annual report2013 2013.pdf · and portfolio managers employer members. 2 first nations public...

2013ANNUAL REPORT

AdAptinG to neW reAlitieS to enSure the SuStAinAbility oF your plAn

This annual report describes the new realities facing us and action taken "to ensure the sustainability of your plan”, the primary topic of our 2010-2014 strategic planning.

These new realities are having an impact on us. We must continue to comply with the requirements of regulatory authorities governing our Plan and follow market changes.

It is a great pleasure to present this informative document to you.

FNPSPP | aNNual rePort 2013 1

table oF coNteNtS

2

4

6

3410

3512

13

20

first nations public security pension plan (fnpspp)

our roots – coMMittee MeMbers

HiGHliGHts in 2013

MessaGe froM tHe presiDent of tHe retireMent coMMittee anD tHe General ManaGer

actuarial Valuation: capitaliZation anD solVency reVieW

returns on inVestMents

financial stateMents of tHe funD

21 inDepenDent auDitor’s report

23 stateMent of net assets aVailable for benefits of tHe funD

24 stateMent of cHanGes in net assets aVailable for benefits of tHe funD

25 notes to financial stateMents

Main external aDVisers anD portfolio ManaGers

eMployer MeMbers

2 FirSt NatioNS Public Security PeNSioN PlaN (FNPSPP)

FirSt NatioNS Public Security PeNSioN PlaN (FNPSPP)The FNPSPP is a defined benefits plan registered with the Office of the Superintendant of Financial Institutions (No. 55864) and the Canada Revenue Agency (0415984). It meets the requirements of the federal Pension Benefits Standards Act and the Income Tax Act.

The FNPSPP is intended specifically for employees, such as police officers, firemen and security agents working in fields deemed more at risk. The Plan provides these employees with fringe benefits equivalent to those prevalent on the market for these types of jobs.

The Retirement Committee of the FNPSPP serves as the Board of Directors and also acts as the administrator and trustee of the pension fund. The Retirement Committee is made up of seven members, three of whom are elected by and from among employees, employers and retirees.

The Plan organizes an annual general assembly during which the year’s objectives and their level of achievement are presented, in addition to financial statements, the annual report and all decisions ratified by the Retirement Committee during the fiscal year. Each member also receives their yearly, personalized statement.

As at Decembre 31, 2013, the FNPSPP had 13 employer and 198 members. The FNPSPP benefits from the advantages and pension fund performance of the NBP established 35 years ago.

rbagroupefinancier.com

MiSSioNThe First Nations Public Security Pension Plan was established to offer Aboriginal employers and their employees working in public security an equitable pension plan adapted to their needs through an organization belonging to them.


The plans were established by visionary and avant-garde individuals — builders who were able to see beyond the present and develop what has become one of the most important Aboriginal pension funds in Canada. In 1979, the creation of the NBP and the FNPSPP were instrumental in initial initiatives taken by the First Nations towards autonomy and decision making. During this era, the establishment of pension plans belonging to First Nations served to contribute to the financial independence of communities and ensure maximum economic benefits.

Over the years, our organizations have adapted to demand by presenting products and services in response to the changing needs of our clientele in terms of employee benefits and insurance coverage.

Today, the RBA and the FNPSPP represent 93 employers. There are some 5,000 members and 779 retirees. Assets under management total $500 million.

On behalf of the retirement committees and management, we are committed to continuing to make every effort to ensure the sound management of our members’ funds and offer them services that meet their expectations.

We take this opportunity to thank the members who have trusted us for 35 years!

This year, the Native Benefits Plan (NBP) and the First Nations Public Security Pension Plan (FNPSPP) are celebrating their 35th anniversary!

4 our rootS – coMMittee MeMberS

MeMbers of the retireMent CoMMittee

Floyd McBride President

Éric Cloutier Vice-president

Angèle Petiquay Director

David Kistabish Director (Since August 2013)

Jean-Marie Gagnon, Ph.D. Director

Johanne Castonguay Director

Régis Flamand Director

MeMbers of the investMent CoMMittee

Norm Odjick President, NBP representative

Ricky Fontaine President, NBP representative (End of term August 2013)

Claude Dalphond, cfa Expert Consultant

Éric Cloutier FNPSPP Representative (Since August 2013)

