Framework - July 2000

The principles underlying this reform, and the amendments, reflect the particular circumstances of the surplus situation as at January 1, 1999 and the resulting requirements for funding of the Plan according to the current law. It is understood that these principles and amendments apply only to this reform and are not precedents for future amendments or the management of the Plan.

In recognition of the surplus funds available under the Pension Plan for the members of the Plan of the University of Ottawa as at January 1, 1999, it is hereby moved that the Pension Plan and the administration of the Pension Plan be amended to incorporate the changes outlined in the present document, which amendments shall take effect from the date of finalization of the following:

1. The details surrounding the implementation have been finalized and agreed to by the Pension Plan Committee and the Employer.

2. The opinion has been received the Canada Customs and Revenue Agency that the Member’s Allocation, form of payment and method of reduction in employee contribution is acceptable and does not create any adverse tax implications on the Members or the Employer.

3. Agreement has been reached between the Employer and the APUO as to the application of Appendix F under the Collective Agreement between the University and the APUO with respect to the Employer’s use of the Unallocated Reserve.

This section of the report is intended to briefly summarize the information contained in the balance of this report on the recommendations for Pension Plan Reform from the Administrative Committee and the Pension Plan Committee of the University of Ottawa. For a complete understanding of the recommendations, the balance of the report should be reviewed.

These assumptions have been revised to better reflect current inflationary conditions, slightly reduced salary growth expectations and a strengthened Mortality Table. Ongoing costs are set at moderately higher interest assumptions.

(a) Past Service benefits are to be based on a frozen average YMPE ($31,790) rather than increasing with the YMPE, resulting in more salary being covered for a 2% rather than 1.3% benefit, i.e. 1.3% to $31,790 and 2.0% on salary above $31,790.

(b) A supplemental plan is to be introduced to cover benefits above the Canada Customs and Revenue Agency maximum to a new maximum indexed from the 1997 limit of $1,722.22 of annual pension – new limit in year 2000 is $1,809, or $86.78 of annual pension per year of service from the supplemental plan.

Members will be granted cash allocations from surplus equal to 30% of their contributions plus interest to December 31, 1998 (reduced for retirees to reflect, in part, pensions paid from retirement). Retirees will also receive an increase in their total to approximately $34.3 million (approximately $11 million extra) to offset contribution holidays received by employees since 1997, of which $5 million was paid to retirees in 1999. Total cash allocation is approximately $71 million (to be refined once final calculations of contributions plus interest are determined). The 30% payment plus interest to the date of payment will vest in three units of 10% at each of January 1, 1999, 2002 and 2004, assuming surplus reserves of 6% of liabilities remain after vesting of all allocations at each date. Amounts reflecting contributions made prior to 1991 will be available for roll-over to RRSP’s or RRIF’s. The additional payment to retirees ($11 million less $5 million paid to date) vests immediately.

A reserve of $73.7 million will be established to cover employer costs under the Basic Plan up to 8.5% of payroll. 50% of the amount will vest January 1, 1999, two-thirds of the balance plus interest on January 1, 2002 and the balance on January 1, 2004, assuming surplus reserves of 6% of liabilities remain after vesting of allocations at each date.

(a) Basic Plan: The future service formula will be the same as for past service benefits.

(b) Supplemental Plan: The future service formula will be the same as the Basic Plan and will pay those amounts less benefits paid from the Basic Plan up to salaries equal to 120% of the maximum salary paid to professors.

A reserve will be established to cover employer costs above 8.5% of payroll for 10 years, of which the supplemental portion will vest for 3 years at January 1, 1999, 2 years at January 1, 2002 and the balance at January 1, 2004 according to the vesting schedule.

Should the reserve be eliminated and no agreement be reached to adjust employees’ contribution, compensation or benefits within 6 months of the reserve being eliminated to offset employer costs above 8.5% of payroll, the Plan will be changed to a defined contribution plan. No supplemental plan benefits accrue during any period in which there is no reserve fund.

Employee contribution rates will be set at 4.25% to $31,790 of salary and 6.55% of excess salary. However, these rates will be decreased by 10% on each of January 1, 1999, 2002 and 2004 in order to permit pre-1991 employee cash allocations to be tax-sheltered. These reductions or partial reductions will only occur if there is surplus of 6% of liabilities remaining at the date full or partial vesting of the allocations occurs. No new contribution rates will take effect until these recommendations are accepted.

