| 1.1 | Mount Allison University (the "University") provides pension benefits to eligible employees through the Pension Plan for Non-Academic Employees of Mount Allison University (the "Plan"). The primary goal of the Plan is to provide Plan members with the stipulated level of retirement income at a reasonable cost to University. The prudent and effective management of the Plan's assets (the "Fund") will have a direct impact on the achievement of this goal.
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| 1.2 | This statement of investment policies and goals (the "Statement") addresses the manner in which the Fund shall be invested. The University has prepared the Statement to ensure continued prudent and effective management of the Fund so that the Plan can be maintained at a reasonable cost to the University and so that there will be sufficient amounts to meet the obligations of the Plan as they come due. Investments shall be selected in accordance with the criteria and limitations set forth herein and in accordance with all relevant legislation. The Statement also defines the management structure and other procedures adopted for the ongoing operation of the Fund. The Statement complies with all relevant legislation.
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| 2.1 | The University is the legal administrator of the Plan and is responsible for its overall management. The University acts through its Board of Regents (the "Board") in discharging its duties. The Board has delegated tasks to its Investment Committee, to its senior Administration ("the Administration") and to various agents to assist it in carrying out its duties in respect of the Fund. The Administration, in turn, delegates tasks to various agents to assist it in carrying outs its duties and is further assisted in carrying out its duties through recommendations that are provided from consultants and from the Non-Academic Pension Plan Advisory Committee. The Board, however, retains overall responsibility for the Fund. The Board has allocated its responsibilities in respect of the Fund as set out below.
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| 2.2 | The Executive Committee of the Board of Regents shall
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| Investment Committee | |
| 2.3 | The Investment Committee shall
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The Administration
| 2.4 | The Administration shall
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The Managers
| 2.5 | The Managers shall
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The Custodian
| 2.6 | The Custodian shall
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| 3.1 | The Plan is a registered, contributory, defined benefit pension plan. Benefits are based on a formula utilising pensionable service and final average earnings. The University contributes to the Fund in accordance with funding policy described in section 3.2 below. The University's contributions may include special payments towards any unfunded liability and/or solvency deficiency. Under this pension financing arrangement, the University bears most of the investment risk.
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| 3.2 | Subject to the applicable legislation, the University contributes to the Plan in accordance with it "Funding of the Pension Plan for Non-Academic Employees Policy", as amended from time to time. Under that Policy, as it now provides, the University contributes the current service cost as determined by the Plan's actuary, plus any special payments that may be required, if either |
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| If there are surplus assets in the Plan above 5% of liabilities, the Policy provides a process according to which Plan amendments can be made to be funded by that excess surplus. Finally, if there are surplus assets above 5% of liabilities, and the University's cumulative contributions are more than 105% of members' contributions, the Policy provides that University contributions will cease until the University's contributions are equal to 105% of members' contributions, at which point the University will contribute 105% of members' contributions. | |||||||||||||||||||
| 3.3 | Key financial statistics arising out of the actuarial valuation as of December 31, 2009, are as follows:
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As of January 1, 2010, the Fund covered 251 active members, 74 pensioners and survivors, and 13 deferred pensioners.
Investment Implications
| 3.4 | The pension liabilities for the active members will tend to grow with the growth of their salaries. Equity investments, which have historically provided long-term growth in excess of the rate of inflation, will be a reasonable match for the active liabilities. |
| 3.5 | Pensions-in-pay are fixed amounts. The pension liabilities for the retired members will be affected by long-term interest rates. Bonds will be a reasonable match for the retired liabilities because changes in long-term interest rates affect bond values and pension liabilities similarly. |
| 3.6 | The Fund generally experiences annual net inflows of cash, indicating little need to hold cash on a long-term basis. |
| 4.1 | The University recognises that the liabilities of the Plan' are independent of the value of the Fund, although the Fund provides security that benefit entitlements will be paid, and that reasonable investment returns on the Fund are needed to finance benefit payments under the Plan.
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| 4.2 | The University shall manage the Fund on a going concern basis, with the primary objective of providing reasonable rates of return, consistent with available market opportunities, a quality standard of investment, and moderate levels of risk.
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| 4.3 | The University expects the Fund to earn a 5.0% real return after inflation, after investment management fees, over rolling four-year periods. In any one year, however, the annual real return may be significantly above or below 5.0%.
