pension & benefits committee friday 20 may 2016 9:30 a.m. … · 2017-01-26 · next meeting:...

Board of Governors PENSION & BENEFITS COMMITTEE

Friday 20 May 2016 9:30 a.m. to 12:00 noon

NH 3318

OPEN SESSION

ACTION

9:30 1. Approval of the 11 March 2016 Minutes* and Business Arising

Decision

2. Execution Against the Work Plan*

Information

9:35 9:40 9:45

3. Update on Government Pension Plan Initiatives [Shapira]

4. Q1 Dashboard Summary* [Shapira/Byron]

5. Analysis of the Caps on the RPP and PPP* [Shapira/Byron]

Information Information Information

10:00 10:30 11:00 11:15 11:20 11:30

6. Annual Audit of the Pension Plan Fund Financial Statements* [Hadley] 7. Utilization of Deposit Funds** [Hornberger]

8. Draft Terms of Reference - Responsible Investment Working Group*

9. Update to TDAM Passive Global Equity Analysis* [Huber] 10. Overview of 2016-17 Operating Budget [Orchard]

11. Previous Years’ Fees and Expenses* [Huber]

Decision Discussion

Discussion/Possible Recommendation to Board of Governors

Information Information Information

12. Other Business

13. Proceed into Confidential Session

CONFIDENTIAL SESSION

14. Approval of the 11 March 2016 Minutes (Confidential)* and Business Arising Next Meeting: Friday 17 June 2016, 9:30 a.m. – 12:00 noon, NH 3318

Decision

*attached

** to be distributed + distributed separately

13 May 2016 Mike Grivicic

Assistant University Secretary

Please convey regrets to Terri Rau at 519-888-4567 x37549 or [email protected]

PB 19 May 2016, page 1 of 93

mailto:[email protected]

University of Waterloo

Board of Governors

PENSION & BENEFITS COMMITTEE

Minutes of the Friday, 11 March 2016 Meeting

Present: Monika Bothwell, Lori Curtis, Stewart Forrest, Peter Forsyth, Mary Hardy, Dennis Huber, David

Kibble, Ramesh Kumar, Ian Orchard [chair], Michael Steinmann, Christine Wagner, Marta Witer

Regrets: Marilyn Thompson, Karen Wilkinson

Secretariat: Sian Williams

Guests/Resources: Linda Byron, Sarah Hadley, Michael Herz (1,2,3,4,5), Lee Hornberger, Sue McGrath,

Allan Shapira, Alfrieda Swainston

Regrets: Kenton Needham

Organization of Meeting: Ian Orchard acted as chair of the committee, but had to leave for another

commitment before agenda item 7. Dennis Huber then acted as the chair. Sian Williams, secretary of the

committee, acted as secretary. The secretary advised that a quorum was present. The agenda was approved

without formal motion.

OPEN SESSION

1. APPROVAL OF THE 26 FEBRUARY 2016 MINUTES and BUSINESS ARISING FROM THE

MINUTES

Two corrections were made to the minutes of the 26 February 2016 meeting in that item 4 “Preliminary

Valuation Results” is noted as referring to annual results, and item 5 “Cost-of –Living Increases” is noted

as referring to eligible deferred pensions.

Subject to these two corrections, the committee heard a motion to accept the minutes of the 26 February

2016 meeting. Wagner and Forsyth. Carried. There was no business arising.

2. EXECUTION AGAINST THE WORK PLAN

The report was received for information.

3. UPDATE ON GOVERNMENT PENSION PLAN INITIATIVES

Ontario University Sector JSPP. Shapira informed the committee that there was no progress to report

on the university-sector plan.

4. GROUP BENEFITS ANNUAL RENEWAL EFFECTIVE MAY 1, 2016

a. Life Insurance Hornberger presented the Group Benefits Program report to the committee. As stated by Hornberger per

the written report, the 2016 group benefits program annual renewal reflects a deficit for the University Life

Insurance Plan on an overall basis but the University of Waterloo generated a surplus in the May 1, 2014

to April 30, 2015 financial period. The overall deficit generated was offset by the Claims Fluctuation

Reserve (CFR). The University’s share of the CFR continues to be fully funded and the Unrestricted Deposit

Account (UDA) is estimated to be $677,400 at April 30, 2016 (which was $837,912 at April 30, 2015).

(i) Premium Rates The University has been remitting premium to Sun Life Financial based on a rate that is subsidized by the

UDA, the “paid rate”. At present, the paid rate is $0.128 per $1,000 which is 12% lower than the current

contract rate but 2 % higher than the new contract rate. Due to the balance remaining in the UDA, the

University has some flexibility with respect to the paid rate to be implemented effective May 1, 2016.

PB 19 May 2016, page 2 of 93

The committee heard a motion to accept Option 3 as outlined in the report, in that the paid rate would be

$0.113 per $1,000 (versus the contract rate of $0.126 per $1,000) which is 10% lower than the current

contract rate, resulting in an annual premium of $1,085,580 (versus the contract rate of $1,209,355). The

Option 3 approach is consistent with historical practice. Forrest and Curtis. Carried.

(ii) Deposit Accounts There are three separate deposit accounts with Sun Life Financial which amount to about $753,560.57 on

a combined basis; the first is the UDA in the amount of estimated $677,440 as of April 30, 2016 generated

through regular accounting that corresponds with the current retention underwriting method; the second is

the Contingency Fund from demutualization proceeds in the amount of $48,057.57 as of December 31,

2015 ( demutualization proceeds in the amount of $406,918.29 were withdrawn in October 2001 and used

to fund student scholarships); and the third is the Deposit Fund in the amount of $28,033 as of April 30,

2015 from regular accounting prior to 2002(earned $95 in interest during May 2014 to April 2015 financial

year).

The committee heard a motion to maintain the UDA with Sun Life Financial in its current state as presented

in the report. Witer and Kibble. Carried.

The committee heard a motion to maintain the funds in the Contingency Fund and in the Deposit Fund in

their current state with Sun Life Financial, and to bring the discussion forth in the next agenda as to whether

the funds should be withdrawn, and if so, how the funds should be spent. Forrest and Curtis. Carried.

b. Long Term Disability

As stated by Hornberger per the Group Benefits Program written report, the Long Term Disability (LTD)

benefit is insured by Great-West Life (GWL) and the underwriting method utilized is an experience-rated,

non-refund basis. The LTD benefit is fully paid for by employees.

(i)Premium Rates GWL proposed a rate increase of 13.9% for the upcoming year but based on Aon Hewitt’s analysis of the

University’s claims experience, a decrease to the premium rate was warranted. Aon Hewitt negotiated a

decrease of 1.6% to the premium rate effective May 1, 2016 with a special experience refund available to

the University during the 2016/17 plan year if applicable.

The committee heard a motion to accept the decrease of 1.6% to the LTD premium rate effective May 1,

2016. Kibble and Bothwell. Carried.

The committee heard a motion to bring the two issues of a market study for this benefit and the effectiveness

of the current carrier for the LTD rates forward on the agenda for the next meeting as discussion items.

Hardy and Forrest. Carried.

(ii) Deposit Account

The 2016 renewal reflects a balance of $35,062.74 in the UDA with GWL. The UDA is available for

withdrawal by the University with no conditions. Members discussed whether the funds could be withdrawn

and used to pay for consultant services. Members also discussed the idea that a study could determine the

best use of the funds.

The committee heard a motion to maintain the UDA in its current state with GWL and to bring the issue

of the best use of the funds forward on the agenda for the next meeting as a discussion item. Hardy and

Kibble. Carried.

(iii) Indexing of Insured Earnings

Hornberger explained that the LTD plan design includes an annual indexing provision which is the same

as that used for the indexation of pensions in payment. The new maximum insured salary is $170,288 as

of May 1, 2016. Members discussed that this is a high level of insurance and that it is a costly benefit.

This item was for information only.

PB 19 May 2016, page 3 of 93

(iv) Illustration of Employee Impact

Hornberger provide a chart showing the impact of the LTD monthly premiums effective May 1, 2016 on

employees earning varying salaries. This item was for information only.

c. Healthcare Benefits

As stated by Hornberger per the Group Benefits Program written report, healthcare benefits are provided

by GWL on an Administrative Services Only (ASO) basis. With an ASO arrangement, the University is

responsible for paying GWL for all claims paid plus their fees for providing this coverage. In addition, a

pooling charge applies so that claims in excess of $50,000 per year per individual are not charged to the

University.

i) ASO Fees and Charges

On a combined basis, GWL’s initial proposal included an increase of 22.6% to the fees and charges effective

May 1, 2016, however Aon Hewitt was able to negotiate a lesser increase of 16.3%. It was noted that

individual pooling protects the University by removing charges for health claims incurred inside or outside

Canada totaling over $50,000 per individual claimant in a calendar year.

The committee heard a motion to approve the ASO Fees and Charges effective May 1, 2016 as described

on page 5 of the Group Benefits Program written report. Curtis and Bothwell. Carried.

ii) Budget Rates

Budget rates are calculated each year by Aon Hewitt and used to determine applicable cost sharing (with

affiliates and part-time employees) and to generate funds in the account which is used to pay the monthly

ASO bill from GWL. Projected claims analysis indicates changes to the budge rates for the extended health

and dental benefits for 2016.

The committee heard a motion to increase the healthcare budget rates effective May 1, 2016 as shown in

the chart on page 6 of the Group Benefits Program written report. Curtis and Bothwell. Carried.

5. NEW PENSION ADMINISTRATION SYSTEMS

a. Member Projection Tools

McGrath presented the Member Projection Tool Options report and accompanying PowerPoint to the

committee. The report had previously been presented to the committee but McGrath returned to clarify the

differences between the three pension projection tools “myPENSIONinfo”, “Ariel Standard Projection”

and “Retirement Horizon” in dealing specifically with the vacation exchange program (VEP).

The committee heard a motion to accept the Ariel Standard Projection tool without the $50,000 upgrade,

but with the generic wording option added to the tool at a cost of $1,200 to restrict projections to the declared

retirement date. Curtis and Forrest. Carried.

6. ACTUARIAL VALUATIONS (RPP and PPP) Shapira briefly reviewed a PowerPoint presentation to the committee entitled “Preliminary Actuarial

Valuation Results as of January 1, 2016” in regard to the Registered Pension Plan (RPP) and the Payroll

Pension Plan (PPP). A hard copy report was in the materials before the committee. The committee had

previously approved the assumptions as outlined by Shapira in the report.

The committee now heard a motion to approve the report for posting on the University website. Huber and

Hardy. Carried.

7. REVIEW OF CONTRIBUTION AND PROTOCOL CAPS

Byron presented a report and PowerPoint which reviewed contribution and protocol caps. Byron explained

that the Income Tax Act places a dollar limit cap on the benefits that may be paid to members from the

RPP. This dollar limit is indexed each year by the increase in average industrial wage. Further, both the

RPP and the PPP have annual indexed caps and maximum caps on the pension benefit payable from the

Plans; the caps essentially limit the final average earnings that will be recognized under the defined benefit

formula. Cap Protocol assists in managing liability. The committee discussed the chart showing the

“Translation of Flat Dollar Maximums Into Salary Levels” on page 29 of the Aon Hewitt report, which

PB 19 May 2016, page 4 of 93

shows how the flat dollar amounts translate into salary levels at which the maximus are reached if the caps

are not projected beyond the current hard dollar caps. The committee decided that the topic of contributions

and protocol caps should be brought forward on the agenda for the next meeting as a discussion item.

8. REPORT FROM RPPI

Forsyth and Wagner presented a report to the committee on behalf of the RPPI subcommittee members.

RPPI had met on March 1, 2016. Attached to the RPPI report was an Aon Hewitt Performance Review of

RPP Investments as at 31 December 2015 (7 page excerpt), a UW RPP Investment Performance to 31

December 2015, and an AON Hewitt-Passive Global Equity Search dated January 2016. Highlights of the

RPPI report were that the total return of the fund (including currency hedging) was 5.5% for the calendar

year 2015, that Aon Hewitt recommended that the University of Waterloo Pension Plan invest in the TDM

Global Equity ex. Canada Index pooled fund, that there are proposed changes to the investment governance

process, and that the global investment managers have provided background on their ESG policies.

In regard to the recommendation of Aon Hewitt that the University of Waterloo Pension Plan invest in the

TDM Global Equity ex. Canada Index pooled fund, the committee heard a motion that more analysis was

required. Forsyth and Hardy. Carried.

9. REVIEW OF RISK MANAGEMENT DASHBOARD

Byron asked that this matter be deferred and brought forward on the agenda to the next meeting.

10. COMMITTEE SELF-ASSESSMENT

Williams asked the committee members to each complete an anonymous self-assessment survey for the

purpose of determining the strengths of the committee and to identify where improvements could be

made.