A reserve will be established to cover the reductions for 10 years from the dates of reduction noted above. This reserve will be reduced by $5 million to cover, in part, the cost of the full employee contribution holiday taken from January 1, 1999.

Should the reserve to cover the reductions be eliminated and Canada Customs and Revenue Agency not permit an increase in employee contribution back to 4.25% and 6.55%, and no other offsetting changes be made to compensation or benefits within 6 months of Canada Customs and Revenue Agency’s denial, the Plan will be changed to a Defined Contribution Plan.

All Plan changes that vest at January 1, 1999, 2002 or 2004 require that there remain a 6% surplus reserve, as compared to liabilities, after vesting of the amounts or a partial vesting will occur (if only a partial payment can be made before reducing surplus reserves to 6%). If amounts are not vested at January 1, 2004, then vesting can occur up to January 1, 2006 if the 6% surplus reserve is maintained after some or all other non-vested payments are made. After that date, no further vesting will occur. The reserve for employer costs above 8.5% for the Supplemental Plan will vest if there is sufficient surplus available regardless of the 6% requirement.

Benefits for service to December 31, 1998 for all Plan Members who were actively accruing benefits under the Plan during 1998 shall be increased as required to reflect the following formula. All definitions will remain unchanged from the current Plan text unless revised below:

Ø 1.3% x 85% x Average YMPE (not to exceed $31,790) + 2.0% (Average Salary - 85% x Average YMPE (not to exceed $31,790)) subject to a minimum pension of 1.5% of average salary.

Ø Maximum benefits to be equal to $1,722.22 indexed at the rate of increase of the YMPE under the CPP from 1997 where such maximum after increase to the year 2000 is $1,809.

Ø Benefits in excess of the Revenue Canada maximum to be provided by a Supplemental Plan, with such benefits to be indexed on an ad hoc basis only with automatic indexing to occur only when the 1 percentage point reduction of indexation under the Basic Plan is provided on an automatic basis, with the cost of such indexation to be from surplus funds.

Ø An allocation to be made from the surplus to fund such past service benefits.

There will be an allocation of surplus funds as at 1-1-99 to all Plan Members who were Plan Members in 1998 to be administered as described below:

Ø Member allocations will be based on 30% of the total estimated amount of (1) Active Member contributions plus interest, as used for purposes of the annual Plan Member Statements and (2) estimated remaining Member contributions for retired and deferred/vested Members, as at December 31, 1998 and which total allocation has been estimated to total $60.1 million at December 31, 1998 and which estimated amount to be distributed as follows:

	Estimated
Active Members Pensioners Deferred/Vested	$34.8 million $23.1 million $ 2.2 million

Ø Pensioners will be provided with such additional allocation as necessary to produce a total allocation of $34.3 million to recognize additional contribution holidays provided to active Plan Members from 1997 to August 31, 2000. Such additional allocation will only be paid as a lump sum. Any lump sum payment, such as the $5 million paid in 1999, made to the Pensioner group prior to the implementation of the Plan changes described in this set of recommendations shall be deducted from the $34.3 million total allocation to Pensioners.

Ø Individual Member allocations to be based on member contributions plus interest, as used for purposes of the annual Plan Member Statements, or such estimate thereof as required.

1. One-third of the total allocation of 30% of adjusted contributions (adjusted to reflect, in part, pensions paid from retirement) as at December 31, 1998 to vest on each of January 1, 1999; January 1, 2002; January 1, 2004. Such amounts shall vest in accordance with the procedures outlined under the vesting conditions described in Section 9.

2. For pensioners, such amounts payable based on the amount owing in excess of 30% of adjusted contributions plus interest, shall be paid as at the time of the payment of the first installment noted under #1 above. In addition, there shall be paid to individual pensioners at the time of the first installment, from the total allocation made to pensioners, such amount as necessary to increase their first payment to the lesser of (i) $5,000, or (ii) such minimum amount which additional amounts in total do not exceed $2,000,000. In no event, however, will such minimum payment be greater than the full amount owing to the pensioner from the total allocation.

1. That portion of the allocation which is based on contributions made prior to 1991 plus interest to the date of allocation, as used for purposes of the annual Plan Member Statements or as estimated where not available will be paid in cash or transferred to another tax sheltered retirement vehicle as elected by the Member.

2. That portion of the allocation which is based on contributions plus interest, as used for purposes of the annual Plan Member Statements or as estimated where not available, made after 1990 and the portion of the additional allocation to the pensioner group paid to the Pensioner shall be paid to the Member in a single lump sum at the time of the allocation and shall not be available for transfer to another tax sheltered retirement vehicle.

