The purpose of this policy is to facilitate future decisions regarding the funding of the Pension Plan. Any change to this policy requires the agreement of both the Pension Advisory Committee and the University.

For purposes of the going concern valuation, liabilities will be valued using the projected unit credit actuarial cost method. Under this method, liabilities are determined as the actuarial present value of benefits accrued in respect of service prior to the valuation date, including ancillary benefits, based on projected final average earnings. No provision is to be made for possible future benefit improvements (including for example ad-hoc improvements of retiree benefits). For each individual plan member, twice the accumulated contributions with interest is established as a minimum liability.

Under this actuarial method, the current service cost with respect to an individual member will increase as the member approaches retirement. However, the current service cost of the entire group, expressed as a percentage of the members' required contributions, can be expected to remain stable assuming that the average age of the group remains fairly constant in the future. If at any valuation this assumption appears unlikely, consideration will be given to changing the actuarial method.

For purposes of the going concern valuation, assets will be valued using an adjusted market value method under which the excesses (or deficiencies) of the actual investment return over an assumed investment return during a given year are spread on a straight line basis over five years. The result will be limited to be no more than the market value of the assets. The asset values produced by this method are related to the market value of the assets, with the advantage that, over time, the market-related asset values will tend to be more stable than market values.

For purposes of the going concern valuation, economic and demographic assumptions will be determined by the actuary on a "best estimate" basis giving due consideration to the plan's investment policy, the Plan terms, the Plan membership and any other factors that may impact on the setting of assumptions. Any margin for conservatism will be limited to what is deemed necessary by the actuary, or is required by any regulatory bodies or the Canadian Institute of Actuaries.

Member contributions are as specified in the Plan text and are not affected by the funded position of the Plan.

Every three years (or more often as may be requested by the University or the regulators) the actuary will complete a valuation report that includes valuations both on a going concern basis, using the method and assumptions described above, and on a solvency basis, using the assumptions required by the provincial regulator. This valuation report will be reviewed with the Pension Advisory Committee prior to being filed with the regulators.

The University shall contribute the current service cost, as specified in the last valuation, if the Plan's surplus on either a going-concern or solvency basis is less than 5% of liabilities. In addition, if there is a deficit as at the last valuation, the University will make special payments required by the Pension Benefits Act. To the extent that the University is aware of adverse investment experience subsequent to the last valuation and its expected financial impact, this will be considered in determining whether surplus is less than 5% of liabilities.

The University's target is to contribute 105% of members' contributions measured on a cumulative basis since January 1, 1992. In the event its cumulative contributions since January 1, 1992 are less than 105% of members' contributions, then it shall contribute the current service cost, plus any special payments it is required to make, until it has met the 105% target. In the event its cumulative contributions since January 1, 1992 are more than 105% of members' contributions, then, subject to the prior paragraph, it shall stop contributing to the Plan until its cumulative contributions since January 1, 1992 are equal to 105% of members' contributions. Once the 105% target has been achieved, then, subject to the prior paragraph, the University will contribute 105% of members' contributions.

It is recognized that restrictions imposed by the Income Tax Act will in some cases limit the University's contributions to a lower level. In these situations, the Pension Advisory Committee will, to the extent possible, recommend plan improvements in accordance with this policy to alleviate such limitations as soon as is practically possible.

Subject to the above, the University will contribute the minimum required contributions as set out in the valuation report.

Expenses incurred in the general operation of the Pension Plan will be paid from the Pension Plan including (but not limited to) the following expenses:

• Education of Pension Advisory Committee members that relates directly to their duties as Committee members;
  
  
• Consulting related to Plan compliance, Plan design, and investment policy;
  
  
• Investment management and custody fees;
  
  
• Preparation of actuarial valuations for funding and solvency purposes;
  
  
• Preparation of audited financial statements for the Plan;
  
  
• Administration of all benefits;
  
  
• Any fees associated with filing amendments and government required forms;
  
  
• Performance monitoring and search services related to investment management and custody; and
  
  
• Member communication and education that is related to the Plan benefits and options.

Examples of expenses that will not be paid from the Plan include expenses related to the following:

• Pension expense calculations prepared for reporting within the University's financial statements;
  
  
• Design, actuarial calculations and compliance related to early retirement programs that have been undertaken primarily to achieve goals of the University to make changes in its workforce;
  
  
• Retirement counselling provided to members as part of an out-placement package; and
  
  
• University staff and internal administration costs.

It is recognized that some expenses may be eligible to be partially paid from the Plan. An example of such an expense could be that associated with the preparation of comprehensive booklets or statements that include non-pension benefits. In such a case the portion of the expense that may be paid from the Plan must fairly reflect the "pension portion".

It is recognized that a moderate level of surplus can provide a prudent buffer against adverse Plan experience. Accordingly, amendments to improve benefits will generally not be considered unless surplus on both a going concern and solvency basis would remain at or above 5% of liabilities after the amendment is effective, including the expected impact of any adverse investment experience that has occurred subsequent to the most recent valuation.

If the going concern surplus and solvency surplus both exceed 5% of the liabilities, including the expected impact of any adverse investment experience that has occurred subsequent to the most recent valuation, then the Pension Advisory Committee may recommend an amendment to improve Plan benefits. In developing any recommended benefit improvement, the Pension Advisory Committee shall equitably represent all the Pension Plan stakeholders, including active members, the University, the inactive members, the pensioners and their survivors. The Pension Advisory Committee shall also consider the guidelines as specified in the Ad hoc Pension Increases policy of the Finance and Administration Committee of the Board when considering increases to pensioners' and survivors' benefits.

If the following four conditions are satisfied, the University will amend the Pension Plan to provide any benefit improvements recommended by the Pension Advisory Committee:

If conditions 1 and 3 are satisfied, but either or both of conditions 2 and 4 are not satisfied, then the Pension Advisory Committee may still recommend a benefit improvement to the Finance and Administration Committee of the Board of Regents. If the Finance and Administration Committee so approves, the Pension Plan will be amended to provide the benefit improvements recommended by the Pension Advisory Committee.