Jean-Marie Gagnon, Ph.D. Membre expert consultatif

Johanne Castonguay NBP Representative

Michel Toupin Expert advisory Member

Pierre Parent, CFA,FSA,FICA External Consultant, Assets (non-voting member)

Roger Chiniara, cfa Expert Consultant Member

Sylvain Picard, CPA, CA, CGA, ASC. Adm.A. Investment Committee Secretary (non-voting member)

Valérie Tremblay NBP Representative (Since August 2013)

AttendAnCeMeetinGs anD conference calls HelD by tHe retireMent coMMittee in 2013

floyd Mcbride 6 in 6

Éric Cloutier 6 in 6

Angèle Petiquay 6 in 6

david Kistabish (Since August 2013) 2 in 4

Jean-Marie Gagnon 5 in 6

Johanne Castonguay 6 in 6

régis flamand 6 in 6

AttendAnCeMeetinGs anD conference calls HelD by tHe inVestMent coMMittee in 2013

norm odjick 4 in 8

ricky fontaine (End of term August 2013) 2 in 4

Claude dalphond 8 in 8

Éric Cloutier (Since August 2013) 1 in 4


Johanne Castonguay 7 in 8

Michel toupin 8 in 8

Pierre Parent 7 in 8

roger Chiniara 6 in 8

sylvain Picard 8 in 8

valérie tremblay (Since August 2013) 2 in 4

our rootS – coMMittee MeMberSCommittee members are elected by and from among employer and employee representatives and retirees. They participate in the achievement of goals established under the aegis of the 2010-2014 strategic planning for the FNPSPP. “Ensuring the permanence of your Plan” was a priority issue in 2013


our rootS – coMMittee MeMberS (coNtiNued)

AttendAnCeMeetinGs anD conference calls HelD by tHe auDit anD risk ManaGeMent coMMittee in 2013

norm odjick (End of term August 2013) 1 in 1

Johanne Castonguay (Since August 2013) 1 in 1

david Kistabish (Since August 2013) 1 in 1


Michel toupin 1 in 2

AttendAnCeMeetinGs anD conference calls HelD by tHe HuMan resources coMMittee in 2013

Jinny thibodeau 4 in 4

Angèle Petiquay (Since August 2013) 1 in 1

Johanne Castonguay (End of term August 2013) 3 in 3

sophie Picard 4 in 4

MeMber of the Audit And risK MAnAGeMent CoMMittee

Norm Odjick President (End of term August 2013)

Johanne Castonguay President (Since August 2013)

David Kistabish Member (Since August 2013)

Jean-Marie Gagnon Member

Michel Toupin Member

MeMber of the huMAn resourCes CoMMittee

Jinny Thibodeau President

Angèle Petiquay Member (Since August 2013)

Johanne Castonguay Member (End of term August 2013)

Sophie Picard Member

The “General profile for members of the FNPSPP Retirement Committee” was established in 2010 to provide guidelines for individuals interested in presenting their candidacy for a position on the Retirement Committee. The profile describes the qualities, skills and expertise sought. It served as a reference prior to the elections held in August 2013 to fill vacant seats.

HigHligHtS iN 2013

$1,405,591AnnuAl Contributions

by eMPloyees And eMPloyers in 2013

198 members105 ACtive MeMbers

55 deferred MeMbers

38 retirees

ACCePtAnCe by the osfi of the

AMendMents reduCinG

benefits MAde to the PlAn in 2010 And 2012

6 HigHligHtS iN 2013

$598,950benefits PAid to retirees in 2013

ChAnGes in net Assets

15.1%

evolution of net Assets

$3,275,890

Portfolio PerforMAnCe

14.6%


Portfolio PerforMAnCe

In 2013, pension funds in Canada experienced excep-tional growth in terms of assets under management (investments). The First Nations Public Security Pension Plan recorded a return of 14.6% compared to its target of 11.3%, generating an appreciable 3.3% in added value: in dollars, a little over $733,000.

Given the evolution of our pension plan, in 2013 the Retirement Committee decided to amend the investment policy based on the increasing number of members and retirees. This is referred to as a liability-directed investment approach.

finAnCiAl heAlth

In 2013, Canada’s economy is characterized by a slight increase in interest rates that had a beneficial effect on our pension plan’s liabilities, allowing a significant improvement of the financial health of our pension plan in terms of capitalization and solvency.

