HRM Pension PlanTown Hall Information Sessions

November 21 & 22, 2012 “Meeting funding challenges”

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Disclaimer• Please note that the information provided in

this presentation is based on estimated data and current plan provisions.

• A formal Actuarial Valuation at December 31, 2012 will be prepared when the required member and financial data is available in late spring of 2013.

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Background• HRM Pension Plan (HRMPP) is a multi-employer plan

governed jointly by the stakeholders: HRM, ATU, CUPE, HRPA, IAFF, NSUPE, NUMEA, and retiree representation

• Pension Committee is responsible for the administration of the plan, including the results of the Actuarial Valuation: - Reviews the adequacy of the HRMPP's funding- Recommends contribution rate changes- Recommends benefit changes

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The Benefit / ContributionRelationship

• A Pension fund is a net accumulation of:

*Contributions *Pension Benefits *Investment *Expenses income

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Solvency Exemption - Still waiting on the Province!

• Estimated Financial Position at 31-Dec-2011 (Solvency)– Actuarial value of assets $1,175,502,000– Present value of accrued benefits 1,844,618,000– Solvency deficit $ 669,116,000– Funded ratio 64%

Estimated anticipated contribution rates, including Solvency Deficit payment:

Current Service Going Concern Solvency Total 16.1% 4.3% 24.6% 45.0% (shared 50/50)

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HRM Master Trust Returns as of September 30, 2012

*Effective September 2012, the Policy Benchmark is 8.05 % S&P/TSX Index + 7.40% S&P/TSX 60 + 2.75% S&P 500 Index ($CAN) + 6.55% S&P 500 Index($USD) + 8.35% MSCI EAFE Index ($CAN) + 4.50% MSCI World Index ($CAN) + 4.55% MSCI Emerging Markets (CAN$) + 0.45% MSCI China A-shares Index ($CAN) + 45.20% Canadian Bonds + 12.20% Min. Target Return . Effective Sept 30, 2012, the Canadian Bond Policy was 40.30% DEX Universe Bond Index, 45.10% DEX Long Government Bond Index and 14.60% 3-month Canadian Banker Acceptances.

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Estimated Going Concern Deficit

Financial Position at 31-Dec-2011Actuarial value of assets $1,176,502,000Present value of accrued benefit obligations 1,311,495,000Going-concern deficit at 31-Dec-2011 $134,993,000Funded ratio 90%

Expected increased deficit due to projected cost of accrued benefit obligations:

$132,332,000

Potential deficit at 31-Dec-2012 $267,325,000Potential funded ratio at 31-Dec-2012 82%

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What Does this Mean?

• Current member and employer contribution rates (approximately 20.7% of pensionable earnings) are sufficient to fund future benefits and part of the deficit:Potential deficit at 31-Dec-2012$267,325,000Less: Portion of the deficit funded by current contribution rates$127,991,000Additional deficit to be addressed$139,334,000

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How to Close the Gap?

The additional deficit of approximately $139,334,000

needs to be addressed

How?• Two options to address the additional deficit:

– Increase contributions – Reduce future service benefits and increase

contributions by a smaller amount

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Meeting Funding Challenges

If the gap is to be closed by contribution increases only:

– Employee contribution rates would increase by approximately 2% of earnings

– Employer contribution rates would increase by approximately 2% of earnings

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Meeting Funding Challenges• Gap could be decreased by reducing future service benefits.

Possible benefit reductions explored:Benefit Current Consideration

• Average earnings period Best 3 consecutive years Best 5 consecutive years

• Unreduced early retirement

Earlier of age 60 and Rule of 80 (Rule of 75 for some PSO Members)

Earlier of age 60 and Rule of 85 (Rule of 80 for some PSO Members)*

• Unreduced early retirement

Earlier of age 60 and Rule of 80 (Rule of 75 for some PSO Members)

Earlier of:(i) age 60 and 10 or 15 years

service(ii) Rule of 85 (Rule of 80 for

some PSO Members)*

PSO = Public Safety Occupation (police officers and firefighters)*Rule of 85 with a minimum retirement age of 55 or Rule of 80 with a minimum retirement age of 50

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Meeting Funding Challenges• Proposed benefit changes will not affect your pension earned

for past service• None of the proposed changes to unreduced early retirement

will affect you if, on the effective date of the amendment,:– you have reached your Normal Retirement Date (age 60 for PSO

members/age 65 for non-PSO members);– you already meet the Rule of 85 (employment service + age) and you are

55 years of age or older;– you are a Rule of 75 PSO member with more than 80 points and

you are 50 years of age or older; or– you are a non-PSO member age 60 or over with 15 years of

credited service.

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Meeting Funding Challenges - Decision

1. Increase contribution rate by approximately 2% of pensionable earnings, OR

2. Increase contribution rate by less than 2% of pensionable earnings and reduce benefits:

• 5 year best average earnings• Unreduced pension at:

― Age 60 or Rule of 85 (Rule of 80 for current Rule of 75 PSO members), or

― Age 60 with min 10/15 years service or Rule of 85 (Rule of 80 for current Rule of 75 PSO members)

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MEETING FUNDING CHALLENGES

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MEETING FUNDING CHALLENGES

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MEETING FUNDING CHALLENGES

Note: removing the minimum early retirement age would reduce the contribution savings from 0.5% to 0.45% and require a contribution rate increase of approx. 1.55%

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MEETING FUNDING CHALLENGES

Note: removing the minimum early retirement age would reduce the contribution savings from 0.6% to 0.55% and require a contribution rate increase of approx. 1.45%

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MEETING FUNDING CHALLENGES

Note: removing the minimum early retirement age would reduce the contribution savings from 1.0% to 0.95% and require a contribution rate increase of approx. 1.05%

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Meeting Funding Challenges• Implementation of a benefit change

– Final service calculations will be split between current benefit rules and the amended benefit rules

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Calculation ExampleAge Service

Prior to Change

Service After Change

Rule of 80/85 points

Pension calc. #1Prior Service

Pension calc. #2Post Service

Total

Example#1 - Rule of 80 changes to Rule of 85. Member has reached both thresholds at point of retirement.

40 (current) 57 (retired)

12 17 86 BAE ($50,000) x 2% x 12 = $12,000

BAE ($50,000) x 2% x 17 = $17,000

$29,000

Example#2 - Rule of 80 changes to Rule of 85. Member has reached Rule of 80 threshold on prior amendment service, but was short of the Rule of 85 on post amendment service. Post amendment service subject to early retirement reduction.

40 (current)

55 (retired)

12 15 82 BAE ($50,000) x 2% x 12 = $12,000

BAE ($50,000) x 2.0% x 15 = $15,000 – (18 mos. x 0.5% = 9.0%) $1,350 = $13,650

$12,000 + $13,650 = $25,650

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Next Steps

• Stakeholder unions vote if there is a benefit reduction proposed;

• If a benefit reduction is accepted by all stakeholder unions* and HRM; then

• HRM Council needs to approve benefit reduction; then• Approval by regulators; then• Implementation

*If one union or HRM does not approve the proposed benefit reduction, the default is contribution increases