last July we are still well poised to get all of the inflation indexed next January and some further catch up as well (for those who lost in the past). How can this be? Well, our indexing formula is backward looking and the past 4 years have had returns well in excess of the 4.5% which is what we need to achieve before getting any indexing. These past good returns mean that even with a 0% increase in the fund for the current year, the 5 year average would be about 9% and all of that increase that is in excess of 4.5% would be available for indexing. Even a loss of 10% would still likely cover all our inflation.

Second, Restatement of the Plan:
Our Plan last appeared in a single document as ‘Plan 2000’ at the time of the surplus distribution. Since then there have been a number of amendments to the plan. Some of these have been required by legislation of regulation (for example the removal of mandatory retirement) while others have been changed through the negotiations (for example the changes to contribution levels and to the early retirement date). As these amendments are made, the legal text of the plan consists of the original text plus the amendments. Every once in a while the plan is restated. That is, a new version of the plan is created incorporating all the amendments while checking to see if other parts of the plan need to be changed in light of the amendments. Also, any changes that have been identified which do not require negotiations between the University and its employee groups can also be incorporated. We spent a good part of the Pension Trust meetings this year reviewing a new text that is to be in place by July 1, 2008. Contact the Benefits and Pensions office for a copy of the restated text or view it online.

Third, the Actuarial Valuation as of July 1 2007:
Ontario Pension Plans are required to have an actuarial valuation every three years. Our plan’s last one was dated July 1 2006. As some of you may remember, that valuation showed some sizeable deficits and required the University to make contributions substantially greater than employee contributions. Because of the good performance of the market in the 2006-2007 year and the falling off in performance last summer and fall, the University considered doing an evaluation now (dated to last July) rather than waiting. This valuation has now been done and the Board will decide shortly whether to file the valuation to take advantage of lower contributions. Our role as Pension Trust Committee is to approve the actuarial assumptions used in the valuation and this we did at our last meeting. The reduction in the deficits will leave the University free to put about a million dollars a year less into our plan (it can still choose to put more in). The upside of doing a valuation at such an opportune time is that the University will have more flexibility in its budgeting at a time when budgets are very tight. And, if our returns in the longer run continue to be, on average, above the 6.5% that the Plan assumes, there will never be a need for these extra funds. The downside is that if our asset values continue to fall, then when we do a valuation in the future we could be in even worse shape than we are today and the University will need to ante up even more. Although there was discussion of these issues at Pension Trust and some PTC members raised concerns for the future funding of the plan, it was made clear to us that this is a Board decision.