Another important fact is certainly the acceptance, by the Office of the Superintendant of Financial Institutions (OSFI), of the amendments reducing benefits made to the plan in 2010 and 2012. These were absolutely necessary to the sustainability of the pension plan. Following careful analysis, the OSFI gave their consent in June 2014.

HigHligHtS iN 2013 (coNtiNued)

cHanGes in net assetsFor fiscal years ended December 31 (in millions of Canadian dollars)

finAnCiAl results

eVolution of net assetsFor fiscal years ended December 31 (in Canadian dollars)

8 HigHligHtS iN 2013

perioD increasenet cuMulatiVe

assets

2013 3,275,890 24,907,046

2012 2,244,993 21,631,156

2011 480,582 19,386,163

2010 1,384,450 18,905,581

2009 2,410,349 17,521,131

2013Cumulative Variation

0

4

8

12

16

-2

20

24

20122009 2010 2011 2013

HigHligHtS iN 2013 (coNtiNued)


annual contributions by MeMbersEmployees / employers / Total – As at December 31 (in Canadian dollars)

perioD eMployees eMployers totals

2013 364,904 1,040,687 1,405,591

2012 409,790 1,130,423 1,540,213

2011 360,611 1 032,101 1,392,712

2010 321,178 618,749* 939,927

2009 300,844 908,064 1,208,908

benefits paiD to retirees As at December 31 (In Canadian dollars)

perioDbenefits

paiDretirees

2013 598,950 38

2012 547,283 33

2011 530,107 33

2010 456,068 32

2009 367,179 28

* Does not include any amount for solvency

10 MeSSage FroM tHe PreSideNt oF tHe retireMeNt coMMittee aNd tHe geNeral MaNager

Dear Readers,We have the great privilege of presenting to you the results of your pension plan, the First Nations Public Security Pension Plan), for fiscal year ended December 31, 2013.

As you will note upon reading this report, 2013 was a stellar year from almost every standpoint. As indicated to you in recent years, basically three things were required to restore the financial situation of your pension plan.

The first item was unquestionably the acceptance of our amendments reducing benefits implemented in 2010 and 2012, approved finally by the Office of the Superintendant of Financial Institutions (OSFI) in June 2014. It was crucial that these amendments be accepted in their entirety, because they alone were instrumental in a strong financial recovery.

The second item concerned changes in 2013 to the short- and long-term interest rates that increased by 60 base points (2.4% to 3.0%) and 100 base points (3.6% to 4.6%), respectively, resulting in a singular decrease in our pension plan’s liabilities.

The last important item concerned the returns on our investments based on the investment policy developed specifically to address the needs and realities of the First Nations Public Security Pension Plan. As you are undoubtedly aware, 2013 was an outstanding year for investments in equity − and in global equities in particular − recording a return of nearly 33.0% for the year. This allowed us to achieve a return of 14.6% on our 2013 portfolio, providing an added value of 3.3% over and above our policy target. This added valued alone represents some $733,000 for the FNPSPP pension fund.

Floyd McBride President

MeSSage FroM tHe PreSideNt oF tHe retireMeNt coMMittee aNd tHe geNeral MaNager


All of the above, combined with sound management of your fund, had a significant impact on the recovery of the financial health of the FNPSPP. Indeed, we can affirm that on the basis of a hypothetical wind-up, we have achieved a rate of 100.0%. However, our average solvency rate (3 years) is 92.9%.

Despite this, it is important to remain humble faced with such results that could swing from one direction to the next, depending on interest rate changes and the returns on our investments.

One thing is sure: our current position removes any doubt as to the necessity of having taken concrete action in 2010 and 2012 in the form of amendments reducing benefits and increased contributions.

New economic and social realities will require that we, as Plan administrators, remain ever vigilant and sensitive to the needs of our members in order to ensure proper governance of the Plan.

Please rest assured that the members of your Retirement Committee and all the employees and professionals involved in the sound management of the Plan are aware of the role and responsibilities inherent in such a task. For this reason, we wish to thank them warmly for their availability and great devotion to our cause. We would also like to thank you, esteemed members, for having agreed to the necessary measures when they were required, and for your trust.

Sylvain Picard, CPA, CA, CGA, ASC, Adm.A.

