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2009-01-31_Agenda Packet--Dossier de l'ordre du jour
It. 4 r. - City of Saint John Common Council Meeting Saturday, January 31, 2009 Committee of the Whole 1. Call to Order 9:00 a.m. Council Chamber 1. Introductory Remarks by the Chair of Trustees 2(a) Outline of presentation (b) Presentation Hugh Wright (c) Speaking Notes of Fred Lewis 3. Powerpoint Presentation 4(a) Questions and answers Re: Pension Plan (b) Council Resolution August 18, 2008 Re: John Ferguson (c) Comparison to other Municipal Plans (d) Survey of Defined Benefit Plans 5. Profiles a) Hugh Wright b) Fred Lewis c) Vaino Keelman d) Robert Crowley ~ A, 1 INTRODUCTORY MARKS BY THE CHAIR OF TRUSTEES [Calling Council meeting to order] [introductory remarks as Mayor] As Chair of the Board of Pension Trustees for the City of Saint John, it is my pleasure to thank Council for extending this invitation to the Trustees to address Council at this public meeting of Council. The Trustees are present, along with our external advisors. I just want to take a moment to introduce each of them. [Introduce Trustees] [Introduce external advisors] The public and Councillors were given an opportunity to submit questions in advance of this meeting. A total of (167 questions plus possibly Bill Farren's 50 prior questions) were submitted. If we allotted ten minutes for each question, this meeting would continue until Sunday at noon. Since a number of the questions dealt with similar subjects, we thought answers were best provided in this public forum by way of an overall presentation made by the advisors on behalf of the Trustees. A copy of the outline of the presentation, as well as a copy of the Power Point slides was provided to Councillors as part of the package for this Council meeting and has been made available on the City's website. Also circulated for the Council meeting and posted on the website are the key documents concerning this Plan: (I) The Consolidated Plan Text; (2) 2007 Audited Statements; (3) Most recent actuarial report from 2006; (4) 2007 Annual Information Return; However, we want to ensure that every citizen or Councillor who submitted questions received a written answer. As a result, when you arrived today, you were provided with a booklet containing copies of all of the questions, together with the answers that relate to that specific question. 2 The total presentation will last approximately 2 hours. It will be led initially by the Trustees' legal counsel, Hugh Wright. Each of the advisors will speak independently on the areas that are of concern to that advisor. We would ask you to hold your questions until the end of the meeting. All of our advisors will take questions at the conclusion of the entire presentation. Those questions may be follow-ups to existing questions that have been asked or entirely new questions. Obviously, our collective ability to answer will depend on whether the information necessary to answer the question is known to us but all of our advisors will answer to the best of their ability. The Trustees' only instruction to their advisors is to answer each question as completely and fully as they can. This is Council's meeting, so ultimately the length of the meeting is Council's decision. From the Trustees' perspective, we are prepared to stay for as long as Councillors or members of the public have questions. I will now ask Mr. Wright to come forward to begin the presentation. 3 PRESENTATION TO COMMITTEE OF THE WHOLE MEETING OPEN TO THE PUBLIC January 31, 2009 OUTLINE I. INTRODUCTION - Ivan Court, Chair of Trustees (a) OUTLINE OF PRESENTATION II. PENSION PLAN OVERVIEW - Hugh Wright III. REGULATORY REGIME - Hugh Wright A. Pension Benefits Act B. Income Tax Act (Canada) IV. KEY PARTICIPANTS IN THE PLAN Hugh Wright A. Legislative Assembly B. Trustees B. Common Council D. Employee Groups E. City Administrative Staff F. Service Providers G. Conflict of Interest V. FERGUSON CLAIM - Hugh Wright 4 VI. HISTORICAL OVERVIEW OF PLAN - Hugh Wright A. 1947 Plan Text (1) Trustee composition (2) Contribution Levels (3) Benefit Levels (4) Disability Benefit (5) Power to Amend (6) Reporting to Council and members B. Major changes in above points C. The Plan Today VII, TRU STEES ACTIVITIES - Hugh Wright A. Sample Agenda for Trustees Meeting B. Plan Expenses C. Expenses Compared to Peers VIII. DISABILITY PROVISION - Hugh Wright A. 1TA changes in 1992 B. Plan change in 1994 C. Disability Incidence - Cif}) r>. General Population D. Pink Report E. Retention of Lifemark F. Current Process G. Current cost compared to prior disability incidence 2 5 IX. FUND INVESTMENT FUNCTION - API A. Legal Standard of Care B. Statements of Investment Policies and Goals C. Current Asset Mir D. Historical rates of return compared to peers E. Current Investment Managers F. Current Investment Climate X. LIABILITIES OF PLAN - Fred.Lewis A. Requirement for actuary B. Actuarial standards C. Valuation of Plan D. December 31, 2000 Valuation E. December 31, 2003 Valuation F. December 31, 2006 Valuation G. December 31, 2009 Valuation XI. ERNST & YOUNG - Robert Crowley XII. COUNC'IL'S RECENT PLAN REFORM CONSIDERATIONS - Hugh Wright A. 2002 - 2003 (before 2003 valuation) B. November 2004 Recommendation C. April 2005 Recommendations D. 2006 Recommendations (July and October) 3 6 E. March/April 2007 Report F. March 2008 Report XIII. NEXT STEPS - Thigh Wright A. Public Inquiry B. Future Reporting XIV. QUESTIONS I PRESENTATION TO COMMITTEE OF THE WHOLE MEETING OPEN TO THE PUBLIC January 31, 2009 @ 9:00 am. SPEAKING NOTES OF HUGH WRIGHT I - INTRODUCTION I will provide you with a brief outline of the presentation. As His Worship indicated, we have developed the presentation in an effort to respond to the questions asked. I will begin with a simply graphical overview of the plan. I will mention regulatory regime under which the plan operates. I will introduce and speak about the key participants in the plan's governance and operation, including addressing conflict of interest. Questions related to the Ferguson lawsuit will be addressed next. Next, I will provide an historical overview of the plan starting in 1947 and, without reviewing every single statutory change in the past 62 years, hitting the high points of the reforms and changes over the years. I will conclude with the description of the basic plan provisions as they are today. Next, I'll discuss Trustee activities, including the expenses of the plan and how these expenses compare to other pension plans. I will provide some brief information on the types of matters dealt with by the Trustees at their meeting. We then want to focus in some detail on the disability provision - how that has been handled over the years, how the difficulties arose early this decade, our estimate of the 8 2 potential cost associated with those difficulties, and provide some assurance as to the manner in which the disability provision is being administered today. We will then move into the service providers. I will speak very briefly about the role played by RBC Dexia. Then Vaino Keelmann from API will speak about the fund investment function. Fred Lewis will speak about the liabilities of the plan and how the plan has been valued over the years. Bob Crowley from Ernst & Young, the plan's auditors, are here and wilI speak briefly on audit requirements. Then we will move to the history of Council's recent considerations of plan reforms and finally end with a discussion of the next steps. All of this we are hoping to conclude in two hours. We have designed the presentation to respond to every question that has been asked and have provided copies of a summary of the questions submitted to Council and the answers to each of the questions to the best of our ability. II. Pension Plan Overview At a conceptual level, the operation of a pension plan is relatively simple. The graphic is intended to provide a conceptual outline of how a pension plan operates. 9 3 Employer and Employee contributions are made to a fund. These contributions are invested and administered over time, ultimately resulting in a fund available to pay the benefits. If you adjust any of these variables, it will have an impact on the other variables. For example, if you increase the time over which contributions are invested before a pension can be obtained, that will increase the amount of money available for benefits. A decrease in benefits, all other things being equal, means that contributions can be decreased. A decrease in your investment results means that contributions will have to be increased in order to provide for the same benefits. That is a relatively simple conceptual outline of a pension plan. III. REGULATORY REGIME A. Pension Benefits Act The Plan is registered under the New Brunswick Pension Benefits Act. The PBA sets out minimum standards that the plan must meet with respect to benefits, funding and investments, and compliance with the PBA encompasses a broad range of responsibilities. Registration under this Act is required in order for the Plan to be registered under the Income Tax Act (Canada). 10 4 B. Income Tax Act (Canada) The federal Income Tax Act sets out limits on Plan contributions and benefit accruals. The Plan must comply with the ITA and regulations in order to maintain its registration and thus tax deferred status. IV. Key Participants in the Plan A. Legislative Assembly The Legislative Assembly is the ultimate authority with respect to the pension plan. Any changes to the pension plan must be introduced at the legislature by a private members bill, receive three majority votes at the legislature, and then be proclaimed into law. Although one anticipates that the legislature only acts on the request of Council and other interested groups, there is no legal obligation on it to do so. Ultimately, the legislature controls all of the key features of the plan, including: (a) Governance; (b) Contribution levels; (c) Benefit levels 11 5 B. Trustees The Pension Act establishes a Board of twelve Trustees known as the Pension Board. The Trustees are the formal administrator of the plan and, therefore, have certain responsibilities imposed by the Pension Benefits Act and the Income Tax Act. The PBA is particularly important as it legislated minimum standards for the funding of the Plan and administration of the benefits. The Board is required to report annually on the Plan to Common Council and the Plan members. It is important to emphasize that the overriding and exclusive legal obligation of the Trustees is to act in the best interests of the beneficiaries of the plan. The beneficiaries of the plan are the members, the retirees, and the survivors and spouses of the members and retirees. The beneficiaries of the plan do not include the City taxpayers. The Trustees are known as fiduciaries, which means that they sit in a position of power or trust with respect to vulnerable people. The fiduciary duties owed by the Trustees to the beneficiaries are described at law as the highest and most onerous duty that can be owed by one individual to another. A number of questions asked who on the Trustees is appointed to look out for the interests of the tax payer. The short answer is nobody. All of the Trustees must look out for the interests of the beneficiary. If the Act was amended to remove all of the current Trustees and appoint outsiders as Trustees and administrator of the plan, their legal 12 6 obligations would be the saine - to act solely and exclusively in the best interests of the beneficiaries of the plan. Just because the Trustees must act in the best interests of the beneficiaries does not, however, mean that their actions are contrary to the interests of the tax payers. The Trustees must, under the requirements of Pension Benefits Act, and under the general principles of trust law, act prudently and cautiously in the management and administration of the pension fund. They are required to invest the fund, to achieve a reasonable rate of return within an acceptable level of risk. None of these particular duties would be inconsistent with what most tax payers would be looking for. However, it is important to emphasize that the Trustees act in this manner because of their obligations to the beneficiaries, not because of any obligation to the tax payers. Many of you have asked who is acting in the best interest of the tax payer. That brings us to our next participant in the governance of the plan - Common Council. Common Council is what is often referred to as the sponsor of the plan. Council has ultimate financial responsibility for any deficits in the plan. It appoints half of the Trustees, either through participation by the Mayor and two Councillors or participation by senior City staff, it receives the annual report from the Trustees, and also receives and considers recommended amendments by the Trustees before forwarding them to the legislature for consideration. Council is entitled to act in the best interests of the corporate City of Saint John, which would ordinarily mean the tax payers. It is not 13 7 required to act in the best interests of the beneficiaries. Subject to the requirements of the Pension Benefits Act, Council is free to consider amendments that would decrease future benefits or increase future contributions, without any suggestion that they are violating any obligations they may have to the beneficiaries. Although it may be free to consider various changes, Council can only act collectively. Council will likely in each case need to weigh the cost savings from any particular changes versus the impact on its employee groups. Thus, in any discussion of potential plan changes, Council will have various factors to weigh that will likely make the ultimate appropriate decision very difficult. The only point I want to emphasize is that those factors do not include any legal obligation to always act in the best interests of the beneficiaries. Some of you have asked about conflicts of interest for those individuals sitting on the Pension Board and Common Council, and I will address this issue later on in the presentation C. Employee Groups Employee Groups are the counterpart to Council. They are an important participant to the plan in that the employees contribute, at this point, 10.5% of each pay cheque to the fund. In addition, employee groups appoint half of the Trustees to the Pension Board. Similar to Council, however, employee groups are not required to act in the best interest 14 8 of the beneficiaries. For example, while the fund is in a deficit position, employee groups will be free to advocate for reduction in employee contributions, even though such a reduction might be contrary to the interests of the beneficiaries. Employee groups may choose to advocate for changes that favour active members over retirees. Certain employee groups may choose to advocate for changes that benefit non-unionized employees over unionized employees, or vice-versa. D. City Administrative Staff The Board does not employ any staff directly. Instead, the City of Saint John provides extensive administrative services and support to the Board, through one full-time employee and five part-time employees. The City is effectively the Board's operational arm, providing benefit processing with the assistance of the Plan's actuary. as well as communicating with service providers and members, and doing ongoing monitoring. E. Service Providers The operation of a modem pension plan is very complicated. It necessarily requires that the administrator of the plan engage various service providers in order to provide for prudent administration of the plan. In addition to the administrative staff of the City of Saint John, there are a number of other third party service providers which provide services to the Plan. These include Morneau Sobeco (actuarial and administrative), API Asset Inc. (investment performance measurement and investment consulting), various 15 9 investment managers, RBC Dexia (custodial), McInnes Cooper (legal) and Ernst & Young (audit) and Lifemark for disability assessments. F. Conflict of Interest Those acting in a fiduciary capacity are bound by statute and the common law to operate in the best interests of plan beneficiaries. This principally entails setting aside all personal interests which might conflict with the best interests of the plan beneficiaries. Courts have traditionally distinguished between the dual responsibilities of those who act in both a management and administrative capacity with respect to a corporate or municipal pension plan through the application of the "two hats" principle. What this means is that Pension Board members are required, when acting in their capacity as trustee, to make decisions solely with deference to the best interests of plan beneficiaries. When acting in their alternative capacity, however, trustees are free to act without this encumbrance. It is important to note that if Council was the administrator, there would be much more risk of a conflict of interest than there is at present. Presently, the Trustees are the administrator and Council is the sponsor and employer for the active members. As a result, there can be few occasions where it is alleged that Council is in conflict with any duties it may have to the beneficiaries. However, if the City itself was the administrator of the plan rather than the Trustees, then Council, as the effective administrator, would likely be greeted with frequent allegations of potential conflict of interest. Council could 16 10 act both as administrator and as sponsor and manage its conflicts carefully. However, the risk of a conflict of interest would be much greater than under the current arrangement where those who sit both on Council and the Pension Board can change their "hats" depending upon which obligation oversee their decision making. V. FEGUSON CLAIM There were a number of questions about the lawsuit against former Councillor Ferguson. A full explanation for that lawsuit was set out in the Trustees" letter to Council dated November 6, 2008. A copy is attached to the questions and answers that have been distributed. Ferguson is not being sued for asking questions about the pension plan. He is being sued for saying the trustees are dishonest - that the trustees repeatedly and knowingly engaged in deliberately illegal behavior. Accusations of deliberately illegal behavior should not and cannot be the basis on which otherwise legitimate public debate occurs on municipal issues. The Board does not have, nor has it ever had, an issue with providing answers to legitimate questions about the Pension Plan. Indeed, soon after Mr. Ferguson expressed an interest in the workings of the Board, he was invited by Terry Totten to examine any and all of the Board documents, as well as talk to any of the Trustees in order to inform himself. Those offers were refused by Mr. Ferguson. Later, Mr. Ferguson received repeated offers to meet with the Board to discuss his concerns. Mr. Ferguson refused to meet. As of December 31, 2008, $402,687 has been spent in legal fees and disbursements 17 on the litigation involving Mr. Ferguson. The Board has, on more than one occasion, tried to have Mr. Ferguson agree to alternate dispute resolution measures. No agreement has been forthcoming. It is a clear principle of trust law that Trustees are not to suffer loss from the discharge of their duties and are entitled to be made whole by the Trust. The individual Trustees receive no compensation for their work. Indeed, legislation specifies that they cannot be paid. Here, the means by which to remedy their loss of reputation is through this defamation lawsuit seeking the vindication of their reputation. Any damages or costs received in the lawsuit will be for the credit of the Pension Fund and not the Trustees. VI. HISTORICAL OVERVIEW OF PLAN - Hugh Wright The current Saint John Pension Plan began with the adoption of the Saint John Pension Act in 1947. I know you will be happy to hear that I do not plan to conduct a clause by clause review of each of the 21 legislative amendments since that date. However, since many of the questions seek a historical review of the various components of the Plan, an overall review of the Plan's history and evolution is necessary. In particular, we will review the following key components of the Plan which many of the questions were focused on: (1) Trustee Composition (2) Contribution Levels Employee and Employer (3) Benefit Levels 18 12 (4) Disability Benefit (S) Amendment Procedure (6) Reporting to Council (1) Trustee Composition The 1947 Act established a Board of Trustees comprised of a member of Common Council, 2 members of management, and 2 employee representatives. Several features have been consistent from the start: (a) Trust From the beginning, this plan has been administered as a trust. This means the Trustees have always been obligated to act in the best of interests of the beneficiaries; (b) Participation on the Trustees has always been from Council, management representatives, and employee representatives; (c) The Board of Trustees has throughout been the administrator, independent of the City. A representative of the retired members was added in 1984 and the size of the Board has grown at different times over the years to the point to today. It is now comprised of 12 members - the Mayor, 2 members of Council, 3 members of management, 4 union members, a non-union representative, and a retiree representative. 19 13 (2) Contribution Levels Employee Contributions were 6%, 7% or 8% of annual salary when the plan began, depending on the department to which the employee belonged. Employee contributions changed in 1973 to either 6% of salary or 7.5% for some of the salary of higher paid employees. In 1980, contributions were changed to a flat 8.5%. The next change in contributions is the one currently in force - 10.5% for employees for the 3 year period from May 1, 2007 to April 30, 2010. Employer contributions initially matched employee contributions, plus certain amounts to pay off unfunded liabilities as they arose. Employer contributions continued to match the employee contribution rate until 1980 when the employee contribution rate increased to a flat 8.5% but the employer contribution stayed at the prior level of 6% or 7.5%, depending on the amount of salary paid to the employee. In 1978, the employer was formally required to pay any remaining unfunded liability. In 1994, a minimum contribution level by the City of 7% was imposed. Thus, for much of the recent period, the City's contributions could be lower or higher than the employee contributions, depending on the extent of any unfunded liabilities and the extent of the annual cost of the plan. Several questions asked for a complete record of the contributions made to the Plan. Between historic valuations and audited statements, we have compiled the 20 14 contribution record for the plan from 1959 to the present date. The actual amounts are contained in the question and answer brochure. In summary, for the period from 1959 to 1978, the City appears to have contributed more than the employees. From 1979 to 2005 each year, the City always contributed less than the employees. In 2006, the City contributed $16.8 Million compared to $4.4 Million for the employees. The City has contributed more in 2007 and 2008 as well. For 2009, employer contributions are budgeted to be $9.3 million. Employee contributions will be comparable to 2008 levels, subject to actual payroll levels. Overall, in the period from 1959 to 2008, employee contributions are at close to $104 Million and employer contributions are just over $112 Million, which is approximately 108% of the total employee contributions. (3) Benefit Levels Many of you questioned the level of benefits payable to the members of the Plan. Starting in 1947, the annual pension was calculated on the basis of 2% of the average of the final three years of earnings, limited to 60% of that average, or $3,000. There were some provisions for earlier retirement, depending on costs of employment. Survivor benefits were relatively limited as was common at the time. The salary calculation was changed from the last 3 years to best 3 consecutive years in 1970, then changed to best 5 consecutive years in 1973 and then back to best 3 consecutive years in 1980, which is how it has remained until today. The maximum 21 15 pension increased periodically until 1995, when it was set at $45,000 indexed to an inflationary factor. Initially, the plan made no provision for indexing. Increases to pensions in pay began in 1975. Starting in 1995, pensions paid related to service after 1992 were indexed at 2% per year. Further indexing was granted in 1999 with partial catch up indexing provided so that pensioners who retired after 1976 but before 1992 received 20% of inflation subsequent to retirement. Pensions for pensioners retiring before 1977 was increased by the lesser of 20% or inflation since their retirement. Finally, further indexing was granted for service between 1975 and 1992 at 1 % per year for both current and future pensioners. (4) Disability Benefit We received a significant number of questions about the disability provision of the Plan. The plan as established in 1947 had a disability benefit in it. The test was "own occupation". One of the questions related to the cost benefit analysis done at the time that the disability benefit was adopted. We are not aware of any such analysis from 1947. There were no changes to the definition of disability benefit from 1947 until 1994. However, in 1960, a separate Act called An Act Respecting the Saint John Firefighters Association was adopted. It provides that if a permanent member of the Saint John Fire Department is unable to carry on due to impainnent of health caused by certain heart or lung conditions resulting in total or partial disability, then the member is entitled to a 22 16 disability pension. Payment of this pension is split between the City and the pension plan, depending on the member's length of service and the amount of pension accumulated by the member under the Pension Act. There were a couple of questions relating to the ability to provide disability benefits through an insurance policy or other means. In our review of the historical legislation, 1 would note that in 1975, there was a provision that the plan would provide no disability pension if the member was in receipt of disability benefits under a City by-law. In 1993, the plan was amended to state that no disability pension would be paid if the member was in receipt of disability benefits under a group long-term disability contract. We do not know whether those provisions were there because it was anticipated that there would be alternate means of providing disability benefits or because that actually proved to be the case. In any event, this reference was removed with the 1994 amendments to the Act. These 1994 amendments were quite significant with respect to the administration of the disability provision. As a result of changes to the ITA provisions governing the Plan, the definition of "disability" changed from a "own" occupation definition to an "any" occupation definition. That means that while members used to have to prove that they were disabled from their own occupation, they now had to meet the tougher standard of proving they were disabled from any occupation for which they were reasonably qualified by reason of training, education or experience. 23 17 The other significant change in 1994 was that the plan was amended to provide that a member was deemed to be totally and permanently disabled under the Pension Act if the member was in receipt of a CPP disability pension. This is a very important amendment. It essentially means that a member of the plan can obtain disability pension by one of two routes: (1) By proving entitlement to a CPA disability pension - The Saint John Disability Pension that automatically follows without any further proof being offered to the Trustees; or (2) Satisfying the Trustees that the member meets the definition under the Pension Act. The majority of disability pensioners earned their entitlement to a disability pension by first qualifying for CPP and without obtaining any decision by the Trustees. I will give more details on that in a later section of this presentation addressing the administration of this presentation. There have been no substantive amendments to the disability section since 1994. (5) Amendment Procedure The fonnal power to amend always rests with the legislature. Initially, the 1947 Act made no reference of any process leading to a recommendation for amendments. From 24 18 our review of the legislation, all amendments to the plan have been made at the petitioning of the City of Saint John, except for a 1963 amendment which was petitioned for by the Board of Trustees. In 1978, the responsibilities of the Trustees were amended with the addition of a duty to make recommendations to Council from time to time regarding amendments to the plan. (6) Reporting to Council and members From 1947 through to the present time, the Act required annual reporting by the Trustees to Council and the members or their representatives, both in the form of a report and a financial statement. VII. TRUSTEE ACTIVITIES I want to provide you with some brief explanation about what the Trustees do on a month to month basis. This slide provides a list of relatively common items that might show up on the Trustee's agenda at any given time. Trustee activities include everything from meeting with the asset consultant API to review the performance of the fund, meeting with individual fund managers, and interviewing potential fund managers. There are regularly items relating to disability claims by individuals. These may include: 25 19 (1) Simple notification that an individual has qualified for CPP disability, in which case that person is then disabled for purposes of the Saint John Pension Plan; (2) A request by an individual to commence pension, along with Lifemark's recommendation; (3) A report from Lifemark regarding their review of a on-going disability pensioner. The Trustees adopt an annual budget with respect to expenses and review that on a quarterly basis. They also deal with other benefit administration matters, such as entitlement to benefits or determination of benefits in the event of any ambiguity in the plan provisions. The Trustees also participate in educational programs. There was an education policy adopted by the Trustees in 1996 and reviewed and amended in 2007. This policy imposes a mandatory training requirement on each Trustee. This is a usual requirement for pension trustees and part of the fiduciary duty that trustees collectively owe to the beneficiaries. The Trustees belong to the International Foundation for Employee Benefits which is the internationally recognized organization for jointly trusteed pension plans dedicated to employee training and education. Trustees periodically attend those programs. The most recent Canadian program was in 2008 in Halifax.. A number of Trustees attended that program. 26 20 A couple of the questions raised the issue about why the Trustees attend programs in Florida. The Trustees generally decide on the appropriateness of programs based on their content. In that particular case, the International Foundation was offering a program which the Trustees felt to be of value and which they attended. The Trustees also attend other local sessions organized by entities such as the Canadian Pension Benefits Institute and the Association of Canadian Pension Management. Conference and expense amounts in 2008 were $54,671. The Q&A document discloses the amounts back to 2001. Overall administrative expenses for the plan, including Trustee expenses, are tracked and disclosed as part of the audit at the end of the year. Every year, there is a schedule in the audited financial statements that fully discloses administrative expenses. We have looked to attempt to determine how the administrative expenses for the Saint John plan compare to other plans. The most recent comparative information that is publically available is a Canadian Pension Plan Survey carried out by Aon Consulting Inc. and FEI Canada released in 2008. This survey has comparative information for plan fees and expenses for the year 2006. The survey indicates that the median plan fees and expenses as expressed as a percentage of assets was 0.72%. For the same time period, the Saint John plan assets were $365,763,136 as at December 31, 2006. Expenses for the year 2006 based on the 2006 audited financial statements 27 21 were $2,116,408. Fees and expenses when expressed as a percentage of assets are about 0.73% on a time weighted basis, essentially the same as the 0.72% median suggested in the survey. The usual level of expenses over the period from 1995 to 2008 is 0.60%, which compares well with the median. VIII DISABILITY PROVISION A. ITA changes in 1992 The federal Income Tax Regulations (Canada) were extensively amended in 1992. Among other changes, the definition "totally and permanently disabled" appeared in Regulation 8500. It set out a fairly "any occupation" test, and required that an individual suffer from a physical or mental impairment that prevented the individual from engaging in anv employment for which the individual is reasonably suited by virtue of the individual's education, traininv or exverience. A number of the questions asked who determined whether a member is disabled? Under the Regulations, a plan administrator must receive a written report from a licensed medical doctor that provides the information necessary for the administrator to determine that the member is totally and permanently disabled. B. Plan change in 1994 28 22 The Plan was amended in 1994 to reflect the new ITA requirements outlined above. This introduced a far more restrictive definition of disability than the plan had previously contained. [INSERT DISABILITY SUMMARY OF DISABILITY DOCUMENT] I have been asked to provide information with respect to the current status of the disability provision followed by an explanation as to the recent history dating back to the beginning of this decade and before. Current Members As at December 31, 2008, there are 79 people under the age of 65 receiving disability pension. Of these 79.22 are receiving their pension under the old definition (the "own occupation" definition) and therefore went out on disability pension prior to 1994. 57 people are receiving their disability pension under the new definition of "any occupation" and, therefore, began receiving their disability pension subsequent to 1993. As 1 mentioned previously, there are two routes to get a disability pension. An applicant can obtain the CPP disability pension, in which case the Saint John disability pension must be paid automatically. Alternatively, the individual can make separate application to the City of Saint John Pension Board and satisfy the criteria in the Pension Act. 29 23 Of the 57 receiving a disability pension under the new definition, fully 40 of those 57 are also receiving CPP. Thus, for those 40, the Trustees have no discretion or decision whatsoever. They are obligated by the Pension Act to award these individuals a disability pension. That leaves 17 who are receiving disability due to an actual decision made by the Trustees. Of these 17, 5 were added in 2006 or later and were approved under the new independent adjudicative process led by Lifemark. The remaining 12 which predate this process have now been reviewed by the Board with the assistance of Lifemark and legal counsel with a recommendation made that their pensions be continued. The Board has accepted that recommendation and decided to continue the pensions of these 12 individuals, subject to an ongoing review as provided under the Pension Act. Current Costs Those are the numbers of members. Let me mention current costs. The last valuation of the pension plan was done as of December 31, 2006. Subsequently, further work was done to estimate the additional value of the pension disability liabilities as of December 31, 2006. The annual ongoing cost to provide the disability provision for future expected disabilities is estimated at 0.68% of payroll, which amounts (in 2007) to $346,000. For the existing liabilities of the plan, the actuary has estimated the disability 30 24 liabilities beyond the liabilities associated with the regular pension plan. Morneau Sobeco estimates these to be approximately 7.1% of the plan°s total liabilities, which equals $28.2 Million as of December 31, 2006. So this is a summary of the current situation and both Mr. Lewis and myself certainly invite questions at the end of the presentation regarding the current status of the administration of this provision. 