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| 4.4 | The University has from time to time reviewed and confirmed its investment beliefs. Currently, the University believes |
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| 4.5 | The University believes that a portfolio (the "Benchmark Portfolio") invested in the following asset mix (based on market value) can, over the long term, achieve the stated investment objectives:
(1) Cash used as part of a bond duration strategy shall be deemed to be bonds for asset mix purposes. Since asset classes provide different returns, the actual asset mix at any time may deviate from the above. Section 6 defines the limits for such deviations. |
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| Liability Benchmark | |||||||||||||||||||
| 4.6 | The
Liability Benchmark, also known as a minimum risk portfolio is defined
as a portfolio (of fixed income investments) that have similar sensitivities
to changes in long term interest rates and expected inflation as the
Plan’s going-concern liabilities.
The Liability Benchmark has two purposes. The first is define the low risk investment portfolio, with risk being defined as the volatility of the Plan financial position. The Liability Benchmark portfolio, determined as at March 31, 2009, consisted of 65% of the DEX Long Bond Index plus 35% of the DEX Real Return Bond Index. The second purpose is to provide a comparator for
the Benchmark Portfolio defined in this Section. A Fund return in
excess of the Liability Benchmark return will contribute towards
an improvement in the Plan’s financial position. Any such
excess return will be due to two factors, the excess of the Benchmark
Portfolio return over the Liability Benchmark return and any added-value
through active management of the Fund. |
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| Risk Budget | |||||||||||||||||||
| 4.7 | The
decisions to use a Benchmark Portfolio other than the Liability Benchmark
and to actively manage portions of the Fund each involve a level of
risk as described below. As at June 30, 2009, the expected excess
return of target asset mix over the Liability Benchmark is 2.0% p.a.
This volatility measure, known as the Beta Risk Budget is useful in
estimating the portion of the expected annual volatility in the Plan’s
financial position attributable to the chosen Benchmark Portfolio
and underlying liability characteristics. Given the active mandates in place at June 30, 2009, the expected tracking error or volatility of the added value from active management is estimated to be 0.75% p.a. This volatility measure is known as the Alpha Risk Budget. Given the performance objectives in Section 5.2, the total expected added-value over the long term is 0.4% p.a. (before fees). Due to low correlations in these two risk budgets, the total risk for this Fund structure was determined to be 10.4% p.a. The total expected long-term reward from this Fund structure is 2.4% p.a. (before fees). |
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Fund Manager Structure
| 5.1 | It has been decided that the Fund shall be invested in pooled funds (the "Pooled Funds"). Copies of the Managers' investment policy statements for these Pooled Funds are attached as Appendix A, and the University adopts the guidelines of those statements. One manager was selected to manage Canadian equities on an active basis, the US equities and Canadian bonds on a passive basis. A "manager of managers" was selected to manage Non-North American equities on an active basis. This structure was chosen based on the University's stated investment beliefs and to allow for effective ongoing governance of the investment management of the Fund. It is recognized that the relatively small size of the Fund can make effective governance more difficult to accomplish efficiently in a typical actively managed structure. |
| 5.2 | The performance objective for the Managers shall be to manage each of the Pooled Funds so that their respective rates of return meet the objectives shown below:
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| 5.3 | For the purpose of measuring rates of return of the Fund, all returns shall be measured before investment management fees, but after transaction costs, and over rolling four-year periods in the case of actively managed funds and over one-year rolling periods in the case of index mandates. All index returns shall be total returns. All foreign index returns shall be Canadian dollar returns. |
| 5.4 | At the end of each quarter the Administration will report to the members of the Investment Committee the returns on the Fund by manager and asset class, comparing those returns to the benchmark returns, and comparing the market value of each asset class to the market value assigned to that asset class by this policy. |
| 5.5 | Each year the Administration will have a consultant prepare for the Investment Committee analytical charts on the performance of the University’s managers. |
| 5.6 | Every two years the Administration will engage consultants to report on any concerns that they may have about specific investment managers employed by the University or employed by the University’s mangers, and to report on any style offsets that are being used in multi-manager funds. |
| 5.7 | Each year the Administration shall report to the Investment Committee on the Managers using the following criteria, as may be appropriate for specific managers: |
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| 6.1 | The market values of the individual asset class components of the Fund shall be within the following minimum and maximum aggregate investment limits:
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