Ø Member allocations will be credited with the fund rate of return from the date of allocation to date of payment based on the return on the value of the assets used for purposes of the actuarial valuation of the Plan.

There will be an unallocated reserve established from surplus funds at 1-1-99 in the amount of $73.7 million dollars which will be available to cover the Employer's future service contributions under the Plan and which amount will vest 50% at January 1, 1999, 2/3 of the balance plus interest at January 1, 2002 and the remainder plus interest at January 1, 2004. The reserve will operate as follows:

Ø This reserve will be used to cover the Employer’s annual normal cost to the Basic Plan up to 8.5% of payroll in each year if sufficient funds are available in the Unallocated Reserve noted above to cover this amount.

Ø The Unallocated Reserve will be credited with the fund rate of return from the effective date of the Member's allocation, based on the return on the value of the assets used for purposes of the actuarial valuation of the Plan, and will be available to cover the Employer's required contribution to the Basic Plan, up to 8.5% of payroll, until this amount has been fully utilized.

Ø Any payments to fund the Supplemental Plan or pay benefits under the Supplemental Plan, shall be credited to the Employer to be applied against that portion of its required contribution to the Plan, up to 8.5% of payroll, with such credit being in addition to the amount remaining in the Unallocated Reserve.

Benefits for service earned from January 1, 1999 shall be based on the following formula with all Plan text definitions as in the current Plan, unless changed as noted below.

Ø 1.3% x 85% x Average YMPE (not to exceed $31,790) + 2.0% (Average Salary - 85% x Average YMPE (not to exceed $31,790)) subject to a minimum pension of 1.5% of average salary.

Ø The maximum salary to be recorded each year for the purpose of the calculation of the Average Salary shall be the maximum salary for professors plus 20%.

Ø An initial reserve will be established from surplus funds to cover employer costs to the Basic and Supplemental Plans (with the reserve for the Supplemental Plan vesting as noted in Section 9) in excess of 8.5% of payroll for a 10 year period.

Ø Funding of future service Supplemental Plan benefits, other than by member contributions, shall be from surplus funds. A fund will be established to hold surplus funds transferred from the Basic Plan to the Supplemental Plan by way of a reduction in employer contributions to the Basic Plan, with an equal offsetting contribution to the Supplemental Plan. The liability for Supplemental benefits accrued will remain a general liability of the University if there are insufficient funds in the Supplemental Fund to pay such accrued benefits. Further, an advance opinion will be obtained from the Canada Customs and Revenue Agency as to whether this fund constitutes an RCA and if so, no such fund will be established but all accrued benefits under the Supplemental Plan will remain a general liability of the University.

Ø If surplus funds are not available in any future year from the reserve established, future service Supplemental Plan benefits for those years will not be funded until the reserve is replenished, with such decision to add funds to be left to the discretion of those entitled to make such decisions in the future. Should supplemental benefits for any future year not be funded for an employee at the time of retirement, there shall be a return of this employee's contribution on that portion of salary in excess of the salary covered under the Basic Plan, plus the fund rate of return to the date of retirement based on the return on the value of the assets used for purposes of the actuarial valuation of the Plan.

Ø The Employer will fund the cost of any Basic Plan pension benefits in excess of 8.5% of payroll, should there be no funds in the surplus reserve established for this purpose, for a maximum of 6 months after the date on which there are no further such funds. At the end of the 6 months, should there be no additional funds available for the reserve as agreed to at that time, the Plan will be converted into a defined contribution plan, unless during such 6 month period there be an agreement reached by the Employer and the majority of each class of contributing Plan Members, to some other form of adjustment to employees’ contributions, compensation or benefits which permits the Basic Plan to continue without change.

Ø The Employer will fund any deficits in the fund in respect of the Basic Plan should such deficit funding be required by Government legislation. Such deficit funding will be immediately returned to the Employer, plus the fund rate of return based on the value of the assets used for purposes of the actuarial valuation of the Plan from the first next available surplus funds.

Ø Employees will contribute 4.25% of salary up to the lesser of their salary or $31,790 and 6.55% on their salary over $31,790 in each year. However, effective at each of January1, 1999, January 1, 2002 and January 1, 2004, the contribution rate will be reduced by 10%, assuming that at each such date the vesting conditions as described in Section 9 have been met.

