Municipal Pension Plan

GFOA Seminar and Conference Kelowna, BC May 28, 2009

Agenda

    2008 Financial Results Plan Design Considerations Group 5 What’s New for Members

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Financial Results

Change in Net Assets

(December 31, $000) Investment Income Contributions Net Inter-Plan Transfers Pension Benefits Paid Post Retirement Group Benefits Termination & Refund Benefits Investment & Administration Costs 2008 $(3,091,956) 1,108,675 19,051 (833,763) (48,009) (91,629) (49,467) Total Increase $(3,005,935) 2007 1,084,547 1,063,319 49,502 (762,493) (52,983) (79,048) (55,453) $1,202,261

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Financial Results

Investment & Administration Costs

Benefit Administration   0.10% of assets $ 100 per member Investment Management  0.19% of assets  $0.19 per $100 invested Board Operations Professional Services Total cost  0.2% of assets $19.7 million $27.9 million $0.85 million $0.89 million $49.5 million

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Financial Results

Net Assets Available for Pension Benefits

Investment Income Contributions Receivable Accrued Investment Income Prepaid Expenses Net Investment Settlements Other Accounts Payable Total Basic Account Inflation Account Retirement Annuity Account 2008 $21,971,042 37,652 3,031 2,950 (20,854) (23,276) $21,972,786 18,058,554 3,628,465 285,767 2007 24,978,721 20,,391,212 4,248,092 339,417

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Financial Results

Net Assets Available for Pension Benefits 30.0

25.0

$23.7

$25.0

20.0

$15.1

15.0

10.0

3.1

5.0

12.0

0.0

2001 $14.6

3.0

11.6

$16.5

3.3

13.2

$18.2

3.5

14.7

$20.5

3.9

16.6

4.0

19.7

4.3

20.8

2002 2003 2004 2005 2006 2007 Net Assets Available for Inflation Protection Net Assets Available for Basic Pension $22.0

3.6

18.3

2008

• • • Value of Plan continues to grow Increased by 46% since 2001 Active membership growth – higher contributions Investment Returns

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Financial Results

Comparative Returns of Various Pension Plans 5.0

0.0

-5.0

-10.0

-18.6

-15.0

-20.0

-25.0

-15.3

-12.0

CP P

-25.0

-15.1

-15.4

-19.2

-12.4

OM ER S HO OP Caiss e de LA PP De po t Sa sk P lan Albe rta Pu MP P bic Se rvi ce • • • Plan Returns 2008 (12.4%) 5 Year Annualized 5.3% Actuarial Rate 6.75%

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Implications of 2008 Results

    No threat to basic pension benefit   basic benefit is guaranteed contribution rates rise if funding shortfall identified Benefit improvements will be impossible  no likelihood of getting through transition now or ever?

Long term growth from investments may be optimistic at 6.75% 5 year annualized return of 5.3% is below the actuarial requirement   will negatively impact on the 2009 valuation more upward pressure on contribution rates

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Implications of 2008 Results

 Loss of value in Inflation Account could impact on future of indexing  indexing is not guaranteed and is only partially pre-funded

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Inflation Protection:

How Long Will It Last?

8,000,000 7,000,000 6,000,000 At the point on the graph where the IAA balance becomes zero, indexing will continue to be granted by will be limited to previous year’s contributions plus interest. 5,000,000 4,000,000 3,000,000 2,000,000 1,000,000 2007 2010 Actuarial Base Case 2013 2016 2019 2022 2025 2028 Lower CPI Inflation, 2.25% for All Years 2031

Year

2034 2037 2040 Higher Real Rate of Return 2043 2046 2049 2052 2055 Higher Retirement Rate

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Implications of 2008 Results

  Loss of value in Inflation Account could impact on future of indexing   indexing is not guaranteed and is only partially pre-funded increases in contribution rates to over 5% of salary required to provide guarantee – before current contraction Post Retirement Group Benefits are funded from employer contributions to the Inflation Account  how long can we pay subsidies to retirees at the expense of inflation protection?