11. OTHER BUSINESS

There was no other business.

12. PROCEED INTO CONFIDENTIAL SESSION

With no other business in open session, the committee moved into confidential session.

13. NEXT MEETING

The next meeting will be held on Friday, 20 May 2016 from 9:30 a.m. to 12:00 p.m. in Needles Hall,

Room 3318.

5 May 2016 Sian E. Williams

Associate University Secretary/Senior Legal Counsel

PB 19 May 2016, page 5 of 93

Pension & Benefits Committee, Board of Governors, University of Waterloo Execution against Work Plan

The below represents the annual responsibilities of the P&B Committee and has been prepared as an aid to planning only. The committee’s activities are much broader, however, and include: legislative changes, plan changes and improvements; selection of managers and service providers; and requests from the UW community regarding pension and benefits plans.

1 The 2015 version of the SIPP was approved by the Board of Governors at its 27 October 2015 meeting. There is also a need to consult with the community on the incorporation of environmental, social and governance factors into investment decision-making. So the annual review of the SIPP will be deferred until after consultation takes place. 2 1 January 2014 Actuarial Valuation Report was filed in July 2014.

Task Frequency 22 May 2015

19 Jun 2015

11 Sept 2015

09 Oct 2015

13 Nov 2015

11 Dec 2015

15 Jan 2016

26 Feb 2016

11 Mar 2016

20 May 2016

Approval of Actuarial Valuation Assumptions Annual

Approval of the Statement of Investment Policies and Procedures (SIPP)

Annual 1

Preliminary Valuation Results (RPP and PPP) Annual

Actuarial Valuations (RPP and PPP) Annual

Actuarial Filing2 Minimum every three years

Cost-of-living adjustment to payroll pension plan limit

Annual

Cost-of-living Increase for Pensioners Annual

Pensions for Deferred Members Annual

Salaries for Pension Purposes for Individuals on Long-term Disability

Annual

Benefits Plan Premium Renewals Annual

Indexing of Long-term Disability Plan Benefits and Maxima

Annual

PB 19 May 2016, page 6 of 93

Pension & Benefits Committee – Execution Against Work Plan

3 Conducted online in May 2015

Task Frequency 22 May 2015

19 Jun 2015

11 Sept 2015

09 Oct 2015

13 Nov 2015

11 Dec 2015

15 Jan 2016

26 Feb 2016

11 Mar 2016

20 May 2016

Investment Status of PPP Annual

Review of Contribution and Protocol Caps (RPP and PPP)

Annual

Budget Overview Annual

Benefits/Financial Analysis Report Annual

Cost of Removing Life-time Maximum on Out-Of-Province Health Care Coverage for Retirees

Annual

Investment Manager Review (provided under reports from RPPI)

Twice

Total Fund Overview (provided under reports from RPPI)

Quarterly

Flexible Pension Plan Annual

Previous Years’ Fees and Expenses Annual

Annual Audit of the Pension Plan Fund Financial Statements

Annual

Annual Report to the Community Annual

Indexing of Health and Dental Plan Maxima Annual

Committee Evaluation3 Annual

PB 19 May 2016, page 7 of 93

University of Waterloo | As of March 31, 2016

To protect the confidential and proprietary information included in this material, it may not be

disclosed or provided to any third parties without the approval of Aon Hewitt.

Asset/Liability Management Dashboard –

Summary Version

PB 19 May 2016, page 8 of 93

2

About This Material

This dashboard was prepared for the University of Waterloo to track changes in funded status of the Pension Plan over successive reporting periods, as well as quantify the amount

of risk to which the Pension Plan is exposed. The report presents the funded status and performs the analysis on three bases:

Risk-Free Benchmark Basis – This liability is calculated using best estimate assumptions for retirement, termination and other demographic experience, and a discount rate and

inflation assumption determined with reference to the risk-free environment. For this report, the liability has been determined at the real return bond yield plus a 40 basis point credit

spread to reflect additional yield that can be achieved with relatively little additional risk. This liability differs from the wind-up or solvency calculation in that the demographic

assumptions are best estimate and statutory “grow-in” provisions are not included.

Going Concern Basis – This liability is calculated using the going concern assumptions at the most recent valuation. The analysis is performed using the market value of assets

without regard to the Funding Reserve established in the most recent valuation. This Funding Reserve was established to reflect gains from the sale of the real return bonds. A

separate line item showing the funded ratio reflecting the funding reserve is included on page 3.

Solvency Basis – This liability is calculated using assumptions determined in accordance with the Canadian Institute of Actuaries Annuity Purchase guidance and Commuted Value

standards in effect at each measurement date shown in this report. A summary of these assumptions is included on page 7.

This dashboard also contains a reconciliation that compares the going concern liability with the liability calculated using the risk-free benchmark . The difference between the two

liabilities represents the amount of return expected to be provided by taking on risk in the investment portfolio. Over successive quarters the tool helps quantify how that risk

changes as the underlying interest rates change.

On both bases the following information is shown:

■ Current Funded Status and Historical Asset Liability Performance

— How well funded is the plan?

— What has been the return on plan assets and liabilities?

■ Detailed Asset and Liability Performance Attribution

— What factors drove the performance of assets and liabilities over the prior period?

— What is the relative impact of these factors on the assets and liabilities in isolation and in combination?

For the Risk-Free Benchmark Basis, the following information is also shown:

■ Scenario Testing

— What risk exposures does the plan face?

— What would be the impact of a downside event for each risk factor?

XYZ Canada | As of March 31, 2016 PB 19 May 2016, page 9 of 93

3

Executive Summary – Going Concern Funded Status

Asset-Liability Return

Highlights for the Quarter-Ending 3/31/2016 The plan's funded ratio decreased to 95.0% at 3/31/2016. This result was primarily due

to the combined effects of:

■ Asset performance lower than expected,

■ Contributions of $18.6 million, and

■ An increase in liabilities primarily due to interest growth and a 0.05% decrease in

the discount rate

Asset Liability Return for Quarter-Ending 3/31/2016 Assets returned 0.3% during the quarter while liabilities returned 2.1%, resulting in a

funded status decrease of 1.5%.


Values in $1,000,000

3/31/15 6/30/15 9/30/15 12/31/15 3/31/16

g Market Value of Assets $ 1,406.7 $ 1,387.7 $ 1,354.9 $ 1,402.7 $ 1,409.3 g Going Concern Liability 1,403.6 1,422.5 1,441.6 1,453.7 1,483.8 g Surplus/(Deficit) $ 3.1 $ (34.8) $ (86.7) $ (51.0) $ (74.5) g

g Periodic Contributions $ 18.8 $ 18.6 $ 18.7 $ 18.6 g Effective Interest Rate 5.75% 5.75% 5.75% 5.75% 5.70% G

g Funded Ratio (Market): 100.2% 97.6% 94.0% 96.5% 95.0%

Funded Ratio

(Actuarial)1: 97.1% 94.4% 90.9% 93.4% 92.0%

Asset Duration 2.0 1.9 1.9 1.9 1.8

Going Concern Liability

Duration 14.2 14.2 14.2 14.2 14.0

Periodic

Return/Change

Cumulative

12 Months 6/30/15 9/30/15 12/31/15 3/31/16

g Market Value of

Assets Return -0.6% -1.6% -2.5% 3.3% 0.3% g

g Going Concern

Liability Return: 5.9% 1.4% 1.4% 0.8% 2.1%

g Funded Ratio

Change (Market) -5.2% -2.6% -3.6% 2.5% -1.5%

1Reflects funding reserve of $44.4 million due to sale of Real Return Bonds

PB 19 May 2016, page 10 of 93

4

Executive Summary – Risk-Free Benchmark Funded Status






■ An increase in liabilities due to a decrease in the risk-free rate.





3/31/15 6/30/15 9/30/15 12/31/15 3/31/16

g Market Value of Assets $ 1,406.7 $ 1,387.7 $ 1,354.9 $ 1,402.7 $ 1,409.3 g Risk-Free Liability 2,490.1 2,352.0 2,318.2 2,350.0 2,441.0 g Surplus/(Deficit) $ (1,083.4) $ (964.3) $ (963.3) $ (947.3) $ (1,031.7) g

g Periodic Contributions $ 18.8 $ 18.6 $ 18.7 $ 18.6 g Discount Rate 0.59% 0.95% 1.09% 1.05% 0.89% g

g

g Funded Ratio: 56.5% 59.0% 58.4% 59.7% 57.7%

Asset Duration 2.0 1.9 1.9 1.9 1.8

Risk-Free Liability

Duration 19.5 18.8 18.6 18.7 18.6

Periodic

Return/Change

Cumulative

12 Months 6/30/15 9/30/15 12/31/15 3/31/16

g Market Value of

Assets Return -0.6% -1.6% -2.5% 3.3% 0.3% g

g Risk-Free Liability

Return -5.2% -6.4% -2.3% 0.5% 3.3%

g Funded Ratio

Change 1.2% 2.5% -0.6% 1.3% -2.0%

PB 19 May 2016, page 11 of 93

5

Reconciliation of Risk-Free Benchmark and Going Concern Funded Status

*Going Concern

The difference between the Risk-Free Liability and the Going Concern Liability is a measure of the amount of risk premium on

which the Pension Plan funding is based.



3/31/15 6/30/15 9/30/15 12/31/15 3/31/16

g Market Value of Assets $ 1,406.7 $ 1,387.7 $ 1,354.9 $ 1,402.7 $ 1,409.3

g Going Concern Liability $ 1,403.6 $ 1,422.5 $ 1,441.6 $ 1,453.7 $ 1,483.8 g Risk Premium 1,086.5 929.5 876.6 896.3 957.2

Risk-Free Liability $ 2,490.1 $ 2,352.0 $ 2,318.2 $ 2,350.0 $ 2,441.0

PB 19 May 2016, page 12 of 93

6

Appendix

University of Waterloo | As of March 31, 2016 PB 19 May 2016, page 13 of 93

7

Actuarial Attestation

This document is intended to provide to the University of Waterloo a summary of the performance of the Pension Plan as of 3/31/2016.

This analysis is intended to assist University of Waterloo with a review of the associated issues and options, and its use may not be appropriate for other purposes. This analysis has

been prepared solely for the benefit of University of Waterloo. Any further dissemination of this report is not allowed without the written consent of Aon Hewitt.

In conducting the analysis, we have relied on plan design, demographic and financial information provided by other parties, including the plan sponsor. While we cannot verify the

accuracy of all the information, the supplied information was reviewed for consistency and reasonableness. As a result of this review, we have no reason to doubt the substantial

accuracy or completeness of the information and believe that it has produced appropriate results.

Experience different than anticipated could have a material impact on the ultimate costs of the benefits. In addition, changes in plan provisions or applicable laws could have a

substantial impact on cost. Actual experience may differ from our modeling assumptions.

May 10, 2016


Actuarial Methods & Assumptions

Our analysis of the estimated financial position of the Pension Plan is based on the following:

Plan Provisions & Membership Data Same as in the Actuarial Valuation Results as of January 1, 2016 presentation to the Pension and Benefits Committee Meeting dated February 26, 2016

3/31/15 6/30/15 9/30/15 12/31/15 3/31/16

Going Concern

Discount Rate 5.75% 5.75% 5.75% 5.75% 5.70%

Inflation 2.00% 2.00% 2.00% 2.00% 2.00%

Risk-Free Benchmark

Discount Rate 0.59% 0.95% 1.09% 1.05% 0.89%

Solvency

Annuity Purchase Interest Rate 2.16% 2.56% 3.21% 3.04% 2.87%

Lump Sum Value Interest Rate

(Years 1-10) 1.90% 2.30% 2.00% 1.90% 1.90%

Lump Sum Value Interest Rate

(Years 10+) 3.40% 3.80% 3.70% 3.60% 3.40%

Mortality UP94 UP94 CPM2014 CPM2014 CPM2014

All other assumptions and methods are the same as those shown in the Actuarial Valuation Results as of January 1, 2016 presentation to the Pension and Benefits Committee Meeting

dated February 26, 2016. For the Risk-Free Benchmark basis, all other assumptions and methods are the same as those used for Going Concern basis.

PB 19 May 2016, page 14 of 93

8

Liabilities

Assets

Asset-Liability Performance Attribution – Going Concern

■ Overall, assets returned 0.3% during this quarter, as opposed to an expected

growth assumption of about 1.2% per quarter.

■ The fixed income assets gained value due to a decrease in the underlying risk-

free rates, partially offset by widening credit spreads.

■ The plan's return-seeking assets performed lower than expected during the

quarter.

■ $18.6 million in contributions were made during the quarter and the trust paid

$15.3 million in benefits to the participants.

■ Additional gains include the effect of the currency hedging strategy, offset by

the impact of holding fixed income assets different than the benchmark,.