Ø A Reserve will be established to cover the estimated cost of the difference in the employee contributions between 4.25% and 6.55% for a 15 year period with such reserve to be replenished where feasible and as agreed to by the parties eligible to make such decisions at a later date to extend such period of reduced contribution for future years. Such reserve shall be reduced by $5 million to offset in part the full employee contribution holiday taken from January 1, 1999 to the date the new contribution formula goes into effect. The portion of the reserve required to fund 10 years of new reduction at January 1, 2002 and 2004 (less the $5 million offset) shall be vested in accordance with the vesting conditions noted in Section 9.

Ø Employees will be entitled to the full contribution holiday taken until the effective date of the commencement of the new contribution rate, with the funding of such holiday to come from the $5 million noted above plus available free surplus.

Ø The new contribution rate for employees will be on salaries up to the salary in the year which produces a benefit equal to the then existing Canada Customs and Revenue Agency maximum. On the portion of salaries above this amount, up to the maximum salary of a professor for the year plus 20%, contributions will continue at 4.25% and 6.55%.

Ø Within 90 days of the date at which it is estimated that there will be no further surplus reserve to cover the difference between a 4.25% and 6.55% contribution rate and the reduced contribution rate, an amendment will be filed with Canada Customs and Revenue Agency to increase the employee contribution rate to 4.25% and 6.55% contribution rate effective as at the date of the elimination of the reserve noted above.

Ø In the event that Canada Customs and Revenue Agency does not permit the increase in the Member contribution rate to 4.25% / 6.55%, then following 6 months from the date Canada Customs and Revenue Agency rejects the increase in the Member contribution rate, the Plan will be converted to a defined contribution plan unless during such 6 month period there be an agreement reached by the Employer and the majority of each class of contributing Plan Members, to some other form of adjustment to compensation or benefits which permits the Basic Plan to continue without change.

There are a number of reserves to be established and benefit contribution changes that will occur as at January 1, 2002 and January 1, 2004 (hereinafter referred to as adjustments). These adjustments will only occur if after the vesting of these adjustments, the balance of surplus (hereinafter referred to as Full Reserve), which has not vested for any adjustment is, as a percentage of Plan liabilities and vested adjustments, at least 6% or greater (hereinafter referred to as the Surplus Ratio). These adjustments comprise: Employee contribution reduction reserve, reserve for employer supplemental costs above 8.5%, member allocation, and unallocated reserve.

Should the Surplus Ratio noted above be less than 6% after the vesting of adjustments at either January 1, 2002 or January 1, 2004, then the adjustments will either not vest, if the Surplus Ratio is 6% or less before vesting, or vest in part such that after the partial vesting, the Surplus Ratio is 6%. The adjustments shall all partially vest in equal proportions, e.g. if the surplus available only permits 50% of vesting of the full value of the amounts then due to vest, then each adjustment will vest at 50% of its amount.

Should there be some amounts not vesting at January 1, 2002, they will be carried forward to January 1, 2004 and form part of the total amounts vesting at that date subject to the continued requirement of a 6% Surplus Ratio.

Should there be amounts not vested at January 1, 2004, they will be carried forward to January 1, 2005 and, if necessary, to January 1, 2006 and will vest in part or full at the earlier of these two dates should a 6% Surplus Ratio be available at these dates after the then remaining amounts are partially or fully vested. Should there be amounts not vested after January 1, 2006, then no further vesting shall occur.

Notwithstanding the above, the Reserve for Employer Supplemental costs above 8.5% will vest as noted above, except that the 6% Surplus Ratio will not apply and vesting will occur if there is sufficient unvested surplus amounts to cover the amount being vested for this reserve at each vesting date.

As at January 1, 2000, the Full Reserve, after application of surplus to cover amounts vested as at that date, is as follows:

Note: In effect, as at January 1, 2000 there is $113,341,400 of actuarial surplus in the Plan which has not been vested in Plan adjustments and remains as a surplus to offset adverse experience.

SECTION 10 – PRESENT VALUE OF SURPLUS UTILIZATION
AS AT JANUARY 1, 2000
IF ALL ADJUSTMENTS VEST BY YEAR 2004 / 2006

* Of this total utilization of $216,233,500, only $122,069,300 vests as at January 1, 2000. The balance vest at January 1, 2002 and January 1, 2004, assuming that there is always a 6% surplus margin in the Plan and, if not, vesting can occur as late as January 1, 2006 if the 6% surplus margin re-emerges by that date.