1 also, however, wanted to take some time to go through the development of events dating back to the beginning of this decade. This information has been assembled from our review of the relevant actuarial reports, our review of Trustee minutes, and the input of Trustees who were involved at the time. 31 25 Disabilitv Timeline It is important to remember that all disability pensions at that time had been granted on the basis of advice of an independent medical practitioner. Individuals seeking a disability pension have always been referred to an independent medical practitioner. That physician would then provide the Board with a written opinion as to whether the person meets the definition of disability under the plan. In every case, the Trustees acceptance of an application had been based on the advice of a physician providing the Board with a certification that the applicant is totally and permanently disabled within the meaning of the Pension Act. The physician's letter reviewed the medical condition of the Member, prognosis, ability to work, and concluded with the following statement: "It is my opinion he (or she) is suffering from a physical (or mental) impairment that prevents him from engaging in any employment for which he is reasonably suited by virtue of his education, training or experience and that this can be expected to last for the remainder of his lifetime." Thus, every disability pension was granted on the basis of this certification by and advice from a qualified medical professional. The first indication in the minutes that any Trustee is uncomfortable with the approach arose in 2001. At that time, discussion amongst the Trustees began in relation to certain applications for disability pension as to whether the individual actually met the definition, 32 26 notwithstanding the medical advice. These concerns eventually appeared to gain some urgency and in 2002, the Trustees asked that Andrew Beckett, then the Treasurer for the Pension Board, develop and bring forth a discussion paper on issues with respect to disability management. This report was presented to the Board in January 2003. It raised a variety of issues regarding the approach to disability management, including whether the Board is satisfied that the Plan provisions were being adequately interpreted by the Board's medical adviser. 1 want to add that I have personally reviewed the minutes for the Trustees meetings for 2002, 2003, 2004, 2005, and 2006. There is a lot of reference to the Pink report which I will talk about later. However, the first report is the Beckett report - prepared at the request of the Trustees and which identified the issues that needed to be addressed. It is important to know that this issue was first identified by the Trustees and the subject of an initial report prepared by a Trustee. Further, once this issue was one that was raised as a concern, it remained on the agenda of the Trustees until it was addressed. I would like to take you through some of the details of what the Trustees did to address this issue. The Trustees agreed to hold a special meeting to review this matter in detail. This meeting was held in February, 2003. A decision was also made to seek legal advice. The subject of the appropriate administration of the disability provision was discussed with the plan actuary, Fred Lewis, on April 15, 2003. Advice was received in a letter from the Board's solicitor dated August 13, 2003. 33 27 By the Trustee meeting of August, 2003, the Trustees had received the legal opinion indicating that the Board should be obtaining more advice than simply a medical opinion. Concerns were also raised about the cost of disability pensions. A special meeting was arranged for September, 2003. In September 2003, the Trustees decided to prepare a notice to all members that the Board would be reviewing the administrative procedures regarding disabilities outlined in the City of Saint John Pension Act. The Board also resolved to retain a consultant with expertise in disability matters to meet with the Board. In October, 2003, the Board decided to request that the Board's medical physician attend a meeting of the Board to explain how he evaluates an employee who has applied for disability pension. The Board also decided at that time to seek further legal advice from Ron Pink, a Halifax lawyer. The meeting between the Board and the Board's physician occurred on October 29. 2003. The meeting with Ron Pink occurred on November 5, 2003. Following those meetings, the Board decided that no further disability applications will be considered by the Board until the Board had adopted a new policy with respect to disability applications. A letter was forwarded to all employees to inform them of this decision. This is a key date - all disability pension approvals stopped in November 2003. 34 28 The Board received written advice from Ron Pink and its regular counsel in December, 2003, on the subject of disability management and scheduled a special meeting in January, 2004. At that meeting, the Board decided to locate a firm that would assist the Board in preparing a call for proposals for the selection of a third party disability manager. The Board interviewed three potential firms and selected Bill Leudy of Leudy Consultants Inc. on March 8, 2004. Mr. Leudy first met with the Board on March 25, 2004. In 2004, he led the Board through a series of discussions with respect to the various approaches that could be taken to adjudication or disability. Separately, in 2004, the valuation process was underway for the 2003 valuation. As part of a reconciliation process from valuation to valuation, the actuary reviews the actual experience in the plan as compared to various valuation assumptions. In reconciling the results of the December 31, 2003 valuation (which was done in 2004), the actuary determined that the incidence of disability was considerably higher than had been assumed. The valuation results were a confinnation of the higher than expected disability incidence that the Board was already examining. The Board approved the call for proposals for a disability advisor in January, 2005. The Board reviewed the proposals in April 2005, and interviewed the finalists in May and June, 2005. The Board approved the hiring of Lifemark on July 6, 2005. Lifemark and the Board worked together to develop the process to be followed for the balance of 2005. That process took effect in January, 2006. 35 24 It was only when the Lifemark process became effective that the Board began to consider new applications for disability pension. No new disability pensions were approved from November 2003 until January 2006. Lifemark Review of Existing Disability Pensions Lifemark was sent 67 files to review which consisted of all of those disability recipients under the age of 65. That review process continued over the next 2 years. As a result of that review process, 10 disability pensions were stopped. 4 returned to work, 5 continued on regular pensions, and I pension was stopped with no return to work. Cost of the 10 Pensions The cost of the 10 pensions has been calculated by Morneau Sobeco at an estimated $1.1 Million. This includes both pension payments between the start of the pension and the cessation of the pension, as well as contributions that the member did not make as a result of being on disability pension. It is difficult to know what exact amount is attributable to the error in applying the definition that arose early this decade. It would be some portion of the $1.1 Million, but probably not all of it. I say that for the following reasons: 36 30 (1) It is not necessarily the case that the individuals who are removed from pension would not have been approved if the definition had been applied appropriately early this decade. When the review occurred by the Board with Lifemark's assistance, the Board, and its advisors, at that point, bad the benefit of 4 to 6 additional years of evidence in terms of activities being performed by the member in that time period as well as further medical reports. That additional 4 to 6 years of evidence was not available to the Board or the examining physician when the pension was originally granted. It may well be that the pension would have been granted in any event. One really cannot know or predict what the likely outcome would have been, (2) If these individuals did have the appropriate definition applied and had been rejected, it is not necessarily the case that they all would have remained at work and continued making contributions to the pension plan. Some may not have met the "any occupation" definition of the pension plan, but may still, nonetheless, have been unable to perform their own occupation or other suitable City occupation. In this case, the pension fund would not have received the contributions from these members in any event. Thus, it is possible to say that the $1.1 Million amount is the outside estimate of what the cost may have been. However, it is not possible to say in any meaningful way what proportion of the $1.1 Million is likely attributable to the error in applying the definition. 37 31 Present Process Existing Pensions For existing pensioners, Lifernark at present reviews all disability pensioners who are receiving a CPP pension on an annual basis to verify that they are continuing to receive the CPP disability pension. Lifemark also reviews other existing disability pensioners on a periodic basis to verify that they continue to meet the definition. Those who are improving are reviewed more often. The files of those with severe impairments are reviewed every one to two years. New Applicants A new process has been put in place to address new applicants for disability pension. Obviously, under the Act, those individuals awarded a CPP disability pension continue to automatically receive the City of Saint John disability pension. For other applicants, the Trustees have established an independent adjudicative process with the assistance of Lifernark consisting of an independent review, the gathering of independent medical and occupational evidence, a fair hearing for the Member, followed by a decision by the Board. There is a provision for a further review, submission by the Member to the Board, and decision by the Board if needed. 38 32 The Trustees are confident that they have engaged the appropriate expert advisers to properly administer the disability provision. The current incidence of disability is in line with what one would expect from the general population - approximately 4 per year as a long term average. As noted, the ongoing annual cost for the disability provision for active members is $346,000. There were a number of questions asked about the feasibility of a private LTD insurance policy administered by an insurance company. That is obviously not an option under the current Act which grants statutory rights to an individual if they meet the criteria. However, amendments to the Act are certainly feasible to move to a private LTD system. It would, however, be a mistake to think that a private LTD system would automatically be preferred. There are a number of advantages and disadvantages to offering disability through an LTD insurer. If Council wishes to pursue that, it would be appropriate to request that further information be obtained. Ultimately, it is the role of the Trustees to administer the Pension Act's current provisions, which include a disability provision. If the Act is ever changed to remove the disability provision, obviously the Trustees will proceed to administer the Act in its amended form. Ouestions on Disabilitv A number of questions raised issues with respect to the approach concerning disability management, return to work, and some of the proactive measures to reduce and actively manage disability in the workplace. All of these are good questions but not within the Board's jurisdiction. Those are all the responsibility of the City as employer. The Board 39 33 can only operate under its statute. Unfortunately, the statutory constraints are fairly rigid. A benefit entitlement is provided as set out in the statute. If the Board receives an application from someone that meets the definition, then the Board is obligated to pay the benefit. If the person does not meet the definition, then the Board is obligated to decline the application. The statute grants no discretion to the Board to become more proactively involved in disability management in the workplace. That effort must be carried out by the City. One question which was repeatedly asked is how common is it to have a disability provision with a pension plan versus a private plan of insurance? The Disability Provision of the Plan has been in place since 1947. This was a common way for an employer to provide disability benefits to its employees in 1947. Although not as common in today's pension industry, the provision of disability benefits in the Pension Plan is not unheard of. The legislated disability benefits have remained in the Plan since 1947 and the Trustees are obligated to administer these benefits in accordance with the City of Saint John Pension Act until the legislation is amended otherwise by the Legislative Assembly. Another question is, are there examples of other pension plans including LTD coverage within their pension plan being financially successful? Generally speaking, pension plans 40 34 are experiencing deficiencies industry wide as a result of the decline in equity markets and as a result of the aging Canadian population. We are not aware of any pension plans which are experiencing a deficiency solely as a result of including a disability benefit program within the plan. Another question asked was, would it not be preferable to provide LTD coverage through a separate insurance plan with a qualified carrier? The City or Saint John Pension Act has always contained long term disability benefits. There was a reference as I mentioned to the possibility of other insurance or a by-law, but we are unaware that this was ever pursued. It has not been in the Act since 1994. A comparison of the cost of providing a long term disability within the Plan versus providing a separate long term disability plan through a qualified carrier has never been conducted by the City of the Saint John, to our knowledge. It has not been undertaken by the Trustees given that the Trustees duties are to administer the benefits provided for in the existing Plan. If such a study was done, it could only address future disability claims, as those currently receiving disability benefits would continue to be entitled to disability benefits under the Plan. IX FUND INVESTMENT FUNCTION API ]To be provided by Vaino Keelman] X LIABILITIES OF PLAN - Fred Lewis 41 35 To be provided by Fred Lewis X1 ERNST & YOUNG - Robert Crowley To be provided by Bob Crowley X11. Council's Recent Plan Reform Considerations A number of the questions asked what reforms of the Plan have been considered to address the deficiencies reported in the Plan. Beginning in 2002, Council has considered various potential changes to the plan in response to the financial challenges presented with funding the plan. It is important to review these so that the present Council can have a sense of the changes that have been considered by Council over the years and the results of those various discussions. The first report to Council following the decline of the stock markets early this decade occurred in 2002. Between 2002 and 2008, the pension plan was on Council's agenda over 26 separate times. This included various reports form management that recommended changes to the governance of the plan, changes in contribution, reductions in benefits and exemptions from the solvency exemptions. Reports were obtained form Momeau Sobeco providing various costings. Employee groups made presentations on the same subjects. Ultimately, 42 36 there was an agreement reached on March 26, 2007, which has been implemented. This agreement consisted of the following: (1) No reduction or enhancement of benefits for the 3 year period to December 31, 2009; (2) Solvency funding exemption will be sought; (3) 3 year increase in contributions for employees; (4) Commencing in 2010, employee contributions will be 50% of current service cost but within a range of 7.5% to 9%; (5) Employer is responsible for making contributions above that with a rate of 7.5% commencing in 2010; Important to emphasize that when the recent funding challenge arose early this decade, eventually, consensus and success was achieved. Not easily, not quickly, but it was achieved. XIII. Next Steps There have been various suggestions related to the calling of a public inquiry into the pension fund. I was involved in a recent public inquiry in Nova Scotia on a subject unrelated to pensions. I was asked by the Trustees to provide my own observations with respect to the subject of a public inquiry. A public inquiry always benefits two groups - The lawyers, because everybody hires legal counsel to be represented at the inquiry, and the media because during the public 43 37 inquiry, the media have a guaranteed news story every day without any effort. Whether the public actually benefits from a public inquiry is another question altogether. That depends on the terms of reference, the subject matter being investigated, specifically what is to be gained, and the commissioner appointed to carry out the investigation. In any public inquiry, unless the commissioner is a sitting judge, the commissioner must be paid for his or her time. The commissioner will then hire commission counsel to conduct the proceedings. Normally, two commission counsel are required - one to conduct the proceedings and one to prepare for the future proceedings. Commission staff are also required to deal with management of the inquiry process - location, advertising, and other related matters. Other parties will likely hire counsel. There may be a demand for further expert witnesses. There may be disputes about interpretation of the terms of reference and other legal issues. Ultimately, public inquiries are extremely costly and very time consuming. My own view is that there would simply be no way that any public inquiry into this pension plan could be conducted for a total cost that did not reach into seven figures and potentially a multiple of that amount. Just by way of example, the total costs to the pension fund simply in preparing the responses to these questions and organizing the presentation today with the attendance of the Board's advisors is estimated at approximately $100,000. The final point that the Trustees would like to leave with Council is the issue of future reporting. The financial challenges faced by the Plan are significant. Ultimately, it is of 44 38 course. Council°s responsibility as sponsor to address the matter. However, if it is Council`s wish. the Trustees can certainly assist Council in providing; information and possibly advice. The financial challenges faced by the Plan are unprecedented but shared by pension plans internationally. The Trustees have only had the opportunity just this week to receive the year end results presented today. There has been no opportunity to discuss an appropriate course of action. The Trustees are meeting with Mr. Keelmann this month coming up to review the year end results and make any changes in the investment policy. With the investment policy finalized, the Trustees are prepared to develop various options for consideration or action by Council. The Trustees suggest that they can return to Council with a further update in early April. Questions As indicated at the outset, we have endeavoured to answer all of the questions that have been filed with Council through the course of this presentation. As well, we have provided written answers to all of the questions through the binder made available in Council Chambers at the outset of this morning. As His Worship indicated that we would take additional questions, I welcome those questions at this time. The questions can be directed to any advisor or to all of us. We are happy to take questions either from Council or the public. 45 The City of Saint John Pension Plan Notes re January 31, 2009 Presentation to Common Council by Fred Lewis Actuary's Role The Pension Benefits Act (PBA) establishes the minimum annual funding requirements for a pension plan and the Income Tax Act (ITA) puts limits on the maximum amount that can be contributed to a registered plan in any given year. Both Acts require that the administrator of a defined benefit pension plan have a valuation done at least once every three years by a Fellow of the Canadian Institute of Actuaries (CIA) to determine the funding status of the plan and the minimum and maximum funding requirements. The valuations must be done in accordance with the requirements of the PBA and the ITA which, in turn, reference the standards of the CIA governing such valuations. The CIA standards specify what elements must be included in a valuation and in a valuation report. They require that the actuary be able to justify the reasonableness of the assumptions and methods used in the valuation and that they are adequate and appropriate for the plan being valued. The regulatory authorities have the power to reject a valuation report if they feel that it does not comply with the CIA standards. Such a report could be referred to a CIA committee which is charged with ruling on compliance issues. Valuation Process - Going-concern There are basically two different types of valuations. The first is referred to as a "going-concern" valuation and the second is called a "solvency" or "windup" valuation. The basic assumption underlying a going-concern valuation is that the plan will remain in effect for a long time until the last plan member has died and all promised 46 benefits have been paid. In a going-concern valuation we project the total pension at the retirement date and estimate the amount of money needed to pay the pension for the member's lifetime. For example, for a member expected to retire at age 60 with 35 years of service and an average annual salary of $60,000, the plan would need approximately $609,000 at retirement on a going-concern basis to provide the lifetime pension. We assume that an equal portion of the projected amount is to be funded in each year of the member's career. The amount accumulated for service to the valuation date is calculated (this is called the "actuarial liability' or `'funding target'") and the annual amount needed to cover the benefits which will accrue in the coming year is calculated (called the "normal cost" or "current service cost''). These calculations are done for each active member and the total for all active members is added up. For current pensioners no projection of benefits is needed since the pension amount is known. The amount needed to provide the pension payments for the remainder of the pensioner's lifetime is calculated for each pensioner and the amounts are added to the total actuarial liability. Since we do not know when any individual will retire, what his average salary at retirement will be, when he will die, whether he will terminate prior to retirement or become disabled, and so on, we have to make assumptions for all these unknowns. The probabilities of death, termination and disability are based on statistics from the past experience of insurance companies and other sources. The long-term investment earnings and annual salary increase assumptions must be reasonable and in line with an underlying inflation assumption. The investment earnings assumption must reflect the way the pension fund is invested and is expected to be invested in the future, based on the investment policy. (Normally the pension fund is invested in a mixture of stocks and bonds.) The investment return assumption is involved in calculating the present value of expected future benefit payments and it is the single most important assumption in determining the costs. A small change in 47 the investment return assumption produces a large change in the costs. For example, a reduction of one percentage point in the return assumption would result, for this plan, in about a 13% increase in the total liability. Other assumptions needed would include the percentage of plan members expected to have a surviving spouse at death and the average age difference between the spouses. The valuation model would take account of benefits other than pension benefits, such as benefits payable on termination and on death either before or after retirement. Valuation Process - Solvency For a solvency valuation, the focus is on answering the question "If the plan had been wound up on the valuation date, would there have been enough money in the pension fund to provide all accrued benefits?" In an actual windup, the administrator would offer lump-sum settlements to all those not already retired or not eligible for immediate retirement. Annuities would be purchased from an insurance company to cover the benefits of all those who did not elect a lump-sum settlement or who were already retired or eligible for immediate retirement. In a solvency valuation, we are valuing accrued benefits rather than projected benefits and the assumed retirement age for actives must, by law, be the age which produces the highest liability rather than an estimate of when the members might actually retire on average. The main difference between the assumptions used in a solvency valuation as compared to a going-concern valuation is the investment earnings assumption. For a solvency valuation, the investment earnings assumption must be based on certain current bond rates rather than on what you might expect to earn long-term on a mixture of stocks and bonds. Prior to 2000 the bond rates tended to be higher than the going-concern investment earnings assumption and this produced solvency valuation liabilities less than the going-concern liabilities. However, current bond rates are significantly less than going-concern investment earnings assumptions, 48 and this produces solvency liabilities which are significantly greater than going- concern liabilities. For example, the liability for the 60 year old retiree who was mentioned earlier would be around $837,000 under the solvency assumptions, compared to $609,000 under the going-concern assumptions. If there is a solvency deficiency in a plan which exceeds the going-concern deficit, then the PBA normally requires higher minimum funding payments than if funding was based only on the going-concern results. However, since the City of Saint John plan has obtained exemption from the solvency deficiency funding requirements, my remaining discussion will focus on the going-concern valuations. Valuation Process - A Very Simple Illustration Before I get into the history of the actual valuation results in the plan from 1997 to the present, I would like to briefly discuss a very simple example which I hope will illustrate some basic principles of funding. Suppose you have promised to pay someone $10,000 at the end of 10 years. One approach would be to wait until the payment is due and hope that you have $10,000 available then. But it would be prudent to follow some pattern of saving up the $10,000 over the ten year period. You could just put away $1,000 in each of the ten years and you would then certainly accumulate the $10,000. However, the money you put away could be invested and part of the $10,000 could come from investment earnings. Let's say you choose a pattern of annual contributions in which you put away an amount each year which you expect will accumulate with investment earnings to $1,000. If you do this every year for ten years, you will end up with an accumulated amount at the end of ten years of $10,000 so long as the fund earns what you assumed it would earn. 4 49 Let's say you assume that the fund will earn 8% per year, every year. You can calculate that, if you invest $463 at the beginning of the first year, and if it earns 8% per year for the next ten years, then through the magic of compound interest, the initial amount will more than double to $1000 by the end of the ten year period. (The amount of $463 is known as the "present value" of $1.000 payable in ten years, assuming 8% per annum interest.) What about the second year? Since you have one less year to earn interest, you have to set aside a larger amount to accumulate to $1,000. In this case the second year contribution would need to be $500. The third year contribution would need to be still higher, and so on. The next thing you will note is that as well as being able to calculate how much you need to put away every year under the 8% assumption, you can also calculate what your asset balance should be at the end of every year if your investment account actually earns 8% every year. Thus, at the end of three years you would expect to have accumulated 51,750. This is your "funding target" at the end of three years. In pension funding terms it would be known as the "accrued liability'". The amounts you put away every year would, in pension terms, be known as the "normal cost". In a pension plan the promise is not one payment in ten years but monthly payments of an unknown amount starting when the member retires and continuing for as long as the pensioner lives, with amounts continuing to any surviving spouse. The pension valuation model gets quite complex and, as described before, incorporates many assumptions other than just the investment earnings assumption, but the basic principles are illustrated by this simple model. The annual normal cost for any individual increases in a pension plan throughout his career but if there is a reasonably constant mixture of older and younger plan members, the average normal cost tends to remain constant as a percentage of earnings as long as assumptions are not changed. Let's say at the end of six years in the simple example you check your investment account and the accumulated value is exactly equal to the funding target of $4,410. It 50 has earned 8% per annum up to now. But assume you have reason to believe that the account will not earn 8% per year for the final four years, and you can only expect an annual rate of, say, 6.75%. If you calculate the annual contribution you have to make which will accumulate to $1,000 in four years at 6.75% you will find it to be $770. This is greater than the $735 annual contribution you would have had to make if the earnings rate continued at 8%, which is not surprising since, with less investment earnings corning in, a greater proportion of the $1,000 must be provided by the contributions. Reducing the expected return over the last four years increases not only the remaining annual contributions that have to be made but also increases the accrued amount that must be on hand. Under the original 8% assumption, the $4,410 accumulated at the end of the sixth year from the first six annual contributions would accumulate to $6,000 at the end of ten years. However, if that amount will now earn only 6.75% per year, the accumulated amount from the first six contributions will be only $5,727. You will be $273 short. So if you will only earn 6.75% per annum in the final four years, in order to have $10,000 at the end of ten years, not only will you have to increase the regular annual contributions you were expecting to make but you will also have to put in an extra $58 a year to accumulate enough to cover the $273 shortfall. This is analogous to amortizing the unfunded liability in a pension plan over a number of years. This simple example reflects the concept introduced earlier by Mr. Wright that the three main components of pension funding are the level of contributions going into the fund, the investment earnings on those contributions and the amount of the benefit payments going out of the fund. If the amount of actual investment earnings is less than you assumed in setting the level of annual contributions then, if you are to pay the same benefits already promised, the contributions have to increase. If you do not increase the contributions, then the only other option left in the absence of increased investment earnings is to reduce the benefits promised. In our simple example, if you continued to make the annual contributions in the last four years based on the original 51 8% assumption but if the actual earnings in that period was only 6.75% per year, your accumulated balance at the end of ten years would be $9,612. Keep this in mind when we discuss the 2006 valuation results. Asset/Liability Reconciliation Mr. Wright has already given a brief description of several benefit increases which were made to the City of Saint John pension plan over the 1990s and which increased costs. It was very common for plan sponsors to increase benefits in the 1990s. All of the plans 1 am aware of did so at least once in that decade. In the City's plan there was another reason for increasing benefits because, without the increases, the annual costs payable by the City in accordance with the finding restrictions in place would have been less than the 7% of payroll minimum specified in the plan text. 1997 We pick up the funding situation at December 31, 1997. The valuation as at that date showed that the market value of assets exceeded the accrued liability by $20.2 million. (Please note that all of the amounts given in the "Asset/Liability Reconciliation- slides are to the nearest one-tenth of a million dollars.) Of the $20.2 million surplus, $6.9 million was held back as an investment reserve. Costings of certain ad hoc increases to current pensioners and a 1 % automatic indexing of benefits related to years of service between 1975 and 1992 were done in the December 31, 1997 valuation and the changes were approved in 1999 to take effect January 1, 1999. These changes increased the liability at December 31, 1997 by $12.1 million, leaving a surplus of $8.1 million (of which $6.9 million was treated as an investment reserve). There have been no other plan changes which increased valuation costs since the changes effective January 1, 1999. 7 52 The benefit changes did not affect the annual normal cost which the valuation revealed to be 15.5% of payroll, of which 8.5% would be covered by employee contributions, with the remaining 7% covered by the City's contributions. Based on the payroll at the time, the amount required to cover the benefits accruing for the 1998 service year (i.e., the normal cost) was $6.5 million. The actual contributions in 1998 were $3.6 million by the employees and $2.9 million by the City, which covered the total normal cost. It is important to note that, since there was a remaining surplus in the plan, under the ITA rules the City's contributions could not exceed the $2.9 million balance of the annual normal cost. It is also important to note that the City did not take a contribution holiday. Pension payments in 1998 were $11.2 million. This is shown as a negative number because it obviously reduces the assets. It also reduces the liability because making a pension payment means you have reduced by one the number of future pension payments you have to make and thereby reduce the liability for future payments by that amount. Payouts of lump-sum settlements to terniinating employees also reduces both the assets and the liability. The decrease in liability is never exactly equal the amount of the payout but it is approximately so. On the liability side we show the amount of investment earnings we expected in the year according to the valuation model as $16.6 million. This amount was based on the assumption of 8% investment earnings, after payment of all expenses. (Since the total expenses averaged around 0.6% of assets, this means that the annual the annual return before expenses had to be around 8.6%.) The actual return on assets in 1998 before expenses was 10.2%, giving investment income of $22.1 million. Total expenses were $1.4 million, for an net return of $20.7 million. This was $4.1 million more than needed to keep the assets on track with the expected liability and this led to an increase in the surplus from $8.1 million to $12.2 million at December 31, 1998. 8 53 1999 In 1999 we see a similar unfolding of the assets and liability over the year. The nonnal cost of approximately $6.5 million was again completely covered by employee and City contributions. (The $100,000 excess of the City contributions over the amount required is an artefact of the rounding to $0.1 million in these approximate roll forward calculations.) 1999 was a good year for investment returns (at 18.3% before expenses) leading to a net gain from excess investment earnings of $23.5 million and to an increase in the surplus to $35.8 million at December 31, 1999. (Again, due to rounding to the nearest $0.1 million not all numbers add up exactly.) 2000 In 2000 the annual current service cost was again completely covered by employee and City contributions. The investment return in 2000 at 5.8% before expenses was less than the 8% actuarial assumption used in developing the accrued liability target and this led to a net loss from investment earnings equal to $5.0 million. A valuation was done as at December 31, 2000 and this revealed that there had been a loss over 1998 to 2000 from retirements earlier than assumed of $5.1 million and a net gain from all other sources (aside from assets) of $3.2 million. We did not try to break the retirement loss into what might have been caused by disability retirements different from assumed and what was caused by age retirements different from assumed. The retirement assumption was strengthened for the valuation. This increased the accrued liability by $4.7 million and increased the annual normal cost from 15.5% of payroll to 16.0%. 9 54 Despite the investment return being less than expected plus the loss from retirements earlier than expected and from the strengthening of the retirement assumption, the surplus shown by the December 31, 2000 valuation was still substantial at $24.3. It is worth noting that, if the surplus had been as little as $800,000 higher, the ITA rules would have required the City to cease making contributions, at least temporarily. 2001 In 2001 the City's contribution rate increased from 7.0% of payroll to 7.5% and the $3.3 million contribution from the City completely covered the required contributions. 2001 is the first year in those we are examining in which the fund actually lost money. The return was a negative 4.4%, before paying expenses caused by a general down-turn in the markets. The fund lost $13.1 million after paying expenses. But the fund needed a positive return of $19.8 million after expenses to meet the funding target. This meant a difference of $32.9 million between what was needed and what was actually earned. As a result, there was a deficit or unfunded liability of $8.6 million at the end of 2001. It is important to note that the estimated liability of $264.4 million at December 31, 2001 assumes that all assumptions were exactly realized - including the assumption that that age and disability retirements were exactly as assumed. The reduction of the $24.3 million in surplus to a deficit of $8.6 million over the course of only one year is due solely to the negative 4.4% return in assets before expenses. 