■ Liabilities as of 3/31/2016 are based on a discount rate of 5.70%.

■ Liabilities were expected to grow by $20.3 million due to interest cost during

the quarter.

■ New benefit accruals increased the liability by $14.7 million during the quarter.

■ Plan liabilities decreased by $15.3 million during the quarter as benefits were

paid.

■ Other changes include the impact of a 0.05% decrease in the discount rate.



Funded Ratio

■ Contributions exceeded benefit accruals during the quarter, resulting in a net

increase of 0.3% in the funded status.


growth assumption of about 1.2% per quarter. Combined with the impact of the

decrease in the discount rate, there was an decrease in funded status of 1.5%.

PB 19 May 2016, page 15 of 93

9

Liabilities

Assets

Asset-Liability Performance Attribution – Risk-Free Benchmark






quarter.



■ Other gains include the effect of the currency hedging strategy, offset by the

impact of holding fixed income assets different than the benchmark.


the quarter.

■ Risk-free rates decreased, and inflation expectations decreased, resulting in a

net increase of $70.1 million ($74.5 million - $4.4 million).



paid.



Funded Ratio

■ Overall, the difference in exposure to risk-free rates between assets and

liabilities combined with changes in risk-free rates resulted in a decrease in

funded status of 1.7%.

■ Changes in inflation expectations resulted in an increase in the funded status

of 0.1%.

■ Return-seeking assets did not perform as well as expected during the quarter,

deducting 1.4% from the plan's funded status during the period.

■ Contributions and benefit accruals during the quarter resulted in a net increase

of 0.3% in the funded status.

$1,402.7 $1,409.3at 12/31/15 at 3/31/16

$15.9 $0.0 ($1.2) ($32.3) $18.6 $18.0 $3.5 ($15.3) ($0.6)$1,200

$1,300

$1,400

$1,500

ExpectedGrowth

Risk-FreeRates

Inflation CreditSpreads

ExcessReturnSeekingAssets

Contributions BenefitPayments

Expenses Other

$2,350.0 $2,441.0at 12/31/15 at 3/31/16

$14.1 ($4.4) $0.0 $0.0 $21.2 $0.9 $74.5 ($15.3) $0.0 $2,200

$2,300

$2,400

$2,500

ExpectedGrowth

Risk-FreeRates



Accruals BenefitPayments

Expenses Other

59.7% 57.7%at 12/31/15 at 3/31/16

+0.3% +0.1% +0.0% -1.4% +0.3% +0.7%-1.7% -0.3% +0.0%54%

56%

58%

60%

62%

ExpectedGrowth

Risk-FreeRates



Contributionsand

Accruals

BenefitPayments

Expenses Other

PB 19 May 2016, page 16 of 93

10

Executive Summary – Solvency Funded Status






■ An increase in liabilities primarily due to a decrease in risk-free rates and accruals.





3/31/15 6/30/15 9/30/15 12/31/15 3/31/16

g Market Value of Assets $ 1,406.7 $ 1,387.7 $ 1,354.9 $ 1,402.7 $ 1,409.3 g Solvency Liability 1,632.2 1,559.2 1,608.1 1,690.0 1,749.6 g Surplus/(Deficit) $ (225.5) $ (171.5) $ (253.2) $ (287.3) $ (340.3) g

g Periodic Contributions $ 18.8 $ 18.6 $ 18.7 $ 18.6 g Effective Interest Rate 2.31% 2.67% 3.17% 3.01% 2.86% g

g

g Funded Ratio: 86.2% 89.0% 84.3% 83.0% 80.6%

Asset Duration 2.0 1.9 1.9 1.9 1.8

Solvency Liability

Duration 14.8 14.3 14.2 14.4 14.7

Periodic

Return/Change

Cumulative

12 Months 6/30/15 9/30/15 12/31/15 3/31/16

g Market Value of

Assets Return -0.6% -1.6% -2.5% 3.3% 0.3% g

g Solvency Liability

Return: 5.4% -4.9% 2.8% 4.7% 3.0%

g Funded Ratio

Change -5.6% 2.8% -4.7% -1.3% -2.4%

PB 19 May 2016, page 17 of 93

11

Liabilities

Assets

Asset-Liability Performance Attribution – Solvency






quarter.



■ Other gains include the effect of the currency hedging strategy, offset by the

impact of holding fixed income assets different than the benchmark.


the quarter.

■ Risk-free rates decreased, and the annuity purchase spread was unchanged,

resulting in a net increase of $37.2 million ($37.2 million + $0.0 million).



paid.



Funded Ratio

■ Overall, the difference in exposure to risk-free rates between assets and

liabilities combined with changes in risk-free rates resulted in a decrease in

funded status of 1.5%.

■ Changes in credit spreads and the annuity purchase spread resulted in a

decrease in funded status of 0.1%.

■ Return-seeking assets did not perform as well as expected during the quarter,

deducting 1.9% from the plan's funded status during the period.

PB 19 May 2016, page 18 of 93

12

Asset Allocation and Benchmarking

Asset Class 3/31/2016

Alternatives

■ MSCI USA REIT Index 3.1%

■ MSCI USA Infrastructure Index 5.8%

Fixed Income

■ FTSE TMX Universe Bond Index 53.6%

Equities

■ MSCI World Index 33.9%

■ S&P TSX 3.6%

Total 100.0%


13

Glossary of Terms

■ Funded Status and Asset-Liability Return

— Liability Return reflects the growth in liability due solely to interest rate movements and excludes the impact of Accruals and Benefit Payments.

■ Asset Liability Performance Attribution

— Expected Growth reflects assets growing at the expected annual return and liabilities increasing at the interest rate.

— Risk-Free Rates splits out the expected movement in assets and liabilities based on movements in federal bond yields.

— Inflation splits out the expected movement in assets and liabilities based on movements in implied inflation, determined based on real and nominal federal bond yields.

— Credit Spreads splits out the expected movements in corporate and provincial bond yields in excess of federal bond yields.

— Excess Return-Seeking Assets defines the movement in the Return-Seeking assets based on benchmark returns in excess of expectations. The expectations are defined by

the long-term capital market assumptions of the plan and are reflected in "expected growth".

— Benefit Payments displays the expected decrease in assets and liabilities due to benefit payments during the period.

— Contributions/Accruals displays the expected increase in assets and liabilities due to employer contributions and new benefit accruals, respectively.

— Other includes fixed income returns due to coupons and other active management effects, from the asset perspective. From a liability perspective, this bucket includes all

liability changes not explained by financial movements during the period.


Presentation to

Prepared by Aon Hewitt

University of Waterloo

Review of Cap Protocol University of Waterloo Pension and Benefits Committee Meeting May 20, 2016

PB 19 May 2016, page 21 of 93

Proprietary & Confidential | 2 Aon Hewitt

May 20, 2016

Agenda

Background

Impact of Increase in PPP Cap

Impact of Increase in RPP Cap with No Increase in PPP Cap

Appendix

PB 19 May 2016, page 22 of 93


May 20, 2016

Background

PB 19 May 2016, page 23 of 93


May 20, 2016

Cap Protocol Summary

The University adopted the Protocol Regarding the Adjustments to the Pension

Cap, effective January 1, 2008 (the “Cap Protocol”).

Both the Registered Pension Plan (“RPP”) and Payroll Pension Plan (“PPP”)

have annual indexed caps and maximum caps on the pension benefit payable

from the Plans:

– Caps essentially limit final average earnings that will be recognized under

defined benefit formula

Pension caps help manage funding risk but at same time Pension & Benefits

Committee wanted to ensure that the defined benefit formula will apply to the

full final average earnings of majority of Plan members

Cap Protocol requires the tracking of funding required to meet the defined

benefit formula without maximum caps:

– Ensures there are no “hidden liabilities” and as funding resources become

available, first priority will be to increase maximum caps

PB 19 May 2016, page 24 of 93


May 20, 2016

Cap Protocol Summary

Purpose of Cap Protocol is to track on an annual basis the current and past

service costs associated with:

1. Indexing the ITA maximum pension under the RPP beyond the Plan cap of

$3,200

2. Combination of 1. and maintaining the PPP cap at 1.15 times the ITA

maximum pension, without $3,200 cap

The annual tracking is done as part of the actuarial valuation and was most

recently provided in the March 11, 2016 valuation presentation

PB 19 May 2016, page 25 of 93


May 20, 2016

Maximum Pension Amounts under RPP and PPP

RPP

ITA maximum pension

In 2016, $2,890.00 per year

of pensionable service

Indexed annually by

increase in

Average Industrial Wage

UW Pension Plan

applies a hard cap of

$3,200 on the indexed

ITA maximum pension

Projected ITA

Maximum Pension

$2,890.00 At assumed increase of

2.75% per year

2017: $2,969

2018: $3,051

2019: $3,135

2020: $3,200

2021: $3,200

2022: $3,200

2017: $2,969

2018: $3,051

2019: $3,135

2020: $3,221

2021: $3,309

2022: $3,400

PPP

Maximum pension applied

under PPP

In 2016, $3,309 per year of

pensionable service

Indexed at same rate of

increase as

ITA maximum pension

UW PPP applies a hard cap

on maximum pension under

PPP

$3,309 At assumed increase of

2.75% per year

2016: $3,309

2017: $3,400

2018: $3,400

2019: $3,400

2020: $3,400

2021: $3,400

PB 19 May 2016, page 26 of 93


May 20, 2016

Translation of Flat Dollar Maximums Into Salary Levels

The following shows how the flat dollar amounts translate into salary levels at

which the maximums are reached if the caps are not projected beyond the

current hard dollar caps:

Final Average Salary at Which ITA Maximum Pension ($2,890.00) is Reached Under RPP in 2016: $159,800

Final Average Salary at Which $3,200 Maximum Will Be Reached Under RPP (estimated): $175,300

Final Average Salary at Which UW Maximum Pension ($3,309.00) is Reached Under PPP in 2016: $180,800

Final Average Salary at Which $3,400 Maximum Will Be Reached Under PPP (estimated): $185,300

Salary at Which Maximum Member Contribution is Reached Under RPP in 2016: $214,700

PB 19 May 2016, page 27 of 93


May 20, 2016

Maximum Pension Amounts Under RPP and PPP

The current PPP cap of $3,400 is projected to be reached by 2017

The ITA limit is projected to reach the current RPP cap ($3,200) by 2020 and

the current PPP cap ($3,400) by 2022

Aon Hewitt has performed analysis on the following:

– Financial impact of increasing the PPP cap by $100, $200 and $300; and

– The impact on members if the PPP cap does not increase from the current

level but the RPP cap increases in line with ITA maximum pension

In effect, the latter option will “phase out” the PPP over time

PB 19 May 2016, page 28 of 93


May 20, 2016

Impact of Increase in Payroll Pension Plan Cap

PB 19 May 2016, page 29 of 93


May 20, 2016

Impact of Increase in Maximum Cap

The chart below shows the projected annual PPP cap assuming the cap is

indexed in the future at 2.75%.

The chart also shows when various hard dollar caps would begin to limit PPP

coverage

Maximum Pension under

PPP Indexed 2.75% per year

2016: $3,309

2017: $3,400

2018: $3,493 Would hit $3,400 Maximum Cap



2021 $3,790 Would hit $3,700 Maximum Cap

PB 19 May 2016, page 30 of 93


May 20, 2016

Past Service Liabilities – Impact of Increase in Maximum Cap

The chart below shows the increase in Accrued Liability at January 1, 2016

if the current PPP maximum cap is increased by $100, $200, or $300:

Provisions As of January 1, 2016

Active, disabled and suspended accrued liability under RPP (current $2,890.00 cap indexed annually subject to $3,200.00 maximum cap)

$ 803,038,730

Active accrued liability under PPP (current $3,309.00 cap, indexed annually subject to $3,400.00 maximum cap)

$ 21,380,969

Increase in accrued liability under PPP with $100 increase in maximum cap (current $3,309.00 cap, indexed annually subject to $3,500.00 maximum cap)

$ 6,496,033

Increase in accrued liability under PPP with $200 increase in maximum cap (current $3,309.00 cap, indexed annually subject to $3,600.00 maximum cap) $ 12,329,870

Increase in accrued liability under PPP with $300 increase in maximum cap (current $3,309.00 cap, indexed annually subject to $3,700.00 maximum cap) $ 17,620,345

PB 19 May 2016, page 31 of 93


May 20, 2016

Current Service Cost – Impact of Increase in Maximum Cap

The chart below shows the increase in University Current Service Cost at

January 1, 2016 if the current PPP cap is increased by $100, $200 or $300 :

As of January 1, 2016

University current service cost (RPP + PPP) (current $2,890.00/$3,309.00 cap indexed annually, subject to $3,200.00/$3,400.00 maximum cap)

$ 33,409,590

As a % of pensionable earnings 8.36%

Increase in University current service cost (RPP + PPP) ($2,890.00/$3,309.00 cap indexed annually, subject to $3,200.00/$3,500.00 maximum cap)

$ 597,200



$ 1,145,408



$ 1,602,200


PB 19 May 2016, page 32 of 93


May 20, 2016

Impact of Increase in RPP Cap with No Increase in PPP Cap

PB 19 May 2016, page 33 of 93


May 20, 2016

Past Service Liabilities – Impact of Increase in RPP Cap – No Increase in PPP Cap

The chart below shows the increase in Accrued Liability for active, disabled

and suspended members at January 1, 2016 if the current RPP cap is indexed

in the future, without being subject to a maximum cap, and the PPP cap, is

indexed to a $3,400.00 maximum cap. The protocol calculations from the

March 11 meeting material are shown for comparison.