Tough Times in the Pension Business

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So What Can We Do?

 October 2008   Board agrees to explore some basic funding issues in the plan Focus on opportunities to make changes that will increase equity and security of benefits 1.

2.

3.

What will it take to get through transition? Is it achievable and how?

What is the outlook for the Inflation Adjustment Account and what are the options for improving the certainty of this benefit?

Are there other options for plan design changes that would improve the long term interests of the plan?

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Transitional Provisions

 Completing transition would mean:    improved benefits a strengthened inflation account greater flexibility to manage contribution rates  Completing transition is unlikely – ever!

     1997 - $1.08 billion 2006 - $3.05 billion 2009 – investment return exceeding 45% in 2009 2012 – investment return exceeding 16% annually In fact contribution rate increases are likely necessary to offset return shortfalls through this period

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Transitional Provisions

 Unless Transition can be completed    increased contribution rates are inevitable once increased rates cannot be reduced resulting in even higher costs of completing transition  The circular problem can only be solved by renegotiating the terms of transition  Plan partner issue

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Other Plan Design Opportunities

  Plan provides significant subsidies for early retirement . . . only a small portion of members can actually benefit     amend the Early Retirement Provisions to reflect actual cost modify or eliminate the “bridge” benefit modify or eliminate the subsidies for early retirement some combination of these these would reduce the required contribution rate,  “room” would be created between current and required rates

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Other Plan Design Opportunities

 What could be done with the “room”    balance the contribution rates between employers and members as negotiated in the Joint Trust Agreement provide additional security in the Inflation Adjustment Account increase the accrual rate on basic pensions  benefits lower income earners most 20 years of service 90,000 HAS 45,000 HAS 2/2% 36,000 18,000 1.9/2% 1.45/2% 35,102 31,061 17,102 13,061 1.3/2% 29,714 11,714

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Next Steps

  October 2009   Board will hold its second annual meeting with the plan partners and appointing authorities Introduction of plan design issues and options 2010    Actuarial Valuation completed for December 31, 2009 Recent experience and projection indicate a further unfunded liability requiring contribution rate increases  Equally divided between members and employers Follow up discussion with partners and members on plan design issues

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New Group 5 for Public Safety Members

 ITA allows a higher accrual rate for pension purposes for public safety members   2.33% compared to 2.00% for regular members provides for a “2.0% pension” after 30 years of service  Board asked by member representatives to consider this change  Police and Fire Pension Committee

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New Group 5 for Public Safety Members

 Board has approved Plan Rule amendments to:     establish Group 5 for public safety (Group 2) members with the higher accrual rate contribution rates to be set by the Board based on actuarial valuation of group liabilities costs divided equally between employers and members effective January 1, 2010

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New Group 5 for Public Safety Members

  Board will not require move to Group 5   admission to be negotiated between employer and employees based on rules established by the Plan will require dissolution of existing Special Agreements  not all Group 2 employers/members have Special Agreements anticipated cost impact   current Special Agreement contributions are in range of 4.5% of salaries  2% members / 2.5% employers member’s actuary indicates additional cost in the range of 3% to 3.5% of salaries

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New Services To Members

  Newly formatted seminars  Your Pension, Your Future    Designed for members at all stages of membership to explain how to maximize the value of your pension New Retirement Seminar  Smaller groups = more personal service New Videos  Value of Your Pension   3 video series The Retirement Roadtrip

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New Services To Members

 My Account  Web service give you access to personal information  Pensionable service, pensionable salary, purchase of service calculator   Personalized pension estimator On-line Members Benefit Statement

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Municipal Pension Plan The Retirement Road Trip

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Municipal Pension Plan 2009 Annual Meeting

Okanagan Grand Hotel Kelowna, BC

Saturday October 17 10am – 1pm live webcast at:

mpp.pensionsbc.ca

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