2002 2002 was another difficult year in the financial markets and the investment return was again negative, being -3.6% before paying expenses. Assets went down by $31.4 million after paying expenses. A positive return of $20.9 million after expenses was needed to keep on track with the increasing liability funding target. As a result, the 10 55 deficit increased from $8.6 million to $40.1 million in one year, due solely to the negative return on assets. Please note that the small negative difference in the actual City contributions versus the required is due to rounding. The City again contributed the full required contributions. The positive figure in the "Refunds, transfers" line is a result of transfers into the plan from a reciprocal transfer agreement being $300,000 greater than the amount of lump-sum settlements paid out of the plan in the year. 2003 2003 was a year of some recovery in the investment return. Before expenses, the fund earned 12.8%. However, there was only 5238.6 million in assets to earn the 12.8% on. The plan needed 8% on the initial liability of $278.7 million. Nevertheless, the investment return was high enough that there was a net gain of $5.9 million from excess investment returns. December 31, 2003 was another valuation date. The valuation revealed that there was a loss of $6.7 million from retirements different from assumed. We investigated this further and estimated that $4.5 million of this amount was due to higher than expected disability retirements, with the remaining $2.2 million arising from earlier than assumed age retirements. Action has been taken to strengthen administration practices in the area of disabilities as has been described by Mr. Wright. Part of the $2.2 million loss from age retirements different from assumed probably arose in connection with an early retirement program which took place in 2003. In previous valuations, future expected disability costs were assumed to be funded over 30 years. We effectively shortened the assumed funding period and this increased the liability by $4.3 million. There was a net gain of $1.6 million from all other sources (except assets). 56 The resulting unfunded liability shown in the December 31, 2003 valuation report was $43.6 million. The PBA requires that contributions to a plan be increased when an unfunded liability develops. 2004 2004 was another year of higher than expected investment returns. The return of 11.6% before expenses reduced the deficit by $4.2 million to an estimated $39.4 at December 31, 2004. Please note that the asset figures shown in this summary for 2004 and 2005 do not agree with the figures that were shown in the auditor's report at the time. Based on the PBA rules in place at that time, the City would have been required to make additional special funding payments based on the solvency deficiency which had developed in the plan for the first time at December 31, 2003. The audited financial statement included an estimate of the amount of those funding payments as a receivable. The City made no special payments in either 2004 or 2005, pending a resolution of how much was owed and how it would be paid. In the end the PBA rules were changed to allow an exemption from the solvency deficiency funding rules for municipalities. The City made special payments for 2004, 2005 and 2006 (plus accrued interest) in 2006 based on the December 31, 2003 going-concern funding results. The 2004 and 2005 auditor's reports overstate the amount ultimately owed by the City and thus overstated the assets for those years. For purposes of this summary I have shown the assets in those years without including any of the special payment amount ultimately paid by the City. 2005 12 57 The investment return in 2005 before expenses was 17.4%. This reduced the projected deficit to $18.4 million. (This does not reflect any special payments owed by the City as explained above.) 2006 2006 was another banner year for investment returns and the fund earned 16.4% before expenses. This resulted in a net gain of $23.0 million from excess investment earnings. Also, the City made up the 2004, 2005 and 2006 special funding payments which added approximately $12.6 million to be applied to reducing the unfunded liability. If there had been no changes in valuation assumptions, the valuation that was done as at December 31, 2006 would have shown a surplus of around $18 million. However, due to the continuing low level of inflation, low bond rates and other reasons, it was not possible to continue using a long-term investment assumption of 8.0% after expenses. While the 8% assumption was at the upper end of the acceptable range in the 2003 valuation, by 2006 neither I nor my colleagues in Morneau Sobeco nor my peers in the actuarial profession would accept a long term future investment return that high. In addition, it was known that the Superintendent would not accept a report using an investment return assumption that high. The return assumption was reduced from 8.0% per annum after all expenses to 6.75% per annum after investment expenses. (The non-investment administration expenses are now assumed to be covered by a loading on the annual normal cost.) As we saw previously in the simple example, reducing the assumed investment return leads to an increase in both the annual normal cost and the accrued liability. The December 31, 2006 valuation revealed that there had been a gain of $1.9 million over 2004 to 2006 from disability retirements being less than assumed. The disability incidence assumption was changed to be based on the disability experience under the 13 58 Canada Pension Plan. The annual salary increase assumption was reduced from 4.5% per annum to 3.0% per annum and the mortality assumption for actives was strengthened. The net result of the change in assumptions was to increase the liability by $49.2 million and to increase the annual normal cost by 3.9% of payroll. The resulting unfunded liability at December 31, 2006 was $31.0 million. 2007 In 2007 the City continued to make additional special payments to apply towards reducing the unfunded liability in accordance with the PBA requirements. Also, the employee contribution rate was increased to 10.5% of pay effective May 1, 2007. The net amount of employee plus employer contributions over and above the normal cost and non-investment administration expenses was $2.9 million. Unfortunately, 2007 was another year of downturn in the markets (2.5% return before expenses) and the net investment return was $7.7 million whereas $26.5 was needed to cover the expected investment return. As a result, the estimated unfunded liability increased to $47.1 million. 2008 The City continued to make special funding payments over and above the payments needed to cover the balance of the normal cost. The net amount of employee plus employer contributions over and above the nonnal cost and non-investment administration expenses was $3.3 million in 2008. Please note that the assets in this summary for 2008 are preliminary and unaudited. 2008 was a disastrous year in the financial markets. Based on preliminary estimates the fund lost $73.7 million before investment expenses. When added to the $27.7 million in expected return (based on the 6.75% actuarial assumption) and the $1.5 14 59 million in investment expenses, the fund was out by an estimated $102.9 million, leading to an estimated unfunded liability of $146.7 million at December 31, 2008. The minimum total required employee plus employer funding payments in accordance with the current PBA rules at this level of unfunded liability would be between 44% and 45% of payroll. Summary In summary: 1. It was not unusual to have benefit increases in pension plans in the 1990s. There was tremendous pressure for such increases and they were made in most plans. If benefits had not been increased in the City's plan then the City would have been prevented by the ITA rules from making the minimum contributions of 7% of payroll set out in the plan provisions, and probably prevented from making any contributions in a number of years. 2. The City made full required contributions in every year and never took a full or partial "contribution holiday". 3. The plan had some years with good investment returns and some years with poor returns. This is true for pension plans in general. Over the period from 1997 to 2008 the plan had more years of good returns than years of poor returns. The years of poor returns generally occurred in years when there was a general downturn in the financial markets. 4. Although earlier than assumed age and disability retirements were responsible for some of the unfunded liability, by far the most significant reasons for the development in the unfunded liability were the market downturns and the need to strengthen valuation assumptions. 15 60 PRESEN ATION w`0 COMMITTEE OF THE WHOLE MEETING OPEN TO THE PUBLIC e 0 61 Agenda 1. Overview 2. Regu story Regime 3. Key Participants 4. Ferguson C aim 5. Pan Provisions - Historica Overview 6. Trustees Activities 62 Agenda co nt dl •Sability provision Kee.mann, App VaMo Sob eco n~etment LeW~s~ ~lorneau St Fred & Young 9 , p .an Liabilities -Robert C ro`n►\ey' Ern _2002-2409 10.AudItor5 erations gelOrm Cons~ld ,11yensWn 12.t4ext Steps ,3.auesf'Ons 63 Time Investment Contributions Administration Benefits 64 Regulatory Regorne Pension Benefits Act -Minimum Standards Legis ation - Protects Vested Benefits 40 ncome Tax Act (Canada) - Registration required - Limits Tax Deferra 65 Key Partecipants 'n the Plan • Legis ative Assemb y • Trustees • Common Counci • Emp ogee Groups • City Administrative Staff • Service Providers • Conf ict of nterest 66 `eg S aflive AsseMbll . authority votes 0-t imate ority Introdu~ed' 3 ma . B-Im a key features Contro's Governance .bdjon levels CQntr~ - it .evels - Benef 67 rustees • Twe ve - Counci ,Management, Emp oyees/ Retirees • Forma administrator (PBA/ TA) Must act in best interests of beneficiaries - Emp oyees - Retirees -Spouses/survivors - Not taxpayers • Duties of Trustees 68 Common Counc a Sponsor of P an U timate financia responsibi ity Appoints Trustees Act in the best interest of the taxpayers 69 f"MP ~oVee Groups i employees to the ?.an contribute ,,,,o,nts,TrusteeApt in best interests 01 70 in istrat►ve Staff City Adm, Agent °f Bard • 'strative Day to day ador'n' functions 71 Service Prov*ders Rea ity of a modern pension p an • City staff • RBC Dexia -Custodian • AP and investment managers • Morneau Sobeco -Actuary Mc nnes Cooper - Lega Lifemark - Disabi ity Ernst & Young -Auditors 72 con 1llct ol Interest a&1 OH confloict, princ~Ple must withdraw 73 Ferguson C a'm -Why and Costs - was s [hc-rs,...sd,LpC': rclrmrl_•n ral,le~imS fvnrrrtaclri lul lvFlk~~uyr =.t.=~~m~ Fnxm,rtaT•I,{1Pn hnfP F.snlrred mnMwrtl rrts nlrPr ar.'n, ar,ha Tnnt•r'r,-t.,n as .:rn rd 9•c4:r fw C,c llnsre:s'-Hit !o~dam+¢e In [nrrre+r rilw + - r~ra•rarnnis rR n.rY "n lhf `fatrmurYClcgim -tea Ida[ r ate. to pN.a tcl 5lv:d . in-lL tv, I maim alead IM Ile l ~ ~slePe e,p.- r - dehT.aalr Arpal MY"inr'nd T"'t"amal rm,V4,r]ir,sre -~r.:nm rlrr y.rh sgrnfcanl PL At pvSllxs. edhn wc6 Glp V.NVV1.mnr U WII t - ,'rnlram,nl,h<-r mpulahn,s as lhrl a-r rrrt?Ird to stlcy tz. recrrta[ nlh v; ul F,f if 1r! Y4 enT!v thInVPY ar. as am rr fu";r?rnal da'MSP• wt trw' u 1 to •hp pnncxn t!a!~.nr4.-ha prtth^_n-Ia romplrc public :pc uzrf oy 6t =:rSu un = +palotiy,d'•-Ilrrn: w~l?F•e••n'f rr"dnpf d•c 4,a,i4 r" Turd '.Ih rd et,ne:yr _ ?£II".Y-'f'LiWwlC+s: to the L,ll and (=an-, TA21rdSYrS lmpll!'~2e. t--ay/r JPrr:ll,l t,ry So n UP!le krlep npim-1•s oPm[n plani,a pr.7•i-:iil Statr.V TIM mle:f ~ha jnrstx s's Iv uo s rlhc pLr hsa 43,rnih kl;e'rls+nd ndbinrFPrrodi Lr, cffae prorilttr7l Plr s'od ter.-~T~-,r}ha.adhrvr~ed'h.ll Y•esOpnlti c;es ln~oxdfa ~h It is mprrp nl to iv+ito mc+lr vial 'sr, llrpVUn:adanhthC m.rncr n r,Potll rt aas said rflar,tq pnhlr r,.rr nft DllhCh nC r011JM117, 1 C: M n S.•- - Tros7 ta,:-(r. Mo ;ng ~n Jbera'.e fecal behaull, h! all"M tr. he Ss crc. Im Anry•q rn ~•x. ~Lr rh+nrnaa xr, s75 anvk'^r= mrr.~rwl nna+rn.~n•ri7 r4n+roxryd:,y. A1r€. s~sa ~ ~ a 3nf'vr 6r&W,md.:r•i:xr gvua,~lmd hrrrq urdem'• eaw-y4,ie t M~kxbqRz Coma -,a 6, -va~in-ft- 'm mown TFtflal4mpnl-"§': eee dr:p,q and Ennnq and Fra:'r A rewrY dni m,F f.+{'?,ICd.7C I:.¢[In~er Frrpr.cnn erp>t3 Y; ryn:•n1MN,tn r.[r rl-Cu,'I Pne:o•nm.rtz .rzn•,rt rtl+d-h try ln:sr-r rr fr hrl g~xrl!, - na nnM~Jt<nhCY.lrEt![f II3n1•,l T:%I,4a•^•Irrrea:t-C73'rn S•eh -s a e rep '60. 'n xulnkr I7 Vie atalrtlnvrrhn+rtal rrprarn .rh ~n•. Rte: , r ~.f•I.I', ih~lCana-IdLm -1 m a ff•m:renaJr .u srr gram aae y. - - -.e ~ rtr6w ts.• M n,~ a tea: .a e7gal'nnsarepearee '[earl =ctEimp; r;A'epJr+pars;,Faf n.srct!Wndlr.SOm'.GfS>M TryStFFf Y.Cld GryPdrrn?I CCSiOfa~M5. ,I nnn n, rf mp^'ttrc Irga•EPhtvIM dtlc.xro~d he o>»lalan ar the pm~zssanaiohrganufulnC rCr.. a' Ihesr Fm r,e nnah. •eprea,.r•axed 1,4. !FIGdLe7 to rcrriF; rh• rgraro w.ln •fi,xn sr hwrAl SCn h: d •h t: kgCd _ „i': h:'IrOr aartU usFrdns,m•m•nsed, Nr. -IF U nr sdxrgdwT.kmrrrmrdinmflac :a li[nlfy i>c l,dhdWl xilrrly-r ~ vpw6wtlV l,ad .hsromtixs..kl Ul lcarlr PaC T-ars wr:ii prcelyd la da,oglhecou-L' € Tow =tea€Pe~-rn nrt•nn•; p•prCStrrsiano l•,'Lc chlehr!tl II uirjJla I-r.~'., ~~urttnar lnr liusler.lnl lxrn d-[xneafrdar -rd bf wMuli.i da nadasfrr IN rip" -=a .rF_ .a-. - .mss . :-1 a .5 . ,T=.€•- r3mnn xhn yt`y'•.r; ?r• r. ..~„Y 1' urxaf 7, t:r-l:'.?hkt_my rlr FC ih rxlogVdr~Jw+ll,drxerrlr'r,. - trsCanrr urh ;irrhaEAMrnEa, .I•nhay Ri•Frr€€ in'i s~xa~-ialtlama?tt. H chlr~at'rr rust tecrrd l6 b''.I 3 ar ~r LE ai = -T-Jtn Ba 74 Key Components of the P an • Trustee Composition • Contribution Leve s - Emp oyee and Emp over • Benefit Leve s • Disabi ity Benefit • Amendment Procedure • Reporting to Counci 75 rustee Composition • Trust • Trustees are P an Administrator • Broad Participation • Effective Communication 76 rustee Composit!on cont,Trustee Composition 1947 77 rustee Composition (contd) Trustee composition today t 78 a_eVe s contr btjon t16 Emp oVer - Emg-_oVee a Employer p0.'~ee Match Plus S E~1 ~ Ir+ ment 601 Q % or $ ° 60/0.5% plus a/o-7.5% 60/Q-7% plus 1847 6 X78 8.5% 7°/0 plus 1 1990 S.50/0 70/° Plus 19`4 10.5% 2007 79 Contribufon Leve s (cont'd) Resu is 1959- Zoos E m p oyees city 1959-1986 $21.9M $21.5M 1987 -2005 $66.4 M $55.7 M (City always less) 2006 $4.4 M $16.8 M 2007 $5.2 M $8.8 M 2008 X5.8 M $9.3 M Tota (1959-2008) $103.7 M $112.1 M 80 Beneft _eve s Sa arV 1947 Fi na 3 years 1970 Best 3 years 1973 Best 5 consecutive years 1980 Best 3 consecutive years 81 Benefit Levels (cOnt'6) xin of pensions. Inde 4, 19'55,1994 7 ~ Ad-hoc increases _ 1973,1` , 197 5, 198 Ce - 2% per year tomatic increases rvi year Au post 1991 se ice - 1% per Ye 1995 t'74-pre Y92 sere 2 pensioners n for pre 9 Catch-UP index to council pos i resented C Clearly costed, p 31,94 cost - M as of Dec , 1996 $1.6 Dec 31 as 97 of M as of Dec 31999 $12.1. 19~ , surplus reduced to $8.1 M 82 Disab a 'ty Benefits 1947 "Own occupation" definition 1960 "Heart & Lung Act" 19751 1993 Exc uded if disabi ity benefit by by- aw, or LTD contract 1994 "Any occupation" definition app deeming provision 83 Amendment Procedure Legis ative Assembly Private Bi introduced 3 readings by Legis ature n practice Petition for Amendments by City Except 1963 Amendment by Trustees 1978 -Trustees recommend amendments to Counci 84 1.947 2009 ng to councl Report" report from Trustees to ,,,,Ua employees' Councl, and members? statements retirees with fInancia 'rement• Annua. report Same requirement eam statements and audited linanc ia each year to auditors de,lvered bY councl. in open session 85 rustee Activities Samp e Agenda terns (1) Advice from AP (2) Review meetings with Fund Managers (3) Disabi ity C aims (4) Annua Budget review (5) ssues on comp lance, entit ement to (6) Education Programs/'raining benefits 86 trustees ACtev's.fes (Con't) .E~q,►NING pC?LICY EpVGATION AND Amended January 25'2007 AdpPted: July 18,1g96, training each Inimum of 3 d Conference or on o aired to obtain a m a Natlonsi. Regional or Loa Each Trustee WA fiend rg CPBI or the International Foundati 1. ear by b AGPM, calendar Y sponsored by the nference each Seminar tional Co ErnploYee Benefits. one Na Trustee will be Permitted to attend 2. Each and of Trustees ~t lendar year. be approved by the steeS rtiu 6es ma is available to all Tru Other training oppo such training cent 3 only on the basis that ed over to subsea 'Wing days or dollars cannot be cam 4. Unused tray ssible date eropIn~te addition Newyears. Trustees Trustte at the earliest P° . ear will must receive v and Such training it that Y 5• for new above. training set out the Board's existing Professular to the guidelines use tQ nd reg a)6mum © wish to atte With agree to make m professionalso 8 h(. Trustees . trustees ag other pension se of p Aavisars and any s for the pUrRo Pension Board meeting relevant information. effecve January This policy W M berOme s7 7. Plan Admin*strat a ve Expenses otq t J la SCHEDULE OF AMMMOTRATIVE H.~.. fw~e ~Ifly ~f r-h-„.-- Ccafenw. 4od AMWWI 4 l s kew i.gAI fees AWi1 fees comatmm fm m° Imunnce 4S e 1,472.~23 1 100, 15,611 103 106, d7,01A 43.242 34.363 123.932 123,252 200,411 VMS 18,727 id. 74,632 107.045 7.', 28 1 1."02 4350 g.5S0 2-268,631 2.1 16A08 88 rustee Apt \JIties cOnt'd) EX~enses, ,dmInistrative ents a~ _y in audited statem . Reported annu 0.72°a plan expenses 2006 Med!an Services} & FEI Canadian o.730/0 kAon consulting sl 206 Saint John pan finan~ia statem based On -2006 audited eXpenses... 1995-200$ - 0.60% nses . ~ sua SJ fApe 89 Sab' ity Provisions o .n 1994 cna,►s~- ITA changes in 1992, P.an Where are We nOWl? disabi.itY eop e under age 65 receiving 79 p ensiOn ~ 22 under old definition new definition ent under _ automatic entitlement 4o reGeiving CPF decision - 17 receiving due to Trustee 90 D"sability Provisions (cont'd) Cost estimated as of Dec 31'06 Annua ongoing cost (2007) - $346,000 0.68% of payro Tota "additions " iabi ities $28.2 M. 7.1% of tots Pan iabi ities 91 ty Provisions contyd) Olsab0-0 prior adm~n ti on to a physician 11cants referred t Witten rep°ro the Ap'P projideS a phy -Trustees' Usua ~y addressing: ton of the Member medIcal cond~ prognosis ember to work abi.ity of m 92 ..qty Provisions kcontyd) olsab " from ent: ~ Su{~erin9 this statem shed •S t tach letter conta~OplCllOn he (Of IC~(1pa1C'~Y16C1 «It rr►y menta ) Ong in any Suited Pis hysical (or Jfom,,jh enga9 is reaSOnably prevents en or Whe n trainin9 or ~ted to empIoym patio eXe that ,,,,(,anbe bj e virtue °f his edU Aletjrn X periellce and a,nder of his last for the rem the pension Act def►nition tion from the physician that Conf►rma is met. g3 Olsabilitl Provisions co nt dl pr;or Issue sue raised ort 20,31-- Is 3 'Beckett rep nd advice an _ ~~,nuar~l2~ evidence 03 - father►n~ el coups nsions stopp ation p ed rm 2~Ian legal ility pe . • Pon Pink - New jisab dactuarial conf ► r 2003 s reta►ne l _ Nover'~beeV Consultant 20()3 Valuation 004 - Leud ent firm ce for _ 2 d inciden Ad'jiCe lMl manage m than search far d~sab e orted higher . orneau sobeco r L►feM3rk. a►n • l'~ _ Trustees ret rocess _ 2005 ra arty adjudicative ant 3 endent assessor Ind 94 DesabilitY Prov-'s-ons (cont'd) - January 2006 Lifemark starts - rty pension freeze rfted January 2006 Disabr - l.rfernarkreviews 67 fj es pensions stopped - 1o i - pension payments _ cost of these 10 disabr rty some proportion of$1.1M _ New process cations and advises all new apple Lifemark reviews • Trustees all disability pensioners • Regular follow up with al 95 D'sab'lity Provisions (cont'd) Questions on disabi ity Disabi ity management, RTW? How common is disabi ity provision? s disabi ity causing the deficit? Private p an of insurance preferab e? 96 presented bIq \J ,In o Keelmannr CFA 'Principal & consultant annC ap►as'C4m set ~keelm 4~6_g22 2g~2 97 ustratoon: Sources of Wea th 'n a Pens 0 on Fund Investment Contributions Returns 40 59 19 41 41 Pre-Retirement post-Retirement 19 81 100 before retirement umulated in the fund • 59 cents acc • ce as it is drawn down 41 cents are earned on the balan to pay benefits earnings 81 cents are the sum total of the investment 0 _Y , ,l -s, ~ plen 1n - 98 Iota[ Rea. Return in Canada Total Real Return in Canada $18 $16 $14 $12 $10 - $8 $6 Bonds,-$-16.28.- - - Z ,--$11„05-- T_ ills,-- 7- $4 Gold, $1.80 $2 - - W $o - - - - Dollar,- $0.96 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 - City of Saint John Pension Plan - PRELIMINARY PERFORMANCE Page 39 99 Fund Ob'ective off The fund's Balanced Fund Performance Objective is to achieve an annual return of 3.85% above inflation calculated by the Consumer Price Index Performance Objectives 7.0 6.0 5.0 4.0 3.0 2.0 Total Fund CPI + 3.85% Achieved? 1.0 0.0 - 10 Yrs. Ending 9 Yrs. Ending Dec-2008 Dec-2048 5.3 3.9 6.1 6.0 No No ❑ Total Fund ® CPI + 3.85% 8 Yrs. Ending 7 Yrs. Ending Dec-2008 Dec-2008 3.6 4.8 5.9 6.1 No No 6 Yrs. Ending Dec-2008 6.3 5.8 Yes t , 5 Yrs. Ending Dec-2008 5.0 5.8 No icanuary 10 1-009 r n t C1 ;API SS a_ r PRE -RF a - aa- _ 100 Vanager Performance Ob*ective The managers' objective to rank in the second quartile of their respective universe over moving 4-year time periods. Performance Objectives Letko Brosseau Kingwest Philadelphia Canadian Equities Canadian Equities Int'I Equities 0 - - I II 10 I i 20 30 40 50 60 70 80 90 j 100 4 Yrs. Ending 4 Yrs. Ending 4 Yrs. Ending Dec-2008 Dec-2008 Dec-2008 Percentile Ranks 8 5 95 Achieved? Yes Yes No 2i= ~OLJ pre- Sentemi by API, Ass-et ei° a a anCe PRE_- M _ MIRMAN _ m- g 101 Plan Executive Summary Total Plan $ Change Current Previous for the Previous Quarter Quarter Year End Quarter $327.3m $287.1 m $366.4m -$40.2m Year-to- Rate of Return Quarter date One Year CITY OF SAINT JOHN PENSION PLAN -9.3 -18.2 -18.2 Policy Portfolio -8.8 -15.1 -15.1 C.P.I + 3.85% -1.1 5.4 5.4 Actuarial Assumption` 1.69 6.75 6.75 API Median (Pooled Median) -7.9 -15.9 -15.9 Rolling Returns CITY OF SAINT JOHN PENSION PLAN Policy Portfolio C.P.I + 3.85% Actuarial Assumption* API Median (Pooled Median) Calendar Year Rate of Return December CITY OF SAINT JOHN PENSION PLAN Policy Portfolio C.P.I + 3.85% Actuarial Assumption* API Median (Pooled Median) 1000 % Change ~o Change from for the o Quarter" December 2007** -12.3% -21.6% 4 Year 2008 2007 2006 2005 3.5 11.8 14.5 9.3 2.7 9.3 11.2 6.3 5.8 5.9 5.8 6.4 7.69 8.0 8.0 8.0 2.1 9.1 12.2 7.7 2008 2007 2006 2005 2004 -18.2 2.5 16.4 17.4 11.6 -15.1 5.1 13.0 10.6 8.8 5.4 6.2 5.5 6.0 6.0 6.75 8.0 8.0 8.0 8.0 -15.9 2.0 12.7 11.8 10.0 0- = soy. e t ;VP '1 102 Manager Executive Summary December-08 Real Estate Standard Life S&P TSX REIT Canadian Fixed Income Addenda DEX Universe Bond Short Term Addenda Letko Steinberg DEX 91 day T -bill Canadian Equities Letko Brosseau Kingwest Steinberg S&P TSX Composite at ~O Year-to One Year-to One Quarter Date Year December-08 Quarter Date Year US Equity -4.1 2.9 2.9 Letko Brosseau -16.8 -19.9 -19.9 -30.6 -38.3 -38.3 Kingwest -25.0 -36.6 -36.6 Steinberg -17.1 - - S&P 500 -10.7 -22.6 -22.6 2.8 2.2 2.2 4.5 6.4 6.4 International Letko Brosseau -11.4 -34.8 -34.8 Philadelphia -9.2 -34.7 -34.7 -12.2 -9.9 -9.9 Kingwest 12.6 0.5 0.5 - - - Steinberg -30.8 - - 14.4 - - S&P Citigroup PMl EPAC -8.4 -30.4 -30.4 0.7 3.3 3.3 Hedge Fund Performance Group -5.1 - - -19.9 -30.3 -30.3 HFRI HecOe FoF Index (CAD) -8.9 -13.0 -13.0 -16.7 -29.9 -29.9 -46.1 - - -22.7 -33.0 -33.0 103 Page 4 Exchange Rate Change Summaries Canadian - US Dollar (close) Canadian - Euro (noon) Canadian - British Pound (noon) Canadian - Danish Krone (noon) Canadian - Swiss Franc (noon) Canadian - Swedish Krona (noon) Canadian - Japanese Yen (noon) Canadian - Hong Kong Dollar (noon) Canadian - Singapore Dollar (noon) Canadian - Thailand Baht (noon) Canadian - Australian Dollar (noon) Canadian - New Zealand Dollar (noon) Canadian - Mexican Peso (noon) Canadian - South African Rand (noon) 09 january _ 20pmseMed by API Amet manse Inc. 0.8210 1 0.9397 -12.6% 1.0088 1 -18.6% 0.5866 0.6701 -12.5% 0.6931 1 -15.4% 0.5588 0.5300 5.4% 0.5102 1 9.5% 4.3687 4.9975 -12.6% 5.1680 1 -15.5% 0.8717 1.0556 -17.4% 1.1468 1 -24.0% 6.4350 6.5574 -1.9% 6.5359 1 -1.5% 74.1290 100.0000 -25.9% 1 113.07101 -34.4% 6.3288 7.3275 -13.6% 7.8926 -19.8% 1.1743 1.3524 -13.2% 1.4550 -19.3% 28.3768 31.9387 1 -11.2% 30.1841 -6.0% 1.1696 1.1940 1 -2.0% 1.1534 1.4% 1.4047 1.4110 -0.4% 1.3184 6.5% 11.2956 10.3541 9.1% 11.0509 2.2% 7.6278 7.8493 -2.8% 6.9444 9.8% 0, of Sint hhn Penton Man PRELIMINARY PEFFORMANCE 104 4 Risk Budget As atcecember3l 2008 Copy%hlpubhc&WnofAP[AssMPe,larmar6edre 20M Risk Budget CITY OF SAINT JOHN PENSION PLAN RISK BUDGET SUMMARY I I~ ~ Value at Risk with 99% Confidence I Market Value as of December 31, 2006: $366,214,751 Markel Value as of December 31, 2007: $366,354,986 Markel Value as of December 31, 2008: $287,135,763 Mar 31, 07 Jun 30, 07 Sep 30, 07 Dec 31, 07 Mar 31, 08 Jun 30, 08 Sep 30, 08 Dec 31, 08 Mar 31, 09 Jun 30, 09 Sep 30, 09 Dec 31,09 Millions $ Total Portfolio Worst Case 341.9 335.3 331.7 329.6 344.6 338.8 335.8 334.2 261.6 253.0 247.4 2432 Actual Portfolio' 378.8 3884 382.8 375.3 352.3 3552 3303 299.6 Variance 36.9 53.0 51,1 45.7 7.7 16.3 -5.5 -34.5 Components Bands WON Case 102.4 100.8 99.9 99.4 101.9 99.6 98.1 97.0 56.9 55.3 54.1 53.1 Actual Portfolio' 108.9 105.8 107.7 112.3 111.1 111.0 108.5 111.6 Variance 6.5 5.0 718 12.9 9.2 11.4 10.5 14.6 Canadian Equities Worst Case 147.8 141.9 138.2 135.5 136.5 131.2 127.7 125.3 69.3 63.4 59.3 56.1 Actual Portfolio' 176.2 1885 1E5.1 1763 142.2 149.1 130.8 106.5 - Variance 28,4 46.6 46.9 40.6 5.7 17.9 3.1 -16.7 US Equities Worst Case 19.4 100 17.1 164 13.8 12.9 12.4 12.0 15.8 14.3 13.3 12.5 Actual Portfolio' 24.0 232 20.4 17.4 11.9 14.8 14.6 11.9 Variance 4.6 5.1 13 1.0 -1.9 1.9 2.3 -0.1 Foreign Equities Worst Case 39.3 36.5 34.6 33.2 44.3 41.4 39.5 38.1 31.5 28.6 26.6 25.1 Actual Portfolio' 48.0 48.4 46.0 43.7 461 46.3 38.4 34.0 - - Vanance 8.7 11.9 11.4 10.5 4.6 4.8 -1.1 -0.1 • December 200& VaR por(fpho does not reNcl Currancy hedge or hedge fund of Fund Valuatons factor w cash flows to and horn the fund and are vdkaed through the quarterly perfarmance of the fund as presented in APES Performa++Ce MeasurMkrd Report CITY OF SAINT JOHN PENSION PLAN RISK B UDGET SUM MARY January 30, 2009 City of Saint John Pension Plan presented by API Asset page 45 PRELIMINARY PERFORMANCE Performance Inc. 105 at ~E City of s1 pEF P ELt jar 30, 106 resen~. ~d t~ pFl sse g-r Asset Mix Review The normal asset mix of the Fund and the range for strategic deviation at any time based on market values is as follows: Normal Asset Mix Fixed Income 35.0 Short Term / Cash 5.0 Bonds 30.0 Real Estate 10.0 Equities Canadian Equities US Equities International Equities Absolute Return ~ V 55.0 35.0 10.0 10.0 10.0 Allowable Range 30.0 60.0 0.0 5.0 20.0 60.0 0.0 10.0 40.0 60.0 25.0 60.0 0.0 30.0 0.0 30.0 0.0 10.0 ON of c L o ~ Actual Asset Mix 37.3 3.0 21.4 12.9 50.5 29.8 6.9 13.7 FIXED INCOME ASSET MIX VALID REAL ESTATE ASSET MIX NOT VALID EQUITIES ASSET MIX VALID 12.3 ABSOLUTE RETURN ASSET MIX NOT VALID P ca 4 107 Asset Max Commetment COMMITMENT RANGES (End of Period) Mar-07 June-07 Sept-07 Dec-07 Mar-08 June-08 Sept-08 Dec-08 Short Term First Quarlile 6.8 7.6 7.2 9.2 8.8 8.8 9.5 7.0 Median 4.2 4.7 5.3 5.7 6.0 5.9 5.5 4.5 Third Quartile 2.0 3.2 3.6 3.7 3.4 3.4 4.3 2.6 Total Fund (Rank) 0.9 95 3.7 68 3.9 71 3.6 76 1.2 93 3.2 78 3.7 78 1.2 88 Canadian Bonds First Quartile 40.3 40.0 40.1 41.2 42.1 41.0 42.6 44.3 Median 36.5 36.2 36.2 37.2 36.6 36.1 37.8 39.3 Third Quartile 31.1 31.7 30.8 32.5 32.9 31.9 35.0 34.8 Total Fund (Rank) 28.3 81 26.9 87 27.9 83 29.8 81 21.1 97 20.5 98 21.1 97 21.4 96 Canadian Equity First Quartile 34.2 36.6 36.0 34.8 33.0 35.4 32.7 31.9 Median 30.0 30.3 30.1 28.6 28.1 30.1 27.6 26.7 Third Quartile 24.9 26.0 25.8 25.3 24.7 27.2 25.4 23.4 Total Fund (Rank) 43.9 1 44.8 1 43.45 41.9 9 34.0 23 33.5 34 31.4 31 29.8 35 US Equity First Quartile 16.1 15.8 15.1 15.2 15.6 15.0 15.5 16.4 Median 13.4 13.4 13.2 12.5 12.7 12.3 13.2 13.3 Third Quartile 10.4 11.0 10.3 10.1 9.6 7.9 8.4 8.7 Total Fund (Rank) 8.5 84 5.2 96 4.7 96 4.4 91 6.0 86 6.8 79 7.2 79 6.9 82 International Equity First Quartile 15.1 14.9 14.6 14.5 14.5 14.4 14.1 14.3 Median 12.8 13.0 12.5 12.2 12.4 11.7 12.0 11.8 Third Quartile 9.5 9.3 8.6 7.8 7.9 7.7 8.0 8.5 Total Fund (Rank) 13.0 48 14.234 14.526 14.327 14.4 25 14.525 13.3 35 13.7 31 c a£ ~e n 108 Breakdown: Asset A ocation $2s7,135,763 Allocation by Asset Class Fledge Finds Short Term ¢ Cash *Excludes Addenda $35,203,565 12 3`% o $8,609.719 Currency Hedging 3.0% Mandate Bonds $61,326,467 21.4% Real Estate $37,043,243 12.9°fa i Canadian Equity $65,664,341 29.8% International Equity $39,359,146 U.S. gHi9tjr 13,7% $19,926,962 6.9% - - N(I AP, Pd. nge 109 Breakdown: Vanagers (location r $287,135,763 Steinberg Asset Management $ 988.198 Performance Group 3 5° $35,203,885 123°! Saint John Administration Account $934,304 d Philadelphia Int'I Advisors 'da 0.3®!® $17,730,800 - 6.2°!0 lm Addenda Capital Inc $61,367,251 Excludes Addenda Currency Hedging Kingest and Company Letko Brosseau Mandate $59,735,728 $65,091,725 20.8% 22.7% lama, ' . £__q a esented by A pagr- n~o 110 API Balanced Pooled Un*verse TEN YEARS ANNUAL 22.0 - • -a.5 -11.9 -23.0 • f 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 5th Percentile 20.8 18.0 14.2 8.5 21.4 13.6 19.2 15.9 6.3 -5.7 251h Percentile 14.2 12.3 4.3 -1.0 154 11.2 137 13.8 4.4 -12.2 API Median 11.2 9.3 -0.1 -5.3 13.6 10.0 1118 12.7 2.0 -15.9 751h Percentile 7.2 7.2 -2.4 -7.2 12.3 9.1 10.0 11.0 0.6 -18.0 951h Percentile 0.0 -0.4 -5.2 -9.0 11.0 7.3 7.1 9.1 -1.6 -22.9 t CSd Custom Benchmark 12.5 5.4 -2.9 -5.5 12.5 8.8 10.6 13.0 5.1 -15.1 < CPI+ 3.85% 6.5 7.1 4.5 7.7 5.9 6.0 6.0 5.5 6.2 5.4 • Total Fund $287.1 100.0% 18.7 11 5.679 -4.3 89 -3.640 12.865 11.6 21 17.4 11 16,45 2.545 -18,276 Jca a1 r Z0- m a a1 p . l UP NARY Via.,~ MNCE. e`d-t [ a 111 API Balanced Pooled Un*verse TEN YEARS ANNUALIZED 10.0 < < 17, -6.5 Jul 0 -14.8 E ----fit 7 -23.0 10 Yr 9 Yr 8 Yr 7 Yr 6 Yr 5 Yr 4 Yr 3 Yr 2 Yr 1 Yr 5th Percentile 9.0 9.2 8.4 7.5 7.9 5.4 4.2 1.6 -2 5 5 7 25th Percentile 6.2 6.0 5.3 5.0 61 4.4 3.0 0.0 . -5 6 . -12 2 API Median 5.2 4,6 3.6 4.0 5.2 3.6 2.1 -1.0 . -7 3 . -15 9 751h Percentile 4.4 3.2 2.6 3.2 4,8 3.1 1.4 -2.1 . -9 0 , 0 -18 95th Percentile 1 CSJ Custom Benchmark 3.5 4 0 2.3 3 1 1.7 2 8 2.6 4.1 2.3 0.2 3.7 , 11.4 . -22.9 < C-M +,uE_ . 6.1 . 6 0 . 5 9 3.7 1 6 5.3 5 3.9 2.7 0.2 -5.6 -15.1 . . . .8 5.8 5.8 5.7 5.8 5.4 • Total Fund $287.1 imm 5.348 3.9 63 3.6 50 4.8 34 6.3 23 5.0 12 3.5 17 -0.8 46 -8.467 -18.276 J C' °z =ice 112 API Bonds Poo ed Un 0 verse TEN YEARS ANNUAL 16.0 10.5 5.0 . AS 1999 5th Percentile 4.8 251h Percentile -0.4 API Median -1.1 75th Percentile -1.4 95th Percentile -2.7 4 OEX Universe Bond -1.1 < Cusl. fur. Sand ldx • Total Fund $61.3 21.4% 1 t 561.3 +oo a. _ ` ua-v ASSfm t -sm_-lb : - m2nce 2000 2001 2002 2003 12.4 9.9 11.2 15.3 10.6 8.6 9.6 B.3 10.3 6.1 6.7 7.0 9.8 7.6 8.1 6.5 3.2 62 6.2 4.6 10,2 8.1 8.7 6.7 6.491 10.1 19 7.737 City0 Sa I x> nn _0- 113 2004 2005 2006 2007 2008 13.0 14.0 6.6 4.8 8.4 7,9 7.0 4.4 19 6.0 7.2 6.4 4.2 3.5 3.8 6.7 6.1 4-0 2.8 1.6 4.6 2.2 2.8 16 -5,3 7.1 6.5 4.1 3.7 6.4 4.1 3.5 3.0 8.423 10.415 4.822 4.0 24 2.268 4.8 22 4.0 24 2,268 D API Bonds Pooled Universe TEN YEARS ANNUALIZED 6.0 C 2.0 -2.0 -E 10.0 10 Yr 5th Percentile 6.8 25th Percentile 6.1 API Median 509 75th Percentile 5.6 95th Percentile 5.2 1 DEX Universe Bond 6.0 a Cust. Dur. Bond ldx Total Fund $61.3 214% 1 Addenda $61.3 " }O - a 0- 9 Yr Syr 7 Yr 6 Yr Syr 4 Yr 3 Yr 2 Yr 1 Yr 82 7,8 7.9 7.3 6.7 6.3 5.5 6.1 6.4 7.0 6.5 6.3 5.8 5,6 52 4.7 4.8 6.0 6.7 62 5.9 5.5 5.1 4.7 19 3.7 3.8 6.4 5.9 5.5 5.0 4.6 4.0 2.9 2.3 1.6 5.6 5.1 4,5 4,3 13 2.3 -1,5 -1.2 -5.3 6.8 6.4 6.2 5.7 5.5 5.1 4.7 5.0 6.4 3.5 3.3 3.0 6.722 6.8 19 6,220 5.9 19 5.3 23 3.757 3.1 61 2.2 68 17 57 3.1 61 2.268 City O S _ .xJ-_--_ e~-I n = ~ - f1b 114 API Short erm Poo ed Universe TEN YEARS ANNUAL 8.0 3.5 1.0 -5.5 -10.0 1 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 5th Percentile 5.2 61 5.1 2.9 3.2 2.5 2.9 4.2 4 7 4 7 25th Percentile 5.0 5.7 4.9 2.7 3.1 2.4 2.7 4.1 . 4 6 , 3 9 API Median 4.9 5.7 4.7 2.6 3.0 2.3 2.7 4.0 . 4 5 . 3 6 75th Percentile 4.6 5.5 4.5 2.5 3.0 2.3 2,7 19 . 4 4 . 3 4 14 DEx 91 Day T-B.11 95th Percentile 4.5 4 7 4.8 5 5 3.7 4 7 1.9 2.8 2.2 2.5 3.7 . 4.3 . 2.5 . . . 2.5 2.9 2,3 2.6 4.0 4.4 3.3 Total Fund $3.4 1.2% 6.3 1 2.8 13 2.9 87 2.3 66 3 04 3 975 3 9 100 1 $0.0 anu . . . 4.84 4-216 3.9104 -9.9100 =d P=P-S_;.pd - sit - papp 115 API Short erm Pooled Un"'i'verse TEN YEARS ANNUALIZED 10.0 - 6.0 Te 2.0 1 C. D. -2.0 R, -6.0 10 Yr 9 Yr 8 Yr 7 Yr 6 Yr 5 Yr 4 Yr 3 Yr 2 Yr 1 Yr 5th Percenlile 6.8 8.2 7.8 7.9 7.3 6.7 6.3 5.5 6.1 8.4 25th Percenlile 6.1 7.0 6.5 6.3 5.8 5.6 5,2 4.7 4.8 6.0 API Median 5.9 6.7 6.2 5.9 5.5 5.1 4.7 3.9 3.7 3.8 75th Percentile 5.6 6.4 5.9 5.5 5.0 4.6 4.0 2.9 2.3 1.6 95th Percentile 5.2 5.6 5.1 4.5 4.3 3.3 2.3 -1.5 -1.2 -5.3 / DEX Universe Bond 6.0 6.8 6.4 6.2 5.7 5.5 5.1 4.7 5.0 6.4 a Cusl Our Bond 1dx 3.5 3.3 3.0 • Total Fund $61.3 2+-4% 6,722 6.8 19 6.2 20 5.9 19 5.3 23 3.7 57 3.1 fit 2.260 1 Affdmlp $61.3 ` o= 3.7 57 3.1 61 2,268 =-t -ma c F1' of Sant -o eq'=gin Plan Y P-O- 116 AP Canadian Equity Poo ed Universe TEN YEARS ANNUAL 40.0 2 ~ + - = - - 2 - - - - -0.5 -20.8 -41.0 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 5th Percentile 38.5 30.1 12.2 7.5 38.3 26.9 33.1 23.8 16.6 -21.3 251h Percentile 31-7 21.6 1.2 -5.7 26.2 17.7 26.5 19.4 12.0 -26.8 API Median 25.5 15.7 -4.0 -9.8 25.4 15.4 22.9 17.2 7.5 -31.9 75th Percentile 13.9 8.7 -9.1 -13.5 21.7 13.9 19.7 14.6 5.9 -34.7 95th Percentile 6.7 4.7 -12.7 -18.9 18.3 11.1 13.1 5.8 1.2 -40.4 4 TSx Composite 31.7 7.4 -12.6 -12.4 26.7 14.5 24.1 17.3 9.8 -33.0 ! 0 Total Fund $85.729.9% 37.3 9 8.278 -10.7 84 -14.270 27.5 31 15.549 29.317 23.1 8 6.1 72 -30.539 1 Kingwem $46.8 23.7 62 18,523 33.7 5 24.7 5 2.590 -29.934 2 Letko $38.0 . ` 31.9 18 14.074 26.2 27 21.3 16 10.831 -30.337 J -ty_ -E n amity o Soda in ek° n _ i' - -v A- As~ Florman- 117 AP Canadian Equity Poo ed Universe TEN YEARS ANNUALIZED 12.0 _ -14.5 -27.8 -41.0 10 Yr 9 Yr 8 Yr 7 Yr 6 Yr 5 Yr 4 Yr 3 Yr 2 Yr 1 Yr 5th Percentile 11.2 11.6 9.4 8.5 ill 7.8 4.6 -1.0 -6.3 -21.3 25th Percentile 8.9 7.9 6.1 6.6 8.B 5.5 10 -2.9 -11.3 -2B.8 API Median 7.1 5.3 4.2 5.2 7.7 4.2 1.7 -4.6 -14,0 -31.9 751h Percentile 5.7 4.3 3.0 3.8 6.5 3.1 0.0 -6.6 -16.5 -34.7 95th Percentile 4.2 1.6 10 2.3 4,9 0.8 -2.7 -9.1 -19.7 -40.4 4 TSx Gomposile 5.3 2.8 2.2 4.5 7,6 4.2 1.7 -4.8 -14.2 -33.0 • Total Fund $85.729.9% 7.0 52 4.1 77 3.664 5.840 9.5 19 6.3 19 4.111 -3.2 29 -14.2 52 -30.5 39 1« $46.8 9.8 16 7,2 10 4.6 5 -3.635 -15.263 -29.9 34 2 Letke $38.0 4. 3'- 10.1 14 6.2 19 4.3 8 -2.1 17 -12.1 32 -30.3 37 In n e LO L3v AF Aqq_ - L0IMINARY -AN 118 AP .,S Equ"ty Poo ed .,n'verse TEN YEARS ANNUAL 2 -41L- • 1999 5th Percentile 37.8 25th Percentile 16.9 API Median 12,8 75th Percentile 4.0 95th Percentile -9.7 4 S&P 500 (CONS) 13.9 < S&P 400 (CDN$) 8.0 Total Fund $19.96.9% 2 -eft U Y 3- -ees _ red 3 . _ ,--s - 2000 2001 2002 2003 2004 14.5 8.3 -8.8 19.3 11.2 3.9 -2.0 -19.5 7.2 4.6 -5.3 -6.2 -22.8 5.1 2.8 -7.3 -9.1 -24.5 3.5 1.6 -13.7 -18.8 -27.0 -02 -1.1 -5.6 -6.4 -22.8 5.8 2.8 22.1 5.6 -15,3 11.5 8.0 -29.6 97 -24.270 7.9 24 3.8 36 _w-tr Sal r 51 1 DR..-.f-vPflNA,-v PERFORMANCE 119 2 2005 2006 2007 2008 7.8 21.2 3.4 -9.6 5.6 16.3 -6.8 -20.0 3.6 14.6 -10.3 -22.3 1.5 11.0 -12.4 -24.4 -2.0 6.0 -19.4 -36.5 1.5 16.0 -10.3 -22.6 8.9 10.5 -8.2 -21.6 -4.298 14.748 -25.9 100 -27.1 79 -36.6 95 27.2 1 -31,9 100 -19,9 25 =gg ~ef a9 API US Equ*ty Pooled ,niverse TEN YEARS ANNUALIZED 4.0 -6.3 • • -16.5 -26.B -37.0 10 Yr 5ttt Percentile 2.3 251h Percentile -1.2 AN Median -2.8 751h Percentile -4A 95th Percentile -5.6 4 S8P 500 (CONS) -3.6 S&p 400 (CONS) 2.1 • Total Fund $19.9 6.9% 1 . $4.8 241. 2 Letko $9.1 457% 9 Yr 8 Yr 7 Yr 6 Yr 2.5 0.4 -1.2 2.7 -2.3 -3.3 3.5 -0.7 4.5 -5.0 .5.0 .1.6 -5.8 3.0 -5.7 -2.5 -6 8 7.4 -6.9 -4.6 . -55.4 -5.4 -5.2 -1.9 1.4 -0.9 -1.8 0.7 .10.9 100 -93100 -6.6 98 2 5 4 Yr 3 Yr 2 Yr 1 Yr 4 4 -0 -1.8 -z .z -10.2 -9.6 - 1 6 3.4 -5.8 -119 -20.0 1 , -33 1 -4.6 -7.3 .16.2 -22.3 . . 8 3 5.7 -8.2 -18.4 -24.4 . ' 2 . -11 1 -22.7 -36.5 7. 4 -3 . 4.9 -6.9 -16.7 -22.6 . -1.3 -3.5 -7.3 -15.2 -21.6 -9 297 -12.298 -14.797 -26.597 -27.1 79 . -36.695 -11.595 -262 97 .19.9 25 Page 0 9 120 AP nternationa Poo ed Equity Universe TEN YEARS ANNUAL 68.0 a 41.3 M 14.5 ~l -12.3 _ _ - -39,D 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 5th Percentile 66.7 4.4 -6.6 -3.2 21.2 17.7 1 203.2.4 33A 29.3 3.8 -i.8.7 -27.9 251h Percenlile 41.8 -4.1 -11.4 -12.4 14.5 14.8 -30.3 API 14fe 27.6 -10.7 -1 5.3 -16.8 1 -19.8 -14.6 -18.7 -17.4 81.3 .7 1 81.6 .5 1 3B_ .9 26 23.1 5.7 19.9 -7.5 -33.2 75th PercenLil lile 20.8 -5.3 95th Percentile 14.4 .9 -10.1 -38.6 A S&P Cilignwp EPAC 22.2 - -i99..9 163 -18.3 13.8 11.4 9 -22.1 -229 6,3 4.5 11.4 25.5 -3.9 -30.4 -34 8 83 -14.0 41 -16,749 10.758 14.6 26 10.1 59 29,723 - T,2 73 - • Total fund $3 7,7 44 9% 33.1 6 49 1 1 _ ; $17.7 44 ~ 14.6 26 10.357 27.539 -8.784 -34,781 2 PIA $17.7 449% ` City of R Fen-on Dian -anwuy 30, 191-09 Per-torme-Ince- MC. 121 AP nternationa Poo ed Equity Universe TEN YEARS ANNUALIZED 6.0 - - -3.8 ~ -i 2 - -15.5 8 -27.3 a E 4 12~ -39.0 10 Yr r Percentile 7.2 7 m Percentile 1.6 API Median 0.6 7-'-1 Percentile -016 951h Percentile -1.5 1 S&P Cdigroup EPAC -0.9 • Total Fund $39.413.7% 1 $17.7--- 2 PIA $17.7 ar-i 23 0, 00 'v wit St 9 Yr 8 Yr 7 Yr 6 Yr 5 Yr 4 Yr 3 Yr 2 Yr 1 Yr 3.1 2.4 4.1 6.6 3.7 1.2 -1.7 -12.4 -19.8 -0.8 -0.7 1.2 3.7 1.9 -0.7 -4.2 -16.9 -27.9 -2.4 -1.7 -0.1 2.8 0.9 -1.6 -5.6 -18.4 -30.3 -3.9 -3.1 -1.4 1.6 -0.1 -2.6 -7.5 -20.4 -33.2 -4.9 44 -23 0.4 -1.2 -4.2 -9.9 -23.3 -38.6 -3.2 -2.3 -0.1 2.9 0.8 -1.7 -5.7 -18.2 -30.4 -3.1 74 -1,475 1.4 79 -0.480 -3.8 90 -8.0 79 -22.5 90 -35.2 83 -6.3 59 -21.462 -34,881 -0.8 88 -4.395 -8.7 85 -22.892 -34.781 -an --y o1` mto - _o n PR MINARYHRFOPMANCE 122 Page 2 AP G oba Equity Poo ed Universe TEN YEARS ANNUAL 44.0 • 23.0 f 2.0 _ -19.0 r -40.0 1999 5th Percentile 43.3 25th Percentile 22.3 API Median 15.8 75th Percentile 12.6 95th Percentile 1.5 1 CGEI PMI World 17.2 2000 2001 2002 2003 2004 2005 2006 2007 20.5 10.4 -4.5 35.6 11.8 12.5 28.6 513 4.5 -3.1 -16.8 10.6 8.9 7.3 22.4 -4.1 -6.6 -10.2 -20.4 8.1 6.5 6.2 19.7 -7.8 -10.2 -15.3 -22.9 5.8 4.3 5.0 17.5 -9.6 -116 -20.0 -27.2 2.0 0.4 1.6 12.1 -13.0 -5.9 -12.0 -20.5 9.7 6.7 7.1 20.4 -6.2 f ~ gs r 2008 -14.5 -23.6 -26.6 -30.0 -39.9 -27.0 0 Total Fund $59.3 20.7% 39.09 -8.3 62 -17.384 -20.1 48 9.536 10.1 17 5.075 24.8 1S -12.692 -33.2 82 1 - $5.9 g G% -32.079 2 i.elko $26,8452% 31.1 2 -14.6 96 -30.376 b D_ -_..e=e= ._MS D.