Current provision1 Projected Caps2

(Protocol Calculations)

Projected RPP Cap;

Frozen PPP Cap3

RPP $ 803,038,730 $ 854,147,904 $ 854,147,904

PPP $ 21,380,969 $ 27,966,632 $ 9,652,355

Total $ 824,419,699 $ 882,114,536 $ 863,800,259

1 Current $2,890.00 RPP cap indexed annually subject to $3,200.00 maximum cap; current $3,309.00 PPP cap indexed annually, subject to

$3,400.00 maximum cap

2 Current $2,890.00 RPP cap indexed annually, no maximum cap; current $3,309.00 PPP cap indexed annually, no maximum cap

3 Current $2,890.00 RPP cap indexed annually, no maximum cap; current $3,309.00 PPP cap indexed annually; subject to $3,400.00 maximum cap

PB 19 May 2016, page 34 of 93


May 20, 2016

Projection of Members With Benefits In Excess of Indexed Caps

As part of January 1, 2016 valuation, pension benefits were projected to

retirement age under two scenarios (assumed retirement at age 65): Scenario

A) with a fixed $3,400.00 cap on the indexed caps, and Scenario B) with no

fixed dollar caps on the indexed caps

These charts are included in the appendix

PB 19 May 2016, page 35 of 93


May 20, 2016

Projection of Members With Benefits In Excess of Indexed Caps (continued)

Two additional charts have been added showing the impact on members of the

following:

Chart 1 illustrates the percentage of members with projected retirement

benefits in excess of the projected ITA maximum pension, assuming the RPP

cap is indexed to keep pace with the ITA maximum pension

– PPP benefit is included in this chart

– Illustrates the long term impact of the ITA maximum pension on members’

pension benefits

Chart 2 illustrates the impact on active members of a fixed PPP cap of

$3,400.00 and an RPP cap indexed to keep pace with the maximum pension

limit with no maximum cap

– Over a few years the PPP would shrink until the PPP cap and ITA

maximum pension converge

PB 19 May 2016, page 36 of 93


May 20, 2016

Chart 1 - Projection of Members With Benefits in Excess of ITA Indexed Cap (No PPP; No Maximum RPP cap)

Note:

Figures in parenthesis are percentage of total participants in the applicable category.

1 Formula benefit is defined as the calculation of the pension applying the pension formula (based on final five-year average earnings) to

all pensionable earnings without applying any caps; the projection of pension benefits is based on the salary increase assumption of 4.00% per year

used in the actuarial valuation (2.00% per year for disabled members) and increase caps at 2.75% per year.

Number of Members As of January 1, 2016

Pension Benefit With Cap as a % of Formula Benefit

1 Less Than Age 45 Ages 45 to 54 Ages 55 and Over Total

Less than 70% 3 15 13 31

70% but less than 75% 17 28 14 59

75% but less than 80% 25 33 33 91

80% but less than 85% 36 60 49 145

85% but less than 90% 47 49 67 163

90% but less than 95% 50 45 63 158

95% but less than 100% 48 32 48 128

Total 226 (13%) 262 (20%) 287 (23%) 775 (18%)

PB 19 May 2016, page 37 of 93


May 20, 2016

Chart 2 - Projection of Members With Benefits in Excess of Caps ($3,400 PPP Maximum Cap; No Maximum RPP Cap)

Note:




used in the actuarial valuation (2.00% per year for disabled members) and increase caps at 2.75% per year.




Less than 70% 3 15 11 29

70% but less than 75% 17 28 11 56

75% but less than 80% 25 33 21 79

80% but less than 85% 36 60 33 129

85% but less than 90% 47 49 44 140

90% but less than 95% 50 45 52 147

95% but less than 100% 48 32 54 134

Total 226 (13%) 262 (20%) 226 (18%) 714 (17%)

PB 19 May 2016, page 38 of 93


May 20, 2016

Appendix – Material from March 11, 2016 Pension and Benefits Committee

PB 19 May 2016, page 39 of 93


May 20, 2016

Projection of Members With Benefits in Excess of Indexed Caps (Subject to $3,400 Maximum Cap)



used in the actuarial valuation (2.00% per year for disabled members).




Less than 50% 68 8 1 77

50% but less than 55% 91 9 0 100

55% but less than 60% 93 29 2 124

60% but less than 65% 101 50 5 156

65% but less than 70% 97 65 7 169

70% but less than 75% 86 63 20 169

75% but less than 80% 95 50 23 168

80% but less than 85% 79 42 37 158

85% but less than 90% 119 33 41 193

90% but less than 95% 79 23 45 147

95% but less than 100% 83 21 54 158

Total 991 (57%) 393 (30%) 235 (19%) 1,619 (38%)

Note:


PB 19 May 2016, page 40 of 93


May 20, 2016

Projection of Members With Benefits in Excess of Indexed Caps (Without $3,400 Maximum Cap)

Note:




used in the actuarial valuation (2.00% per year for members on disability).


Pension Benefit as a % of Formula Benefit


Less than 80% 3 15 13 31

80% but less than 85% 11 23 12 46

85% but less than 90% 21 25 27 73

90% but less than 95% 32 50 38 120

95% but less than 100% 37 47 53 137

Total 104 (6%) 160 (13%) 143 (12%) 407 (10%)

PB 19 May 2016, page 41 of 93


May 20, 2016

Legal Disclaimer

© 2016 Aon Hewitt Inc. All Rights Reserved.

This document contains confidential information and trade secrets protected by

copyrights owned by Aon Hewitt. The document is intended to remain strictly

confidential and to be used only for your internal needs and only for the purpose

for which it was initially created by Aon Hewitt. No part of this document may be

disclosed to any third party or reproduced by any means without the prior written

consent of Aon Hewitt.

PB 19 May 2016, page 42 of 93

The Fund of the University of WaterlooPension Plan for Faculty and Staff31 December 2015

PB 19 May 2016, page 43 of 93

Members of the Pension & Benefits Committee ofThe University of Waterloo Pension Plan for Faculty and Staff

20 May 2016

We are pleased to provide the required communications related to our audit of the Fund of the University ofWaterloo Pension Plan for Faculty & Staff (the Fund).

Our audit was designed to express an opinion on the statement of net assets available for benefits and thestatement of changes in net assets available for benefits as at 31 December 2015 and for the year then ended.We received the full support and assistance of your personnel in conducting our audit. Open and candiddialogue with you is a critical step in the audit process and in the overall corporate governance process and weappreciate this opportunity to share the insights from our audit with you.

This report is intended solely for the information and use of the Pension & Benefit Committee andManagement. It is not intended to be, and should not be, used by anyone other than these specified parties.We disclaim any responsibility to any third party who may rely on it. Further, this report is a by-product of ouraudit and indicates matters identified during the course of our audit. Our audit did not necessarily identify allmatters that may be of interest to the Pension & Benefits Committee in fulfilling its responsibilities.

If you have any questions or comments, please do not hesitate to contact me directly.

Sincerely,

Per Blaine Hertzberger, CPA, CA Nic Yungblut, CPA, CAPartner Manager519 571 3339 519 571 7660

PB 19 May 2016, page 44 of 93

2

2015 pension fund audit results

Ernst & Young services

Our primary deliverable was to express an opinion on the statement of net assets available for benefits and thestatement of changes in net assets available for benefits of the Fund. We have completed substantially all ofour audit procedures and expect to issue an unqualified audit opinion upon finalization of the following matters:

► Receipt of signed letter of representation from Management► Approval of the financial statements by the Pension & Benefits Committee

Auditor’s responsibility under Canadian generally accepted auditing standards(GAAS)

The financial statements are the responsibility of Management. Our audit is designed in accordance withCanadian GAAS to obtain reasonable, rather than absolute, assurance about whether the financial statementsare free of material misstatement.

Independence

We confirm our independence to Management and the Pension & Benefits Committee pursuant to CAS 260.We are not aware of any relationships that may reasonably be thought to bear on our independence and wereconfirm our independence up to the date of this report.

Summary of the audit approach

For the purpose of the audit of the financial statements, our audit plan is developed after considering theinherent risks and control risks and the effectiveness of the Fund’s internal controls. A variety of factors areconsidered when establishing the audit scope including size, specific risks, the volumes and types oftransactions processed, changes in the business environment, and other factors. Our audit strategy focuses onthose financial statement items that may be more vulnerable to material misstatement, including the risk offraud. Our procedures for your Fund were primarily of a substantive nature.

Our principal areas of focus were:

► Completeness and measurement of pension contributions► Measurement and occurrence of benefit payments► Completeness and occurrence of investment income► Valuation of investments, and► Transfers of funds

While the majority of our procedures were substantive procedures, we have relied on the Service OrganizationControl (SOC1) report issued for CIBC Mellon, the Fund’s custodian.

At the conclusion of the audit, we formulate our opinion on the financial statements of the Fund as to their fairpresentation in all material respects. Our estimation of materiality requires professional judgment andnecessarily takes into account qualitative as well as quantitative considerations. Materiality for the 2015 auditwas set at approximately 2% of net assets.

PB 19 May 2016, page 45 of 93

3


Critical policies, estimates, areas of audit emphasis, and significant risks

Disclosure requirements

In February 2013, the Financial Services Commission of Ontario (FSCO) issued disclosure requirements forfinancial statements filed pursuant to Regulation 909 s. 76 for fiscal years ending on or after 1 July 2013.These disclosures were updated in March 2014 with minor differences from prior year. These changes did nothave a significant impact on the disclosures included in the financial statement notes. There were no changesmade to the disclosure requirements in Fiscal 2015.

Auditing the valuation of fixed income investments

Canadian auditing standards require us to perform additional procedures to audit the valuation of fixed incomeinvestments with higher valuation risk or measurement uncertainty risk by performing the following:

► Document an understanding of Management’s investment strategy► Understand how the investment portfolio is priced and which pricing sources are used► Understand the types of securities that compose the portfolio and evaluate them to determine the

appropriate classification as higher or lower estimation uncertainty, and► For securities classified as higher uncertainty estimation, if applicable, perform additional procedures to

gain comfort over the appropriateness of the valuations

EY reviewed the individual fixed income securities held in the plans for any that may be considered to havehigher estimation uncertainty and performed additional procedures where necessary. We did not identify anyissues with the valuation of fixed income investments.

Auditing the valuation of equity investments

We updated our understanding of how the fair values of the Fund’s investments have been determined andtested the fair values to determine the appropriateness of these fair values. We confirmed all investments heldat year-end with the custodian (CIBC Mellon) and respective investment managers. In addition, we obtainedthe CIBC Mellon Service Organization Control report and were able to place reliance on the custodian’scontrols as no significant deficiencies were identified within the report.

On a sample basis, we tested the market values of equity investments held by the Fund. EY noted no issueswith the investment valuation when compared to independent market information. As a result of the proceduresperformed, we did not identify any issues with the valuation of equity investments.

Employer contributions

We updated our understanding of the employer contributions process. With reference to the latest actuarialfunding valuation report, we verified that the employer contributions made by the Fund were in accordance withthe recommendations of the actuary.

We tested and recalculated on a sample basis the employee and employer contributions. No issues werenoted.

PB 19 May 2016, page 46 of 93

4


Benefit payments

We confirmed our understanding of the benefit payments process and examined, on a test basis, benefitpayments to verify they were accurately processed. We performed an analytical review of benefit paymentsand investigated variances from the prior year. In addition, we confirmed that members who withdrew from thepension plan in the current year, but had not yet received payment were properly accrued for at year-end. Noissues were noted.

Accounting estimates

There are no significant judgments or estimates required to prepare the financial statements where actualamounts are likely to be significantly different from the estimates.

Fraud considerations and the risk of Management override

We are responsible for planning and performing our audit to obtain reasonable assurance about whether thefinancial statements are free of material misstatement, whether caused by error or by fraud (CAS 240, TheAuditor’s Responsibilities Relating to Fraud in an Audit of Financial Statements).