NBP General Manager

actuarial ValuatioN: caPitaliZatioN aNd SolVeNcy reVieWThe financial soundness of a defined benefits plan such as the FNPSPP is measured primarily in two different ways:

CAPitAliZAtion revieW

The evaluation on the basis of capitalization serves to assess the financial situation of the Plan at the time of evaluation based on the premise that the Plan will continue to exist indefinitely. A rate exceeding or equal 100% demonstrates sufficient financing on the long term. If the rate is under 100, action must be taken to correct the situation.

solvenCy revieW

The evaluation on the basis of solvency serves to assess the financial situation of the Plan at a given date, based on the premise that the Plan will be terminated on this date. Using hypotheses prescribed by law, tha aim is to determine the capacity of the Plan to fulfil its obligations on its members on the evaluation date. A rate exceeding 100% demonstrates sufficient financing on the evaluation date. If the rate is under 100%, action must be taken to correct the situation. Please note that solvency improves only on the basis of a hypothetical wind-up.

136%142%

130%

87%

95% 100% 100%115%

95% 100%

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

88%

95%91% 98%93%

105% 101%92% 94%98%

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

12 actuarial ValuatioN: caPitaliZatioN aNd SolVeNcy reVieW

returNS oN iNVeStMeNtSThe year 2013 saw strong returns on the global stock markets and higher interest rates, creating an environment very favorable to the financial health of pension plans.

In 2013, Master Trust Fund investments, consisting of the Native Benefits Plan (NBP) and the First Nations Public Security Pension Plan (FNPSPP) pension funds, rose 14.6%, an excellent performance that exceeded their benchmark by 3.3%.

In addition, the total assets of the NBP Master Trust Plan cleared the $500M mark in assets under management, which includes $24.1M in assets for the FNPSPP, making it one of Quebec’s larger pension plans.

The following graph shows the trends of the major financial indices in 2013. The stock markets closed the year in positive territory, unlike the bond market that achieved negative returns.


-10%

0%

10%

20%

30%

40%

35.4%

32.4%

13.0%

4.1%

-1.2%

-6.2%

MSCI World CAD$ (Global equities)

MSCI Emerging Markets CAD$ (Emerging market equities)

FTSE TXM Canada Long Term (Canadian bonds)

S&P 500 USD$ (US equities)FTSE TXM Canada Universe (Canadian bonds)

S&P/TSX Composite (Canadian equities)

OptimumTD Asset

Management TOTAL

-1%

-0.5%

-1.5%

0

0.5%

-0.6%

-0.2%-0.3%

-1.2% -1.2% -1.2%

Return

Benchmark

PerforMAnCe of investMents by Asset ClAss

canaDian bonDs

Interest rates rose in 2013, mainly during the first semester. This meant that bonds generated negative absolute returns in 2013.

The Canadian bond portfolio posted a return of -0.32% and added 0.88% against the Index. Managers of bond portfolios outperformed their 2013 benchmark (see Graph 1). With assets close to $170M, this class represents 37% of the Master Trust Fund assets.

1 CAnAdiAn stoCK MArKets PerforMAnCe in 2013

returNS oN iNVeStMeNtS (coNtiNued)

14 returNS oN iNVeStMeNtS

Return

Benchmark

Fiera Capital Letko Brosseau Triasima0%

10%

20%

30%

40%

16.3%13.0%

25.1%28.3%

23.1%

13.0% 13.0% 1.3.0%

TOTAL

canaDian anD foreiGn stock Markets

Stock markets had an excellent year in 2013 and produced strong returns, particularly the U.S. market with a return of 32.4% in U.S. dollars.

The 13.0% performance of Canadian stocks was more modest, lower than other countries because it was strongly affected by the Materials sector that tumbled -29.0% in 2013.

The portfolio of Canadian equities achieved an overall return of 23.1%, a 10.1% value added in comparison with the S&P/TSX benchmark. Canadian equities are managed by three managers, all of which performed well in 2013, mainly due to their underweighting of the Materials sector (see Graph 2).

2 CAnAdiAn bond PerforMAnCe in 2013

The global equity portfolio, mainly consisting of U.S., European and Asian equities, gained 32.6% in Canadian dollars, down 2.8% in value against the MSCI World benchmark. In 2013, most currencies appreciated relative to the Canadian dollar, adding to the returns converted in Canadian dollars (positive impact of 5.1% for MSCI World in Canadian dollars versus local currencies).