- - - on --a =yam nx=_ _ I Al 123 -dgtf b AP G oba Equity Poo ed Universe TEN YEARS ANNUALIZED 8.0 -16.0 1 0 -28.0 • 10Yr 9Yr 8Yr 7Yr 6Yr 5Yr 4Yr 3Yr 2Yr 1Yr 5th Percentile 4.5 5.1 5.1 5.3 6.1 3.1 2.4 -1.7 -9.0 -14 5 2511h Percentile 2.6 0.4 -0.8 -0.3 2.1 0,2 -1.9 -4.8 -15 2 . -23 6 API Median -0.3 -2.2 -3.3 -2,6 0.7 -1.1 -2.9 -6.1 . -17 1 . -26 6 75th Percentile -1,2 -0.6 -4.2 -3.8 -0.7 -2.8 -4.9 -8.5 . -19 4 . -30 0 I P GG 951h Percentile -2.9 -6.8 -6.5 -5.1 -2.2 -3.9 -6.1 -12.2 . -24 1 . -39 9 E MI world -2.2 -4.2 -4.0 -2,7 0.6 -1.2 -3.0 -6.2 . -17.2 . -27.0 • Total Fund 1 $59.3 20.7% -2.590 -6.3 90 -6.091 -4.382 -1.3 83 -3.4 85 -6.597 -10 0 83 -23 693 33 2 Km9wesl $5,9 . , - . 82 2 Lelko $26,8 -32.079 -8,069 -22.990 -30,376 January 30, 2009 presented by API Asset City of Saint John Pension Plan PRELIMINARY PERFORMANCE Page 6~ Performance Inc. 124 pctuaryY5 go e for Actuary geckuIremevit valuations • Triennia ~tUarial standards •A 125 Va,uation Process Going.-concern remain Agoing-concern fug ieg valuation assumes plan will in effect for a long roJected pensions • Valuation model based on p • Assumptions needed: investment earnings - salary increases - retirement age -mortality patterns -disability incidence -termination patterns -other assumptions 126 Valuation Process SolvenCY va uation ansN►ers the question a . p sovency be needed to grovide OUnd up amount of assets w~~e p an had been accrued ben ef~ns~ate?" those at the va uatio ~a cation tions used are different from and • The assume concern fu used in a gojng- hence nding the resu is are different has obtained ding • The City of Saint John p Ve cy deficiency fur' efrom the so. ru,es 127 Va uation Process A Very S*mp e ustration Year Contribution at Jan. 1 (8%) 1 $463 2 500 Balance at Dec. 31 (8%) $500 1,081 Contribution at Jan. 1 (6.75%) $520 556 Balance at Dec. 31 (6.75%) $556 1,186 1,899 2,703 3,607 4,620 5,754 7,020 8,431 10,000 3 540 1,750 593 4 583 2,521 633 5 630 3,403 676 6 681 4,410 721 7 735 5,557 770 8 794 6,859 822 9 857 8,333 878 10 926 10,000 937 128 Reconcl en jab p,sset. Diff er ssets _ Liability - 2 218 1 J~ 19? .9 -12.1 Item ~~.ssetl Liability 12.1 ark.et assets jute liability LM _ g.l Valuation changes - 'l 31-Dec-~~ e 111 199 plan 218.1 r increase r - Z10•0 after plan char` - 3.6 ~iabilitseis - ~ 3.6 32.9 _ ost ~cont -11.2 O.Q Employee norm st L At" butions~ _ 11.2 1 al co _Q.5 'Employer norm - - -0.5 199$ ayments -1.4 - 5.5 1998 pension p transfers 22.1 Refunds? 16,6 _ 1998 - ses - s - 12 - - Total exile t earning _ 1.- 1998 inv esti= _ 233.6 ected vMwal 221 4 199$ E P . ~Iarket assets. Estimated Viability 31-Dec-9 Asset/,.,lab.it y Reconc. iation assets Difference LiabilitY '233.6 221.4 _ 232.9 _ ssetA ~telYx - _ assets. Liability [A Market liability [Nia r, - - ate ~ - Estiinated - _ 3.6 ec_98 3.6 0•~ 3.0 -D - 31 contributions~ 2,9 0.0 al cost ~ 1998 Err►pl°yee norm - -12.3 l cost [contributions-l -12.3 0.0 Employer normal -0.2 1999 _ _ -0.2 - -1.2 - a menu 199 pension p y ds, transf ers 24.E Refun 42.2 199 _ 17.5 - 1998 -fatal exp erases - ~nV estm earn 3 5.9 E ent earnings Actual _ - - 199 xpected ~ 2bg.7 - et assets ~ Estimated liability L 31-UeC-~9 ■ 130 Asset .'a b' 'tv Reconc' iation Date Liability [Asset] Item Liability Assets Difference 31-Dec-99 Estimated liability [Market assets] 232.9 268.7 35.8 2000 Employee normal cost [contributions] 3.7 3.7 0.0 2000 Employer normal cost [contributions] 3.0 3.0 0.0 2000 Pension payments -12.8 -12.8 0.0 2000 Refunds, transfers -0.7 -0.7 0.0 2000 Total expenses -1.2 -1.2 2000 Expected [Actual] investment earnings 18.4 14.6 -3.8 Retirements different from assumed 5.1 -5.1 Other net experience losses or gains -3.2 3.2 Changes in actuarial basis 4.7 -4.7 31-Dec-00 Valuation liability [Market assets] 251.1 275.4 24.3 131 I 't Asset/Vlabl y iation Reco"cl sets ~~~~erenei i bibs 24 a 275.4 ~ • al~ilitY L~`sset~ sets L~ - ar~et as Hate . Valuat1°n liability ~ 31-QeC-00 o ee normal cost vcontr 2041 Empl Y _ eontributions1 o er rmal cost ~ 2001 Emp1 Y no pension paYment~ 2001 - Refunds' trans fern 2001 i01 Total expenses - 1 investment earnings Expected CpGtua 2001 ~ rket assetsa ~ stimated liabilrtY ~ 31-Dee-01 E ~ L 3.1 3.1 0.0 _ 3.3 3.3 0.0. -13.3 -13.3 0.0 ---l -0.2 -0.2 f -11.9 19,8 _8.6 25,8 264 4 " 1,32 Asset/ . abit bility CAssetl jtern Da ► to Lia 'et assets Estimated liability [1Vlar 31-I7ec-01 rmal cost Lcontributions] Ens loyee no 2002 contributions Employer normal cast 2002 2002 Pension payments 2002 Refunds, transfers Total expenses 2002 ent earnings Actual] "I'v m 2002 Expected L setsa liability tM.arket as 31-DeC-02 Estimated V y Recon~ latlon Liability 264.4 3.9 34 -14.1 0.3 igereuce Assets 255.8 20.9 2'1 S .'I 133 3.9 3.3 -14.1 0.3 -1.3 -9.2 238.6 I 0.0 0.0 0.0 -1.3 -30.1 _4Q ,1 Asset/Jabi 'tv Reconc 0 aation Date Liability [Asset] Item Liability Assets Difference 31-Dec-02 Estimated liability [Market assets] 278.7 238.6 -40.1 2003 Employee normal cost [contributions] 3.8 3.8 0.0 2003 Employer normal cost [contributions] 3.4 3.4 0.0 2003 Pension payments -15.6 -15.6 0.0 2003 Refunds, transfers -0.8 -0.8 0.0 2003 Total expenses -1.3 -1.3 2003 Expected [Actual] investment earnings 21.9 29.1 7.2 Retirements different from assumed 6.7 -6.7 Other net experience losses or gains -1.6 1.6 Changes in actuarial basis 4.3 -4.3 31-Dec-03 Valuation liability [Market assets] 300.8 257.2 -43.6 134 p,sset/.- ab* At Liability item , ' Date _ Market assets] Valuation liability ~ 31-Dec-03 y i~econci.iation ~s5ets -pifference Liabili~ -43.6 257.2 300-~ - 4.0 40 0.0 3-S 3.8 - 0.0 _16.3 -16.3 0.0 0.0 0.0 -1.2 -1.2 5.4 2q,1 23 •1 . -39.4 276.6 l 316.0 al cost LcontributionsI ,2004 Employee north al cost [contributions 2004 Employer norm 2004 pension payments 2004 li,funds, transfers 2004 Total expenses ctual~ investment earnings 2004 Expected [A liability t'~`/iarket as 31 -Dec-04 Estimated V 135 t• on nc a Asse ab'--ty ~,,SSets Diff erenCe . liability -39.4 276.6 ASSetj Item 31 0 ate Liabili L - rket assets] liability [Ma _ 0.0 Dec-Q4 Estimated 4.0 31 4.0 3,9 0.0 al cost [cor►tributionsa 3.9 - 0.0 eenorn, 2005 Employ -16.7 F mat cost [contrlbutions~ -16.1 0.0 - 2005 Employer nor -0•$ _ -1.5 ents -0.9 2005 Pension paym 1 Refunds transfers 22.4_- 2005 I 24.9 47.3 1 2005 Total expenses t ` ctual~ ins estment earnings 2005 Expected [A312.9 331..3 liability [Market assets] ` 31 _pec_05 Estimated 136 Asset _`a b' ity Reconc a 9at'on Date Liability [Asset] Item Liability Assets Difference 31-Dec-05 Estimated liability [Market assets] 331.3 312.9 -18.4 2006 Employee normal cost [contributions] 4.4 4.4 0.0 2006 Employer normal cost [contributions] 4.2 16.8 12.6 2006 Pension payments -17.1 -17.1 0.0 2006 Refunds, transfers -0.5 -0.5 0.0 2006 Total expenses -2.1 -2.1 2006 Expected [Actual] investment earnings 26.2 51.3 25.1 Retirements different from assumed -1.9 1.9 Other net experience losses or gains 1.0 -1.0 Changes in actuarial basis 49.2 -49.2 31-Dec-06 Valuation liability [Market assets] 396.8 365.8 -31.0 137 . ab Yv gecon6l* Asset, ~ ~ ace assets -31.0 Liability 3b5 g IteM 396.g ~ ioilin lty ~sset~ it ~jar~et assets - 5.2 7"a -00 7-p!t( • ab,l 3.6 v~ ~ •2 06 g.g - 0 31-'Dee- - 0 a1 eest~eontributlons Employee nom - pp1 ost ~contribut~s _ 1.5 _ ~ n°~ c 5 Empl°yer 2001 1 ion paym - _ ~ -O.g pens -p 8 200 transfers 200 Refunds> ~ ~ 9.2 ~ ~ eat expenses 2b.5 eases 200 ~ i r!7~~ ep eat earning= _41.1 her adminn '2 '0 ctual~ i11'tl - m _ 3 b7.3 l.---j Expected - 414.4 2007 lvlarket assetsA • liability Estimated - 31- L 138 peconc atl --W- n /Ijab"IVIV sets Dille, ASS 41 Lla~il►it~' 361.3 414.4 ility ~~SSe 0.0 j~la1~ ~ Market assets 5.g 43 - E _ 31 Dec 01 9.3 tions~ 5.0 0.0 contribu J~ _ 19.0 Q Mal cost a$ Employenpr ~contributions~ -19.0 20 to rural cost l _0 7 -1.5 ~ yer n= '2009 Emp ~ n P ayments _ 1 5 pensio -1.0 200g - -1 J c trap ~ ~ -101.4 200$ Refunds' enseS -~3 21.1 inistratio _ _ 146 er adtn ent earnings - in~eStm _ 2g6.5 Dag Expected 433.2 2 ~ _ aced assets liability LEst~~ ~ Estimated 31-Dec-ag 139 p,sset)f ration tV Reconce- own, .WW _ _ ets Difference llity fs -47.1 Llab 36I .3 _ 414.4 .0-0 O-W • bilitY 1'&'ssetA Item Date _ ~l ility [ ,,,Vet assets` _ 0 flab _ 5.9 - Estimated _ 5.8 4.3 31-Dec -07 9.3 cQntributions"l 5.0 - 0.0 anal cost L 19.0 loyee n4 2008 E~np contributlansl 0.0 _ foyer normal cost [ -0.7 2008 _0 7 - -1.5 Emp ayments -1.5 2008 pension p .0- _ transfers _ - -1.0 _ 008 Refunds, _ l 41.4 2 exp eases -73.7 00$ ~ Investment 27 • 2 7 er administration expenses ea~ings -146.1 elit '2009 C?th - ted [p`ctual] inveStm- 2$6.5 200$ Expec 433.2 d assetsA Estimate aced liability 31-pec-O$ Esf t 140 C*ty of Sa'nt.ohn rim ommon anuarV 34, uound= 1009 Pens'on P an Quality In Everything We Do 141 t~ li I ~ s Act 1 ~ ~ Benefit -1.95 under the pension sion plan shall be n t of the assets of a pen e swick Regulation nerally accepted New gru with g _"a financial statemen din accordance . ,ubseCtion • nistrator of the fun f re ared by the admi p efit plan with assets ° p rinciples......- counting P Ian is a defined ben he assets shall be ac ension p ect of t financial audit in resp iting standards....,... ction ~ ~1~~ 'here a p SubSe ore , a accepted and wo million dollars or m with generally t rformed in accordance pe 142 standards le for Benefits Accounting AVailab Assets Statement Of Net Assets Available for Benefits ial statements consist of plan financ es in Net and Statement of bang principles in Canada an Generally Accepted Accounting . Accrual accounting basis red on a going concern • prepa lisped market values . investments are at pub 143 Accoul 14LF fsflmates 144 Audit process opinion on the d references express an espects, in 5090-selecte er,~ents Is to all material in assets ndb°ak,Sec'6prl f;nanC;al stat sent fairly' ~n o`,vs or Changes FICA "a an audit °f ternents pre and cash fl Ci les. ective of C1a l sta eratlons r,n p to abl he finan is of op accounting p ran oplnlon a roternal ,Nhether the resin accepted n entity no • nc►al po enerally iljty of a ions, including with viab • ch its operat f~na dance utur ce a ss , the direct~an a actor s to the f ~th vvh~ not an assura or effect"veness • erner't under e eff jciency conduct manag •nof th 1 have been Controlled by records g . h contro , an ent;ty are nce the accurate cordance wit a th gover na s WI ons;b'rlity arments in ac . operation charged rnary resp vial state those t has the Pr of finan r,~ent of its and a emen he preparatio r jnc►ples. not manage gran g , t nt~ng p 0leve es transactions e ted accou is do eneraM act r p f1nanC jai state'men g an audit of the respons;bil%ties. r 145 rocess P to t relate p1~ which references Standards, the greparaLion audit and .0go_selecte ted auditing the Hanbook Section neralIV accep mance of th CI lies With ensr the perfor ► audit°r cop ualificat►o itor s ckst of andards ents taken the and report• ted aud►t►ng tear his or her 11V accep t the financial sta ha er points rdance with gleeneraassurance t are inherent pth acco onab ent• use there t material an and►t ►n ro\ide teas rial misstaterr'► d top Of mate urance bec to deter s of internal des►gr1e le are free ° lute ass ilitl itat►on and the ho • n abso auditor s ab rent lira as a w not obtar affect the • the ►nhe r collusion),) an auditor ca an audit that use of test►ngent ovenrde ° conclusive' limitations ints such as the of managemrather than misStaterr►en the possib►l►tY ce is persuasive control ~e•g., evrden at most audit actuar1es~ fact that s ecialists ~ P- . reliance on . 146 ■ iv a n r- n t Override • We evaluate the risk of management override using the fraud triangle and consider the actions management has taken to respond to those risks. • We consider, among other things: - Code of Conduct/Ethics - Effective and independent oversight by Board of Trustees - Entity's risk assessment processes • Role and oversight responsibilities of the Board: - Management's assessment of the risks of fraud - Programs and controls to mitigate the risk of fraud - Management communication to employees on its views on business practices and ethical behavior f, pun by W Sl~m A--h. 147 ---rustees and OtY co-operabOn Ag ,aff iff tit is S nd ages with Trustees' n and provided timely cooperation of irrfor'~at~o • Full staff regarding r~tithhold~n~ with City • No issues ndent relationship professional and indepe of Trustees RequiredtO repart t4 Board 148 2007 Audit Results Report • Presented to Board March 26, 2008 • Covered • Auditor's Responsibilities under Generally Accepted Auditing Standards ( report on financial statements which are the responsibility of the Plan's management) • Audit process overview • Changes in accounting policies ( none noted) • Auditor's judgment about quality of accounting policies ( no issues noted) • Discussions with management regarding any significant or unusual transactions ( nothing not in normal course of business) • Sensitive accounting estimates or disclosures ( none noted) • Summary of audit differences ( no significant recorded differences or unadjusted differences) • Disagreements with management ( none) • Serious difficulties in performing audit ( none noted) • Significant weaknesses in internal control ( none noted) • Other services ( no other services provided to plan) • Independence ( independent with respect to plan within Rules of Professional conduct) 149 2008 Audit T' Ming id February by 2008. for m d March . - m schedOed • Report to Board of rustees 150 Forensic audit-genera comments • Forensic accounting is accounting executed in a scientific fashion that is thorough and complete, providing the highest level of assurance. • Forensic accounting is often utilized to obtain evidence to support criminal charges (possibly related to bribery, fraud, theft, breach of trust, extortion or forgery). • Forensic accountants utilize both accounting expertise and an understanding of the legal system to provide an opinion regarding what may have happened, who is at fault, and the damages resulting from the actions. • While a forensic audit is a valuable tool for getting to the bottom of questionable transactions and for assessing what may have gone wrong with a system, it is not suited to be the basis of normal on-going audit processes in an organization or institution. • The cost associated with effectively double-checking every transaction as part of a general audit process, if suitable policies, practices and systems of control are in place, would likely be disproportionate to the potential benefit. 151 Recent Pension Reform Efforts 20022008 - ends >26 times On counCl,rs ag ement .o~king at ~anag Reports from management. Governance of Plan • Changes in Contributions ncy requirements R 5 . eductions in obenefits statutory solve • Exempt►ons f ~ ^horn with costing Reports from Various EMP Morneau ogee zou presentations 152 Recent Pens-on Retorm Ettorts 2002-2008 ~reement - March 20~ 2007. ecember eriod to D changes for the 3 Year ~ . No benefits l be sought; 3172009; m ton w- ~ Solvency funding e • 3 Solvyear ency increase ;n e~c©ntr~butions for emp be 50employee contributions acing 2010Y. Within a range of 7.x/0 C°rr'rr1e o ` 0 o Of current service cost but to 9%l . contributions • • pyer is resppnsib e for making o commencing in 2010, Emp . . e of 7.5/o above that with a rat 153 Poss-ble Next Steps . public Inquiry costs, . of this session 154 Proposed Next Steps Future Report to Cound - rustees meet with AP next month Trustees review this information Trustees deve op options Trustees wi provide further update to Counci in ear y Apri 155 N' O N co PRESENTATION TO COMMITTEE OF THE WHOLE MEETING OPEN TO THE PUBLIC ANSWERS TO QUESTIONS SUBMITTED TO THE PENSION TRUSTEES Board of Pension Trustees City of Saint John JANUARY 31, 2009 Note: In preparing this summary of the questions submitted to the Council, the questions were reproduced in their original form where possible and paraphrased where necessary. For example, where submissions were provided in the form of a narrative, the submissions were paraphrased into a question. In instances where the original question has been paraphrased or reworded, every attempt has been made to capture the spirit and meaning of the question as asked. The Pension Trustees have made every effort to answer each of the questions as fully and completely as possible using the historical and current information available to them. In order to ensure that each question as submitted is answered, we have identified the questioner by name so as to permit supplementary questions arising from the presentation on January 31, 2009. C:IDocuments and Setlingsljc1940tLo I Settings\Temporary Internet Flles\Content.Outloo \lU DPJ2D1Summary of Questions and Answers Submitted to the Pension Trustees for Response (2).DOC 157 -2- INDEX NAME PAGE Donna Atcheson 3 Sandra Atkinson 3 Ian Benjamin 5 Doug Breen 6 Earl Campbell 6 John Campbell 7 Deputy Mayor Chase 8 John Cook 10 Chuck Crawford 13 Stephen Curbishley 16 Richard Daigle 16 Councillor Bill Farren 16 Ken Golding 22 Lance Henry 23 Ella Hoyt 23 Gerard Hurley 24 Kim Jakes 25 Bob Kirkpatrick 26 Bruce Latham 27 Don Leaman 28 Pat Lucas 29 Bruce Maxwell 31 Robert McCready 31 Johanne McInnis 32 John McNamee 32 Hugh Munro 33 Andrew Oland 33 Brian Scribner 34 G. Ellis Shephard 34 Kevin Standing 35 Tina Standing 35 Jim Stanley (CUPS) 35 Bruce Stevens 40 Brian Stone 41 Valerie Stone 43 Councillor Gary Sullivan 43 Eric Teed 45 Doug Trentowsky 45 John Turner 48 Lyle Wiggins 49 C:1Documents and Settingslcl94MLocal Settings\Temporary Internet FIIeslContent.OutlookllUWDPJ2D1Summary of Questions and Answers Submitted to the Pension Trustees for Response (2).DOC 158 -3- Summary of Questions and Answers Submitted to the Pension Trustees for Response Q1: Donna Atcheson January 7, 2009 How much has the Pension Board's legal action against John Ferguson cost the tax payers of the City of Saint John? If it continues, how much will it cost? Al: The Pension Board's legal action against John Ferguson has cost approximately $400,000. Future costs are not known. Q2: Sandra Atkinson - January 4, 2009. a. What percentage of the employees' full time salary is being paid to each of the 83 employees now receiving long term disability payments? Example: The Company I work for paid 66% of the full time salary. Aa: Employees of the City of Saint John do not receive a percentage of the salary as a disability benefit. Instead, a member who has not reached retirement age and ceases to be an employee by reason of having to become totally and permanently disabled is entitled to receive an annual disability pension for life in an amount equal to two per cent of average salary in respect to each year pensionable service. The pension is limited to no more than 60% of average salary, except where the member already had more than 30 years of pensionable service at the date he or she became disabled. The annual pension also cannot exceed the YMPE ($46,300 in 2009) under the Canada Pension Plan in the year the member became disabled, unless the member's accrued pension at disability was already greater than the YMPE. b. What is the total cost of long term disability for all employees presently receiving payments? Ab: The amount included in the annual normal cost for the pension plan with respect to expected future disabilities is 0.68% of payroll or about $346,000 based on a recent annual payroll for plan members. The liabilities with respect to the disability component of the Plan for all previous disabled retirees still receiving pensions from the Plan was estimated to be $23 million as at December 31, 2006. This amount includes about $3.6 million with respect to disabled pensioners who are already age 65 or over and another $3.8 million with respect to disabled pensioners who between the ages of 60 and 65, leaving $15.6 million with respect to those under age 60. C:1Documents and SeWngs1jc19401Local SettingslTemporary Internet FiieslContent.OutlookllUWDPJ2DISummary of Questions and Answers Submitted to the Pension Trustees for Response (2).DOC 159 -4- The liability for active members at December 31, 2006 included an estimated $5.2 million with respect to the additional cost of expected future disability benefits. G. What is the total cost of the pension fund for long term disability since the disability since the beginning? Ac: Historical data back to 1947 is unavailable. Current costs are provided in the above answer. d. What portion of these costs are being paid by the Canada Pension Fund? Ad: No portion of the benefits are being paid by the Canada Pension Fund. e. What portion is being paid from the City Pension Fund? Ae: 100% of costs for the disability provision of the Pension Act is paid from the Pension Fund. Has there ever been an investigation done to find out what is available in the form of long term disability coverage through an insurance carrier? If not why not? Af: The City of Saint John Pension Act has always contained long term disability benefits. A comparison of the cost of providing a long term disability within the Plan versus providing a separate long term disability plan through a qualified carrier has never been conducted by the City of the Saint John, to our knowledge, and has not been undertaken by the Trustees given that the Trustees duties are to administer the benefits provided for in the existing Plan. g. Does the City have a set policy in place outlining the requirements necessary to qualify for both short term and long term disability payments? Ag: The Trustees are not aware of the short term disability policy for salaried employees. The short term disability policy for union employees is as set out in the applicable Collective Agreement between the City and the union. The requirement to qualify for long term disability payments is set out in the Pension Act - the member must be "totally and permanently disabled" from any occupation suitable to their experience and education. The Trustees third party disability manager, Lifemark, advises the Trustee on compliance. Are the 83 people now receiving disability payments also receiving any other benefits on top of these payments? If yes what is the total cost of the benefits and are those costs also being paid for from the City Pension Fund? Ah: There are 79 people under age 65 receiving a disability pension as at December 31, 2008. Only the disability pension is paid to disability pensioners from the pension fund. The Trustees have no knowledge C:IDocuments and SettingsJ094011-ocal SettingslTemporary Internet FileslContent.OuttookllUWDPJ2D\Summary of Questions and Answers Submitted to the Pension Trustees for Response (2).130C 160 -5- of other sources of benefits. What is the difference between a forensic audit and a public inquiry? Ai: A forensic audit would involve an accounting firm reviewing and commenting on the financial statements and actuarial valuation reports completed on the Plan to date. The scope and nature of the review would depend on the mandate given to the accounting firm. A public inquiry would involve the appointment of a commissioner to look into the management of the Pension Plan and hear testimony from witnesses if they determined this to be appropriate. The scope of the public inquiry would depend on the mandate given to the Commissioner. j. Would a public inquiry involve an auditor who is a chartered accountant reviewing all the paper work going back to the time when the City started using the Pension Fund as a long term disability fund? Aj: The disability provision in the Plan dates back to 1947. The scope of a public inquiry would depend on the mandate given to the Commissioner and the Commissioner's interpretation of that mandate. The Commissioner of the Public Inquiry may retain an auditor to review all of the paper work going back to 1947. Q3: Ian Benjamin - January 5, 2009 With respect to the disability insurance benefit integrated with the Pension Plan: a. Was a cost/benefit analysis performed to support this decision and please provide the cost/benefit analysis review formed to support the decision. b. What is unique about the City of Saint John Pension Plan, as compared to other municipalities, that prevents the use of stand alone disability insurance plan? A3: The disability provision of the Plan has been in place since the introduction of the City of Saint John Pension Act 1947. This was a common way for an employer to provide disability benefits to its employees in 1947. Although not as common in today's pension industry, the provision of disability benefits in the Pension Plan is not unheard of. The legislated disability benefits have remained in the Plan since 1947 and the Trustees are obligated to administer these benefits in accordance with the City of Saint John Pension Act until the legislation is amended by the legislative assembly. The Trustees are unaware of any cost benefit analysis existing from 1947, The Trustees are unaware of any feature of the Plan that prevents a stand alone disability insurance plan, other than the need to amend the Pension Act. C:IDocuments and Settings1c194MI-ocal SettingslTemporary Internet FileslContent.OutlookllUWDPJ2DlSummary of Questions and Answers Submitted to the Pension Trustees for Response (2).DOC 161 Doug Breen - January 5, 2009 How and where are the costs of disability insurance reflected in the Pension Plan and the benefit packages paid to City employees? The amount included i the annual normal cost for the pension plan i respect expected future disabilities i % o payroll or out based o a recent annual payroll for plan members. The liability for active members December 1, 2006 included an estimated . million i respect the additional cost expected future disability nit. 3: Earl Campbell - January and , 2009 a. How much was paid out for regular pensions and how much for disability pensions? a: A summary of the net assets of the pension plan for the period 1998 to 007 i as oll : CUY OF SAW JOM PENSION R-AN SUMMARY ' 1 ' 1999 2001 ' 2002 ' 2003 2W4 2M 20M 2007 Increase In b Cwdn a City of Saml Jotm 2.946,606 2,001,733 3,016,964 3,290,621 3,343,242 3,369,332 3,700,175 1654 001 16,819,516 0,756,425 Empl 3500,302 3,683611 3701,529 3,724,308 3,769,104 3,W9,502 3,968,241 4.041595 4.429,156 5185,327 Triaskm 660.290 334.312 6,526.986 6.545.544 6.718493 7.014.929 7,800,636 7,198,1134 6.112.726 7.095.596 21.240.674 11941.752 Investment [mane 22,081,624 42.193.767 14.647.352 (11.912,203) (9,100,215) 29,0%,313 29,082,701 47,304,400 51,276,019 9,171,947 29.608.612 48.739.311 21,365,845 (4,897,274) (1,359,579) 36.295.147 37.195.429 55.200.002 72.524.693 23.113.699 Demme In assets Panama pad i1,220,958 12,255463 12.775.005 13.305,036 14.100.326 15.579 842 16 277,265 16.660 839 17,060,579 17,645.216 Refunds 533,221 198,604 661.852 228,229 377.534 773,277 318,542 808 879 464,910 1,455,457 Adnun sea 1,365463 1.236.054 1.214.453 1.166, 1.308.772 1,332,404 1,206.070 1.454,554 2.116,408 2,268,651 13119,662 13.690,121 14,652.210 14,701,831 15.792.634 17, ,523 17.801877 18.924,272 19.661.897 21,569324 Net mcrease (decrease) 15,488,950 35,009.100 6,713.635 (19,599,105) (17.152,213) 18 609.624 19.391.552 36,275.730 52,002400 1,544,375 opening balance 216.122.977 233.611.927 268.661.111 275.374,752 255.775.647 .621434 257,233,058 276,624.610 312.900340 365,763.136 He[ a p -end of year 233.611.927 268.661,117 275.374 752 255 .775.647, 238 62 A34 257.231058 276 624.610 312.900.340 365363136 367.307.511 C:1Documents and Settingsl09401Local S ettings\Tem pore ry Internet FilestContent.OutiookllUWDPJ2D1Summary of Questions and Answers Submitted to the Pension Trustees for Response (2).DOC 162 -7- With respect to disability pension amounts, this information has not been tracked historically and therefore the historical information can not be provided. As at December 31, 2006, the amount included in the annual normal cost for the pension plan with respect to expected future disabilities is 0.68% of payroll or about $346,000 based on a recent annual payroll for plan members. The liabilities with respect to the disability component of the Plan for all previous disabled retirees still receiving pensions from the Plan was estimated to be $23 million as at December 31, 2006. This amount includes about $3.6 million with respect to disabled pensioners who are already age 65 or over and another $3.8 million with respect to disabled pensioners who between the ages of 60 and 65, leaving $15.6 million with respect to those under age 60. The liability for active members at December 31, 2006 included an estimated $5.2 million with respect to the additional cost of expected future disability benefits. b. What are the assets of the Plan now? Ab: Plan assets as of December 31, 2008, based on preliminary financial statements and without audit, are $286.5 million. C. What were the amounts of the employees and employers contributions for the 9 year period 1999-2007? Ac: See a above. Q6: John Campbell - December 2008 With respect to the early retirement/voluntary separation program: a. What evidence did senior city management give to substantiate implementing the program as being cost effective? Did the Pension Board analyze this program to see what adverse effect it would have on the Plan and if so what were the figures that they ascertained through their evaluation of the program and did they share this with Council? C. If the program was to reduce staffing levels and save money then why were most of these positions filled immediately and at what cost (i.e. salary comparisons)? d. Why did employees that would have been retiring in the near future given an enhanced package? C:IDocuments and Settingsljc194OXLoca1 SettingslTemporary Internet Fifes%Content.OudookllUWDPJ2DISummary of Questions and Answers Submitted to the Pension Trustees for Response (2).DOC 163 -8- A6: The Trustees of the Pension Plan were not responsible for the introduction, implementation or administration of the early retirement program initiated by the City of Saint John. There was a cost to the Plan set out in the 2003 Actuarial Valuation as a result of individuals retiring earlier than assumed of approximately $2.2 million. We do not know if all individuals retiring earlier than assumed were because of the early retirement program. The pension amount received by participants in the program was limited to the pension benefits earned by the employees of the City of Saint John to the date of the introduction of the program. There were no changes to the Plan as part of the early retirement. Any additional cost of the program was borne by the City and not the Plan. The rationale of the program and its results are the subject of public reports to Council filed in October, November and December of 2002. Q7: Deputy Mayor Chase: With respect to the City of Saint John Pension Act established in 1947 and Section 17(1) which states "in determining the Pension Board may retain physicians and consultants" a. When did own occupation rule change? Was this rule adhered to? Aa: The "own occupation" rule changed in 1992 as a result of changes in the provisions of the Income Tax Act (ITA) which required the Plan to revise the definition of "total and permanent disability" as currently provided for under the City of Saint John Pension Act. Although the ITA amendment took plan in 1992, the Pension Act did not get officially changed until 1994. Early in 2003, an issue was identified as to whether the old "own occupation" definition of disability was being applied in assessing disability versus the "any occupation" standard. As result of inconsistencies being identified in the application of these rules, the necessary steps were taken to uniformly apply the "totally and permanently disabled" definition of disability and recently, a third party disability management company, Lifemark, has been retained to assess disability applications. b. What Act, federal or provincial, was this rule? Ab: The "own occupation" definition was contained in the provincial City of Saint John Pension Act. The change of definition to "totally and permanently disabled" was contained in and required under the ITA but not changed in the CSJPA until 1994. C. Was Pension Board advised of this change? Ac: The Pension Board was advised of the changes of the ITA and subsequently the Pension Act was amended. d. How did the Board act on this change? MDocuments and SetUngsljc19401Loca1 5ettings\Temporary Internet FileslContent.OutlookllUWDPJ2D1Summary of Questions and Answers Submitted to the Pension Trustees for Response (2).DOC 164 -9- Ad: See above. e. What steps are required to remove disability from the pension plan? Ae: In order to remove disability from the Pension Plan, the Pension Act would have to be amended by the Legislative Assembly. f. Who adjudicated the Doctor's report? Af: Historically, the Pension Trustees would review the contents of the doctor's report. Since 2006, Lifemark performs a review and makes a recommendation to the Trustees. Q8: Deputy Mayor Chase - Supplementary Question a. With respect to the change in eligibility for disability from "own occupation" to "any occupation" what direction and by whom, if any, did the Board receive in proceeding with disability application? Aa: The direction to the Board comes from the terms of the Pension Act. The Board would have received a direction to apply the new definition when the Pension Act was amended in 1994. b. What liabilities arise from the Board not following the rules set in law? Ab: There are 10 individuals who have ceased receiving a pension due to the Lifemark review initiated in 2006. The total additional cost related to disability over the period during which they were receiving pension payments is estimated to be $1.1 million, including employee contributions not made by them in the period. This amounts to an average of approximately $21,700 per member per year, including employee contributions not made. The total cost of the incorrect application of the definition is some unknown proportion of the $1.1 million amount. C. With respect to the members of the Pension Board appointed by Council either nomination or by virtue of their office, beyond their fiduciary responsibilities to the administration of the Plan, was their any obligation to report to the Plan sponsor the failure of a Board to administer the proper application of the rules for disability eligibility? Ac: There would be an expectation that such a report would be made. A separate report was made to Council in a letter from the Trustees to Council dated January 30, 2006. There would be an expectation to report this in the annual report. The annual reports of 2005 and 2006 discuss changes to the disability management process. C:1Documents and Settings1jo194011-ocal Settings7emporary Internet FileslContent.OuUookllUWDPJ2D1Summary of Questions and Answers Submitted to the Pension Trustees for Response (2).DOC 165 -10- d. Since the change in the eligibility rule for disability from "own occupation" to "any occupation" what individuals associated with the Pension Plan would have interacted with the auditors during the audit? Ad: The auditors interact with management during the conduct of the audit and with the Trustees during the presentation of the audit results. It is not the responsibility of the auditor to determine if someone is fit or eligible for disability. This is a policy and medical issue. The auditor's work would only cover that those approved are being paid. e. Was the disability issue brought to the auditors' attention? Ae: The disability issue was brought to the actuary's attention. The Trustees are not aware if the issue was separately brought to the attention of the auditors. This issue may be relevant to the valuation of the Plan by the actuary, but not the audit of the Plan. We were not the auditor when this change was legislated. Further it is not the responsibility of the auditor to determine if someone is fit or eligible for disability. This is a policy and medical issue. Our work would only cover that those approved are being paid. Did the auditors identify it otherwise and if not why not and if it was identified was it reported? Af: The Trustees do not know if the auditors identified it otherwise. As noted, this issue would not be relevant to the audit of the Plan for the reasons set out in d and a above. g. Councillor Chris Titus sponsored on motion on September 3, 2002 requested the City manager provide a report relating to the disability issue, was a report ever completed for Council? Ag: This question would have to be directed to the City Manager. Q9: John Cook. ...m January 5, 2009 a. Is it common for pension plans to include LTD coverage? Aa: The disability provision of the Plan has been in place since the introduction of the City of Saint John Pension Act 1947. This was a common way for an employer to provide disability benefits to its employees in 1947. Although not as common in today's pension industry, the provision of disability benefits in the Pension