Our audit procedures encompassed the requirements of CAS 240: brainstorming, gathering information tofacilitate the identification of and response to fraud risks and performing certain procedures to address the riskof Management override, including examining journal entries, reviewing accounting estimates and evaluatingthe business rationale of significant unusual transactions.

We are not aware of any fraud or non-compliance with laws and regulations involving Senior Management orany fraud or non-compliance with laws and regulations that could cause a material misstatement of thefinancial statements.

Summary of audit differences (SAD)

During the course of our audit, we accumulate differences between amounts and disclosures recorded by theFund and amounts and disclosures that we believe are required to be recorded under Canadian accountingstandards for pension plans. In fiscal 2015, no audit adjustments were identified relating to the audit.

Summary of significant disclosure deficiencies

During the course or our audit, we identify those significant disclosures required in the financial statements ofthe Fund, that we believe were not adequately reflected. We did not identify any significant disclosuredeficiencies.

PB 19 May 2016, page 47 of 93

5


Other required communications

► There were no major issues discussed with the Pension & Benefits Committee or those charged withgovernance in connection with our initial or recurring retention as the auditors, including, among othermatters, any discussions regarding the application of accounting principles and auditing standards, thescope of the audit, financial statement disclosures and the wording of the auditors’ report.

► There were no disagreements with Management about matters that individually or in the aggregate couldbe significant to the Fund’s financial statements or the auditors’ report.

► We are not aware of any instances where Management consulted with other accountants about auditing oraccounting matters.

► There were no serious difficulties encountered in dealing with Management related to the performance ofthe audit.

► We are not aware of any significant unusual transactions recorded by the Fund or of any significantaccounting policies used by the Fund related to controversial or emerging areas for which there is a lack ofauthoritative guidance.

► We are not aware of any related party transactions that are not in the normal course of operations and thatinvolve significant judgments made by Management concerning measurement or disclosure.

► There were no material alternative accounting treatments that have been discussed with Managementduring the current audit period.

► There were no significant matters arising during the audit in connection with the Fund’s related parties.

► There are no other findings or issues arising from the audit that are, in our judgment, significant andrelevant to those charged with governance regarding the oversight of the financial reporting process.

► Based on our inquiries of Management and those charged with governance, we are not aware of anysubsequent events which might affect the financial statements.

PB 19 May 2016, page 48 of 93

EY | Assurance | Tax | Transactions | Advisory

About EYEY is a global leader in assurance, tax, transaction and advisoryservices. The insights and quality services we deliver help build trust andconfidence in the capital markets and in economies the world over. Wedevelop outstanding leaders who team to deliver on our promises to allof our stakeholders. In so doing, we play a critical role in building a betterworking world for our people, for our clients and for our communities.

EY refers to the global organization and may refer to one or more ofthe member firms of Ernst & Young Global Limited, each of which is aseparate legal entity. Ernst & Young Global Limited, a UK company limitedby guarantee, does not provide services to clients. For more informationabout our organization, please visit ey.com.© 2014 Ernst & Young LLPAll Rights Reserved.Proprietary and confidential. Do not distribute withoutwritten permission.

ey.com

PB 19 May 2016, page 49 of 93

DRAFT FOR DISCUSSION

Financial Statements University of Waterloo Pension Plan [Ontario Registration Number 0310565] December 31, 2015

PB 19 May 2016, page 50 of 93


Independent auditors’ report To the Pension and Benefits Committee of the University of Waterloo Pension Plan for Faculty and Staff We have audited the accompanying financial statements of the Fund of the University of Waterloo Pension Plan for Faculty and Staff [Ontario Registration Number 0310565], which comprise the statement of net assets available for benefits as at December 31, 2015, and the statement of changes in net assets available for benefits for the year then ended, and a summary of significant accounting policies and other explanatory information. The financial statements have been prepared by management based on the financial reporting provisions of Regulation 909, Section 76 of the Pension Benefits Act (Ontario). Management’s responsibility for the financial statements

Management is responsible for the preparation and fair presentation of these financial statements in accordance with the financial reporting provisions of Regulation 909, Section 76 of the Pension Benefits Act (Ontario), and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. Auditors’ responsibility

Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditors consider internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion

In our opinion, these financial statements present fairly, in all material respects, the net assets available for benefits of the Fund of the University of Waterloo Pension Plan for Faculty and Staff as at December 31, 2015, and the changes in its net assets available for benefits for the year then ended in accordance with the financial reporting provisions of Regulation 909, Section 76 of the Pension Benefits Act (Ontario).

PB 19 May 2016, page 51 of 93


Basis of accounting and restriction on use

Without modifying our opinion, we draw attention to Note 1 to the financial statements, which describes the basis of accounting. The financial statements are prepared to assist the Pension and Benefits Committee to meet the requirements of the Financial Services Commission of Ontario. As a result, the financial statements may not be suitable for another purpose. Our report is intended solely for the Pension and Benefits Committee and the Financial Services Commission of Ontario and should not be used by parties other than the Pension and Benefits Committee or the Financial Services Commission of Ontario. Kitchener, Canada Chartered Professional Accountants May 20, 2016 Licensed Public Accountants

PB 19 May 2016, page 52 of 93

The Fund of the University of Waterloo Pension Plan for Faculty and Staff[Ontario Registration Number 0310565]

As at December 31

2015 2014$ $

AssetsInvestment income receivable 3,537,078 3,136,520 Unrealized gain on forward foreign exchange contracts [note 4[e]] — 3,410,470 Investments, at fair value [note 4[a]] 1,413,563,784 1,314,226,839 Total assets 1,417,100,862 1,320,773,829

LiabilitiesBenefits payable Retirement 1,562 16,547 Termination 775,154 186,453 Management and administrative fees payable [note 7[b]] 1,144,243 972,935 Unrealized loss on forward foreign exchange contracts [note 4[e]] 14,207,303 4,264,092 Total liabilities 16,128,262 5,440,027 Net assets available for benefits 1,400,972,600 1,315,333,802

See accompanying notes

Statement of net assets available for benefits


PB 19 May 2016, page 53 of 93

The Fund of the University of Waterloo Pension Plan for Faculty and Staff

Year ended December 31

2015 2014$ $

Increase in net assetsEmployee contributions

Required 27,586,988 26,037,174 Employer contributions

Current service 28,750,520 27,387,544 Special 16,252,454 14,985,678

Transfers from other plans [note 8] 1,797,795 1,552,538 Interest income [note 4[d]] 20,269,232 19,416,922 Dividend income [note 4[d]] 15,565,859 15,463,081 Realized and unrealized gains on investments — 65,992,718 Unrealized foreign exchange gains 39,896,690 15,210,973 Total increase in net assets 150,119,538 186,046,628

Decrease in net assetsBenefit expenses

Retirement benefits 50,241,992 47,024,494 Terminations benefits 6,819,291 7,632,721 Death benefits 795,581 982,306

Realized and unrealized losses on investments 2,334,082 — Management and administrative expenses [note 7[a]] 4,289,794 3,824,280 Total decrease in net assets 64,480,740 59,463,801

Net increase in net assets for the year 85,638,798 126,582,827 Net assets available for benefits, beginning of year 1,315,333,802 1,188,750,975 Net assets available for benefits, end of year 1,400,972,600 1,315,333,802

See accompanying notes

Statement of changes in net assets available for benefits


PB 19 May 2016, page 54 of 93


Notes to financial statements

December 31, 2015

1 DRAFT FOR DISCUSSION

1. Basis of presentation

These financial statements of the University of Waterloo Pension Plan [the “Plan”] have been prepared on a going concern basis and in accordance with the significant accounting policies set out below that comply with the financial reporting provisions prescribed by the Financial Services Commission of Ontario for financial statements under Regulation 909, Section 76 of the Pension Benefits Act (Ontario). The basis of accounting used in these financial statements materially differs from Canadian accounting standards for pension plans in Section 4600, Pension Plans, in Part IV of the Chartered Professional Accountants of Canada [“CPA Canada”] Handbook in part because it excludes the Plan’s pension obligations and related disclosures. Consequently, these pension fund financial statements do not purport to show the adequacy of the Plan’s assets to meet its pension obligations. These financial statements present the information of the Plan as a separate reporting entity independent of the Sponsor and Plan participants. In accordance with Section 4600, Canadian accounting standards for private enterprises in Part II of the CPA Canada Handbook have been adopted for policies that do not relate to the Plan’s investment portfolio to the extent that those standards do not conflict with the requirements of Section 4600. 2. Description of the plan

The Plan is a contributory defined benefit pension plan covering employees of the University of Waterloo [the “University” or the “Sponsor”]. The Board of Governors of the University is the administrator of the Plan [the “Administrator”]. The University’s Pension and Benefits Committee has been appointed by the Board of Governors to administer the Plan. CIBC Mellon Trust Company is the custodian and trustee of the Plan. The assets of the Plan are held “in trust” within CIBC Mellon Trust Company. Aon Hewitt has served as the actuary of the Plan during 2015. The Plan is registered under the Pension Benefits Act (Ontario) under Registration Number 0310565. Funding policy

The Plan is open to all full-time and part-time salaried employees who meet certain eligibility requirements. Under the terms of the Plan, the employees are required to contribute 6.25% of base earnings up to the Canada Pension Plan’s Yearly Maximum Pensionable Earnings [“YMPE”] limit plus 8.95% of base earnings exceeding the YMPE and up to two times the YMPE plus 9.95% of base earnings exceeding two times the YMPE. The University contributes the balance of the cost required to fund the Plan, as determined by an actuarial valuation of the Plan. Funding valuation

The most recent actuarial valuation, filed with the Financial Services Commission of Ontario, was as of January 1, 2014 and was prepared by Aon Hewitt. The rate of compensation increase used was 5.00% per year for 1 year and 4.25% thereafter and the discount rate was 6.00%. The next required actuarial valuation is as of January 1, 2017.

PB 19 May 2016, page 55 of 93



December 31, 2015


2

Benefits

On the normal retirement date, a member is entitled to an annual pension equal to 1.4% of his or her Final Average Earnings [“FAE”] up to the Year’s Maximum Pensionable Earnings [“YMPE”] average, plus 2.0% of his or her FAE in excess of the YMPE average multiplied by his or her years of credited service. Final Average Earnings is the member’s average annual base earnings during the averaging period’s continuous months of highest earnings during the member’s last 10 years of employment at the University. Effective January 1, 2014, the averaging period for Final Average Earnings will increase by one month each month until it is a 60-month averaging period. The YMPE average is determined by averaging the YMPE in the year of retirement plus the YMPE in the four preceding years. Effective May 1, 2014, the Plan adjusted its guaranteed indexation related to post-retirement cost of living adjustments. Any pension benefits earned as at December 31, 2013 will be indexed at 100% of the Consumer Price Index [“CPI”] to a maximum of 5%, and any pension benefit earned as of an employee’s date of retirement less the pension benefit earned as at December 31, 2013 will be indexed at 75% of CPI to a maximum of 5%. Vested retirement benefits of the Plan are payable upon satisfaction of early retirement eligibility requirements [as early as age 55] and prior to the member’s normal retirement date [age 65]. Vested retirement benefits are also payable in the case of termination of employment prior to retirement. A death benefit is payable to the beneficiary of a member as designated. Income taxes

The Plan is a Registered Pension Trust as defined in the Income Tax Act (Canada) and, as such, is not subject to income taxes. 3. Summary of significant accounting policies

Recognition of contributions and benefits

All contributions from the Sponsor and the Plan participants are reflected in the year of the related participant’s earnings. Contributions and benefits payable are recognized on the accrual basis of accounting. Termination benefits payable consist of amounts owing but not yet paid to employees who were terminated from the Plan before the year end. Retirement benefits payable consist of amounts owing but not yet paid to employees who retired before the year end. Lump-sum payments or transfers out of the Plan are accounted for in the period in which the election to effect such payment or transfer is made. Investments

Investments are recorded at fair market value on the statement of net assets available for benefits.