Hexavest Sprucegrove TOTAL0%

10%

20%

30%

40%

50%

32.6%35.4%

32.6%35.4%

32.6%35.4%

Return

Benchmark

Global equities are managed by two managers who take a more defensive investment approach. They focus more on protecting capital in bear markets. In bull markets, they generally post more modest returns than the market. As a result, the performance of their portfolios was lower than their benchmark (see Graph 3).

3 PerforMAnCes of GlobAl lArGe CAP eQuity funds for 2013

Emerging market equities did not perform as well as developed market equities in 2013. The emerging equity fund was managed by just one manager (Wellington) who produced an 8.0% return, 2.6% lower than the MSCI Emerging Markets benchmark.

As of December 31, 2013, equities represented 48.3% of the Master Trust Fund divided as 21.5% Canadian equities, 23.8% in global equities and 3.0% in emerging market equities. The market value of the equity portfolios was close to $272M in late 2013.



Bentall Kennedy Manuvie TOTAL0%

5%

10%

15%

20%

7.9%

5.1%

7.1%

5.1%

7.2%

5.1%

Return

Benchmark

canaDian Direct real estate anD infrastructure inVestMents

The Canadian real estate fund produced a return in line with expectations, up 7.2% for a value added of 2.1% over its benchmark, the increase in CPI + 4%.

The real estate fund has two managers whose performance exceeded their benchmark (see Graph 4).

4 PerforMAnCe of reAl estAte investMents for 2013

Infrastructure investments managed by SteelRiver produced a 12.1% return and 6.0% value added over the benchmark, the increase in CPI + 5%.

Real estate and infrastructure exposure represented respectively 9.75% and 5.0% of the Master Trust Fund as of December 31, 2013, with a combined market value of $60M.




MAster trust fund returns

year 1 year 4 YEARS 10 years

2013 14.6% 8.1% 6.2%

2012 7.7% 9.0% 6.3%

2011 1.6% 2.1% 4.7%

2010 9.1% 1.8% 4.8%

2009 18.3% 2.8% 5.1%

2008 -17.1% 0.9% 4.9%

2007 0.6% 8.0% 7.7%

2006 13.4% 11.8% 8.7%

2005 9.4% 6.4% 8.9%

2004 9.0% 4.5% 9.5%

2003 15.4% 5.5% 8.9%

2002 -6.8% 5.6% 8.7%

The following table shows the average annual returns of the Master Trust Fund for various periods.

evolution of the investMent PoliCy And WorK by the Pension PlAn CoMMittees And investMent CoMMittee

In the past two years, members of the Pension Plan Committees and the Investment Committee have done much work to manage investment risks while taking into account the liabilities of the underlying pension plans, which is commonly known as a liability-driven investment framework. The investment approach is thus more in line with the realities of the pension plans part of the Master Trust Fund. It is optimized with the objective of managing the volatility of the financial health of the plans. As a result, the pension plans in the Master Trust Fund cannot be compared with other pension plans, since they can have characteristics and realities that are quite different.

The work they did dealt with the following aspects:

• Risk diversification • Management of interest rate risk • Selection of new managers • Exposure enhancement to global growth • Increase of current income

A plan to gradually extend the bond portfolio duration is in place to manage interest rate risk more effectively. Moreover, stock market exposure was diversified further by including notably, global small cap equities that take advantage of growth achieved by smaller companies.



To diversify the structure effectively, the target tangible asset allocation (real estate and infrastructure investments) was substantially increased from 12.5% to 20.0%. An important characteristic of tangible assets is the generation of current income.

The transition towards the target allocation will occur gradually over 3 to 5 years, and the evolution of the investment policy is shown in the table below.

suMMAry of ACtion tAKen in 2013 reGArdinG the investMent struCture

• Wellington, the previous emerging countries equity manager, was replaced by Westwood due to performance below expectations over long periods.

The following action was taken after a new investment policy was approved:

• Brookfield and IFM were added as infrastructure managers.

• Mawer was selected as the global small cap equity manager.

• Assignment of a new investment mandate Optimum extending the duration of the bond equity fund.

• Reducing the number of Canadian equity managers by ending the mandate of Fiera Capital in early 2014.

N.B.: Please note that the aforementioned data include the assets of the Native Benefits Plan that holds 95.2% of the total assets.