Plan is not unheard of. The legislated disability benefits have remained in the Plan since 1947 and the Trustees are obligated to administer these benefits in accordance with the City of Saint John Pension Act until the legislation is amended by the legislative assembly. C:IDocuments and Set[1ngsljc19401Loca1 Settings\Temporary Internet Files%Content.0ut1ook11UWDPJ2DISummary of Questions and Answers Submitted to the Pension Trustees for Response (2).DOC 166 -11- b. Are there examples of other pension plans including LTD coverage within their pension plan being financially successful? Ab: Although it is not as common as it once was to include LTD coverage within a pension plan, there are indeed other pension plans which have such coverage. Generally speaking, pension plans are experiencing deficiencies industry wide as a result of the decline in equity markets and the aging Canadian population. We are not aware of any pension plans (including the Saint John Plan) which are experiencing a deficiency solely as a result of including a disability benefit program within the plan. C. Would it not be preferable to provide LTD coverage through a separate insurance plan with a qualified carrier? Ac: The City of Saint John Pension Act has always contained long term disability benefits. A comparison of the cost of providing a long term disability within the Plan versus providing a separate long term disability plan through a qualified carrier has never been conducted by the City of the Saint John, to our knowledge, and has not been undertaken by the Trustees given that the Trustees duties are to administer the benefits provided for in the existing Plan. d. Does the City of Saint John LTD Plan have a "two year own occupation" assessment? Ad: No. The City of Saint John Pension Act contains the following definition of disability: Totally and permanently disabled means in relation to a member suffering from a physical or mental impairment that prevents the member from engaging in any employment for which the member is reasonably suited by virtue of the member's education, training or experience and then can be reasonably expected to last for the remainder of the member's lifetime. The Plan contained an "own occupation" definition of disability until 1994 when the Plan was amended as required under the Income Tax Act. e. Are claims subject to periodic medical certification of their disability by a qualified and trained medical examiner? Ae: Yes, the Trustees have retained Lifemark, a third party disability manager, to process and review new applications for long term disability. Lifemark also reviews existing pensioners from time to time. C:IDocuments and Settingslc1940\1-oval 5ettingslTemporary Internet Files\Content.Oullook\lUWDPJ2D1Summary of Questions and Answers Submitted to the Pension Trustees for Response (2).DOC 167 -12- Are employees of the City who are on LTD still employees of the City and does the City have an obligation to re-employ them when their disability permits? Af: In order to qualify for LTD under the Plan, a member must cease to be an employee by reason of having become totally and permanently disabled. Whether the City has an obligation to re- employ a member is a matter for determination by the City. g. Has the City employed such recovery claimants? Or Ag: The Trustees obligation is to administer the disability benefits payable to those employees meeting the definition of disability under the Plan. Whether a former disabled employee who no longer meets the definition of totally and permanently disabled, must be employed by the City is a matter for determination by the City. If the member continues to meet the definition of totally and permanently disabled under the Plan, the member is entitled to continue to receive these benefits. h. If not what is the cost of these people continuing to receive LTD benefits? Ah: See answer g above. Has the City offered alternate employment to claimants who have partially recovered and are unable to perform a job different from their former job? Ai: See answer in g above. Do they receive reduced remuneration in the alternative work? Aj: See answer in g above. k. What steps are required to separate the LTD Plan from the Pension Plan? Is this recommended? Ak: In order to separate the LTD Plan from the Pension Plan, an amendment to the City of Saint John Pension Act would be required removing disability benefits on a go forward basis. Those with vested disability benefits in pay, who continue to meet the definition of totally and permanently disabled, would continue to receive benefits from the Plan. As a cost benefit analysis of the cost of the disability benefits available under the Pension Plan versus those under a separate insurance plan with a qualified carrier has not been carried out, the Trustees cannot comment on whether this is recommended. C.IDocuments and Settingslicl DILo I SetLngs\Temporary Internet FIIeslContent.Outlookl1UWDPJ2DtSummary of Questions and Answers Submitted to the Pension Trustees for Response ().DC 168 -13- Q10: C.A. (Chuck) Crawford -January 6, 2009 a. How does the pension plan for the City of Saint John compare with the pension plans for the private sector of Atlantic Canada. b. How many private companies have DC plans versus DB plans? For private sector companies with DB plans, how do the payments to employees compare with those of the City of Saint John? What percent of Salary is paid and are the payments indexed for inflation? A10: A comparison of the City of Saint John benefits with the private sector in Atlantic Canada is beyond the scope of the presentation and generally unavailable to Trustees. Statistics Canada publishes some comparative information on a national and provincial basis. There was a recent 2008 survey of 63 Deferred Benefit plans published by Aon Consulting and Financial Executives International. A copy of the highlights of the survey is attached. Q11: C.A. (Chuck) Crawford -January 6, 2009 a. What information was provided to Council at the time the Plan was in surplus in 2000 prior to the Trustees voting to take the surplus to index pensions. b. What was management's input on this? A11: On April 15, 1999, the Board considered the cost information provided by the actuary with respect to the indexing of benefits. The increases ultimately adopted to take effect on January 1, 1999 were as follows: (1) For those who retired before 1992 but after 1976, increase in pension such that their total increase since retirement will equal 20% of the increase in CPI; (2) For those who retired prior to 1977, a 20% increase, but not to exceed the increase in CPI since retirement; (3) Future annual increases in pensions for current and future retirees equal to 1% in relation to service between 1975 and 1992. A 2% indexing re post- 1992 service was already part of the plan. The cost of these changes was to increase liability by $12,112,300 as of December 31, 1997, leaving a surplus of $8,128,100, of which $6,936,100 was treated as an investment reserve. On October 28, 1999, the Trustees met and considered a proposed report to Council with costing, as well as the specific legislative language to implement the indexing. The report was approved and forwarded to Council. On November 1, 1999, Council met and considered these proposed changes to the indexing, with the above costing figures. C:IDocuments and SettingsVc19441Local SettingslTemporary Internet FileslContenL.Outlook11l.1WDPJ2D1Summary of Questions and Answers Submitted to the Pension Trustees for Response (2).DOC 169 -14- Council approved the amendments and forwarded those to the legislature for adoption. The amendments and cost are also reported in the 2000 Annual Report. Q12: C.A. (Chuck) Crawford With respect to early retirement packages, was an actuarial report done to justify the effect these packages would have on the pension plan? A12: The Trustees of the Pension Plan were not responsible for the introduction, implementation or administration of the early retirement program initiated by the City of Saint John. There was a cost to the Plan set out in the 2003 Actuarial Valuation as a result of individuals retiring earlier than assumed of approximately $2.2 million. We do not know if all individuals retiring earlier than assumed were because of the early retirement program. The pension amount received by participants in the program was limited to the pension benefits earned by the employees of the City of Saint John to the date of the introduction of the program. There were no changes to the Plan as part of the early retirement. Any additional cost of the program was borne by the City and not the Plan. The rationale of the program and its results are the subject of public reports to Council filed in October, November and December of 2002. Morneau Sobeco was not asked to estimate beforehand the possible effect of earlier than usual retirements, and in any case such an estimate is difficult to do before the fact with much accuracy. Q13: C.A. (Chuck) Crawford Is there not a conflict of interest for any Councillor or Mayor sit on the Pension Board as a Trustee? Do not Trustees and the Pension Board have a duty to protect the interest of the tax payers? Does not the duty to protect tax payers come back to common Council? A13: The Trustees have a duty to act in the best interest of and impartially amongst the beneficiaries of the Plan. The beneficiaries are the employees, retirees and spouses or survivors. Taxpayers are not beneficiaries. The Trustees do not owe a duty to the taxpayers. The Plan sponsor, the City of Saint John, is responsible to the taxpayers. When a Councillor or Mayor is acting in his or her capacity as a Pension Trustee, he or she must uphold the duties of the Pension Trustees and act in the best interests of the beneficiaries. When acting in the capacity as Councillor or Mayor in Common Council, then the primary duty as a Councillor or Mayor would be to act in the best interest of the City of Saint John. Conflicts of interest may indeed arise as a result of this dual role. As long as the Councillor or Mayor make decisions as a Pension Trustee pursuant to the fiduciary duties owed to the membership, and when acting in Common Council, fulfill their duties to Council, the individual duties of each role are fulfilled. If an actual conflict of interest arises on a particular issue, then the individual should declare the conflict and C:1Documents and Settings\lci9401t_ocal SettingsUemporary Internet FIIeslContent.OutlookllUWDPJ2D1Summary of Questions and Answers Submitted to the Pension Trustees for Response (2).DOC 170 _15- withdraw from discussion and decision on that issue. Q14: C.A. (Chuck) Crawford How can Trustees justify the spending of funds from the Plan for the law suit against John Ferguson? How much money has been spent on this? Have the Trustees been put on notice that if they lose all legal fees incurred by the Plan will have to be reimbursed to the Pension Plan by those Trustees who have sued Councillor Ferguson? What happens if Councillor Ferguson wins in the end, who is going to pay if the Courts award him damages and or costs? All 4: The position of the Board with respect to Mr. Ferguson is set out in the Board's letter to Common Council dated November 6, 2008, a copy of which is attached. The Board does not have, nor has it ever had, an issue with providing answers to legitimate questions about the Pension Plan. Indeed, soon after Mr. Ferguson expressed an interest in the workings of the Board, he was invited by Terry Totten to examine any and all of the Board documents, as well as talk to any of the Trustees in order to inform himself. Those offers were refused by Mr. Ferguson. Later, Mr. Ferguson received repeated offers to meet with the Board to discuss his concerns. Mr. Ferguson refused to meet. As of December 31, 2008, $402,687 has been spent in legal fees and disbursements on the litigation involving Mr. Ferguson. The Board has, on more than one occasion, tried to have Mr. Ferguson agree to alternate dispute resolution measures. No agreement has been forthcoming. It is a clear principle of trust law that Trustees are not to suffer loss from the discharge of their duties and are entitled to be made whole by the Trust. The individual Trustees receive no compensation for their work. Indeed, legislation specifies that they cannot be paid. Any damages or costs received in the lawsuit will be for the credit of the Pension Fund and not the Trustees. Q15: C.A. (Chuck) Crawford -January 6, 2009 If the City of Saint John Pension Plan is governed by federal legislation, what would be the consequences to the Plan and would the tax payers not be better served by being governed by OFSI? A15: The City of Saint John is governed by the New Brunswick Provincial Benefits Act which imposes fiduciary duties and governing standards on the Trustees of the Plan. Similar duties and government standards are provided for in the Federal Pension Benefits Standards Act which governs federally regulated industries such as transportation and banking. The Trustees do not believe there would be any substantive difference. C:1Documents and SetlingsNJ09401 o I SettingslTemporary Inlemet FileslContentOutlookllUwDPJ2DISummary of Questions and Answers Submitted to the Pension Trustees for Response (2).DC 171 -16- Q16: Stephen Curbish ley - January 5, 2009 Did the City of Saint John at any time: a. Take "contribution holidays" from the funding of the Plan? Aa: From 1976 forward, the City and the plan members have always made the full required contributions to the Plan and in that period there has been no year of zero contributions. Some contributions for 2004 and 2005 were late. b. If so, did this contribution holiday consist only of the City's required contribution or did it also include employee contributions? Ab: See Aa above. C. What was the basis for the "contribution holidays? Ac: NIA d. What provisions were made to up the "non-contributions" in future years? Ad: N/A Q17: Dick Daigle -January 5, 2009 Is there any potential tax payer liability, either directly or through increased power rates, should the Saint John Energy Pension Fund become under funded? A17: The Trustees do not manage the Saint John Energy Pension Fund and therefore do not have any access to the information requested. Q18: Councillor Bill Farren - January 5, 2009 a. Since 1995 to 2008, what was the rate of return and the cost of managing the plan for each year. (i.e. 5 percent to cover day to day cost/liabilities and the actual return on investment for each of these years.) Aa: Return Admin. Before Investment Admin. Expenses Year Expenses Expenses Expenses $ Amount C:IDocuments and 5etfings1c1940\1_ocal Settings\Temporary Internet FileslContent. Oullook\1UWDPJ2D1Summary of Questions and Answers Submitted to the Pension Trustees for Response (2).DOC 172 -17- 1995 16.6% 0.51% 0.14% $182,077 1996 18.0% 0.52% 0.15% $221,654 1997 16.1% 0.55% 0.14% $255,424 1998 10.2% 0.51% 0.16% $318,558 1999 18.3% 0.47% 0.11% $237,414 2000 5.4% 0.36% 0.11% $281,514 2001 -4.4% 0.29% 0.13% $351,598 2002 -3.6% 0.32% 0.19% $487,167 2003 12.8% 0.41% 0.19% $424,030 2004 11.6% 0.33% 0.17% $410,019 2005 17.4% 0.40% 0.18% $449,761 2006 16.4% 0.51% 0.22% $644,015 2007 2.5% 0.42% 0.21% $760,183 2008 -18.2% 0.38% 0.23% $935,977 The average gross investment return before expenses (2"d column above) from 1995 to 2007 was 10.3% per annum. The figures in the table for 2008 are based on unaudited asset results for 2008 and are only approximate. Including the estimated negative return for the year 2008, the average gross investment return before expenses from 1995 to 2008 was 7.9% per annum. Investment expenses (3rd column above) averaged 0.43% of assets in the period from 1995 to 2008. Non-investment administration expenses (4th column above) averaged 0.17% of assets in the period from 1995 to 2008. In inflation adjusted dollar terms, the average annual non-investment administration expense was $472,528 in the period. b. A surplus was recorded in the 2000-2003 year time frame. How long did the Pension Board carry this surplus before it was turned into benefits? Ab: The valuation as at December 31, 2000 showed that the market value of assets was greater than the actuarial liability by $24,312,900. The last plan change which increased costs was done in 1999 and the $24,312,900 surplus at December 31, 2000 was after accounting for the cost of those changes. Plan changes since December 31, 2000 have been "housekeeping" in nature or have been required by changes in the Pension Benefits Act and the effect on cost of all post-2000 changes has been negligible. The next valuation as at December 31, 2003 revealed an unfunded liability of $43,547,200 which had been caused primarily by the downturn in the financial markets in 2001 and 2002. The following valuation as at December 31, 2006 revealed that there was still an unfunded liability of $31,014,900, primarily because of the need to strengthen valuation assumptions. C. In same time frame above, the year benefits were improved, was the Plan going to a show a surplus/deficit in each of those years? C:IDocuments and Settings1c19441ocal Setlings7emporary Internet Files\Content. OudookX1UWDPJ2D1Summary of Questions and Answers Submitted to the Pension Trustees for Response (2).DOC 173 -18- Ac: The last change to the Plan which increased the cost was effective January 1, 1999. The valuation as at December 31, 1997 had shown that the market value of assets exceeded the liability by $20,240,400. $6,936,100 of the $20,240,400 was treated as an investment reserve. The cost of the changes which took effect on January 1, 1999 was based on costing done as at December 31, 1997 and it was determined that the changes would increase the liability as at December 31, 1997 by $12,112,300, leaving a surplus as at that date of $8,128,100, of which $6,936,100 was treated as an investment reserve. The January 1, 1999 changes had no effect on the annual normal cost. d. How long can surpluses be carried forward. Since 1995 to 2008, what was the surplus/deficit in each of those years? Ad: There is no limit to the length of time a plan can continue showing a surplus. However, if the surplus exceeds certain limits set out in the Income Tax Act, then that Act forces the plan sponsor to temporarily cease making contributions to the plan until the surplus no longer exceeds the limit. (Employee contributions to the plan can continue.) Employer contributions must cease if the surplus is more than 20% of the liability, or if it is between 10% and 20% of the liability and it is more than twice the annual normal cost. The December 31, 1997 valuation of the Plan showed a surplus of $8,128,100, of which $6,936,100 was treated as an investment reserve. As explained in the previous question, this figure was after accounting for the increase in liability associated with the January 1, 1999 changes to the Plan. The December 31, 2000 valuation of the Plan showed a surplus of $24,312,900, based on the market value of assets. An additional surplus of just under $800,000 would have made the surplus in excess of the Income Tax Act limit beyond which the employer contributions would have had to cease. This would have conflicted with the clause in the City's plan which required employer contributions of no less than 7% of payroll. If the previous Plan changes had not been made, the level of surplus at December 31, 2000 would have forced employer contributions to cease. The December 31, 2003 valuation of the Plan showed a deficit of $43,547,200 based on the market value of assets which had suffered from the downturn in the markets in 2001 and 2002. The December 31, 2006 valuation of the Plan showed a continuing deficit of $31,014,900 based on the market value of assets. The valuation assumptions were significantly strengthened in this valuation and this was the main reason for the continuing deficit. C:%Documents and settingsyc194MLoca1 5ettings\Temporary Internet FileslContenLOuUookL1UWDPJ2D15ummary of Questions and Answers submitted to the Pension Trustees for Response (2).DOC 174 -19- e. Since 1995 to 2008, give the total dollar value to improvements/reductions to the Pension Plan and the year they occurred in. Ae: Effective January 1, 1995, the $45,000 maximum limit on pensions was indexed to approximate increases in the Average Industrial Wage and the portion of pensions related to service after December 31, 1992 was indexed at 2% per annum. The December 31, 1994 valuation showed that the January 1, 1995 2% indexing of pensions accrued after 1992 increased the liability by $1,662,100, and indexing the maximum limit to increases in the Average Industrial Wage increased the liability by another $2,359,000. The changes to the maximum pension limit increased the annual normal cost by 0.3% of payroll and the 2% indexing of post-1992 pensions increased the annual normal cost by 1.9% of payroll, for a total increase of 2.2% of payroll. There were no Plan changes affecting valuation costs in 1996, 1997 or 1998. Common Council passed amendments in November of 1999 which were effective January 1, 1999 and were based on costings done in conjunction with the December 31, 1997 valuation. The pension for pensioners who had retired before 1992 but after 1976 was increased so that the total percentage increase they had received since retirement was 20% of the total increase in the Consumer Price Index since retirement. The pension for pensioners who had retired before 1977 was increased by 20%, or by the total increase in the Consumer Price Index since retirement if that was less than 20%. In addition, the pension related to service between January 1, 1975 and December 31, 1992 was indexed at 1% per annum for current and future pensioners. The total increase in liability related to the changes described in the previous paragraph was $12,112,300 when measured as at December 31, 1997. The annual normal cost was not affected by these changes. There were no Plan changes affecting valuation costs in 2000, 2001 or 2002. Changes were made to the Pension Benefits Act effective December 1, 2003 which forced several changes (mostly administrative) to be made to the Plan. The effect on the cost of the plan of these required changes was minimal. The changes required by the changes in the Pension Benefits Act effective December 1, 2003 were not formally incorporated into the City's Pension Act until 2008. At the same time several other changes were made to the City's Pension Act to clarify the wording in several sections. No changes C:IDocuments and Settingsljc194ML-oval SettingslTemporary Internet FileslContent.OutlookllUWDPJ2D1Summary of Questions and Answers Submitted to the Pension Trustees for Response (2).DOC 175 -20- made to the Plan since 1999 materially affected the valuation costs of the Plan. Since 1995-2008, give the number of employees that have been placed on LTD for each year and the total number of employees on LTD at the end of each of these years. Af: Historical information such as that requested is not available to the Trustees without a manual search of individual employee files. The following information is available: Recent additions - 2005 and later 2005 2 accepted 2006 5 accepted (2 died) 2007 4 accepted (1 died) 2008 4 accepted Net total 12 7 on CPP 5 receiving due to Trustees decision As of December 31. 2008 - 78 people receiving D.P (under age 65) 22 of the 78 are under the old definition (pre '94) 56 of the 78 are under the new definition (post'93) 40 of 56 receiving CPP and therefore qualifying automatically for CPP 16 receiving disability due to Trustees decision g. From 1995-2008, how many of the employees on LTD have moved on to the CPPD and in what year did each of these occur? Ag: The Trustees do not track this information. h. How much has the LTD payments cost the Pension Plan each year from 1995-2008? Ah: This information has not been tracked historically and therefore the historical information can not be provided. As at December 31, 2006, the amount included in the annual normal cost for the pension plan with respect to expected future disabilities is 0.68% of payroll or about $346,000 based on a recent annual payroll for plan members. The liabilities with respect to the disability component of the Plan for all previous disabled retirees still receiving pensions from the Plan was estimated to be $23 million as at December 31, 2006. This amount includes about $3.6 million with respect to disabled pensioners who are already age 65 or over and another $3.8 million with respect to disabled pensioners C:IDocuments and Settings\jc1940\LocaI Sottings7emporary Internet FileslContent.OutiookllUWDPJ2D1Summary of Questions and Answers Submitted to the Pension Trustees for Response (2).DOC 176 -21- who between the ages of 60 and 65, leaving $15.6 million with respect to those under age 60. The liability for active members at December 31, 2006 included an estimated $5.2 million with respect to the additional cost of expected future disability benefits. How much does it cost to put an employee on LTD for a full year from each department? Ai: This question is not answerable given varying salary levels and that LTD applicants are not tracked by the department. How much has the last 2 employee buy outs cost the Pension Plan? Aj: The Trustees of the Pension Plan were not responsible for the introduction, implementation or administration of the early retirement program initiated by the City of Saint John. There was a cost to the Plan set out in the 2003 actuarial valuation as a result of individuals retiring earlier than assumed of approximately $2.2 million. We do not know if all individuals retiring earlier than assumed were because of the early retirement program. The pension amount received by participants in the program was limited to the pension benefits earned by the employees of the City of Saint John to the date of the introduction of the program. There were no changes to the Plan as part of the early retirement. Any additional cost of the program was borne by the City and not the Plan. The rationale of the program and its results are the subject of public reports to Council filed in October, November and December of 2002. k. Have there been employees in the last six years apply for LTD and been refused, if so, are they still at work? Ak: Yes. The Trustees do not track what occurs to LTD applicants who are refused. Do any of the plans managers have experience on LTD plans? Al: The third party disability manager, Lifemark, specializes in the management of LTD plans. M. Do any of the plans managers have any say/insight into our Cities LTD plan? Am: See Al above. Is the City's LTD plan being administered/used the same way as the industry standards apply them? An: Yes. The Trustees administer the disability provision of the Pension Plan. The disability provision is administered in accordance with industry standards with an independent adjudicative process carried out by professionals, based on expert advice and that accords a fair hearing to the C:1Documents and Setdngs1c194011-ocal Setlings\Temporary Internet Files%Content.Outlookl1UWDPJ2DlSummary of Questions and Answers Submitted to the Pension Trustees for Response (2).DOC 177 -22- individual member. o. In the Ron Pink report stating that the pension board and its doctor are using the wrong definition in approving all employees for LTD instead of applying the duty to accommodate, what has been the total cost to the pension plan due to this error, 1995- 2008 time frame? Ao: There are 10 individuals who have ceased receiving a pension due to the Lifemark review initiated in 2006. The total additional cost related to disability over the period during which they were receiving pension payments is estimated to be $1.1 million, including employee contributions not made by them in the period. This amounts to an average of approximately $21,700 per member per year, including employee contributions not made. The total cost of the incorrect application of the definition is some unknown proportion of the $1.1 million amount. P. From 1995-2008, has the employer or the pension board ever taken a pension holiday, not made payments due to the pension plan, excluding interest payments and employee payments? Ap: The Pension Board does not make contributions to the Plan. The City has never taken a full or partial "contribution holiday" from 1992 to the present. In 2004 and 2005 the City deferred making the annual special payments called for in the December 31, 2003 actuarial valuation, pending a determination of whether or not the solvency deficiency funding payments had to be made and therefore what amount of payments were required. The special payments based on the going-concern funding basis were made in 2006 and 2007 and 2008. Interest was included on any late payments as required under the Pension Benefits Act. q. Answer all questions (50 plus) that were submitted to the pension plan board and its administrators that were submitted by a number of Councillors on June 29, 2006. Aq: These questions are attached at the end of these documents. Many of these questions are already asked and answered in the current group of questions. Further questions that can be answered without unreasonable cost to the Plan will be. Documents sought in these questions will be located and provided. Q19: Ken Golding -December 31, 2009 What is the Pension Boards estimate of the current deficit of the Plan? A19: The Pension Board's estimate of the deficit as at December 31, 2008 is $146.7 million, on a going-concern basis, based on advice from Morneau Sobeco, the Plan actuary. This is a preliminary estimate without the completion of the year end audit. C:1Documents and Settfngsljc19401Loca1 Settings\Temporary Internet FileslContent. OuUookl1UWDPJ2D1Summary of Questions and Answers Submitted to the Pension Trustees for Response (2).DOC 178 -23- Q20: Ken Golding - December 23, 2009 When comparing the City of Saint John with other similar sized cities in eastern Canada with defined benefit pension plans: a. How do the payments to employees of the City of Saint John compare to other cities? b. What percentage of salary is paid and are the payments indexed for inflation? Ab: 2% of the best 3 years of pensionable earnings per year of service with indexing of 1% for service from 1975 to 1992 and 2% for service after 1992. C. How does the City's cost per employee for the pension plan compare with other cities? A20: The Trustees do not have access to specific comparative information from other municipal Plans. Morneau Sobeco obtained comparative pension benefits information for Atlantic Canadian cities is attached. Generally, based on industry reports, the benefits of the Plan are in line with industry standards. Q21: Lance Henry dated January 11, 2009 How does the City of Saint John's Pension compare to other Municipalities not only in our region, but in general. A21: The Trustees do not have access to specific comparative information from other municipal Plans. Morneau Sobeco obtained comparative pension benefits information for Atlantic Canadian cities is attached. Q22: Ella Hoyt - January 6, 2009 a. Who managed the Plan into the hole? Aa: The plan is managed by the Trustees according to the terms of the Pension Act, the Pension Benefits Act, and the Income Tax Act (Canada). The current financial challenges for the Plan are principally caused by 2 major declines in the equity markets this decade, a decline in expected future investment returns, and an increase in the actuarial assumption regarding life expectancy. These financial challenges are shared by pension plans throughout Canada and around the world. C:IDocuments and Settings\jc194MLocal SettingsJemporary Internet Files\Content.Outlook\1UWDPJ2D1Summary of Questions and Answers Submitted to the Pension Trustees for Response (2).00C 179 -24- b, What is going to be done to get out of the hole without piling more financial responsibility on tax payers like myself? Ab: Solutions to the current financial challenges for the Plan will have to be determined by Council and the Employee groups with advice from the Trustees and receive the approval of the Legislative Assembly. Taxpayers likely will continue to bear significant financial responsibility. C. When is there going to be a public audit of the Plan in order to allay the doubt that residents of Saint John have about the Pension Plan? Ac: The Pension Fund is audited every year and the results released at a public Common Council meeting. The most recent audit report for 2007 was distributed again for the public Council meeting of January 31, 2009. Q23: Ella Hoyt - January 8, 2009 What is the percentage of the total current employees of the City of Saint John who make contributions to the City's Pension Plan and reside outside the Saint John City limits? Please answer this question using a percentage for example whether it is 2% of the employees of the City of Saint John or 90%. A23: The Trustees are of the view that it is irrelevant to their duties to the members of the Plan to consider where the members reside. This information is not tracked. Q24: Gerard Hurley - January 3, 2009 a. Why are LTD benefits paid from the Plan instead of a separate plan of insurance? Aa: The disability provision of the Plan has been in place since the introduction of the City of Saint John Pension Act 1947. This was a common way for an employer to provide disability benefits to its employees in 1947. Although not as common in today's pension industry, the provision of disability benefits in the Pension Plan is not unheard of. The legislated disability benefits have remained in the Plan since 1947 and the Trustees are obligated to administer these benefits in accordance with the City of Saint John Pension Act until the legislation is amended by the legislative assembly. b. Why is the LTD rate for City employees four times national average? Alb: The Pension Trustees do not agree that the City LTD numbers are 4 times the average. The 2006 Actuarial Valuation assumes that the long-term future disability incidence for the City will be the same as CADocuments and Settingsljc19401Loca1 Settings\Temporary Internet FileslContent. OudookklUWDPJ2DISummary of Questions and Answers Submitted to the Pension Trustees for Response (2).DOC 180 -25- recent disability experience under the Canada Pension Plan, which the Trustees believe to be appropriate. This translates to approximately 4 new disability pensions per year, over the long terms. Results may vary year to year c. What were the staffing reductions as a result of the early retirement buy outs? Ac: The Trustees of the Pension Plan were not responsible for the introduction, implementation or administration of the early retirement program initiated by the City of Saint John. There was a cost to the Plan as set out in the 2003 actuarial valuation as a result of individuals retiring earlier than assumed of approximately $2.2 million. We do not know if all individuals retiring earlier than assumed were because of the early retirement program. The pension amount received by participants in the program was limited to the pension benefits earned by the employees of the City of Saint John to the date of the introduction of the program. There were no changes to the Plan as part of the early retirement. Any additional cost of the program was borne by the City and not the Plan. The rationale of the program and its results are the subject of public reports to Council filed in October, November and December of 2002. a. Why is the Pension Board on litigation against Councillor John Ferguson? Ad: The position of the Board with respect to Mr. Ferguson is set out in the Board's letter to Common Council dated November 6, 2008, a copy of which is attached. The Board does not have, nor has it ever had, an issue with providing answers to legitimate questions about the Pension Plan. Indeed, soon after Mr. Ferguson expressed an interest in the workings of the Board, he was invited by Terry Totten to examine any and all of the Board documents, as well as talk to any of the Trustees in order to inform himself. Those offers were refused by Mr. Ferguson. Later, Mr. Ferguson received repeated offers to meet with the Board to discuss his concerns. Mr. Ferguson refused to meet. Any damages or costs received in the lawsuit will be for the credit of the Pension Fund and not the Trustees. 