PB 19 May 2016, page 56 of 93



December 31, 2015


3

Fair value is the amount of consideration that would be agreed upon in an arm’s length transaction between knowledgeable, willing parties who are under no compulsion to act. The fair value of investment assets is determined as follows: [a] Cash and short-term deposits are valued at amortized cost which approximates fair value. [b] Bonds, debentures, equities, preferred shares and derivative financial instruments are valued by reference to

quoted market prices. [c] Investments in pooled funds are valued based on fair value information provided by the fund managers. Investment liabilities are stated at fair value and represent liabilities that are incurred by the Plan in investment-related activities. These may include, but are not limited to, derivatives in a liability position, repurchase agreements, financial instruments sold but not yet purchased, and cash collateral received from counterparties. Net realized gains or losses on disposal and unrealized changes in fair value for the year are recognized in the statement of changes in net assets available for benefits. Interest earned on investments is recorded on an accrual basis. Dividend income is recorded on the ex-dividend date. Transaction costs are expensed as incurred. Foreign currency translation

Investments denominated in foreign currencies are translated into Canadian dollars at rates of exchange as at the year-end date. Transactions of investments denominated in foreign currencies are translated into Canadian dollars at rates of exchange applicable on the transaction dates. Use of estimates

The preparation of financial statements requires the Plan’s Administrator to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of contingencies as at the date of the financial statements, and the reported amounts of increases and decreases in net assets available for benefits during the reporting period. Actual results could differ from those estimates.

PB 19 May 2016, page 57 of 93



December 31, 2015


4

4. Investments

[a] Summary of investments Investments are comprised of the following: 2015 2014 Fair value Cost Fair value Cost $ $ $ $ Equities Canadian companies 162,496,305 138,958,082 157,779,358 129,560,355 Foreign companies 159,855,811 126,639,800 137,925,819 110,252,058 Foreign equity pooled funds 321,328,557 189,075,679 271,304,192 171,211,279 643,680,673 454,673,561 567,009,369 411,023,692 Bonds, cash and short-term deposits Canadian fixed term bonds 219,367,043 219,899,397 215,704,894 215,444,595 Foreign fixed term bonds 118,290,816 84,066,363 103,181,265 84,066,363 Bond pooled funds 262,164,126 241,299,796 275,770,877 253,013,976 Cash and short-term deposits 170,061,126 169,847,711 152,560,434 152,414,336 769,883,111 715,113,267 747,217,470 704,939,270 1,413,563,784 1,169,786,828 1,314,226,839 1,115,962,962

PB 19 May 2016, page 58 of 93



December 31, 2015


5

[b] Investment managers The investments are managed by the following investment managers: 2015 2014 Fair value Cost Fair value Cost $ $ $ $ TD Asset Management Bonds Canadian fixed term bonds 219,367,043 219,899,397 215,704,894 215,444,595 Foreign fixed term bonds 118,290,816 84,066,363 103,181,265 84,066,363 Bond pooled funds 262,164,126 241,299,796 275,770,877 253,013,976 Cash and short-term deposits 3,636,058 3,636,058 1,577,421 1,577,421 603,458,043 548,901,614 596,234,457 554,102,355 University of Waterloo managed fund Equities Canadian equities [infrastructure and

real estate] 114,806,083 90,738,081 108,348,018 85,577,930 Cash and short-term deposits 142,523,671 142,523,660 123,930,447 123,930,444 257,329,754 233,261,741 232,278,465 209,508,374

PB 19 May 2016, page 59 of 93



December 31, 2015


6

2015 2014 Fair value Cost Fair value Cost $ $ $ $ Sionna Equities Canadian companies 45,455,055 45,678,036 49,431,341 43,982,425 Cash and short-term deposits 1,574,054 1,574,054 1,378,019 1,378,019 47,029,109 47,252,090 50,809,360 45,360,444 Invesco Global Asset Management, Inc. Equities Foreign companies — — — 519,423 Trilogy Global Advisors Equities Canadian companies 2,235,166 2,541,964 — — Foreign companies 159,855,762 126,639,757 137,925,773 109,732,593 Cash and short-term deposits 5,915,652 5,702,241 3,898,706 3,752,608 168,006,580 134,883,962 141,824,479 113,485,201 Oldfield Partners Equities Foreign equity pooled funds 117,528,634 73,423,745 103,559,980 71,567,234 Walter Scott & Partners Equities Foreign equity pooled funds 203,799,923 115,651,935 167,744,212 99,644,045 Operating fund at CIBC Mellon Trust Company Cash and short-term deposits 16,411,741 16,411,741 21,775,886 21,775,886 Total investments 1,413,563,784 1,169,786,828

1,314,226,839

1,115,962,962

The foreign company equity held by Invesco Global Asset Management, Inc. consisted of Class B preference shares that were written off in June 2015. The shares did not trade on the open market, could not be liquidated and had no market value.

PB 19 May 2016, page 60 of 93



December 31, 2015


7

[c] Significant investments The Plan contains the following individual investments, which exceed 1% of the cost or market value of the total investments as at December 31, 2015: Fair value Cost $ $ Short-term deposits CIBC Mellon cash sweep 0.05% 16,411,741 16,711,741TD BA 0.66% due January 7, 2016 49,969,500 49,969,500Royal Bank BA 0.66% due January 7, 2016 92,529,523 92,529,523 Bonds U.S. Treasury Bonds 3.625% due February 15, 2044 118,290,816 84,066,363 Pooled funds TD Emerald Canadian Bond Index Fund 262,164,126 241,299,796Overstone Global Equity Fund 117,528,634 73,423,745Walter Scott & Partners Global Equity Fund 203,799,923 115,651,935 Canadian equities Brookfield Infrastructure Partners 75,380,896 44,295,845ishares S&P/TSX Capped REIT 39,425,176 46,442,236

PB 19 May 2016, page 61 of 93



December 31, 2015


8

[d] Investment income by type 2015 2014 $ $ Dividend income Canadian equities 6,463,860 6,293,249 Foreign companies 3,708,681 4,978,135 Foreign pooled funds 5,393,318 4,191,697 15,565,859 15,463,081 Interest income Bonds, cash and short-term deposits 1,035,725 1,325,140 Canadian fixed term bonds 6,780,180 6,379,248 Foreign fixed term bonds 3,508,359 2,385,639 Pooled funds 8,944,968 9,326,895 20,269,232 19,416,922 [e] Forward foreign exchange contracts The following table summarizes the maturity date, notional amount and fair value related to the Plan’s forward foreign exchange contracts as at December 31: 2015 2014

Maturity Notional amount Fair value Maturity

Notional amount Fair value

$ $ $ $ $ $ Assets Japanese yen — — — 14-Jan-15 (41,096,859) 2,982,319 Euro — — — 14-Jan-15 (40,151,083) 428,151 — — — (81,247,942) 3,410,470 Liabilities United States

dollar 13-Jan-16 (166,063,234) (9,731,264) 14-Jan-15 (126,870,863) (4,210,802)Japanese yen 13-Jan-16 (54,984,632) (3,074,651) — — —Euro 13-Jan-16 (35,918,335) (819,303) — — —British pound

sterling 13-Jan-16 (20,219,307) (582,085) 14-Jan-15 (17,538,990) (53,290) (277,185,508) (14,207,303) (144,409,853) (4,264,092)

PB 19 May 2016, page 62 of 93



December 31, 2015


9

5. Fair value measurements

Canadian accounting standards for pension plans require disclosure of a three-level hierarchy for fair value measurements based on the transparency of inputs to the valuation of an asset or liability as at the financial statement date. The three levels are defined as follows: Level 1: Fair value is based on quoted market prices in active markets for identical assets or liabilities. Level 1 assets and liabilities generally include equity securities traded in an active exchange market. Level 2: Fair value is based on observable inputs other than Level 1 prices, such as quoted market prices for similar [but not identical] assets or liabilities in active markets, quoted market prices for identical assets or liabilities in markets that are not active, and other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Level 2 assets and liabilities include debt securities with quoted prices that are traded less frequently than exchange-traded instruments and derivative contracts whose value is determined using a pricing model with inputs that are observable in the market or can be derived principally from or corroborated by observable market data. This category generally includes pooled funds, hedge funds, Government of Canada, provincial and other government bonds, Canadian corporate bonds, and certain derivative contracts. Level 3: Fair value is based on non-observable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. This category generally includes private equity investments and securities that have liquidity restrictions. There have been no material transfers between any levels in 2015 or 2014.

PB 19 May 2016, page 63 of 93



December 31, 2015


10

2015 Level 1 Level 2 Level 3 Total $ $ $ $ Assets Cash and short-term deposits 690,736 169,370,390 — 170,061,126Equities 322,352,116 — — 322,352,116Pooled funds — 583,492,683 — 583,492,683Treasury bills — 118,290,816 — 118,290,816Bonds — 219,367,043 — 219,367,043 323,042,852 1,090,520,932 1,413,563,784 Liabilities Forward foreign exchange contracts — 14,207,303 — 14,207,303 — 14,207,303 — 14,207,303 2014 Level 1 Level 2 Level 3 Total $ $ $ $ Assets Cash and short-term deposits 819,953 151,740,481 — 152,560,434 Equities 295,705,177 — — 295,705,177 Pooled funds — 547,075,069 — 547,075,069 Treasury bills — 103,181,265 — 103,181,265 Bonds — 215,704,894 — 215,704,894 Forward foreign exchange contracts — 3,410,470 — 3,410,470 296,525,130 1,021,112,179 — 1,317,637,309 Liabilities Forward foreign exchange contracts — 4,264,092 — 4,264,092 — 4,264,092 — 4,264,092

PB 19 May 2016, page 64 of 93



December 31, 2015


11

6. Financial risks and risk management

The Plan’s investment performance is subject to financial risks as a result of its investing activities. These financial risks could impact net assets available for benefits. These financial risks include credit risk, liquidity risk, interest rate risk, other price risk and foreign exchange risk. The Administrator manages these risks in accordance with the Statement of Investment Policies and Procedures [the “SIPP”]. The SIPP includes aggregate investment limits by asset class in order to achieve the Plan’s investment objectives at an acceptable level of risk. In addition, the SIPP outlines individual investment limits and diversification objectives within different asset classes and permitted investment categories within the asset classes. The Pension and Benefits Committee monitors adherence to the policy and the performance of investment managers relative to the applicable benchmarks and action is taken as deemed necessary. Credit risk

Credit risk relates to the potential exposure that the other party to a financial instrument will fail to discharge an obligation and cause the Plan to incur a financial loss. Concentration of credit risk exists when a significant proportion of the portfolio is invested in securities with similar characteristics or subject to similar economic, political or other conditions. The SIPP restrictions require Canadian bonds or debentures to be rated a minimum of BBB or equivalent, establishes a cap of U.S. denominated fixed income securities, and bans the purchase of foreign currency fixed income securities. In addition, the SIPP states that no single equity shall represent more than 10% of the total market value of any one of the Fund Manager’s equity portfolios. All of the Plan’s fixed term investments are invested in Canadian short term bonds and U.S. Treasury Bonds which have minimal credit risk, as the US government’s credit rating is AA+. The credit risk of the Canadian fixed term bonds as at December 31, 2015 and as at December 31, 2014 are detailed in the following chart: Credit ratings AAA AA A BBB Total As of December 31, 2015 1.5% 38.6% 28.5% 31.4% 100%As of December 31, 2014 1.7% 45.3% 24.6% 28.4% 100% Liquidity risk

Liquidity risk is the risk that the Plan may be unable to meet pension payment obligations as they come due. The SIPP requires that all investments should be reasonably liquid so that they can be converted into cash on short notice. As such, the Plan’s exposure to liquidity risk is considered negligible.

PB 19 May 2016, page 65 of 93



December 31, 2015


12

The following is a maturity analysis of the fixed term investments held by the Plan: 2015 2014 $ $ <1 year 12,480,092 5,139,253 1 – 5 years 179,879,849 185,825,502 5 – 10 years 27,007,102 22,527,958 >10 years 118,290,816 105,393,446 Total 337,657,859 318,886,159 Interest rate risk

Interest rate risk refers to the adverse consequences of interest rate changes on the Plan’s net assets available for benefits and changes in net assets available for benefits. This risk arises as changes in market interest rates affect the fair market value of the Plan’s assets as well as the returns that the plan can earn. The SIPP outlines a range of 30% – 70% for fixed income securities. The Administrator adjusts the investment mix in the portfolio in response to changes in market interest rates. The following analysis summarizes the impact on the Plan’s net assets available for benefits, following reasonably possible changes in interest rates to each bond category to which the Plan has a significant exposure. Impact of change in interest

rates Market value Duration -1% +1% Canadian fixed term bonds 219,367,043 2.79 6,120,340 (6,120,340) Foreign fixed term bonds 118,290,816 17.97 21,256,860 (21,256,860) Bond pooled funds 262,164,126 7.42 19,452,578 (19,452,578) 46,829,778 (46,829,778)

Other price risk

Other price risk is the risk that the value of the investments will fluctuate as a result of changes in market prices. As the Plan records all investments at fair value, investment values reflected in the statement of net assets available for benefits represent the maximum exposure to market risk. The SIPP outlines a range of 30% – 70% for equities. The Administrator adjusts the investment mix in the portfolio in response to changes in market conditions. Foreign exchange risk

The Plan is exposed to foreign currency fluctuations to the extent that its foreign investments are denominated in foreign currencies. Fluctuations in the value of the Canadian dollar against foreign currencies can have an impact on the fair value of foreign investments. The SIPP allows for hedging of portfolio assets denominated in foreign currencies into Canadian dollars as a strategy to mitigate foreign exchange risk. The Plan targets

PB 19 May 2016, page 66 of 93



December 31, 2015


13

hedging 67% of US dollar exposure, 75% of Euro exposure, 75% of Yen exposure and 50% of British pound sterling exposure. The hedging strategy utilizes forward foreign exchange contracts that mature in 90 days. Upon maturity of these contracts, the Plan enters into new forward foreign exchange contracts with 90 day maturities. The following sensitivity analysis summarizes the impact on the Plan’s net assets available for benefits, following reasonably possible changes in foreign currency exchange rates, for each currency to which the Plan has a significant exposure. Impact of change in exchange

rates +5% -5% Euro 2,729,347 (2,729,347) United States dollar 16,155,008 (16,155,008) British pound sterling 1,978,789 (1,978,789) Japanese yen 3,983,238 (3,983,238) Sensitivity analysis

The table below demonstrates the sensitivity of the fair value of the Plan’s investments in equities to a possible change of 10% in the relevant equity indices. The beta of each equity mandate, a measure of volatility, has been applied in estimating this sensitivity.