1 The transfer of global large cap assets to global small cap equities began in late December 2013.

tArGet AlloCAtion

asset class initial DEC 31, 2013 final

Universe Canadian bonds 37.0% 37.00% 0.0%

Long-term Canadian bonds 0.0% 0.00 % 37.0%

Canadian equities 21.5% 21.50% 16.0%

Global large cap equities 26.0% 23.75% 17.0%

Global small cap equities1 N/A N/A 4.0%

Emerging market equities 3.0% 3.00% 6.0%

Canadian real estate 7.5% 9.75% 12.0%

Infrastructures 5.0% 5.00% 8.0%

20 FiNaNcial StateMeNtS oF tHe FuNd

FiNaNcial StateMeNtS oF tHe FuNdFirst Nations Public Security Pension Plan December 31, 2013

Deloitte LLP 925, Grande Allée Ouest Suite 400 Quebec QC G1S 4Z4 Canada Tel. : 418-624-3333 Fax : 418-624-0414 www.deloitte.ca

Independent auditor’s report

To the members of the Pension Plan Committee of First Nations Public Security Pension Plan (Régime de rentes de la sécurité publique des Premières Nations)

We have audited the accompanying financial statements of the Fund of First Nations Public Security Pension Plan (Régime de rentes de la sécurité publique des Premières Nations), which comprise the statement of net assets available for benefits of the Fund as at December 31, 2013 and the statement of changes in net assets available for benefits of the Fund for the year then ended, and a summary of significant accounting policies and other explanatory information. The financial statements of the Fund have been prepared by management based on the financial reporting provisions of article 12 of the Pension Benefits Standards Act, 1985.

Management’s responsibility for the financial statements of the Fund

Management is responsible for the preparation and fair presentation of the financial statements of the Fund in accordance with the financial reporting provisions of article 12 of the Pension Benefits Standards Act, 1985, and for such internal control as management determines is necessary to enable the preparation of financial statements of the Fund that are free from material misstatement, whether due to fraud or error.

Auditor’s responsibility

Our responsibility is to express an opinion on the financial statements of the Fund 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 of the Fund are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements of the Fund. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements of the Fund, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements of the Fund 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 of the Fund.

iNdePeNdeNt auditor’S rePort


We believe that the audit evidence we have obtained in our audit is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the financial statements of the Fund present fairly, in all material respects, the net assets available for benefits of the Fund of First Nations Public Security Pension Plan (Régime de rentes de la sécurité publique des Premières Nations) as at December 31, 2013 and the changes in net assets available for benefits of the Fund for the year then ended, in accordance with the financial reporting provisions of article 12 of the Pension Benefits Standards Act, 1985.

Basis of accounting and restriction on use

Without modifying our opinion, we draw attention to Note 3 to the financial statements of the Fund, which describes the basis of accounting. The financial statements of the Fund are prepared to assist the members of the pension plan committee of First Nations Public Security Pension Plan (Régime de rentes de la sécurité publique des Premières Nations) to meet the requirements of the Office of the Superintendent of Financial Institutions. As a result, the financial statements of the Fund may not be suitable for another purpose. Our report is intended solely for the members of the pension plan committee of First Nations Public Security Pension Plan (Régime de rentes de la sécurité publique des Premières Nations) and the Office of the Superintendent of Financial Institutions and should not be used by parties other than the members of the pension plan committee of First Nations Public Security Pension Plan (Régime de rentes de la sécurité publique des Premières Nations) or the Office of the Superintendent of Financial Institutions.

June 19, 2014

______________________________ 1 CPA auditor, CA, public accountancy permit No. A117569

iNdePeNdeNt auditor’S rePort (coNtiNued)


First Nations Public Security Pension Plan(Régime de rentes de la sécurité publique des Premières Nations)Statement of net assets available for benefits of the FundDecember 31, 2013

Notes 2013 2012$ $

AssetsUnits held in the global trust 4 24,052,374 20,386,156Accounts receivable

Contributions receivable 5Employees 74,628 127,306Employers 149,257 254,611Additional contribution 243,473 250,118Related party - Native Benefits Plan 2,614 1,694

Accrued interest and dividends 37,276 35,701Sales taxes receivable 53,176 34,455

Prepaid expenses — 6,300Cash 249,175 383,302Cash held for investment purposes 122,682 209,549

Total assets 24,984,655 21,689,192

LiabilitiesAccounts payable

Accounts payable and accrued liabilities 50,665 39,809Related party - RBA Financial group 26,944 18,227

Total liabilities 77,609 58,036Net assets available for benefits 24,907,046 21,631,156

The accompanying notes are an integral part of the financial statements.