025: Kim Jakes - January 8, 2009 a. Personal information about individuals aside, what is the argument for denying journalists or members of the public complete statistical information about the City Pension Plan or anything else that is part of the public business of the City? b. Is it not common sense that people would be suspicious once statistical information is deliberately withheld? C. Why do members of the Pension Board take personal offense at questions raised about the Board as a whole (by those who sue John Ferguson, for example or by C:IDocuments and Settingsljc19401ocal SettingslTemporary Internet FileslContent.Oudook\lUWDPJ2DISummary of Questions and Answers Submitted to the Pension Trustees for Response (2).DOC 181 -26- Councillor Titus when he quit the Board recently after delivering an unseenly rant)? A25: The Trustees report annually to Council and more frequently as requested. The position of the Board with respect to Mr. Ferguson is set out in the Board's letter to Common Council dated November 6, 2008, a copy of which is attached. The Board does not have, nor has it ever had, an issue with providing answers to legitimate questions about the Pension Plan. Indeed, soon after Mr. Ferguson expressed an interest in the workings of the Board, he was invited by Terry Totten to examine any and all of the Board documents, as well as talk to any of the Trustees in order to inform himself. Those offers were refused by Mr. Ferguson. Later, Mr. Ferguson received repeated offers to meet with the Board to discuss his concerns. Mr. Ferguson refused to meet. Any damages or costs received in the lawsuit will be for the credit of the Pension Fund and not the Trustees. Q26: Bob Kirkpatrick - January 1, 2009 Provide full disclosure of all transactions causing the deficit in the pension plan demonstrating when and how the deficit was incurred. A26: The transactions causing the deficit in the pension plan and how the deficit was incurred is fully disclosed and demonstrated in the actuarial valuation reports filed with the Superintendant of Pensions for the Province of New Brunswick as required under the governing New Brunswick Pension Benefits Act. These reports are also filed with Council when completed and available to the public. In addition, the effect of the recent decline in global equity markets will be discussed by the actuary and the fund manager during the presentation to Council on January 31, 2009. A summary of the net assets of the pension plan for the period 1998 to 2007 is as follows: C:IDocuments and SetlingsVc194011-o I SettingslTemporary Intemet FIIes4Content.Outlookl9UwDPJ2D1Summary of Questions and Answers Submitted to the Pension Trustees for Response (2).C 182 -7- MY OF SAW JOHN PENSION PLAN SUMMARY ' 1998 ' 1999 ' 2000 ' 1 2002 2003 5 7 Increase In &Matz Contributions Crty t John 22.946,686 2,961,733 3016,964 3,29001 3,343,242 3,369.332 3790,175 3.054,11 16,019518 8.75642S Emo s 3,580,302 3,583,011 3.701,529 3.724,306 3,709,104 3,8n,602 3 908,241 4.041,595 4 .429,156 5.185.327 Transks 668.29D 334,312 6.525 6.545.544 6 718 493 7.014.929 7. .636 7.190 834 8112-720 7.M.596 21,240.674 13.941.752 h StmeM Inewne 22,081,624 42,193,767 14,647,352 (11,912,203) (9,1 ,215) 29, .313 29.082.701 47. .406 51.276,019 9,171,947 20 6011,612 48.739.311 21.365.845 (4 B97,2741 f1,359,6791 36. ,147 37.195,429 55,280002 72.524,693 23.113.699 DGUOMM in MULAN Pensions 11220.9% 12,255463 12.775905 13305,036 14.106,329 15.579.642 16,277.2fiS 16.660839 17, ,579 17,845.216 Refunds 533.221 198,604 661,852 228, 377.534 773,277 318.542 808.979 464.910 1.455,457 Imm expenses 1365,403 1, 1,214453 1.168, 1,308,772 1,332,404 1, .070 1.454,554 2,116408 2,268,651 13.119. 13 690.121 14.652.210 14,701.831 15.792431 17.685, 17,803,077 18.924.272 19. 1,097 21,569,324 Net increase (decrasse) 15,488,950 35,049,190 6.713.635 (19,599.105) (17.152,213) 18, ,624 19,391.552 36,275.730 52. .796 1.544.375 operang batme 218,122.917 233.611,927 .661.117 275.374-752 255375.647 238. .434 257,233.DSO 276.624.610 312.9M.340 365463.136 Net anon • and of year 233.611.927 260.661-117 275.374.752 255.775.647 .434 231 276,624.610 312.900.340 365.763.136 367307,511 review this summary demonstrates transactions with the most significant impact upon the tdeficiency currently experienced pension currently are declining global equity markets, similar decline experienced i 2000 - 2002 and, r increase in the number of pensions i , demographics. CMocuments and Settings1jc19401Local SeffngslTemporary Internet FilesLConlent.OuUook\lUWDPJ2DISummary of Questions and Answers Submitted to the Pension Trust- for Response (2).DOC 183 -28- b. Why did the Trustees of the City of Saint John Pension Board not question the consultants as to the types of investments that were made and move a large portion of investments into a safe haven such as cash, T-Bonds, GICS etc? Ab: Investments are made on the basis of a written investment policy. The Trustees seek to earn a reasonable rate of return within an acceptable level of risk. The Trustees review investment performance against benchmark on a quarterly basis. The Trustees' consultant will perform that sort of review at the public council meeting on January 31, 2009. C. How many management employees of the City of Saint John who are working for the City at this time and are members of the City Pension Plan do not live in the City or pay taxes into the City? Ac: The Trustees do not track where employees reside as it is not relevant to the performance of their duties. d. How many City inside outside workers, police, firemen etc are active City union workers who are members of the City Pension Plan? Ad: The Trustees do not track participation of members in union activities as it is not relevant to the performance of their duties. Q27: Don Leaman - January 7, 2009 a. How much must the City contribute each year to the Pension Plan for the years 2009, 2010 and 2011? Why does the City have to contribute these amounts and are these amounts reasonable and normal amounts for a City the size of Saint John with a similar number of employees? Aa: City contributions in 2009 will be approximately 16.31% of payroll and is estimated to be $9.3 million. Contributions for 2010 and 2011 will depend on the actuarial report that must be filed by September 30, 2010 setting out the valuation as of December 31, 2009. Contribution amounts are required by the Pension Act, the Pension Benefits Act, and the most recent actuarial valuation. The Trustees do not have access to specific comparative information from other Plans. Comparative information obtained from Morneau Sobeco for other Atlantic Canada cities is attached. b. Are there any other cities in North America that fund their employees' long term disability from their pension funds? Name these cities and compare their sizes and number of employees to the City of Saint John? Alb: This is not known to the Trustees. It is known that Moncton and Fredericton have a disability provision in their pension plan. C:1Documents and Settings1jc19401ocal SettingslTempore ry Internet FileslContent.OutlookllUWDPJ2DISummary of Questions and Answers Submitted to the Pension Trustees for Response (2).DOC 184 -29- c. How many employees that are (over) covered by the City's Pension Plan are currently on long term disability? Compare this number, as a percentage, to the number of employees on long term disability of a similar size and with a similar number of employees as Saint John. Ac: There are currently 79 disability pensions in pay. The comparisons are unknown. The incidence of future disability in Saint John is assumed to be the same as recent disability experience under the Canada Pension Plan. d. Has any former employee of Saint John been given a retirement package or a retirement bonus from the Pension Fund when it could (or should) have been reasonably expected that the employee would, (or should) have retired within the following 18 months without the buy out? Ad: Employees are only entitled to and only receive their earned pension benefits. The Trustees of the Pension Plan were not responsible for the introduction, implementation or administration of any early retirement package or bonus initiated by the City of Saint John. Q28: Pat Lucas - January 7, 2009 a. Why is there so much interconnection between City Hall and the Pension Board? Why does the Plan/Board use the City's treasurer and lawyer as its treasurer and lawyer? Is not this a conflict of interest? Aa: The composition of the Trustees is determined in the Pension Act and has been generally consistent since 1947. The Pension Trustees do not use the City lawyer as their lawyer. The Pension Act requires that the City's Commissioner of Finance act as Treasurer to the Pension Board. b. Why is the Mayor automatically the Pension Board Chair? Why is the Mayor not an ex-official representative Council on this Board? Ab: The composition of the Trustees is set out in the Pension Act. C. Why has there been no consideration given to moving the long term disability factor from the Pension Plan? Ac: The disability provision of the Plan has been in place since the introduction of the City of Saint John Pension Act 1947. This was a common way for an employer to provide disability benefits to its employees in 1947. Although not as common in today's pension industry, the provision of disability benefits in the Pension Plan is not unheard of. The legislated disability benefits have remained in the Plan since 1947 and the Trustees are obligated to administer these benefits in accordance with the City of Saint John Pension Act CADocuments and SettingsVc194MI-oval Settings\Temporary Internet Fl1eslContent.Ou11ook\1UWDPJ2D1Summary of Questions and Answers Submitted to the Pension Trustees for Response (2).DOC 185 -30- until the legislation is amended by the legislative assembly. d. Is the Board constituted to defend only contributing employees or also to protect contributing tax payers? Ad: The Trustees only legal duty is to the beneficiaries of the Plan. Contributing taxpayers are not beneficiaries. e. Has converting the Pension Plan over to RRSP contributions rather than guaranteed pension been considered for the City's Pension Plan? If not why not? Ae: This is not known to the Trustees. Is it not inherently wrong that any surplus goes to the employees while the tax payers are punished for down turns in the market and poor investing and management decisions made by this Board which is heavily loaded with people who benefit directly from it? Af: It is common that a pension plan is managed by people with a stake in the plan. The financial challenges faced by the plan are common to pension plans generally. g. If Board members are so sure they have made no mistakes in acting purely in the public interest and not their own, why are they City funds and not their own money to sue a Councillor who only wanted to represent the tax payers' rights? Ag: The position of the Board with respect to Mr. Ferguson is set out in the Board's letter to Common Council dated November B, 2008, a copy of which is attached. The Board does not have, nor has it ever had, an issue with providing answers to legitimate questions about the Pension Plan. Indeed, soon after Mr. Ferguson expressed an interest in the workings of the Board, he was invited by Terry Totten to examine any and all of the Board documents, as well as talk to any of the Trustees in order to inform himself. Those offers were refused by Mr. Ferguson. Later, Mr. Ferguson received repeated offers to meet with the Board to discuss his concerns. Mr. Ferguson refused to meet. The Board has, on more than one occasion, tried to have Mr. Ferguson agree to alternate dispute resolution measures. No agreement has been forthcoming. It is a clear principle of trust law that Trustees are not to suffer loss from the discharge of their duties and are entitled to be made whole by the Trust. The individual Trustees receive no compensation for their work. Indeed, legislation specifies that they cannot be paid. Any damages or costs received in the lawsuit will be for the credit of the Pension Fund and not the Trustees. h. How are Board memberships chosen and what is the length of service? Ah: This is set out in the Pension Act. All terms are three years, subject to renewal. The Mayor is a trustee by virtue of his office. The C:%Documents and Settings1jc19401Loca1 Settings\Temporary Internet FileslContent.0ut1ook11UWDPJ2D1Summary of Questions and Answers Submitted to the Pension Trustees for Response (2).DOC 186 -31 - Commissioner of Finance and Common Clerk are trustees by virtue of their offices. Common Council chooses two Councillors to sit on the Board. The City Manager or a replacement designated by Common Council is on the Board. Union locals choose 4 trustees. The non-union employees choose one trustee. The pensioners choose one trustee. Have choices been made to pursue risky higher return investments rather than safer more modest paying choices? Ai: No. Investments are made on the basis of a written investment policy. The Trustees seek to earn a reasonable rate of return within an acceptable level of risk. Q29: Bruce Maxwell - December 29, 2008 Why have the following options, discussed at a meeting of Common Council on September 15, 2003, not been implemented to address the funding deficit of the Plan a. Exemption from legislative funding requirements b. Decreased benefits under the Plan by L Eliminate future indexing of the Plan and ii. Eliminate the early retirement benefit? A29: An exemption from legislative solvency funding requirements was obtained. The question of why Common Council has not pursued particular benefit changes must be directed to Common Council. 030: Robert McCready - January 8, 2009 a. Do the cities of Fredericton and Moncton have the same type of funding problem with their pension plans? If not, why not? Aa: Pension plans are generally underfunded at the moment given the decline in equity markets. The Trustees do not have specific information on Fredericton and Moncton. Comparative pension benefits information obtained by Morneau Sobeco for Atlantic Canadian cities is attached. b. I understand that a substantial percentage of the Pension Plan's assets were invested in mutual funds, with recent market conditions, I expect there to have been losses on these investments. Surely there must have been a surplus during the boom years of the late 90s. When the Fund exceeds the expected perimeters how is the surplus handled? If the funds didn't have excess returns during the boom years, is there not an issue with the basic investment strategy of the Plan? C:IDocuments and Settings1jc194011_ocal 5ettingslTemporary Internet FileslContent.OudookllUWDPJ2D1Summary of Questions and Answers Submitted to the Pension Trustees for Response (2).DOC 187 -32- Ab: See answers to the questions submitted by Bob Kirkpatrick, James Stanley (e) and Councillor Farren. Q31: Johanne McInnis - January 6, 2009 a. In most organizations, the pension is dependant on the "best" years of the individual's career. What is that number for the City employees? b. Does the "best" years include overtime or base salary only? A31: 2% of the best 3 years of pensionable earnings per year of service with indexing of 1% for service from 1975 to 1992 and 2% for service after 1992. Under the terms of the Pension Act, salary includes overtime. Q32: John McNamee a. Does the City contribute to any other pension plan such as RRSPs for senior management in the City? Aa: This is not known to the Trustees. We are advised by the City that the answer is No. b. Has the City manager negotiated a separate retirement package from the rest of the City employees? If so, how does this impact the Pension Plan? Ab: The City Manager has the same entitlement under the Pension Plan as every other member. The Trustees have no involvement in or knowledge of any individual supplementary arrangement between the City and any employee. G. Is it true that for a number of years the City did not pay in the Plan the amounts of money that it was required to? Ac: No. d. How much did it cost the Pension Fund to offer early retirement for a great number of employees at least twice in the past 15-20 years? Ad: The Trustees of the Pension Plan were not responsible for the introduction, implementation or administration of the early retirement program initiated by the City of Saint John. There was a cost to the Plan set out in the 2003 actuarial valuation as a result of individuals retiring earlier than assumed of approximately $2.2 million. We do not know if all individuals retiring earlier than assumed were because of the early retirement program. The pension amount received by participants in the program was limited C:IDocuments and Settings\jc19401t_oca1 Settings\Temporary Internet Files\Content.Outlookl1UWDPJ2D1Summary of Questions and Answers Submitted to the Pension Trustees for Response (2).DOC 188 -33- to the pension benefits earned by the employees of the City of Saint John to the date of the introduction of the program. There were no changes to the Plan as part of the early retirement. Any additional cost of the program was borne by the City and not the Plan. The rationale of the program and its results are the subject of public reports to Council filed in October, November and December of 2002. e. Does it make any sense to put people on disability back to work and within a few weeks pay them a pension greater than the amount they were currently paid on disability as recently happened within the Police force? Ae: A situation where an employee was on disability and then rehired by the City for a short period and then retired on a pension greater than the disability pension they were receiving would be within the control of the City and not the Pension Trustees. The City is responsible for reporting the years of service and employment status of a member and the Trustees are responsible for administering the benefits under the City of Saint John Pension Act in accordance with that information. Q33: Hugh Munro - January 9, 2009 a. Are some former employees receiving disability pension as a result of injuries sustained in the course of their employment with the City? b. If the answer to question a is yes, question b is, why was the injury to the employee not referred to WCB and how did they then go from WCB benefits to a disability pension? C. How does the City of Saint John compare with other cities in injury frequency rates, (I would like an answer from Worksafe New Brunswick for this question). A33: Former employees are receiving disability pensions from the Pension Fund as a result of injuries sustained in the course of their employment with the City. Those injuries have as well been referred to WCB and they received WCB benefits as well as disability pensions. The Trustees do not have information on the incidence of injury of employees of the City of Saint John. This information is not publicly available from Worksafe New Brunswick. Q34: Andrew Oland - January 5, 2009 With respect to a decision to move savings in the Water and Sewer Utility to fund the city C:IDocuments and Settingslc1940lLocal SettingslTemporary Internet Files\Content. OuUook\lUWDPJ2D15ummary of Questions and Answers Submitted to the Pension Trustees for Response (2).DOC 189 -34- workers Pension plan: a. How much savings in the Water and Sewer Utility were transferred to the City Workers' Pension Plan in 2006? b. Please indicate the number of times savings in the Water and Sewer Utility had been transferred to the City Workers' Pension Fund since 1990 and confirm the amount of each transfer? G. Please advise of the savings since 1990 in the Water and Sewer Utility that had been transferred to the City Workers' Pension Fund have impacted Water and Sewer rates for the tax payers and if so by how much? d. Who decides to transfer savings in the Water and Sewer Utility to fund the City Workers' Pension Plan? e. Who has the legal authority which permits such a transfer of savings in the Water and Sewer Utility to the City Workers' Pension Fund? A34: The role of the Trustees is to ensure the City's contributions to the Pension Plan are made as required. The Trustees do not track the source of the contributions or how they are apportioned by the City. Q35: Brian Scribner - January 12009 Had the City paid an insurance company premiums to look after short and long term disability claims, would the pension plan be in the deficit it is in now? A35: Yes, if the City had paid an insurance company premiums to look after the short and long term disability claims, the Pension Plan would be in a deficit. The liability of the Plan attributable to the disability program is estimated to be $23 million dollars for retirees and $5.2 million for active employees as of December 31, 2006. Q36: G. Ellis Shephard - January 9, 2009 a. Mr. Shephard suggests the following changes to save money to the Plan: a. Spousal insurance should be available to pay spouses in the event of the death of a City employee so the Pension Plan does not have to pay the spouse. b. The Pension plan should be based on the rule of 90 (age 60 plus 30 years of service) given recent increases in life expectancy. c. Pension Plan should only pay the employee 50% of their income at full retirement age given the CPP and OAS payments available to them in later years. C:%Documents and Settingsljc194011-ocal Settings7emporary Internet FileslContent.Outookl1UWDPJ2DISummary of Questions and Answers Submitted to the Pension Trustees for Response (2).DOC 190 -35- d. Employees should have their own RRSP. A36: The Pension Benefits Act requires that a survivor benefit be paid. The other recommended changes to the terms of the plan would require an amendment to the Pension Act. Q37: Kevin Standing - December 31, 2008 Why are the Mayor and current Pension Board Chair opposed to obtaining an independent third party expert in the area of pension law, pension administration, pension structure and pension investment to perform a complete and thorough review of the Pension Plan having been previously in support of such a motion. A37: The work is currently being undertaken by the investment consultants, lawyers and actuaries retained by the Board. Q38: Tina Standing - December 22, 2008 Why is a councillor who asked legitimate questions being sued? A38: The position of the Board with respect to Mr. Ferguson is set out in the Board's letter to Common Council dated November 6, 2008, a copy of which is attached. The Board does not have, nor has it ever had, an issue with providing answers to legitimate questions about the Pension Plan. Indeed, soon after Mr. Ferguson expressed an interest in the workings of the Board, he was invited by Terry Totten to examine any and all of the Board documents, as well as talk to any of the Trustees in order to inform himself. Those offers were refused by Mr. Ferguson. Later, Mr. Ferguson received repeated offers to meet with the Board to discuss his concerns. Mr. Ferguson refused to meet. As of December 31, 2008, $402,687 has been spent in legal fees and disbursements on the litigation involving Mr. Ferguson. The Board has, on more than one occasion, tried to have Mr. Ferguson agree to alternate dispute resolution measures. No agreement has been forthcoming. Q39: James E. Stanley - January 5, 2009 On behalf of CUPE: a. What were the financial impacts upon the long term viability of the Pension Plan should the City embark upon a plan to hire a hundred new employees of the age of 25 years or younger over the next 5 years? C:1Doeumenis and Sett1ngsVc19401Local Settings\Temporary Internet FileslContent. OuflookllUWDPJ2MSummary of Questions and Answers Submitted to the Pension Trustees for Response (2).DOC 191 -36- Aa: Increasing the proportion of younger employees in the group would decrease the average age of the group and thereby lower the average annual normal cost. (However, the absolute cost would increase because there would be more Plan members and a higher covered payroll.) Based on the latest valuation at December 31, 2006, the average age of active plan members is 45.1 years. Adding 20 new employees per year for five years would result in a lowering of the average age of the group at the end of the five year period to about 43.2 years if the new employees were 24 years of age on average when they were hired. This assumes that the City's hiring practices would be such that the average age of the rest of the group (excluding the 100 new younger employees) would be maintained at 45.1 years. Based on the results of the December 31, 2006 valuation, lowering the average age of the active group by 1.9 years would have the effect of lowering the annual normal cost by approximately 0.65% of payroll. The lowering of the average normal cost would not happen all at once, but only gradually over the five years as each new group of additional younger employees is hired. If, during the five year period, total contribution levels were maintained as a percentage of payroll at the levels set out in the last valuation report (that is, the contribution levels as a percentage of payroll are not lowered even though the average annual normal cost gradually gets lower) then the going-concern unfunded liability would be roughly $2.5 million lower at the end of the five year period than it otherwise would have been, assuming all actuarial assumptions are met exactly in the period. About $1.5 million of this amount arises out of the fact that the cost of the accumulating benefits for the group of additional young new hirees is less than the average amount being contributed and the remaining $1 million comes from the special unfunded liability payment as a level percentage of payroll being applied to a larger than expected payroll which includes the pay of these additional new hirees. If the City's hiring practices after the five year period were such as to maintain the average age of the active employees at 43.2 years and if the total contributions to the plan were maintained at their current levels as a percentage of payroll then the unfunded liability would be reduced annually by approximately 0.65% of the total payroll over and above what it would have been in the absence of the 100 new additional employees, plus by another 6.26% of the annual payroll of the group of 100 additional new employees. All other things being equal, the unfunded liability would be liquidated over a shorter period as a result of having the additional 100 younger employees in the plan or, alternatively, the total annual contribution levels could be reduced as a percentage of payroll. The above figures are highly approximate and are meant to give only a rough idea of the possible effect of adding additional new entrants. CMocuments and Settingstc1940tLocal Settings\Temporary Internet FlleslContenLOutlooWU DPJ2D1Summary of Questions and Answers Submitted to the Pension Trustees for Response (2)MOC 192 -37- We have assumed that the average earnings of the initial new entrant group of 20 is $45,000 and that average earnings increase by 3% per year. Any projected cost savings are as a proportion of payroll and relate to the pension plan costs only. Clearly the cost of the pension plan would go up in absolute dollar terms over what it otherwise would have been had the extra employees not been hired. An additional number of active members in the plan over what the number otherwise would have been would tend to increase the actives liability as a portion of the total liability (i.e., to decrease the pensioner liability as a portion of the total liability) and this would generally be a positive for the plan. On the other hand, adding new entrants at younger ages might increase the portion of the membership who have the necessary service to take advantage of the "Rule of 85" early retirement provision earlier than has been the case in the past. This would tend to increase costs. b. Over the last 20 years what has been the percentage of contributions made to the Plan by the City of Saint John and what has been the percentage of contributions made to the Plan by employees? Ab: The contribution history is as follows: Employee Employer Employee Employer Year % of Pay % of may dollar amount dollar amount 1987 to 8.5% 6% to YMPE + $14,522,255 $11,648,495 1991 7.5% in excess of YMPE + special payments of $135,000 p.a. 1992 to 8.5% Balance of cost $10,859,247 $8,574,788 1994 per PBA, min. 7%: Bal. of cost = 5.3%, so min. 7% made 1995 8.5% Bal. of cost = 6.1%, $3,661,164 $2,998,048 so min. 7% made 1996 8.5% Bal. of cost = 6.3%, $3,563,207 $2,933,189 so min. 7% made 1997 8.5% Bal. of cost = 6.5%, $3,571,687 $2,940,054 so min. 7% made 1998 8.5% Bal. of cost = 7% $3,580,302 $2,946,686 1999 8.5% 66 $3,583,811 $2,961,733 C:%Documents and Settings1ic194p1Local Settings\Temporary Internet FileslContent.OutlookllUWDPJ2DISummary of Questions and Answers Submitted to the Pension Trustees for Response (2).DOC 193 -38- 2000 8.5% It $3,701,529 $3,016,964 2001 8.5% Bal. of cost = 7.5% $3,724,308 $3,290,621 2002 8.5% " $3,789,104 $3,343,242 2003 8.5% If $3,829,502 $3,369,332 2004 8.5% Bal. of cost = 16.7% $3,988,241 $3,790,175 2005 8.5% $4,041,595 $3,854,001 2006 8.5% if $4,429,156 $16,819,518 2007 9.8% Bal. of cost = 16.96% $5,185,327 $8,756,425 2008 10.5% Bal. of cost = 16.31% $5,845,101 $9,282,700 The total of employee contributions made in the period from 1987 to 2008, inclusive, is $81,875,536. In the same period, employer contributions totalled to $90,525,971, which is 110.6 % of the total employee contributions. C. Have there been periods of time when the City of Saint John contributed less in terms of percentage of contributions compared to contributions made by employees (members of the Plan)? Ac: From 1987 to 2006 the City's contributions were always less than employee contributions. They were 83.8% of employee contributions, on average, over the period from 1987 to 2005. However, when the special payments made by the City in 2006, 2007 and 2008 are included, the total of the City's contributions over the period from 1987 to 2008 exceeds the total of employee contributions in the same period. {See table immediately above.} d. Have there ever been occasions when either the City or employees took "contribution holidays" or "partial contribution holidays" under the Plan and what were the monetary savings to that party and what were the long term consequences of such "holidays"? Ad: The City has taken no "Contribution Holidays" or "Partial Contribution Holidays" in the period from 1976 to the present. Morneau Sobeco valuation records do not extend prior to 1976. In 2004 and 2005 the City deferred making the annual special payments called for in the December 31, 2003 actuarial valuation, pending a determination of whether or not the solvency deficiency funding payments had to be made and therefore what amount of payments were required. The special payments based on the going-concern funding basis from 2004 on were made in 2006 and 2007 and 2008. Interest was included on any late payments as required under the Pension Benefits Act. C:IDocuments and SettingsljO9401ocal Settings\Temporary Internet Files\Content.Oudook\IUWDPJ2D1Summary of Questions and Answers Submitted to the Pension Trustees for Response (2).DOC 194 -39- e. What has been the impact, financial and long term benefits cost, to the Plan of the "early retirement package" offered by the City of Saint John a number of years ago? Ae: The Trustees of the Pension Plan were not responsible for the introduction, implementation or administration of the early retirement program initiated by the City of Saint John. There was a cost to the Plan set out in the 2003 actuarial valuation as a result of individuals retiring earlier than assumed of approximately $2.2 million. We do not know if all individuals retiring earlier than assumed were because of the early retirement program. The pension amount received by participants in the program was limited to the pension benefits earned by the employees of the City of Saint John to the date of the introduction of the program. There were no changes to the Plan as part of the early retirement. Any additional cost of the program was borne by the City and not the Plan. The rationale of the program and its results are the subject of public reports to Council filed in October, November and December of 2002. What has been the savings for the City of Saint John of the agreement by the Plan members to consent to waive the solvency requirement under the Pension Benefits Act? Af: If the City had had to make special payments in accordance with the minimum solvency deficiency funding rules under the Pension Benefits Act, it would have had to pay an additional amount of approximately $22.2 million over the 2004 to 2008 period. Including interest to December 31, 2008, the additional amount would be approximately $25.8 million. g. What has been the financial benefit to the Plan when members agreed to increase their contributions to the Plan from 8.5% to 10.5% until April 30, 2010? Ag: Over 2007 and 2008 the active plan members have contributed a total of approximately $1.8 million more to the pension fund than they otherwise would have if their contribution rate had not been increased from 8.5% of pay to 10.5% at May 1, 2007. The amounts for 2009 and 2010 will depend on the payroll for those periods but will be roughly $1 million for each of those years. Q40: Bruce Stevens - January 10, 2009 a. Of the total liability of the Fund, what percentage is for contracted disability pensions and what percentage is for retirement pensions? C:IDocuments and Settingsljc19401Loca1 SettingslTemporary Internet FileslContent. OuUookl1UWDPJ2MSummary of Questions and Answers Submitted to the Pension Trustees for Response (2).DOC 195 -40- Aa: As at December 31, 2006, the amount included in the annual normal cost for the pension plan with respect to expected future disabilities is 0.68% of payroll or about $346,000 based on a recent annual payroll for plan members. The liabilities with respect to the disability component of the Plan for all previous disabled retirees still receiving pensions from the Plan was estimated to be $23 million as at December 31, 2006. This amount includes about $3.6 million with respect to disabled pensioners who are already age 65 or over and another $3.8 million with respect to disabled pensioners who between the ages of 60 and 65, leaving $15.6 million with respect to those under age 60. The liability for active members at December 31, 2006 included an estimated $5.2 million with respect to the additional cost of expected future disability benefits. b. I understand that current contributions into the Fund are 8.5% of employees' salaries, paid by employees and 14.5% of employees' salaries paid by the employer. Is this correct and how does this compare with other municipal pension plans? Of the 23% total contributions in to the plan, what portion is required to cover disability pensions, and how does this compare with the cost of insuring disability pensions separately? Ab: Current contributions are 10.5% of employee salary with the employer paying the balance of the normal cost and the cost of the special payments for the deficit. The employer balance equals 16.31% of pensionable earnings. On the cost of the disability pensions, see the answer a above. C. What is the pension formula used to calculate retiring employees' pensions? Have there been changes in pension benefits over the years? 1 would be interested in the history of benefits. When the plan began, what were the benefits, and what changes have been made and when? Ac: The pension formula is 2% of the best 3 years of pensionable earnings per year of service with indexing of 1% for service from 1975 to 1992 and 2% for service after 1992. The history of the benefits will be thoroughly covered in the presentation. d. How does The Saint John City Pension Plan compare with other municipalities with regard to contribution rates, benefits and funding liabilities? Ad: The Trustees do not have access to specific comparative information from other municipal Plans. Morneau Sobeco obtained comparative pension benefits information for Atlantic Canadian cities is attached. Generally, based on industry reports, the benefits of the Plan are in line with industry standards. C:1Documents and Settings1jc994011_ocal SettingslTemporary Internet FileslContent.OutlookllUWDPJ2D\Summary of Questions and Answers Submitted to the Pension Trustees for Response (2).DOC 196 -41- Q41: Brian Stone - December 21, 2008 With respect to the LTD provisions of the Plan: a. Why is the Plan still being used for LTD purposes after the findings of the 2003 Pink Report? Aa: The disability provision of the Plan has been in place since the introduction of the City of Saint John Pension Act 1947. This was a common way for an employer to provide disability benefits to its employees in 1947. Although not as common in today's pension industry, the provision of disability benefits in the Pension Plan is not unheard of. The legislated disability benefits have remained in the Plan since 1947 and the Trustees are obligated to administer these benefits in accordance with the City of Saint John Pension Act until the legislation is amended by the legislative assembly. Since the findings of the 2003 Pink report, the Pension Plan Trustees have undertaken a number of initiatives to address the concerns raised in that report, including the retention of third party disability management company who is responsible for assessing applicants for long term disability benefits under the Pension Plan and reviewing the status of those individuals currently receiving benefits. b. Why is the City Commissioner of Finance and Pension Board Treasurer unable to advise of the cost of the LTD component of the Plan and how this compares with other cities? Ab: The amount included in the annual normal cost for the pension plan with respect to expected future disabilities is 0.68% of payroll or about $346,000 based on a recent annual payroll for plan members. The liabilities with respect to the disability component of the Plan for all previous disabled retirees still receiving pensions from the Plan was estimated to be $23 million as at December 31, 2006. This amount includes about $3.6 million with respect to disabled pensioners who are already age 65 or over and another $3.8 million with respect to disabled pensioners who between the ages of 60 and 65, leaving $15.6 million with respect to those under age 60. The liability for active members at December 31, 2006 included an estimated $5.2 million with respect to the additional cost of expected future disability benefits. Comparative information for other Atlantic Canada cities obtained by Morneau Sobeco is attached. C:1Documents and Settingsljci9401Local Settings\Temporary Internet Files\Content.0utlookllUWDPJ2D\Summary of Questions and Answers Submitted to the Pension Trustees for Response (2).DOC 197 -42- c. Why are the City LTD numbers four times the average? Ac: The Pension Trustees do not agree that the City LTD numbers are 4 times the average. The 2006 Actuarial Valuation assumes that the long-term future disability incidence for the City will be the same as recent disability experience under the Canada Pension Plan, which the Trustees believe to be appropriate. This translates to approximately 4 new disability pensions per year, over the long terms. Results may vary year to year. d. What steps, historically, have been taken to rehabilitate recipients to get them back to work? Ad: The findings of the review identified that not enough steps were taken to rehabilitate recipients to get them back to work. The Pension Trustees, on review of this information, have retained a third party disability manager to address this concern, together with the City. Current steps are being taken by the City to rehabilitate recipients to get them back to work. e. Have any LTD recipients actually returned to work, if so, how many? Ae: In March and April of 2006, the files of 67 long term disability recipients were sent to the third party disability manager, LifeMark to be reviewed. Ten disability pensions ceased as the result of the recipient no longer meeting the definition of disability. Four of those individuals returned to work. 042: Valerie Stone December 22, 2008 Why does the Plan offer disability benefits instead of disability benefits being provided by a third party plan of insurance as is done in other cities? A42: The disability provision of the Plan has been in place since the introduction of the City of Saint John Pension Act 1947. This was a common way for an employer to provide disability benefits to its employees in 1947. Although not as common in today's pension industry, the provision of disability benefits in the Pension Plan is not unheard of. The legislated disability benefits have remained in the Plan since 1947 and the Trustees are obligated to administer these benefits in accordance with the City of Saint John Pension Act until the legislation is amended by the legislative assembly. C:IDocuments and Seltingsljc194O%Local SettingslTemporary Internet FileslContenLOuOooWUWDPJ2DISummary of Questions and Answers Submitted to the Pension Trustees for Response (2).DOC 198 -43- Q43: Valerie Stone - December 22, 2008 Why did the Fire Chief get a buy out when a stated purpose of the buy outs was to reduce staffing levels and save money? Would anyone like to suggest what you could do without a Fire Chief? A43: The Trustees of the Pension Plan were not responsible for the introduction, implementation or administration of the early retirement program initiated by the City of Saint John. This question should be directed to Council. Q44: Councillor Gary Sullivan - January 5, 2009 How much in real dollars: b. Goes into the Pension each year? C. How much regular pension goes out? d. How much in disability? a n : C OF 4T JOHN PENSION PLAN SUMMARY 1999 e 1999 2WO " 1 2002 " 2003 2004 5 1 Increase In assels contnim i one Cay a n 2.96, 1961,733 3.6161 3290.6211 3,343.242 3,369,332 3,790,175 3.654 901 16,619,516 9,756.425 EmOuyees 1580302 3.593.911 3701,529 3124309 3.789.104 3.M.502 3.M.241 4,041.595 4.429.156 5.165.327 Tr 4 334.312 6, .996 6.545. 