Fluctuation of

Impact of % change in fair value on net

assets Sensitivity $ Equities Canadian Stock market indices +10 12,902,549 -10 (12,902,549) Foreign Stock market indices +10 17,223,463 -10 (17,223,463 Pooled funds Stock market indices +10 29,533,666 -10 (29,533,666)

PB 19 May 2016, page 67 of 93



December 31, 2015


14

7. Management and administrative expenses

[a] Management and administrative expenses Management and administrative expenses consist of the following: 2015 2014 $ $ Investment management 2,870,481 2,316,254 Custodial 215,638 214,022 Actuarial 261,610 243,222 Administration 433,192 497,333 Audit 18,483 20,319 Harmonized Sales Tax 490,390 533,130 4,289,794 3,824,280 [b] Management and administrative fees payable Management and administrative fees payable consist of the following: 2015 2014 $ $ Investment management 720,748 614,838 Custodial 29,183 34,378 Actuarial 96,066 35,046 Administration 167,475 177,547 Audit 18,400 18,100 Harmonized Sales Tax 112,371 93,026 1,144,243 972,935 [c] Contributions There were no required contributions past due at December 31, 2015. 8. Transfers from other plans

Transfers from other plans represent transfers into the Plan from external pension plans of a previous employer.

PB 19 May 2016, page 68 of 93



December 31, 2015


15

9. Capital management

The capital of the Plan is represented by the net assets available for benefits. The Plan’s objectives when managing its capital are to [i] safeguard its ability to continue as a going concern including compliance with regulatory requirements under the Pension Benefits Act (Ontario) and [ii] satisfy its obligations to pay benefits to the Plan participants. In meeting these objectives, the Sponsor periodically reviews the funding and investment policies of the Plan, the results of the actuarial funding valuation and the level of benefits provided to participants. The Administrator has adopted a SIPP which states investment objectives, guidelines and benchmarks used in investing the capital of the Plan, permitted categories of investments, asset mix diversification and rate of return expectations. The SIPP was last amended in October 2015. The SIPP was amended to add a paragraph on the consideration of Environmental, Social and Governance [“ESG”] factors and for other, less significant updates. The goal of the Plan per the SIPP is that the annualized rate of return of the Plan must exceed the annualized rate of increase in the Consumer Price Index [“CPI”] by at least 400 basis points [‘bps”], net of the associated investment management fees over any 10-year period. Reporting from the actuary of the Plan as at December 31, 2015 shows a return of 5.67% on the total pension fund, excluding the currency overlay, for the last 10 year period. The Bank of Canada reports total average annual CPI of 1.69% for the relevant 10 year period. The return on the total pension fund for the last 10 year period exceeds the average annual CPI for the same period by 398 basis points and, as such, falls slightly short of the goal for the annualized rate of return of the Plan for this period. The SIPP prescribes asset categories that the Plan can invest in along with a targeted asset allocation for each of these categories. The following table presents the asset categories, the permitted asset mix allocation, and the benchmark portfolio.

Asset mix allocation

Asset mix allocation as at December 31,

2015

Asset categories Cash and short-term deposits 0 – 15% 12% Fixed income 30 – 70% 43% Equities 30 – 70% 37% Alternatives (Infrastructure and Real Estate Equity) 0 – 20% 8% 100% The investments fell within the targeted asset mix ranges as specified in the SIPP at December 31, 2015.

PB 19 May 2016, page 69 of 93

To: Members of the Finance & Investment Committee

Members of the Pension & Benefits Committee

From: Mike Grivicic, Assistant University Secretary

Date: 13 May 2016

Subject: Revision of Draft Terms of Reference for the Responsible Investing Working Group

of the Board of Governors

At the March meetings of the Finance & Investment Committee and the Pension & Benefits Committee,

the input of members was solicited on draft terms of reference for a Responsible Investing Working

Group of the Board of Governors.

Following those meetings, a compilation of suggested amendments was incorporated into a revised draft

to bring back through the committees in May. Recently it has been detected that one element of the

revised draft is not sufficiently clear: particularly in the second bullet under “Membership” where there is

misalignment between the drawing of members of constituency groups where those groups are not

represented in the pools specified.

Given that this minor misalignment in terms would be problematic in launching the work of this group,

the Secretariat has undertaken to provide a further revision beyond those generated by the memberships of

the respective committee that is minor in nature and aims to bring the clarity that appears to have been

intended from the proposed revisions.

Attached to this memo is the revised draft.

PB 19 May 2016, page 70 of 93

DRAFT FOR CONSULTATION

Board of Governors Responsible Investment Working Group

Terms of Reference Membership All 10 of 12 members will be financially literate and have knowledge of investments generally. A majority of members will have knowledge of the University’s investment funds.

• Three members of the Board of Governors or its finance and/or pension committees, other than University employee or student members

• Five Six members of either the Board of Governors or its pension committee, as follows: nominated by the executive of each of the faculty association, staff association, CUPE, graduate students and undergraduate students associations

o One faculty member to be nominated be the FAUW executive; o One staff member to be nominated by the UWSA executive; o One CUPE member to be nominated by the executive of CUPE Local 793 (The member

of the Pension and Benefits Committee who is a representative of CUPE Local 793); o One undergraduate student to be nominated by the FEDS executive; o One graduate student to be nominated by the GSA executive; and o One retiree to be nominated by the executive of the Retirees' Association (the member of

the Pension and Benefits Committee who is a representative of retirees). • Vice-president, administration & finance • Vice-president, advancement • Vice-president, academic & provost, or his delegate

Chair The vice-president, academic & provost or his delegate will serve as chair. The chair may vote, if necessary, in order to break a tie. Terms of Reference The mandate of this working group is to make recommendations to the Board of Governors through the appropriate committees and subcommittees (outlined below) as to whether and how to incorporate environmental, social and governance (ESG) factors into decision making re: the investment of the endowment and pension funds, taking into consideration:

• The legal and regulatory requirements including, among other things, fiduciary responsibilities, investing and investments, ESG reporting and contractual commitments;

• The goals and purposes of the University pension and endowment funds; • Existing University investments, policy and governance frameworks; • The financial context of the University; • Research into options for incorporating ESG factors into investment decisions; • Review of approaches taken at peer institutions; • Consultation with University stakeholders e.g. retirees, alumni, donors; and • Advice provided by University investment advisors.

Reporting & Approval Subject to review and approval by the Board of Governors Registered Pension Plan Investments Subcommittee, Finance & Investment Committee and Pension & Benefits Committee, in accordance with their mandates, the recommendations of the working group will be reflected in the statements of investment policies and procedures for the endowment and pension funds and submitted to the Board for final approval. Term This working group will serve until the earlier of the date on which it has fulfilled its mandate and the date on which the Board of Governors dissolves the working group.

Approved by the Board of Governors on […]

PB 19 May 2016, page 71 of 93

Aon Hewitt Proprietary and Confidential

TDAM Passive Global Equity Analysis – April 2016 Prepared for the University of Waterloo Registered Pension Plan Committee

Risk. Reinsurance. Human Resources.

PB 19 May 2016, page 72 of 93

1 Executive Summary Page 22 Background Information and Fund Summary Page 43 Performance Analytics Page 74 Appendix A - Aon Hewitt InTotals Page 105 Appendix B - Disclosures Page 16

Table Of Contents

PB 19 May 2016, page 73 of 93

Executive Summary

Page 2PB 19 May 2016, page 74 of 93

Executive Summary

The University of Waterloo Registered Pension Plan Investment (“RPPI”) Committee had engaged Aon Hewitt to search for a suitable passive global equity strategy in which to invest in December 2015.

After presenting the report to the University of Waterloo RPPI Committee, it was decided that Aon Hewitt would conduct further analysis on TDAM, specifically examining how best to achieve global equity exposure through the following options:

Product Type Product Name Manager

Canadian Institutional Pooled Fund TDAM Global Equity Index TD Asset Management

Canadian Institutional Pooled Fund

TDAM International Equity Index TDAM U.S. Equity Index

TD Asset Management

Recommendation

We recommend that that the University of Waterloo RPPI Committee approve a ‘synthetic’ global equity allocation by investing 60% in the TDAM U.S. Equity Index fund and 40% in the TDAM International Equity Index fund. This synthetic exposure will allow the Plan to reduce the effect of withholding taxes versus an investment in the TDAM Global Equity Index fund. The reduction in withholding taxes can be explained by the registered nature of the TDAM U.S. Equity Index fund (which is not subject to withholding taxes due to the tax treaty between the U.S. and Canada for registered pension plans).


Fund Summary and Analysis


Fund Summary

The following is a summary of the characteristics of each of the index pooled funds reviewed in this report. Unless otherwise indicated, all data is as at 31 December 2015.

Fund Name Aon Hewitt Rating Country of Listing Benchmark Fee (Basis Points)1 Fee (Dollars)

TDAM Global Equity Index Buy Canada MSCI World ex Canada Index 2 $2,4002

TDAM International Equity Index Buy Canada MSCI EAFE Index 2 $8403

TDAM U.S. Equity Index Buy Canada S&P 500 Index 2 $1,5604

1Sliding scale: 23bps on first $5 million, 14bps on next $5 million, 11bps on next $10 million, 5 bps on next $80 million, 2bps on the balance. Given the size of the

University of Waterloo Pension Plan mandate with TDAM (>$600 million), the $12 million mandate would fall into the 2bp fee range

2Based on a mandate size of $12 million

3Based on a mandate size of $4.8 million (40% of $12 million)

4Based on a mandate size of $7.2 million (60% of $12 million)


Fund Analysis

The University of Waterloo RPPI Committee prefers an index investment that results in the lowest fund friction due to dividend withholding taxes. Two options are presented below:

A. TDAM Global Equity Index: provides direct exposure to global equities by replicating the MSCI World ex Canada Index.

B. TDAM ‘synthetic’ global equity exposure: provides exposure to global equities by investing 60% in the TDAM U.S. Equity Index (which replicates the S&P 500 Index) and 40% in the TDAM International Equity Index (which replicates the MSCI EAFE Index). These weights were derived by approximating the regional allocations of the MSCI World ex Canada Index.

After confirming the approximate annual dividend and dividend withholding tax for each fund with TDAM, an analysis of the estimated fund friction due to dividend withholding taxes was completed for each portfolio. The results are presented below:

Fund Approximate Annual

Dividend (%) Dividend Withholding

Tax (%) Estimated Fund Friction

A. TDAM Global Equity Index 2.00% 13.50% 0.27%

B. TDAM ‘synthetic’ global equity exposure (40% C + 60% D) 2.00% 5.50% 0.11%

C. TDAM International Equity Index

2.00% 13.70% 0.27%

D. TDAM U.S. Equity Index 2.00% 0.00% 0.00%

Due to the tax treaty between the Canada and U.S. that exempts registered Canadian pension plans from paying taxes on U.S. equity dividends, the estimated fund friction for the TDAM U.S. Equity Index fund is 0.0%. Given that this fund would account for 60% of the synthetic global equity exposure, the withholding tax of the synthetic portfolio is significantly lower than the TDAM Global Equity Index, leading to an estimated fund friction of 11 basis points versus the TDAM Global Equity Index fund of 27 basis points.