On behalf of the Pension Plan Committee

________________________________________, member

________________________________________, member

Page 3

StateMeNt oF Net aSSetS aVailable For beNeFitS oF tHe FuNdDECEMBER 31, 2013


StateMeNt oF cHaNgeS iN Net aSSetS aVailable For beNeFitS oF tHe FuNdYEAR ENDED DECEMBER 31, 2013

First Nations Public Security Pension Plan(Régime de rentes de la sécurité publique des Premières Nations)Statement of changes in net assets available for benefits of the FundYear ended December 31, 2013

Notes 2013 2012 $ $

Increase in net assetsInvestment income from the units held in the global trust 4 3,058,183 1,594,055Other revenues 6,605 12,692Contributions 5

Employees 364,904 409,790Employers 1,040,687 1,130,423Redemption of past services 3,858 3,858

Transfers from other plans — 144,703Increase in assets 4,474,237 3,295,521

Decrease in net assetsAdministration expenses

Management expenses 8 140,000 131,250Management fees on investments 76,261 63,499Professional fees - Actuaries 66,856 77,782Auditors fees - Audit 7,300 11,004Professional fees - Others 15,712 5,844Cost of meetings 63,830 84,353Marketing and development 9,354 8,749

379,313 382,481

Benefits paid 598,950 547,283Refunds and transfers

Refunds of contributions 55,183 76,210Tranfers to other plans 164,901 44,554

Decrease in assets 1,198,347 1,050,528

Increase in net assets 3,275,890 2,244,993Net assets available for benefits, beginning of year 21,631,156 19,386,163Net assets available for benefits, end of year 24,907,046 21,631,156

The accompanying notes are an integral part of the financial statements.

Page 4


First Nations Public Security Pension Plan (Régime de rentes de la sécurité publique des Premières Nations) Notes to financial statements December 31, 2013

Page 5

1. Description of the Plan The following description of the First Nations Public Security Pension Plan (Régime de rentes de la sécurité publique des Premières Nations) (the “Plan”) is a summary only. For more complete information, reference should be made to the Plan Agreement.

General

The Plan offers to all policemen, firemen and special constables a contributory defined benefit pension plan. In accordance with the Plan, the contributions are paid by the employers and the participants. Eligible employer is a native band or organization controlled by one or some natives, whose membership request has been accepted by the Pension Plan Committee. The Plan is registered under the Federal Pension Benefits Standards Act, 1985, registration number 55864.

Funding policy

In accordance with the Federal Pension Benefits Standards Act, 1985, participating employers in the Plan must fund the benefits determined under the Plan. The determination of the value of these benefits is made on the basis of an annual actuarial valuation or according to the Pension Plan Committee approval (Note 5).

Normal date of retirement

The normal date of retirement is the year where participants reach the age of 65.

Service pension

A service pension is available based on the number of years of service multiplied by 2% of the best three years’ average salary for all years of participation. To the pension base, a temporary pension is paid up to 65 years old based on 0.25% of the best three years’ average salary by the number of recognized years of contribution as at December 31, 2001.

Survivors’ pension

The spouse will receive a pension equal to 66⅔% of the calculated pension, plus an increase of 33⅓% for each child up to 100%.

Benefit for early retirement

Any participant can take an early retirement without actuarial reduction if he respects certain conditions. Furthermore, it is also possible to take early retirement with reduction ten years from the normal date of retirement or the date on which he could have taken an early retirement without reduction.

Benefit and reimbursement in case of departure

A participant who ceases to be an employee is entitled to the value of his or her assets. However, if eligible to receive a pension, he or she can not obtain a refund.

Income taxes

The Plan is a registered pension trust as defined in the Income Tax Act and is not subject to income taxes.

NoteS to FiNaNcial StateMeNtSDECEMBER 31, 2013



Page 6

1. Description of plan (cont’d) Asset management entrusted to the global trust

Investments are expressed as numbers of shares in the global trust. Each share confers to its holder participation in the net assets and revenue of the global trust. The global trust was created with the courier of values, Fiducie Desjardins, in order to administer other pension plans based on a mutual investment policy.