6.719.493 7.014.929 7.11W.6315 7.196.634 9,1112,729 7,695,596 21.246.674 13,941.752 B Warm 22,OS1.624 42,193367 14147.352 (11,912293] (9.160,2151 29,09&313 29,062,701 47,304,406 51.276.019 9.171.947 28,6W612 49 ?39.311 21,355 945 {4.997,274} (1,359.579) 36.M,147 37.195.429 55. . 2 72.524.693 23.113.699 Decreeme in ® is Feamwe pad 11. ,956 12,255.463 12.775.945 13.305.036 14,106,328 15 579.642 16.277,265 16,60.B39 17'K0.679 174452116 R s 533,221 196, 661,952 228,229 377.534 773,277 316.542 BOO.B79 464,910 1.455.457 Admm expenses 1. ,493 1.236 1 214 453 1.769. 1,308,772 1.332.404 1. ,070 1.454.554 2.116.406 2.260651 13.119,662 13.690,121 14,652.210 14.701,631 15.792,638 17 665.523 17.943,677 19.924.272 19,661,997 21,569324 Net ammose (decrease? 15,488,950 35,049,190 6.713,635 (19,5991051 (17.152,213) 118,6N.624 19,391352 36.275,730 52.662. 1,_ .375 Mocurnerlts and SetGngsXic1 401Lc I SettingsUemporary Internet Flles%Content utl k111JWDPJ2D1Surnmary of Questions and Answers Submitted to the Pension Trustees for Response (2).DOC 199 -44- The liabilities with respect to the disability component of the Plan for all previous disabled retirees still receiving pensions from the Plan was estimated to be $23 million as at December 31, 2006. This amount includes about $3.6 million with respect to disabled pensioners who are already age 65 or over and another $3.8 million with respect to disabled pensioners who between the ages of 60 and 65, leaving $15.6 million with respect to those under age 60. The liability for active members at December 31, 2006 included an estimated $5.2 million with respect to the additional cost of expected future disability benefits. The amount of the additional pension payments related to disability is not just the sum of all pension payments made to those who are disabled. Only a portion of that amount would be related to the additional pension paid because the pensioner is disabled, with the remainder related to the retirement pension the member would have been entitled to regardless of being disabled. The pensioner data does not include sufficient information to accurately separate out the two components. Morneau Sobeco estimates that, in 2007, roughly $1.9 million of the total of $17.8 million in pension payments was related to the additional disability cost. Of the $1.9 million, roughly $1.3 million was for pensioners under age 60, $0.3 million was for pensioners between age 60 and 65 and $0.3 million was for pensioners age 65 or over. Q45: Eric Teed - January 9, 2009 With respect to the early retirement program: a. What was the actual savings to the City with the early retirees? b. What was the increase in staff numbers after the retirement? C. What was the increase in numbers in senior management? d. What was the increase in senior management cost? e. What is the reason why City retired employees should be rehired by the City or an organization appointed by the City? A45: In respect, to each of these questions, The Trustees of the Pension Plan were not responsible for the introduction, implementation or administration of the early retirement program initiated by the City of Saint John. There was a cost to the Plan set out in the 2003 actuarial valuation as a result of individuals retiring earlier than assumed of approximately $2.2 million. We do not know if all individuals retiring earlier than assumed were because of the early retirement program. The C:IDocuments and Settingsljc19401Loca1 Settings7emporary Internet FileslContenLOutlookllUWDPJ2D1Summary of Questions and Answers Submitted to the Pension Trustees for Response (2).DOC 200 -45- pension amount received by participants in the program was limited to the pension benefits earned by the employees of the City of Saint John to the date of the introduction of the program. There were no changes to the Plan as part of the early retirement. Any additional cost of the program was borne by the City and not the Plan. The rationale of the program and its results are the subject of public reports to Council filed in October, November and December of 2002. Q46: Doug Trentowsky January 5, 2009 a. I understand that the last workforce reduction plan was supposed to save the Pension Plan 2 million dollars a year when it was presented to Council. I understand the actual cost of the workforce reduction plan was 10 million dollars and that it was supposed to eliminate jobs but that it was given to people who were later replaced. Are these figures right? Why were people who were out sick or whose job was definitely being replaced given a golden handshake under the guise of a workforce reduction? Aa: The Trustees of the Pension Plan were not responsible for the introduction, implementation or administration of the early retirement program initiated by the City of Saint John. There was a cost to the Plan as set out in the 2003 actuarial valuation as a result of individuals retiring earlier than assumed of approximately $2.2 million. We do not know if all individuals retiring earlier than assumed were because of the early retirement program. The pension amount received by participants in the program was limited to the pension benefits earned by the employees of the City of Saint John to the date of the introduction of the program. There were no changes to the Plan as part of the early retirement. Any additional cost of the program was borne by the City and not the Plan. The rationale of the program and its results are the subject of public reports to Council filed in October, November and December of 2002. b. Why can't we find out quarterly or yearly how the Pension Plan is doing like our own private RRSPs? Aren't the Plan Administrators paid millions to manage this Plan and should they not be right on top of where it stands? Ab: The Pension Board reports annually to Common Council and more frequently as requested. These reports are public. The Board receives monthly and quarterly reports which are reviewed on receipt. G. Why is there a big fuss about the 100 million plus that the provincial government just put into the provincial employees plan i.e. teachers? This is money (a large percentage) that comes from the Saint John taxes. A lot of focus has been put on C:1Documents and Settingsljc19401Local SettingslTemporary Internet FileslContent.OudookllUWDPJ201Summary of Questions and Answers Submitted to the Penslon Trustees for Response (2).DOC 201 -46- the City of Saint John's Pension Plan, however, are there other plans that are also experiencing difficulty? Ac: Yes, private and public pension plans are generally in a deficit. d. Why are there no rebuttals to the one sided stories from Chillibec and Duncan that are constantly projecting negativity? Ad: The Trustees are focusing managing the Plan in difficult times rather than focusing on a media campaign. e. Why doesn't Council stop this foolish lawsuit against John Ferguson? Most employees I know are against it. Ae: The position of the Board with respect to Mr. Ferguson is set out in the Board's letter to Common Council dated November 6, 2008, a copy of which is attached. The Board does not have, nor has it ever had, an issue with providing answers to legitimate questions about the Pension Plan. Indeed, soon after Mr. Ferguson expressed an interest in the workings of the Board, he was invited by Terry Totten to examine any and all of the Board documents, as well as talk to any of the Trustees in order to inform himself. Those offers were refused by Mr. Ferguson. Later, Mr. Ferguson received repeated offers to meet with the Board to discuss his concerns. Mr. Ferguson refused to meet. The Board has, on more than one occasion, tried to have Mr. Ferguson agree to alternate dispute resolution measures. No agreement has been forthcoming. Any damages or costs received in the lawsuit will be for the credit of the Pension Fund and not the Trustees. Why is there no mention that the City did not pay contributions for seven years? Af: The City has always made contributions. Employee Employer Employee Employer Year % of I?a]C % of Pay dollar amount dollar amount 1987 to 8.5% 6% to YMPE + $14,522,255 $11,648,495 1991 7.5% in excess of YMPE + special payments of $135,000 p.a. 1992 to 8.5% Balance of cost $10,859,247 $8,574,788 1994 per PBA, min. 7%: Bal. of cost = 5.3%, so min. 7% made C:IDocuments and Settingsl09401Local 5ettingslTernporary Internet FileslContent. OuUook11UWDPJ2D1Summary of Questions and Answers Submitted to the Pension Trustees for Response (2).DOC 202 -47- 1995 8.5% Ba1. of cost = 6.1%, $3,661,164 $2,998,048 so min. 7% made 1996 8.5% Bal. of cost = 6.3%, $3,563,207 $2,933,189 so min. 7% made 1997 8.5% Bal. of cost = 6.5%, $3,571,687 $2,940,054 so min. 7% made 1998 8.5% Bal. of cost = 7% $3,580,302 $2,946,686 1999 8.5% " $3,583,811 $2,961,733 2000 8.5% If $3,701,529 $3,016,964 2001 8.5% Bal. of cost = 7.5% $3,724,308 $3,290,621 2002 8.5% If $3,789,104 $3,343,242 2003 8.5% 'i $3,829,502 $3,369,332 2004 8.5% Bal. of cost = 16.7% $3,988,241 $3,790,175 2005 8.5% to $4,041,595 $3,854,001 2006 8.5% " $4,429,156 $16,819,518 2007 9.8% Bal. of cost = 16.96% $5,185,327 $8,756,425 2008 10.5% Bal. of cost = 16.31% $5,845,101 $9,282,700 The total of employee contributions made in the period from 1987 to 2008, inclusive, is $81,875,536. In the same period, employer contributions totalled to $90,525,971, which is 110.6 % of the tota l employee contributions. g. What effect did this have and how long and how much did they not pay? Ag: NIA 047: John Turner - January 8, 2009 a. Why are the citizens of Saint John responsible to cover the legal costs of the Pension Board and a lawsuit that is mostly of a personal nature? Aa: The position of the Board with respect to Mr. Ferguson is set out in the Board's letter to Common Council dated November 6, 2008, a copy of which is attached. The Board does not have, nor has it ever C:1Documents and Settings\jc1940NLocaI 5ettings\Temporary Internet FileslContent.Oudook\IUWDPJ2DISummary of Questions and Answers Submitted to the Pension Trustees for Response (2).DOC 203 -48- had, an issue with providing answers to legitimate questions about the Pension Plan. Indeed, soon after Mr. Ferguson expressed an interest in the workings of the Board, he was invited by Terry Totten to examine any and all of the Board documents, as well as talk to any of the Trustees in order to inform himself. Those offers were refused by Mr. Ferguson. Later, Mr. Ferguson received repeated offers to meet with the Board to discuss his concerns. Mr. Ferguson refused to meet. As of December 31, 2008, $402,687 has been spent in legal fees and disbursements on the litigation involving Mr. Ferguson. The Board has, on more than one occasion, tried to have Mr. Ferguson agree to alternate dispute resolution measures. No agreement has been forthcoming. It is a clear principle of trust law that Trustees are not to suffer loss from the discharge of their duties and are entitled to be made whole by the Trust. The individual Trustees receive no compensation for their work. Indeed, legislation specifies that they cannot be paid. Any damages or costs received in the lawsuit will be for the credit of the Pension Fund and not the Trustees. b. Why is the majority of Council not willing to bring in pension "experts" to audit the City Pension and make educated decisions in how to approach the pension issue? Ab: There are currently a series of third party pension advisors assisting the Trustees including actuaries, investment advisors, lawyers and disability benefit managers. The pension fund is audited each year and the results released in a public session of Common Council. Q48: Lyle Wiggins - January 1, 2009 a. From 1990-2001 how many years was the Plan in the surplus position and how many years did the City did not have to contribute? Aa: The surplus position is covered fully in the actuary's presentation at the public session. There were no years in which the City did not make full contributions. A history of the contribution to the Plan from 1987 is as follows: Employee Employer Employee Employer Year % of pay % of pay dollar amount dollar amount 1987 to 8.5% 6% to YMPE + $14,522,255 $11,648,495 1991 7.5% in excess of YMPE + special payments of $135,000 p.a. C:1Documents and Settings\jc19401Loca1 Settings\Temporary Internet FileslContent. Out1ook11UWDPJ2MSummary of Questions and Answers Submitted to the Pension Trustees for Response (2).DOC 204 -49- 1992 to 8.5% Balance of cost $10,859,247 $8,574,788 1994 per PBA, min. 7%: Bal. of cost = 5.3%, so min. 7% made 1995 8.5% Bal. of cost = 6.1%, $3,661,164 $2,998,048 so min. 7% made 1996 8.5% Bal. of cost = 6.3%, $3,563,207 $2,933,189 so min. 7% made 1997 8.5% Bal. of cost = 6.5%, $3,571,687 $2,940,054 so min. 7% made 1998 8.5% Bal. of cost = 7% $3,580,302 $2,946,686 1999 8.5% It $3,583,811 $2,961,733 2000 8.5% " $3,701,529 $3,016,964 2001 8.5% Bal. of cost = 7.5% $3,724,308 $3,290,621 2002 8.5% 61 $3,789,104 $3,343,242 2003 8.5% 14 $3,829,502 $3,369,332 2004 8.5% Bal. of cost = 16.7% $3,988,241 $3,790,175 2005 8.5% If $4,041,595 $3,854,001 2006 8.5% $4,429,156 $16,819,518 2007 9.8% Bal. of cost = 16.96% $5,185,327 $8,756,425 2008 10.5% Ba1. of cost = 16.31% $5,845,101 $9,282,700 The total of employee contributions made in the period from 1987 to 2008, inclusive, is $81,875,536. In the same period, employer contributions totalled to $90,525,971, which is 110.6 % of the total employee contributions. b. During the same time frame were the benefits of the Plan added or increased and if so what were the additional annual cost of the Plan? Ab: There were no changes to the Plan affecting costs in the period from 1985 to 1991. At January 1, 1992 the new provincial Pension Benefits Act forced several changes to be made to the Plan, as did changes to the federal Income Tax Act at the same date. The January 1, 1992 Plan c hanges were not formally C:IDocuments and Settingslc19401Local Settings\Temporary Internet FileslContent.OutlookliUWDPJ2DISummary of Questions and Answers Submitted to the Pension Trustees for Response (2).DOC 205 -50- incorporated into the City's Pension Act until 1994. They had only a negligible effect on the valuation costs. In 1994 an ad hoc increase in annual pensions was granted to current pensioners which ranged from $1,000 for those who had retired prior to 1983 down to zero for those who had retired after 1990. The maximum limit on annual pensions was increased from $40,000 to $45,000. Subsequently, effective January 1, 1995, the $45,000 maximum limit on pensions was indexed to approximate increases in the Average Industrial Wage and the portion of pensions related to service after December 31, 1992 was indexed at 2% per annum. The December 31, 1994 valuation showed that the 1994 ad hoc increase to current pensioners had increased the liability by $2,337,000, the January 1, 1995 2% indexing of pensions accrued after 1992 increased the liability by $1,662,100, the increase in the maximum limit on annual pensions to $45,000 increased the liability by $1,828,000 and further indexing the maximum limit to increases in the Average Industrial Wage increased the liability by another $2,359,000. The total increase in liability was $8,186,100 as at December 31, 1994. The changes to the maximum pension limit increased the annual normal cost by 0.3% of payroll and the 2% indexing of post-1992 pensions increased the annual normal cost by 1.9% of payroll, for a total increase of 2.2% of payroll. There were no Plan changes affecting valuation costs in 1996, 1997 or 1998. Common Council passed amendments in November of 1999 which were effective January 1, 1999 and were based on costings done in conjunction with the December 31, 1997 valuation. The pension for pensioners who had retired before 1992 but after 1976 was increased so that the total percentage increase they had received since retirement was 20% of the total increase in the Consumer Price Index since retirement. The pension for pensioners who had retired before 1977 was increased by 20%, or by the total increase in the Consumer Price Index since retirement if that was less than 20%. In addition, the pension related to service between January 1, 1975 and December 31, 1992 was indexed at 1% per annum for current and future pensioners. The total increase in liability related to the changes described in the previous paragraph was $12,112,300 when measured as at December 31, 1997. The annual normal cost was not affected by these changes. There were no Plan changes affecting valuation costs in 2000, 2001 or 2002. C:1Documents and Settings1c194011-o l SettngslTemporary Internet Files\Content. OutlookllUWDPJ2DlSummary of Questions and Answers Submitted to the Pension Trustees for Response (2).DOC 206 -51- Changes were made to the Pension Benefits Act effective December 1, 2003 which forced several changes (mostly administrative) to be made to the Plan. The effect on the cost of the plan of these required changes was minimal. The changes required by the changes in the Pension Benerits Act effective December 1, 2003 were not formally incorporated into the City's Pension Act until 2008. At the same time several other changes were made to the City's Pension Act to clarify the wording in several sections. No changes made to the Plan since 1999 materially affected the valuation costs of the Plan. 049: Unknown, Undated a. Firstly, when will the Pension Board drop their current lawsuit against John Ferguson? Secondly, if they refuse to drop the lawsuit will they begin to pay the ongoing costs out of their own pockets? Aa: The position of the Board with respect to Mr. Ferguson is set out in the Board's letter to Common Council dated November 6, 2008, a copy of which is attached. The Board does not have, nor has it ever had, an issue with providing answers to legitimate questions about the Pension Plan. Indeed, soon after Mr. Ferguson expressed an interest in the workings of the Board, he was invited by Terry Totten to examine any and all of the Board documents, as well as talk to any of the Trustees in order to inform himself. Those offers were refused by Mr. Ferguson. Later, Mr. Ferguson received repeated offers to meet with the Board to discuss his concerns. Mr. Ferguson refused to meet. As of December 31, 2008, $402,687 has been spent in legal fees and disbursements on the litigation involving Mr. Ferguson. The Board has, on more than one occasion, tried to have Mr. Ferguson agree to alternate dispute resolution measures. No agreement has been forthcoming. It is a clear principle of trust law that Trustees are not to suffer loss from the discharge of their duties and are entitled to be made whole by the Trust. The individual Trustees receive no compensation for their work. Indeed, legislation specifies that they cannot be paid. Any damages or costs received in the lawsuit will be for the credit of the Pension Fund and not the Trustees. Q50: Unknown, Undated With respect to the 2002 management buy out: a. Who in management come up with the idea for these buy outs? C:IDocuments and SettingslclgQ\Local SettingslTemporary Intemet FileslContent.OullookllUWDPJ2D\Summary of Questions and Answers Submitted to the Pension Trustees for Response (2).DOC 207 -52- b. If an employee was in their 34`h year of service of 64 years old, why were they given a buy out of a year's salary or better to leave one year early? C. Why were superintendents bought out as a cost saving measure by reducing them, replaced two years later by managers with a higher salary than the one before? d. Can you give us a list of management that received these buy outs? e. How much money did each of the receive? Are there any more management currently working for the City that will receive these buy outs when they retire? Af: With respect to questions a through f, the Trustees of the Pension Plan were not responsible for the introduction, implementation or administration of the early retirement program initiated by the City of Saint John. There was a cost to the Plan set out in the 2003 Actuarial Valuation as a result of individuals retiring earlier than assumed of approximately $2.2 million. We do not know if all individuals retiring earlier than assumed were because of the early retirement program. The pension amount received by participants in the program was limited to the pension benefits earned by the employees of the City of Saint John to the date of the introduction of the program. There were no changes to the Plan as part of the early retirement. Any additional cost of the program was borne by the City and not the Plan. The rationale of the program and its results are the subject of public reports to Council filed in October, November and December of 2002. g. Why do these people that retire from the City of Saint John after 35 or 40 years of service have to pay $270.00 a month in medical costs (dental, medication, etc) but a person who goes on disability pension, no matter how many years of service, get their medical costs paid by the pension? Ag: The City provides this benefit and not the Trustees. This inquiry should be directed to the City. h. Why do our pension reps go to the yearly conferences in far away destinations such as Las Vegas? Ah: The Trustees have adopted an education and training policy in 1996 which was amended in 2007. This policy imposes mandatory training obligations. The Trustees attend yearly pension seminars and conferences to upgrade their skills and assist them in performing their duties as Trustees. Conferences are chosen on the basis of the educational content and benefit to the Trustees' skills, and not based on their location. How many people go to these conferences and at what cost C:kDocuments and Settingsljc19401Loca1 SettingslTemporary Internet FileslContent.Oudook11UWDPJ2DISummary of Questions and Answers Submitted to the Pension Trustees for Response (2).DOC 208 -53- Ai: All Trustees are eligible to attend conferences that are of value, although usually the number attending is no more than three. Trustees generally would not attend more than two conferences per year. The costs of seminars and conferences are contained in the audited financial statements that are released each year. The following are the amounts for each year from 2001. 2001 - $87,255 2002 - $76,611 2003 - $55,548 2004 - $47,772 2005 - $60,095 2006 - $54,363 2007 - $43,292 2008 - $54,671 (unaudited) When an employee goes on disability does the Act say that the employees' pension will revert back to years of service at age 65 (instead of 70% pension)? Is this being done? Aj: No, a disability pension under the Pension Act is a pension for life. There is no change in entitlement at age 65. CaDocuments and Se[6ngs\jc1940\Lo I Settings\Temporary Interne[ FIIeslConten[.OutlookllU DPJ2Dt ummary of questions and Answers Submitted to the Pension Trustees for Response (2).DOC 209 -54- Additional Questions and Answers Submitted in 2006: 1. Provide a copy, complete with conclusions and recommendations, of the City of Saint John Pension Fund Portfolio Review carried out by TD Asset Management, dated October 18, 2001. The Trustees will look for this document and make a copy available. 2. Provide a copy, complete with analysis and recommendations, of the Aurion Capital Management Inc. submission on the City of Saint John Pension Fund. dated April 17, 2002. The Trustees will look for this document and make a copy available. 3. Provide a copy, complete with recommendations, on the City of Saint. John Pension Plan communication strategy as provided by J.J. McAteer & Associates. The Trustees will look for this document and make a copy available. 4. What organizational and/or structural changes have taken place related to the fund, including actuaries and fund managers? This question is answered in the presentation and/or Questions and Answers. 5. If any, where is the due diligence report or reports related to the fund? This question is answered in the presentation and/or Questions and Answers. 6. If any, who is looking after the due diligence report or reports? This question is answered in the presentation and/or Questions and Answers. 7. Explain in detail what your plans are for the future in respect to managing disabilities. This question is answered in the presentation and/or Questions and Answers. 8. If there is no process for disability management, if a city employee is injured on the job, explain in detail why there has been no process in place during each or all of the years 1995 -2006 This question is answered in the presentation and/or Questions and Answers. 9. Explain in detail what your plans are for the future in respect to managing the pension plan deficit. This question is answered in the presentation and/or Questions and Answers. 10. [there is no number 10, document goes from 9 to 11] CADocuments and Settings\ic194MLocal SettingslTemporary Internet Files\Content.Outtookl1UWDPJ2DISummary of Questions and Answers Submitted to the Pension Trustees for Response (2).DOC 210 -55- 11. If a Maritime company is not qualified, detail why a Maritime company would not qualify to address pension issues for the city's disability and pension plan. This question is answered in the presentation and/or Questions and Answers. 12. Has a report been developed analysing and justifying why these two benefits, disability and pension, are combined? This question is answered in the presentation and/or Questions and Answers. 13. Detail why the official financial statements from the City of Saint John Pension Plan Trustees have not been provided to the Common Council of the City of Saint John for the fiscal years 2004 and 2005. They were. 14. Provide the official financial statements for each of the years from 1996 through 2003 inclusive to the pension plan that have been provided to the Council of the day for City of Saint John from the City of Saint John Pension Plan Trustees and their auditor's. The Trustees will look for this document and make a copy available. 15. If the City of Saint John Pension Plan Trustees or their auditor's have not disclosed the official financial statements for any previous year to the Council of City of Saint John, detail why they have not been disclosed. n/a 16. Provide a detailed monthly budget of the activities of the pension plan for each of the years 1995 through to 2006. This question is answered in the presentation and/or Questions and Answers. The Trustees will provide an answer to these questions provided that the cost is reasonable to the Plan. C:1Documents and Settingsljc194a1Local Settings\Temporary Internet FilestContent.OutlookX1U DPJ2Mummary of Questions and Answers Submitted to the Pension Trustees for Response (2).DC 211 -56- Questions for API Asset Performance Inc (Vaino Keelman): What are your qualifications? What is your role? This question is answered in the presentation and/or Questions and Answers. 2. Are any of the experts aware of any wrong doing or mismanagement of the fund that contributed to the unfunded liabilities? This question is answered in the presentation and/or Questions and Answers. * Would it appear that anything was done inappropriately by anyone involved with our Pension? Or was the problem created for us the same as many, many other plans due to a downturn in the Market? 3. There have been questions raised that we should have third party independence, how independent are you as experts since you are hired by the Pension Board to provide advice. Review of professional standards may be appropriate. This question is answered in the presentation and/or Questions and Answers. 4. What percentage earnings has the fund experienced for the past two years, how does this compare to the Toronto Stock Exchange and other stock exchange. This question is answered in the presentation and/or Questions and Answers. * Many defined benefit plans were impacted adversely because of poor market performance, much like Saint John's plan. However, there were some plans that were not adversely affected or at least not to the extent Saint John's plan was. What were the factors that lead to the relative success of those plans? Note for the purposes of this question: success could be viewed in terms of surviving the low market performance years. 5. Are the Pension Fund money managers meeting or exceeding targets, elaborate? This question is answered in the presentation and/or Questions and Answers. 6. From 1991 until 2001 what has been the average investment return percentage. How does this compare with other funds? This question is answered in the presentation and/or Questions and Answers. 7. Brief council the best practices learned from the industry about funding deficits in similar situations, ignoring the differences of the private and public sector? This question is answered in the presentation and/or Questions and Answers. 8. Provide a copy, complete with conclusions and recommendations, of the City of Saint John Pension Plan Segregated Funds Report, Comstat, dated June 30, 2001. C:1Documents and SetUngsljcl9401Local SetlingslTemporary Internet FileslContent. OutlookllUWDPJ2DISummary of Questions and Answers Submitted to the Pension Trustees for Response (2).DOC 212 -57- The Trustees will look for this document and make a copy available. 9. Provide a copy, complete with analysis, of the City of Saint John Pension Plan Segregated Funds Report, March 31, 2002. The Trustees will look for this document and make a copy available. 10. Provide a copy, complete with analysis and recommendations, on the City of Saint John Employee Pension Plan asset allocations report as at August 31, 2002. The Trustees will look for this document and make a copy available. 11. Have these organizational and/or structure changes, if any, resulted in any changes in the processes for investment decisions? This question is answered in the presentation and/or Questions and Answers. 12. Briefly describe the selection process for choosing an investment manager for the City Pension Fund. This question is answered in the presentation and/or Questions and Answers. 13. How many investment managers does the fund have? Who are they? What is their mandate? This question is answered in the presentation and/or Questions and Answers. 14. Have any investment managers departed from their mandate? If so what action was taken? This question is answered in the presentation and/or Questions and Answers. 15. Have any managers taken on unacceptable levels of risk when choosing investments? This question is answered in the presentation and/or Questions and Answers. 16. How would you describe the Pension Fund's investment policy (Aggressive, risky, conservative etc) compared to other similar funds? This question is answered in the presentation and/or Questions and Answers. 17. How much did the pension fund lose in 2001-02?. This question is answered in the presentation and/or Questions and Answers. 18. What caused the losses? CADocuments and Settingslcig401Local Settings\Temporary Internet FileslContent.Outlookl1UWDPJ2DISummary of Questions and Answers Submitted to the Pension Trustees for Response (2).DOC 213 -58- This question is answered in the presentation and/or Questions and Answers. 19. How does the pension fund manage risk? This question is answered in the presentation and/or Questions and Answers. 20. Have the pension trustees ever refused to take action that you recommended? Explain? This question is answered in the presentation and/or Questions and Answers. 21. Is there any-thing that the pension trustees should be doing now that they are not doing? This question is answered in the presentation and/or Questions and Answers. C:1Documents and Settingstjc19401!_o I Settings\Temporary Internet FileslContent.ouflook%1U DPJ2 XSummary of Questions and Answers submitted to the Pension Trustees for Response (2).DOC 214 -59- Questions for LifeMark Health Management (Disability Adjudicator Dr. Bhimii): The radio stations quoted a senior management member stating that LifeMark, a Toronto company, were making good progress on addressing the disability and pension qualifications issue. Please explain in detail the progress they have made during the period 2000-2006. When did this process with LifeMark actually start? This question is answered in the presentation and/or Questions and Answers. 2. Has LifeMark determined under the definition of qualification for disability if any individuals failed to meet the qualifications and were sent back to work? This question is answered in the presentation and/or Questions and Answers. 3. Understanding the unique structure of the City of Saint John's Pension benefits and disability benefits (they are combined in the City's Pension plan), explain in detail what functions are being used in determining who qualifies in meeting the disability pension plan requirements. This question is answered in the presentation and/or Questions and Answers. 4. If a city employee is injured on the job what is the disability management process? This question is answered in the presentation and/or Questions and Answers. 5. Are all new and existing claims being reviewed? Explain. This question is answered in the presentation and/or Questions and Answers. C:IDocurnents and Seftgslc194011-ocal 5ettings7emporary Internet Files\Content.Oudookl9UWDPJ2DISummary of Questions and Answers Submitted to the Pension Trustees for Response (2).DOC 215 -60- Questions for Luedev Consultants Inc (Bill Luedev): What changes have been made to adjudicate disability claims? This question is answered in the presentation and/or Questions and Answers. 2. Explain what the Pension Board has done to manage disability? This question is answered in the presentation and/or Questions and Answers. 3. Explain the (disability management) process in detail as it has functioned for each of the years 1995 through to 2006. This question is answered in the presentation and/or Questions and Answers. 4. The radio stations quoted a senior management member stating that LifeMark, a Toronto company, were making good progress on addressing the disability and pension qualifications issue. Please explain in detail the progress they have made during the period 2000-2006. When did this process with LifeMark actually start? This question is answered in the presentation and/or Questions and Answers. * Are there any Maritime companies that are qualified to do the work carried out by LifeMark? 5. What was your role with the City Pension Fund regarding administration of disability claims? This question is answered in the presentation and/or Questions and Answers. 6. What changes have been made to adjudicate disability claims? This question is answered in the presentation and/or Questions and Answers. 7. Briefly describe the selection process to hire an independent adjudicator? This question is answered in the presentation and/or Questions and Answers. 8. Who was hired? What are their qualifications? This question is answered in the presentation and/or Questions and Answers. 