1. Making the Queen’s Pension Plan Sustainable in the Long Term Presentation to Queen’s University Employees in the following categories: Managerial, grades 2-9 excluded/confidential employees, bargaining unit excluded academic administrators, and research, grant and contract staff June 2014 Caroline Davis, Vice-Principal (Finance and Administration) 1

2. Purpose of this Information Session Like other pension plans across Canada, the Queen’s Pension Plan has a significant solvency deficit. Making large solvency payments into the plan would put pressure on the operating budget. The university is exploring options that would see changes to the plan that would avoid this, and today we will present you with information on one possible option. Changes to the plan will not reduce the benefits that active members have already earned, nor the pension benefits being paid to current retirees. This introductory presentation sets out the problem and then there will be an opportunity to explore one possible solution in some depth. 2

3. QPP Background The QPP is a hybrid pension plan: Contributions from employees and the university go into individual Money Purchase Accounts and are invested under the direction of the Pension Committee of the Board of Trustees. Income from investments is re-invested. There is about $1.7 Billion in the pot. – Members: 7% of earnings up to Year’s Maximum Pensionable Earnings (YMPE) plus 9% of earnings over YMPE – University: 6.0% of earnings up to YMPE plus 7.5% of earnings over YMPE – For 2014 the YMPE is $52,500. When an individual retires, he or she receives a pension based on the greater of: – An annuity calculated on the amount in the Money Purchase Account or – A Minimum Guarantee based on the formula: 1.35% of Best Average Earnings below the Average YMPE for service to August 31, 1997 Plus 1.4% of Best Average Earnings below the Average YMPE for service from September 1, 1997 Plus 1.8% of Best Average Earnings above the Average YMPE for all service, Where the Best Average Earnings is the average of the person’s earnings during the 48-month period in which earnings are at their highest level, And Average YMPE is calculated over the same 48 month period. 3

4. Actuarial Valuations An actuarial valuation of the plan (done by Mercer) must be filed with the Ontario government regulator each 3 years. Latest filing was as of August 31, 2011. If the actuaries tell us that there is a funding shortfall, the regulator will require the university to make special provisions to top it up. Valuations are based on assumptions about investment returns, inflation, the YMPE limit, increases in pensionable earnings, retirement rates, and how long pensioners are expected to live after they retire. Done on two bases: – Going concern: looks at the difference between the plan’s assets and the present value of pension benefits based on service to date, assuming the plan keeps going indefinitely – Solvency: looks at the difference between the plan’s assets and its liabilities, assuming the plan is wound up immediately and pension benefits are funded by purchasing annuities. 4

5. Queen’s Pension Plan – the Problem The Queen’s Pension Plan is exposed to risks related to financial markets, interest rates, and assumptions about mortality. Changes in these factors all affect the contributions that are required in order to avoid a funding deficit. The global financial crisis had a substantial impact on the plan. Since then: Changes were made to the plan during the last round of collective bargaining. Investment returns have recovered. There has been a rise in interest rates. But the plan still has large deficits on a going concern and solvency basis: August 31, 2011August 31, 2012August 31, 2013 Going concern deficit$126M$167M$164M Solvency deficit$332M$459M$292M 5

6. Queen’s Pension Plan – the Problem Going concern deficit: – Based on the 2011 valuation, the university is making annual payments of $14M into the plan to fund the going concern deficit over 15 years. – This going concern payment is over and above the regular contributions. Solvency deficit: – Would normally have to be paid off over ten years. – Based on the commitments made by employees during the last round of collective bargaining, in 2011 the government approved a three-year relief period so solvency payments are not currently being made. – This relief from making solvency payments is temporary and expires in 2015. 6

7. Queen’s Pension Plan – the Problem The next valuation is due as of August 31, 2014. Last year the government put in place regulations which give us the option of deferring the solvency payments for a further three years, as long as we keep up with interest payments. But after that, the solvency deficit would have to be paid off over the 7 years remaining instead of a full 10 year period, starting in 2015. Without taking advantage of that extra deferral, or making further changes to the plan, and using the 2013 valuation as a basis, the actuaries calculated the following: Going concern deficit: payments would increase by $5M p.a. Solvency deficit: new payment of $16M p.a. Taking these together, the university’s contributions would rise from the current 13% of salaries to almost 20%. 7

8. Queen’s Pension Plan – the Problem Making these payments would be a major challenge for the whole university The $14M going concern payments are provided for in the new budget model but neither the $5M increase in the going concern payments nor the $16M solvency payments are yet. The Provost has issued instructions for the preparation of two scenarios for the 2015-16 Budget for Shared Services: Scenario I asks units to absorb the solvency expense Scenario II provides offsets There is no presumption at this point that either of these scenarios will be applied to any particular unit, but if any Shared Service unit does receive an offset, the cost would be allocated to Faculties and Schools (which will have their own solvency payments to make). Even if the university manages to digest these increased contributions, managing a single employer pension plan will continue to expose Queen’s to serious risks and costs. 8

9. Queen’s Pension Plan – Possible Solutions The previous Liberal government indicated support for converting single- employer defined benefit plans in the broader public sector to Jointly Sponsored Pension Plans. The Budget that was tabled just before the June 2014 election was called included a legislative framework to enable this. Premier Wynne has committed to re-introducing the Budget, but we will have to wait to see the detailed regulations. JSPP’s have joint governance with employees and employers, and permanent solvency exemptions. There are three options: 1.Create a single employer JSPP: – This would not share the risk beyond Queen’s. 2.MTCU is funding a study which would see all university defined benefit plans being rolled into one JSPP for the sector: – This is moving very slowly and some 64 different employee groups would have to agree. 3.Merge the Queen’s Pension Plan with CAAT, the JSPP for Ontario colleges: – We convened a table of all of Queen’s unions to discuss this option, but they have decided that it needs to be collectively bargained. 9

10. Merging the QPP with CAAT One possible solution: the CAAT Pension Plan has invited us to consider merging the QPP with CAAT. – CAAT is a jointly-sponsored pension plan and has a permanent solvency exemption. – Derek Dobson, CAAT CEO and Plan Manager is here today to present information on CAAT. This information session will provide you with a basis to decide if you think it would be the right solution for Queen’s. 10

11. Next Steps After the session, employees who are represented by a union may ask you questions about pensions, but we must all respect that the unions have decided that pensions must be addressed through collective bargaining. You can refer people to the Human Resources website, where they will find today’s presentations and some Qs and As. We will have time for your Qs and As this morning, but please don’t hesitate to send Bob.Weisnagel@Queensu.ca any further questions you or employees you supervise may have.Bob.Weisnagel@Queensu.ca 11