Performance Analytics


Performance (%)

1Year

2Years

3Years

4Years

5Years

10Years

TDAM Global Equity Index 20.2 17.4 23.4 21.0 15.8 7.1

MSCI World ex Canada (Net) (CAD) 20.0 17.3 23.3 20.8 15.7 7.0Tracking Error 0.2 0.1 0.1 0.2 0.1 0.1

TDAM International Equity Index 19.0 11.1 17.4 16.8 10.9 4.9

MSCI EAFE (CAD) 19.5 11.5 17.8 17.2 11.3 5.3Tracking Error -0.5 -0.4 -0.4 -0.4 -0.4 -0.4

TDAM U.S. Equity Index 21.5 22.5 28.3 24.3 20.0 8.9

S&P 500 (CAD) 21.6 22.8 28.6 24.7 20.4 9.2Tracking Error -0.1 -0.3 -0.3 -0.4 -0.4 -0.3

Trailing Period Performance

As of 31 December 2015


Performance (%)

2014 2013 2012 2011 2010 2009 2008 2007 2006

TDAM Global Equity Index 14.7 36.4 13.8 -2.6 5.6 9.8 -25.5 -8.1 19.7

MSCI World ex Canada (Net) (CAD) 14.6 36.3 13.6 -2.8 5.5 9.5 -25.6 -8.1 19.7Tracking Error 0.1 0.1 0.2 0.2 0.1 0.3 0.1 0.0 0.0

TDAM International Equity Index 3.8 31.0 14.8 -9.8 2.2 12.0 -29.0 -5.9 25.8

MSCI EAFE (CAD) 4.1 31.6 15.3 -9.5 2.6 12.5 -28.8 -5.3 26.4Tracking Error -0.3 -0.6 -0.5 -0.3 -0.4 -0.5 -0.2 -0.6 -0.6

TDAM U.S. Equity Index 23.6 40.8 13.1 4.3 8.7 7.0 -21.4 -10.8 15.0

S&P 500 (CAD) 23.9 41.3 13.4 4.6 9.1 7.4 -21.2 -10.5 15.4Tracking Error -0.3 -0.5 -0.3 -0.3 -0.4 -0.4 -0.2 -0.3 -0.4

Calendar Year Performance

As of December 31


Appendix A - Aon Hewitt InTotals


Aon Hewitt Retirement and Investment Proprietary and Confidential

Risk. Reinsurance. Human Resources.

InBrief: TD Asset Management Inc. Passive Equity Strategies

Review Date Overall Rating Previous Overall Rating November 2015 Buy New Rating

Overall Rating TD Asset Management Inc. (“TDAM”) has demonstrated an ability to provide a broad platform of passive equity products which closely track their respective indexes. The size and capabilities of TDAM allows it to minimize costs and offer its index funds at reasonable expense ratios. It has a strong and systematic process to replicate the benchmark and historical tracking error has been very low. We believe TDAM offers competitive passive equity solutions for our clients.

Firm Summary Head Office Location Toronto, Ontario Parent Name TD Bank Firm AUM $291.7 billion Investment Staff 104 Equity AUM $121.8 billion Equity Staff 48

Note: AUM data as of September 30, 2015.

Investment Manager Evaluation Rating Sheet

Factor Rating Previous Rating Comments

Business 3 New Rating

With a wide range of funds and significant assets in passive equities, TDAM has demonstrated a long-term commitment to the passive equity business. TDAM is a wholly-owned subsidiary of TD Bank (“TD”), one of the largest financial institutions in Canada. The support from TD and its size gives it a significant advantage in resources and access compared to its competitors.

Dino Bourdos, Managing Director and was head of the Derivatives, Structured & Passive Equity team left the firm in August of this year. As a result, TDAM implemented a new organization structure which we believe is more in-line with industry norm, and will yield some efficiencies.

Investment Staff 3 New Rating

TDAM has a stable and deep investment staff, comprised of equity index portfolio managers, dedicated traders, and dedicated risk management professionals, all of whom oversee the firm’s equity index portfolios. TDAM’s equity indexing team is led by Vishal Bhatia, and Dino Vevaina. Both are capable and experienced investors. While Mr. Bourdos was head of the team, he did not have portfolio management responsibilities for the passive strategies. The team has experienced minimal turnover.


Aon Hewitt Retirement and Investment

InBrief – TDAM – Passive Equity Index Funds 2

Rating Sheet

Factor Rating Previous Rating Comments

Investment Process 3 New Rating

The manager has a pragmatic approach to indexing using a mixture of full replication and stratified sampling techniques, depending on the underlying index, to find the right balance between limiting trading costs and minimizing tracking error. In practice the largest and longer standing passive funds own most of the benchmark. The construction process is relatively manual but this is a conscious decision as more sophisticated optimizers have yielded mixed results. Overall the investment process is systematic and well suited to passive management.

Risk Management 3 New Rating

TDAM measures risk for its equity index funds primarily in terms of tracking error. Deviations from the index are monitored very closely by the portfolio management team. In addition, a separate risk management group carries out additional oversight. TDAM also employs a conservative securities lending program where the majority of revenue is used to offset some of the costs of the funds.

Operational Due Diligence Pass New Rating

There is a dedicated and separate risk management team at TDAM that reports directly to the CEO. There are clear roles and separation of duties which helps minimize operational errors. The firm operates a third party order management system, Latent Zero, with supports straight-through processes. TDAM produces a Report on the Controls Placed in Operation and Tests of Operating Effectiveness prepared in accordance with Section 5970 of the Canadian Institute of Chartered Accountants.

Performance Analysis 3 New Rating

TDAM has closely tracked the benchmarks of its various passive equity products over historical time periods. We expect similar results going forward.

Terms & Conditions 3 New Rating

Client and consultant relations experience has been positive overall. Fees can be less competitive for smaller mandates because of a minimum fee. They are in line with the peer group for medium and large size mandates.

Overall Rating Buy New Rating

TD Asset Management Inc. (“TDAM”) has demonstrated an ability to provide a broad platform of passive equity products which closely track their respective indexes. The size and capabilities of TDAM allows it to minimize costs and offer its index funds at reasonable expense ratios. It has a strong and systematic process to replicate the benchmark and historical tracking error has been very low. We believe TDAM offers competitive passive equity solutions for our clients.




Manager Updates and Monitoring

Major Developments

There are no major developments to report at this time.

Key Monitoring Points There are no key monitoring items to report at this time.




Ratings Explanation Below we describe the criteria which we use to rate fund management organizations and their specific investment products. With the exception of Operational Due Diligence ("ODD"), each component is assessed as follows:

Qualitative Outcome

1 = Weak

2 = Average

3 = Above Average

4 = Strong The ODD factor can be assigned a Pass, Conditional Pass, or Fail rating and can be interpreted as follows:

Pass – Our research indicates that the manager has acceptable operational controls and procedures in place.

Conditional Pass – We have specific concerns that the manager needs to address within a reasonable established timeframe.

Fail – Our research indicates that the manager has critical operational weaknesses and we recommend that clients formally review the appointment.

An overall rating is then derived and can be interpreted as follows:

Overall Rating What does this mean?

Buy We recommend clients invest with or maintain their existing allocation to our Buy rated high conviction products

Buy (Closed) We recommend clients invest with or maintain their existing allocation to our Buy rated high conviction products, however it is closed to new investors

Qualified A number of criteria have been met and we consider the investment manager to be qualified to manage client assets

Sell We recommend termination of client investments in this product

In Review The rating is under review as we evaluate factors that may cause us to change the current rating

The comments and assertions reflect our views of the specific investment product and our opinion of its quality.




Disclaimer

This document has been produced by the Global Investment Management Team of Aon plc. Nothing in this document should be treated as an authoritative statement of the law on any particular aspect or in any specific case. It should not be taken as financial advice and action should not be taken as a result of this document alone. Consultants will be pleased to answer questions on its contents but cannot give individual financial advice. Individuals are recommended to seek independent financial advice in respect of their own personal circumstances.

The Aon Centre The Leadenhall Building 122 Leadenhall Street London EC3V 4AN

Copyright © 2015 Aon plc


Appendix B - Disclosures



Appendix B – Disclosures

Manager Search Process Each manager search is conducted using general criteria as set out below that seeks to ensure identification of above average managers for any chosen mandate. In addition to general manager selection criteria, mandate specific criteria may be appropriate and applied based on the unique nature of each search.

General Manager Selection Criteria Business

– Firms should have a significant book of business with institutional clients

– Firms should have a significant base of assets under management as it is preferable that the University of Waterloo would not represent a significant percentage of the firm’s assets under management

– Firms should show relatively low levels of client turnover, and plans for controlled growth

– Stable ownership is preferred

– Ownership or compensation arrangements akin to ownership for key investment professionals is preferred, as are incentive plans that are linked to client performance

Investment Staff

– Qualified and experienced investment staff are in place

– Team shows sufficient depth to provide for appropriate succession planning and to mitigate against key person risk

– Low turnover is desirable as an indication that the track record belongs to the current team and that the team is stable

Investment Process

– A transparent, well defined and repeatable investment process that has a track record of success

– A clearly stated and consistently applied investment philosophy and research process




Investment Risk

– A quality system or process is in place for analysing, assessing and managing risk of the overall portfolio and of individual or groupings of investment positions taken

– Responsibilities for risk monitoring and management are well defined and clearly assigned to investment professionals, with a preference for dedicated risk management professionals and teams

– Systems integration within the trading, compliance and risk monitoring platforms

Performance Analysis

– Verifiable track record that is consistent with the stated investment philosophy and process

– Competitive long term returns and risk-adjusted returns relative to peers

– Volatility of returns and value added is consistent with the managers’ style

– Performance is viewed over the longer term and recent underperformance is acceptable, if long term performance history is competitive and the investment process remains unchanged

Terms and Conditions

– Asset minimums and fees that are acceptable




Ratings Explanation Below we describe the criteria which we use to rate fund management organizations and their specific investment products. With the exception of Operational Due Diligence ("ODD"), each component is assessed as follows:

Qualitative Outcome

1 = Weak

2 = Average

3 = Above Average

4 = Strong

The ODD factor can be assigned a Pass, Conditional Pass, or Fail rating and can be interpreted as follows:

Pass – Our research indicates that the manager has acceptable operational controls and procedures in place.

Conditional Pass – We have specific concerns that the manager needs to address within a reasonable established timeframe.

Fail – Our research indicates that the manager has critical operational weaknesses and we recommend that clients formally review the appointment.

The overall rating can be interpreted as follows:

Overall Rating What does this mean?

Buy We recommend clients invest with or maintain their existing allocation to our Buy rated high conviction products

Buy (Closed) We recommend clients invest with or maintain their existing allocation to our Buy rated high conviction products, however it is closed to new investors

Qualified A number of criteria have been met and we consider the investment manager to be qualified to manage client assets Sell We recommend termination of client investments in this product In Review The rating is under review as we evaluate factors that may cause us to change the current rating The comments and assertions reflect our views of the specific investment product and our opinion of its quality.




Disclaimer

This document has been produced by the Global Investment Management Team of Aon plc. Nothing in this document should be treated as an authoritative statement of the law on any particular aspect or in any specific case. It should not be taken as financial advice and action should not be taken as a result of this document alone. Consultants will be pleased to answer questions on its contents but cannot give individual financial advice. Individuals are recommended to seek independent financial advice in respect of their own personal circumstances.

Aon plc 8 Devonshire Square London EC2M 4PL

Copyright © 2015 Aon plc


Pension Plan Management and Administrative Fees Incurred in 20151

with 4 prior years of comparative information

Expense Category

2015

('000s)

2014

('000s)

2013

('000s)

2012

('000s)

2011

('000s)

Investment Management Fees 2

TD Asset Management 494 239 149 179 169Highstreet 0 0 0 0 141McLean Budden Ltd. 0 0 0 -10 333Oldfield 881 770 647 561 158Trilogy Global Advisors 857 730 635 504 460Walter Scott and Partners Ltd. 1342 1168 1050 883 856Sionna Investment Managers 178 179 154 62 0

Total Investment Management Fees $3,752 $3,086 $2,635 $2,179 $2,117

Custodian Fees 216 214 203 181 181Hewitt - all fees 262 243 314 337 200Administration Fees 433 498 330 220 385Ernst & Young - Audit Fees 18 20 18 17 16

Total Pre-Tax Management and Administrative Fees $4,681 $4,061 $3,500 $2,934 $2,899

HST 3 490 533 436 201 302

Total Management and Administrative Fees 4$5,171 $4,594 $3,936 $3,135 $3,201

1 Amounts from the audited annual financial statements2 Highstreet terminated June 2011, McLean Budden terminated December 2011, Sionna added May 2012, TDAM US Treasuries added March 2014 Short Term bond mandate added December 20143 UW recovers HST paid by the pension fund where possible through HST rebates4 This total exceeds the total management and administrative expenses in the financial statements

by the amount of Oldfield fees noted above. The Oldfield fees are deducted directly from the investment pool and this presentation (netting against investment income) is followed in the financial statements

PB 19 May 2016, page 93 of 93

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