9. What is your role with the City Pension Fund regarding governance of the Pension Plan? This question is answered in the presentation and/or Questions and Answers. * What has the Pension Board done to ensure good governance and compliance is met? 10. What actions have been taken to review the City Pension Plan governance? This question is answered in the presentation and/or Questions and Answers. C:%Documents and Settingsljc19441Local Settings\Temporary Internet Fifes\Content.OuUookti1UWDPJ2DISummary of Questions and Answers Submitted to the Pension Trustees for Response (2).DOC 216 -61 - 11. Briefly describe the selection process to get professional governance advice? This question is answered in the presentation and/or Questions and Answers. 12. Who was hired by the Trustees? What are the selected firm's qualifications? This question is answered in the presentation and/or Questions and Answers. 13. What is their mandate? When will their report be completed? This question is answered in the presentation and/or Questions and Answers. C:IDocuments and Setlingsljcl940%Local SettingslTemporary Internet FileslContent.OutlookllUWDPJ2DISummary of Questions and Answers Submitted to the Pension Trustees for Response (2).DOC 217 -62- Questions for Clark Drummie (Solicitor Deno Pappas. Q.C.): 1. Public perception would see receivers or future receivers of Pension funds sitting on the Pension Board as in conflicted positions. Please explain the reasoning around the Provincial legislation for regulating who will sit on municipal Pension Boards? This question is answered in the presentation and/or Questions and Answers. 2. A detailed summary of the role of the Pension Board? This question is answered in the presentation and/or Questions and Answers. 3. Detail what involvement or role, if any, the city employees unions have in determining the qualifications for disability? This question is answered in the presentation and/or Questions and Answers. 4. [there is no number 4, document goes from 3 to 5] 5. If the city's unions were not involved in this process which is, in fact, a joint labour- management process, detail why not. This question is answered in the presentation and/or Questions and Answers. C:IDocuments and Settingslc19401Local SettingsJemporary Internet Flles\Content.OutlookllUWDPJ2D%Summary of Questions and Answers Submitted to the Pension Trustees for Response (2).DOC 218 -63- Questions for Citv Solicitor: I would like the City Solicitor to once again provide his opinion as to whether or not I have a conflict of interest while serving on the Pension Board or as a Councillor. (Tait) This question is answered in the presentation and/or Questions and Answers. 2. What is the role of the City and the role of the Pension Board with respect to the City of Saint John Pension Fund? I would be happy if a review of the legal opinion that we received could once more be provided. This question is answered in the presentation and/or Questions and Answers. 3. A detailed summary of the role of the Pension Board? This question is answered in the presentation and/or Questions and Answers. C:1Documents and 5ettings1c194d1La I Settings7emporary Internet FIIeslContenWutlookl1UWDPJ2D1Summary of Questions and Answers Submitted to the Pension Trustees for Response (2).DOC 219 -64- Questions for Auditor Ernst & Younci (Mike Bishoa CA): 1. Are any of the experts aware of any wrong doing or mismanagement of the fund that contributed to the unfunded liabilities? This question is answered in the presentation and/or Questions and Answers. * Has there been any indication that the deficit of the Pension Plan was due to criminal activity such as embezzlement or mismanagement? This question is answered in the presentation and/or Questions and Answers. The Trustees will look for this document and make a copy available. 2. There have been questions raised that we should have third party independence, how independent are you as experts since you are hired by the Pension Board to provide advice. Review of professional standards may be appropriate. This question is answered in the presentation and/or Questions and Answers. The Trustees will look for this document and make a copy available. * What constitutes "third party" involvement or independent advice to the Pension Board? This question is answered in the presentation and/or Questions and Answers. 3. Detail the financial contributions the City of Saint John, as the employer, made to the Pension Plan during each of the years 1985-2003. This question is answered in the presentation and/or Questions and Answers. 4. Provide any information on any financial contributions that the City of Saint John, or its Pension Board, has not made (pension holidays or otherwise) for each of the years starting in 1985 to 2003 into the pension fund; this would include any partial non payments. This question is answered in the presentation and/or Questions and Answers. 5. If the 12.3 million the City of Saint John has recently paid towards the pension deficit, in what years and in what amounts were they applied to? This question is answered in the presentation and/or Questions and Answers. 6. If the auditors have no issues with internal controls of the pension, then have the auditors provide letter stating this fact. The Trustees will look for this document and make a copy available. 7. Provide the auditor's letter addressed to management identifying deficiencies with internal audit controls. C:1Documents and Setfings1c194MLocai SettingslTemporary internet FileslContent.Oudook\lUWDPJ2D1Summary of Questions and Answers Submitted to the Pension Trustees for Response (2).DOC 220 -65- The Trustees will look for this document and make a copy available. 8. Recognizing any decision to retire people early would have a significant cost to the operational budget specifically when a pension plan is in an unfunded position on a going concern basis, detail why the amortization approval from the Province of New Brunswick in the amount of 3.4 million dollars changed in the official notes to the financial statements for 2004 and increased to 3.8 million dollars (a difference of four hundred thousand dollars). The Trustees will look for this document and make a copy available. 9. Recognizing over the past few years the valuations used to report the unfunded liability and solvency deficit have changed, explain what internal controls ensure the figure reported reflects accurately. The Trustees will look for this document and make a copy available. 10. Who signed off on the note to the financial statements reporting the unfunded liability of $18,404,360. The Trustees will look for this document and make a copy available. 11. To recent date there have been no official changes to legislation in the Pension Benefits Act regarding solvency deficit funding requirements. Detail why the large solvency deficit of the City of Saint John has not been disclosed in the notes to the 2005 official financial statements. The Trustees will look for this document and make a copy available. 12. The 4.8 million dollar surplus from 2005 was not recorded in the notes to the financial statements. Was this money applied to the unfunded liability of the pension plan or the solvency deficit. Detail the accounting and date of the 4.8 million dollar transfer into the City of Saint John Pension Plan. Detail all other monies transferred, deposited, or allocated in to City of Saint John Pension plan for the year 2005 and detail the origin of the money. The Trustees will look for this document and make a copy available. 13. If in any of the years from 1995 through to 2006 the auditors for the City of Saint John Pension plan and the City of Saint John were the same auditing company explain why there was no independence in the auditing companies. The Trustees will look for this document and make a copy available. 14. What is your role as auditor of the pension fund? The Trustees will look for this document and make a copy available. 15. What professional standards are you required to adhere to when conducting an audit? C:1Documents and 5ettingsljc19401Loca1 SettingslTemporary Internet FileslContent.OutlookllUWDPJ2D15ummary of Questions and Answers Submitted to the Pension Trustees for Response (2).DOC 221 -66- The Trustees will look for this document and make a copy available. 16. Were you able to conduct your audit free of any interference from staff? The Trustees will look for this document and make a copy available. 17. Are the financial statements accurate? The Trustees will look for this document and make a copy available. 18. Do you have any concerns about the financial statements of the pension fund? The Trustees will look for this document and make a copy available. CMocumenis and Settingsl0940t1_ocal Seltings%Temporary Internet FileslContent.OuOookllU DPJ2D\Summary of Questions and Answers Submitted to the Pension Trustees for Response (2).OC 222 -67- Questions for Actuarv Morneau Sobeco (Fred Lewis) What is your role as an actuary? This question is answered in the presentation and/or Questions and Answers. 2. There was a pension fund surplus in 2000, what was it? This question is answered in the presentation and/or Questions and Answers. * How did we go from a surplus position to a deficit position in such a short time? 3. What decision did the board of trustees make (about surpluses), were benefits increased, why or why not? This question is answered in the presentation and/or Questions and Answers. 4. What happened in the years 2001-2003 to the fund that created a going concern and solvency unfunded liability? This question is answered in the presentation and/or Questions and Answers. * What is the current status of the pension fund going concern deficit? Solvency deficit? 5. Is the liability situation unique or unusual to Saint John, what is the trend throughout Canada, North America? This question is answered in the presentation and/or Questions and Answers. * How does the funding position of the City pension plan compare to the funding position (surplus/deficit) of other DB plans in Canada? 6. Are any of the experts aware of any wrong doing or mismanagement of the fund that contributed to the unfunded liabilities? This question is answered in the presentation and/or Questions and Answers. * Has there been any indication that the deficit of the Pension Plan was due to criminal activity such as embezzlement or mismanagement? * Would it appear that anything was done inappropriately by anyone involved with our Pension? Or was the problem created for us the same as many, many other plans due to a downturn in the Market? 7. There have been questions raised that we should have third party independence, how independent are you as experts since you are hired by the Pension Board to provide advice. Review of professional standards may be appropriate. This question is answered in the presentation and/or Questions and Answers. C:1Documents and Settings1jc19401Loca1 SettingslTemporary Internet FileslContent.OutlookX1UWDPJ2DISummary of Questions and Answers Submitted to the Pension Trustees for Response (2).DOC 223 -68- * What constitutes "third party" involvement or independent advice to the Pension Board? * What professional standards do you adhere to when issuing a report? 8. It has been suggested that obligation performance bonds may be an appropriate way for the City to address the unfunded liability, what is the opinion of the experts? This question is answered in the presentation and/or Questions and Answers. 9. What was the value of the fund when this Council came into power (in 2004), what is the value now (in 2006)? This question is answered in the presentation and/or Questions and Answers. 10. The fund is a mature fund, what are the contributions and what is the annual payout? Is this a fundamental problem, if so what needs to be done to address it? This question is answered in the presentation and/or Questions and Answers. 11. It has been stated that the cost to the Pension fund for the early retirement program in 2003 could be as much as 22 Million, What is the cost to the Pension Fund for the early retirement program in 2003. This question is answered in the presentation and/or Questions and Answers. * Did the financial impact from the buyout packages play any significant role in the current deficit position of the Pension Plan? This question is answered in the presentation and/or Questions and Answers. * As stated in official council documents, the vast majority of the individuals who accepted the Early RetirementNoluntary Separation Program had not planned to retire for a few years. Provide the official report from an independent third party explaining the multi year cost to the pension plan. This question is answered in the presentation and/or Questions and Answers. * Detail the cost of each individual buy-out package associated with the Early Retirement/Voluntary Separation Program in relation to its impact on the pension plan. If an independent third party report on the impact to the pension plan was not provided, explain in detail why not? This question is answered in the presentation and/or Questions and Answers. 12. What effect has the rate of return being changed from 8 percent to 6.8 percent and the mortality table had on the plan. What would be the situation if we were to use the same rate of 8 percent and the mortality rate stayed the same? This question is answered in the presentation and/or Questions and Answers. C:1Documents and SetUngs\Jc1940\Loca1 Setlings\Temporary Internet FileslContent.Outook11UWDPJ2DXSummary of Questions and Answers Submitted to the Pension Trustees for Response (2).DOC 224 -69- * Given that the world market has recovered, if assumptions had not just recently changed within the industry, what would the going - concern deficit be? * How important are the assumptions that are used to calculate the surplus/'deficit? Explain. * Based on Industry best practices it is suggested to use the latest valuation formulas to determine the unfunded liability and the solvency deficit. Detail why this was not the method used for the 2005 reporting of the unfunded liability. 13. What action is required by this Council to address the unfunded liabilities without being specific? This question is answered in the presentation and/or Questions and Answers. * What actions can be taken to address the outstanding deficits in the City Plan? 14. Given the health of the world market, do we as a municipality have the opportunity to include the needed funding for our Pension Plan within our capital borrowing? If we then saw a surplus in the Pension fund could we repay the capital debt perhaps even beyond the funds needed for the Pension Plan. If not, why? This question should be directed to the City 15. What steps have been identified so this unfunded liability challenge will not occur again in the future? What are the key issues? This question is answered in the presentation and/or Questions and Answers. 16. Brief council the best practices learned from the industry in similar situations, ignoring the differences of the private and public sector? This question is answered in the presentation and/or Questions and Answers. 17. Provide any information on any financial contributions that the City of Saint John, or its Pension Board, not made (pension holidays or otherwise) for each of the years starting in 1985 to 2003 into the pension fund; this would include any partial non payments. This question is answered in the presentation and/or Questions and Answers. 18. Provide a copy of the actuarial valuation carried out on the City of Saint John Pension Plan as at December 31, 2000. This question is answered in the presentation and/or Questions and Answers. 19. What were the City of Saint John Pension Plan actuarial deficits as at December 31 in each of 2000, 2001, 2002, 2003, 2004. and 2005? This question is answered in the presentation and/or Questions and Answers. C:1Documents and Settingslc19401Local Settings\Temporary Internet Files\Content. Outlook\1UWDPJ2MSummary of Questions and Answers Submitted to the Pension Trustees for Response (2).DOC 225 -70- 20. What is the forecast actuarial deficit of the City of Saint John Pension Plan as at June 30, 2006? (Provide Dec 31, 05) This question is answered in the presentation and/or Questions and Answers. 21. If the 12.3 million the City of Saint John has recently paid towards the pension deficit, in what years and in what amounts were they applied to? This question is answered in the presentation and/or Questions and Answers. 22. What is the exact amount the City of Saint John is indebted to the Pension. Plan. This question is answered in the presentation and/or Questions and Answers. 23. Detail the total number of employees who drew or are presently drawing on the pension plan as a consequence of disability for each of the years 1990 through to 2006. This question is answered in the presentation and/or Questions and Answers. 24. Detail the above numbers for each of the years 1990 - 2006 by city department in which they were employed. This question is answered in the presentation andlor Questions and Answers. 25. Detail the number of people on the pension plan as a consequence of disability and compare to other cities with a comparable number of employees. This question is answered in the presentation and/or Questions and Answers. What financial impact did the disability claims have on the pension fund? Is this a cause for concern? 26. Recognizing over the past few years the valuations used to report the unfunded liability and solvency deficit have changed, explain what internal controls ensure the figure reported reflects accurately. This question is answered in the presentation and/or Questions and Answers. 27. "Who signed off on the note to the financial statements reporting the unfunded liability of $ 18,404,360. This question is answered in the presentation and/or Questions and Answers. 28. Does the water utility have a liability to the pension fund for the employees that work there? How much? This question is answered in the presentation and/or Questions and Answers. 29. Many defined benefit plans were impacted adversely because of poor market performance, much like Saint John's plan. However, there were some plans that were C:1Documents and Settings1jcIMNLocal Settings\Temporary Internet FileMContenLoullookklUWDPJ2D\Summary of Questions and Answers Submitted to the Pension Trustees for Response (2).DOC 226 -71 - not adversely affected or at least not to the extent Saint John's plan was. What were the factors that lead to the relative success of those plans? Note for the purposes of this question: success could be viewed in terms of surviving the low market perfoiniance years. This question is answered in the presentation and/or Questions and Answers. 30. In a recent News paper article a Councillor was quoted as stating that the Pension Fund Insurance should be used to offset the liability, what is the policy coverage and is this an option? This question is answered in the presentation and/or Questions and Answers. C:\ Documents and SettingsliclMl o I SetlingslTemporary Internet FIIeslContent.Oubookl1U D J2D1Sum ary of Questions and Answers Submitted to the Pension Trustees for Response (2).OC 227 Ytt: The city &Saint John November 6, 2008 Mayor Ivan Court And Members of Common Council City of Saint John Your Worship and Councillors: RE. Claim against John Ferguson for Injury to Trustees' Reputations Council Resolution of August 18, 2008 The Board of Pension Trustees has considered Council's resolution of August 18, 2008, requesting that the Trustees drop the defamation suit against former Councillor John Ferguson. As Secretary to the Board, the Trustees have instructed me to write this letter setting out the Trustees' position as well as the bases for the Trustees' claim for damage to their reputations. The Trustees' entire claim for defamation is set out in the statement of claim. For present purposes, the Trustees' will focus on one part of Mr. Ferguson's comments which is the same part that the Court of Appeal focused on in confirming that the Trustees' claim is to proceed to trial. In public televised comments, Mr. Ferguson alleged that the Trustees engaged in repeated and deliberate illegal behavior. The Trustees are all long-standing members of our community with significant public positions, either with City government or trade union locals. Some hold professional designations. Mr. Ferguson's comments caused severe damage to their reputations, which ultimately undermines the administration of the pension plan. The Trustees are seeking the restoration and vindication of their reputations, as they are entitled to at law. The vindication of the Trustees' reputations will be achieved either through an award of substantial damages at trial paid to the pension fund, or by the provision of a complete public apology by Mr. Ferguson. On receipt of an appropriate apology, the Trustees will agree to discontinue the lawsuit without costs to either side. The Trustees emphasize that they welcome debate and discussion about the operations of the pension plan, including the payment of benefits and investment performance of the fund that holds the plan's assets. The pension plan provides a significant benefit to the employees and retirees of the City of Saint John. it is also a significant cost to the City and the taxpayers. The Trustees emphasize, however, that they do not create the pension plan. The pension plan is a provincial statute. The role of the Trustees is to administer the plan in accordance with its terms and within the provisions of the provincial Pension Benefits Act and the federal Income Tax Act. They have discharged their responsibilities in good faith and to the best of their abilities. L. SAINT JOHN P.O. Box 1971 Saint John, NB Canada E2L41_1 ( wwwsaintjohn.ca I C.P. 1971 Saint John, N.-B. Canada E2L4L1 161 228 Mayor Ivan Court & Members of Common Council November 6, 2008 Page 2 It is important to review exactly what Mr. Ferguson said and the manner in which it was said. At a televised public session of Council held on July 17, 2006, Mr. Ferguson repeatedly alleged that the Trustees were engaging in deliberate illegal behavior. He spoke of the cost of disability pensions which he alleged to be $5.9 million annually. Specifically, he stated: "1 raised this matter to a very senior person who sits on the Pension Board. l have his name, rank and serial number. $5,900,000.00 a year extra, that's the figure. That figure is shocking and i said to- isn't that illegal? Yes it is, said the person. But so is drinking and driving and people do that every day. Let us refresh our memory. The person on the Pension Board said, it is like drinking and driving and people do it every day. And that person is laughing at Council and in my opinion the Saint John taxpayers." This statement: "it is like drinking and driving and people do it every day" was repeated at least three times by Mr. Ferguson during his presentation to Common Council. These comments were not made by any Trustee to Mr. Ferguson. These comments, and other related comments which are set out in the Trustees' Statement of Claim, are false. They are an outrageous, vindictive and malicious attack on the character, reputation and integrity of the Trustees. The comments allege that the Trustees are repeatedly and deliberately ignoring their legal responsibilities. The Trustees are ultimately responsible for the administration of a trust fund comprised of hundreds of millions of dollars which is used to secure and pay the benefits of well over 1,500 City employees and retirees. This deliberate and calculated attack on the Trustees affects both the Trustees and the entire plan. The pension plan members rely on the integrity of the individuals who are charged with the Plan's administration. Attacks on the integrity of the Trustees ultimately undermine the entire plan. In our democratic society, individuals are entitled to their good reputation. An individual's good reputation is protected by law. In a 1995 decision, the Supreme Court of Canada said the following about the fundamental importance of protecting an individual's reputation: to most people, their good reputation is to be cherished above all. A good reputation is closely related to the innate worthiness and dignity of the individual. It is an attribute that must, just as much as the freedom of expression, be protected by society's laws... Democracy has always recognized and cherished the fundamental importance of an individual. That importance must, in turn, be based upon the good repute of a person. It is that good repute which enhances an individual's sense of worth and value. False allegations can so very quickly and completely destroy a good reputation. A reputation tarnished by libel can seldom regain its former lustre. A democratic society, therefore, has an interest in ensuring that its members can enjoy and protect their good reputation so long as it is merited. The consequences which flow from the publication of an injurious false statement are invidious... A defamatory statement can seep into the crevasses of the subconscious and lurk there ever ready to spring forth and spread its cancerous evil. The unfortunate impression left by a libel may last a lifetime. Seldom does the defamed person have the opportunity of replying and correcting the record in a manner that will truly remedy the situation. It is members of the community in which the defamed person lives who will be best able to assess the damages. The 162 229 Mayor Ivan Court & Members of Common Council November 6, 2008 Page 3 jury as representatives of the community should be free to make an assessment of damages which will provide the plaintiff with a sum of money that clearly demonstrates to the community the vindication of the plaintiffs reputation. Mr. Ferguson's deliberate attacks on the character and reputation of the Trustees go well beyond any legitimate freedom of expression. Allegations of repeated illegal acts impair the reputations of all the Trustees. As noted earlier, some of the Trustees hold professional designations. Mr. Ferguson's allegations of repeated illegal behavior, if true, would be a violation of the professional obligations and ethics of these professionals. After Mr. Ferguson made his remarks to Council on July 17, 2006, Mayor Court, then a councillor, repeatedly asked Mr. Ferguson to identify the Trustee with whom Mr. Ferguson had this alleged conversation. Mr. Ferguson refused. When court proceedings commenced, Mr. Ferguson then denied making the remarks set out above, even though they were taped and part of the formal Council proceedings. He subsequently continued to refuse to identify the individual with whom he allegedly had this conversation for nearly two years until ordered to do so by the court. This subsequent behavior by Mr. Ferguson only served to compound the initial damage caused by his unwarranted attacks. The Trustees are seeking the full and complete vindication of their reputations based on their rights under our laws. In our court process, this can only be obtained through a declaration in Court that the Trustees have been defamed and an award of substantial damages for the pension fund. Outside of the trial process, Mr. Ferguson is the only one who has the ability to repair the damage that he has caused. A full, complete and public apology from Mr. Ferguson to the Trustees and a withdrawal of his comments would provide the Trustees with the vindication of their reputations. However, Mr. Ferguson has consistently refused to apologize. The Trustees prefer to end this claim on the basis of an apology, rather than incur the time and expense required for a lengthy trial. The Trustees are therefore sending a copy of this letter directly to Mr. Ferguson. The Trustees invite Mr. Ferguson to bring this lawsuit to an end through the issuance of an acceptable complete public apology and withdrawal of his comments. This offer to bring this claim to an end through the issuance of an apology by Mr. Ferguson is without prejudice to the Trustees' claim for substantial damages, if the matter must proceed to trial. In the absence of an apology, the Trustees will continue to seek the vindication and restoration of their reputations through the court process, asking for a declaration that they have been defamed and seeking a substantial award of damages at trial, to be paid to the pension fund. Yours truly, Elizabeth Gormley Secretary City of Saint John Pension Board of Trustees cc: John Ferguson 163 230 City of Saint John Pension Plan - Comparison to other Eastern Municipal Plans Saint John, NB Fredericton. NB Moncton, NS Halifax. NS Charlottetown, PEI St John's, NFLD (a ) Normal 2% of FAE(3) x svc (1.3% x min(FAE(5), 5000) + 2% x FAE(5) x svc 2% x FAE(3) x svc 2% x FAE(3) x svc (1.4% x min(FAE(5), AVG Retirement Benefit 2% x max(0, FAE(5)-5000))x YMPE(3)) + 2% x max(0. svc FAE(5)-AVG YMPE(3)))x svc ( b) Indexation 1% on svc from Jan 1, 1975 to 2/3 of CPI up to a max of 6% Ad-hoc at the discretion of the Excess Interest Excess interest to a maximum 1,25% Dec 31, 1992, 2% on svc after per annum city not to exceed aggregate of eummutative CPI, any one Dec 31. 1992 CPI from retirement year capped at GPI if unfunded liability exists { c) Service Cost 20.32% as at Dec 31, 2006 Not available Not available 15.34% as at Dec 31, 2006 18.55% as at Dec 31, 2005 14.8% as at Dec $1, 2006 as % of Pay ( d ) Contributions Employee: normally 8.5% of Employee: 6.40/6 on first $5,000 Employee: 7.25% of pay Costs shared 50/50 Costs shared 50150 Employee: Ranging from 6% to pay: currently 10.5% in pay, 8% on remainder Employer: 6.65% of pay Different for different employee Normally no more than 9%1901/6 9% depending on class of Employer: balance of cost, Employer: balance of cost Any cost increases shared groups Currently of pay employee and employee minimum 7% 50/50 ranges from 8.66%/8.66% to elections 11,06°f%111.06% of pay Employer: balance of cost ( e ) Disability Total and permanent only, 2% Total and permanent only, Total and permanent only, must if receiving disability income of FAE(3) at the time of minimum cf 5 years of service, have at least 10 years of from CPP or WC and net disability with svc projected to accrued pension begins service, accrued benefit only. income is less than prior to 65 (max of 30). immediately Commences on the disability disability, then you get date continued pension accruals under the Plan based on the rate of pay prior to disability (employer pays all contributions) L:1C\City of Saint John Pension\fvkiscellaneous\2009 Questions from the Public - Responses.xls\Q1I If disabled and receiving Not Available benefits under the Group LTD plan, the member still accrues pensionable service provided they continue to make contributions. Salary is based on earnings prior to disability, with allowances for salary adjustments within the classification to which the employee belonqed 231 Highlights of 2007 Financial Executives International/AON Survey of Defined Benefit Pension Plans The survey covered 63 defined benefit plans, mostly in the private sector. Virtually all of the respondent DB plans can be considered as "final average" (final being a fixed earnings period on which pensionable benefits are calculated) or "best average" (best average earnings period) plans. The most common averaging period for pensionable earnings is five years. The following table summarizes key provisions of these plans Pension Plan Provision Survey Findings Eligibility - At hire for the vast majority of respondents - The next most common condition for eligibility was a one-year waiting period Employee required conditions - 57.6% of respondents required employee contributions - The median formula was 5.0 % of earnings up to the Year's Maximum Pensionable Earnings (YMPE) and 6.6 % above Other employee contributions - 29.6% of respondents provided a voluntary contribution provision - 11.1 % of the respondents offered a flex account (a flexible pension plan) that could be used to upgrade ancillary benefits. Pensionable earnings - 46.4 % of respondents included all or part of bonus as part of pensionable earnings. - 32.1 % of respondents included overtime. Retirement benefit formula - The median benefit formula was 1.3 % of earnings up to the YMPE and 2.0% of earnings above the YMPE Early retirement - The median conditions for unreduced early retirement were either: * age 60 (with or without accompanying service conditions), or ■ 85 points of age and service - The median reduction prior to eligibility for unreduced retirement was 4.0 % per year early Forms of payment for single - The median provision was life with a 5-year members guarantee Forms of payment for members - The median provision for a joint and survivor with a spouse form was 60 When a guarantee was added, the median guarantee was 5 years - The median provision for a pure guarantee fonn was life with a 10-year guarantee Post-retirement adjustments - 67.9 % of respondents provided inflation adjustments to pensioners, where 60 % of the increases were contractual and 40 % were ad hoc The median adjustment was 75 % of CPI 232 Hugh Wright Partner Halifax, NS Tel 902.444.8616 Email hugh.wright@mcinnescooper.com Hugh, a native of Saint John, New Brunswick, was admitted to the Nova Scotia Bar in 1993 and has practiced with our firm since that time. His practice is principally focused in the area of pensions and benefits. Hugh provides advice to plan sponsors, administrators and employee groups in all areas of the pensions and benefits field. He is a member of the Canadian Pension and Benefits Institute, the Association of Canadian Pension Management, and the International Pension and Employee Benefits Lawyers' Association. Hugh is the Vice Chair of the National Pensions and Benefits Section of the Canadian Bar Association. He has acted for employers and employee groups in surplus ownership disputes and other pension related litigation. He regularly advises plan sponsors and administrators concerning the interpretation of and compliance with pension standards legislation, (uidelines, common law requirements and governance requirements. He is listed in Best Lmj,-i,ers hi C'araada 2009 and The C'amit iara Lexl)ei•tLegal Directory in the area of pensions and benefits law. Hugh is past Chair of the Board of the Metro Immigrant Settlement Association and also sits on the Board of the Nova Scotia Nature Trust. Academic Credentials • LL.B., Dalhousie University (1992) • B.A. (Hons.), Queen's University (1987) WINNES COOPER LAWYERS ~ AVOCA'rS 233 A Short C.V. for Frederick Lewis Frederick Lewis is a Principal in the Fredericton office of Morneau Sobeco. Ile joined the firm in 1992. Prior to that, he had spent two years with an insurance company and then over 15 years with another major employee benefits consulting Finn. Fred has extensive expertise: in the design, financing, communication, and administration of retirement programs. Fred provides actuarial consulting support and oversees the provision of pension administration services for many clients of the Fredericton office. He oversaw the implementation of the Ar{iel solution to meet the City of Saint John pension administration needs. Fred has provided consulting services to the Board of Trustees for the City of Saint John pension plan since 1993 Fred holds an Honours Bachelor of Science degree in Physics from McGill University. He became a Fellow of the Society of Actuaries and the Canadian Institute of Actuaries in 1976. MO BECO 234 1 .P1 ASSET PERFORMANCE INC. Perfrormonce Meosuremenl, fnvcsiment M®nagement Risk Analysis Vancouver #'400 - 777 W. Broadway Vancouver, BC, V5Z 417 Tel. 604-669-5588 Fax, 604-669-0611 II, Toronto 2[f9 gl(JGFtAPFIY~ ~40 Sheppard Avenue West Vaino V. Keelmann, CFA suite 503 (Principal and Consultant Toronto, ON M2N 6K9 API Asset Performance Inc. Telr 416-922-2822 Fax: 416-922-8599 Vaina Keelmann is a Consultant and Principal of API Asset Performance Inc. Vaino is well versed in all API's capabilities for clients. With credentials as a Security Analyst, Vaina has also been a Portfolio Manager. His brief resume is as follows: Education: - Bachelor of Economics, University of Sydney - Chartered Financial Analyst - Securities Institute of Australia Course - Insurance Institute of Australia Course - Canadian. Securities Institute Registered Representative Exam - Canadian Securities Institute Captions Course - Canadian Securities Course - AIMR Portfolio Manager Seminar, etc. - Harvard Behavioural Finance Seminar etc. Initial experience was gained at National Mutual Life as a Securities Analyst and subsequently as a Portfolio manager of Royal Globe Life (Royal Insurance) in Australia. Since arriving in Canada, Vaino started as a Security Analyst at McLeod Young Weir, then went to Brendan Wood International as a Consultant and Partner. Vaino followed this as Security Analyst and Client Advisor(R.R.) at investment dealer McDougall, McDougall & McTier as well as a number of years at Goodman and Company Investment Counsel as VP and Partner. In 1999 Vaino initiated and spearheaded the acquisition of API from the founder together with other members of the firm and joined API beginning in 2000. Vaino's primary responsibilities are Return Enhancement, Risk. Appraisal and API strategy. As a consultant to clients, Vaino - Evaluates Investment Fund Performance, providing perspective and recommending how to augment returns to meet liabilities. Develops investment policies, guidelines and benchmarks keeping abreast of strategic breakthroughs that avoid or overcome the deficiencies of the traditional mean-variance approach and ensuring realistic Risk Budgets are employed. Evaluates investment managers using his own money manager experience and technical credentials to understand the modus operandi of the portfolio managers. WWW.ra pi 05Set.c0 m 235 ROBERT CROWLEY, C.A. BIO Robert (Bob) Crowley C.A. Senior Manager Assurance Over 20 years public practice experience Audit manager on pension audit since 2003 236