2. Changes in accounting policies New Accounting Standards Applied

On January 1, 2013, the Plan adopted the new standard International Financial Reporting Standards (IFRS) - 13 « Fair Value Measurement ». This standard brings further clarification on fair value measurement and applies to the Plan’s investments. This standard does not have any impact on the financial statements of the Plan.

3. Accounting policies Basis of presentation

The financial statements have been prepared in accordance with the significant accounting policies set out below to comply with the accounting requirements prescribed by the Superintendent of Financial Institutions for complying with the article 12 of Pension Benefits Standards Act, 1985. The basis of accounting used in these financial statements materially differs from Canadian accounting standards for pension plans because it does not include information with respect to pension obligations and related disclosures. Consequently, these financial statements do not purport to show the adequacy of the Plan’s assets to meet its pension obligations.

Investments

Investments are stated at fair value. The variance between the fair value of investments and their carrying value at the beginning and at the end of the year is accounted for as “Investment income from the units held in the global trust.”

Foreign currency translation

Monetary assets and liabilities in foreign currency are translated in Canadian dollars at the exchange rate in effect at the end of the year. The elements of the changes in net assets available for benefits are translated at the exchange rate when the transactions occur. The gains or losses from the fluctuation of the exchange rate are accounted for in the statement of changes in the net assets available for benefits under the “Investment income from the units held in the global trust” account.

NoteS to FiNaNcial StateMeNtS (coNtiNued)

DECEMBER 31, 2013



Page 7

3. Accounting policies (cont’d) Use of estimates

The preparation of financial statements requires management to make estimates that affect the amounts of assets and liabilities reported in the financial statements. Those estimates also affect the disclosure of contingencies at the date of the financial statements. The fair value of investments is one of the major components of the financial statements that require management to make estimates. Actual results could differ from those estimates.

4. Units held in the global trust The Plan holds 1,647,905 units which represent approximately 5% (1,525,017 units in 2012) of the total number of units issued by a global trust which securities are in custody of Fiducie Desjardins. The composition of investments determined on the basis of units held by the Plan at the global trust is as follows:

2013 2012 $ $ Money market Short-term maturity 177,729 66,979 Canadian bonds (yield between 3% and 11%) 8,089,597 7,299,589 Canadian shares 5,705,729 4,615,144 Foreign investment funds International shares fund 6,702,744 6,131,910 Global small cap fund 490,665 — Real estate funds Real estate companies 2,178,324 1,613,090 Infrastructure funds 707,586 659,444 Total investments 24,052,374 20,386,156 Revenues generated by the composition of investments held by the Plan, established according to the units held by it to the global trust, are as follows:

2013 2012 $ $ Interests 150,191 201,899 Dividends 479,964 428,639 Gain on sale of investments 660,381 135,616 (Loss) gain on currency (42,851 ) 62,716 Distribution from real estate company 2,523 16,563 Current period change in market values of investments 1,807,975 748,622 3,058,183 1,594,055


DECEMBER 31, 2013



Page 8

5. Funding policy Under the terms of the Plan, member participants’ contributions are 8.5% for employees who do not contribute to QPP and 7.2% for employees contributing to the QPP. Employers must provide the necessary balance of funding needed, as determined by actuarial valuations, so that benefits are fully formed at the time of retirement of members.

Until the next actuarial valuation, the employer contribution is set to 200% of the member participants’ contributions. A special contribution must also be made to cover the solvency deficiency. The most recent actuarial valuation of capitalization was carried out by Normandin Beaudry on December 31, 2012.

6. Commitments Under agreements with portfolio managers and security custodian, the Plan has committed to pay management fees based on the fair value of the Plan’s assets. Those agreements can be terminated upon a 30 days notice.

The Pension Plan Committee is engaged through the global trust to invest an amount of US$15,000,000 in Steelriver’s Infrastructure Fund North America, of $10,000,000 in Brookfield Fund and of $10,000,000 in Industry Funds Management (IFM). These amounts represent the total commitment of the global trust while the Plan holds approximately 5% of the total number of units issued by a global trust.

7. Capital management The Plan’s objective when managing capital is to guarantee the integral capitalization of the long term benefits. The Plan manages its investments in order to generate a return making it possible to achieve this goal. The Pension Plan Committee established an investment policy in order to guide the portfolio managers towards the realization of this objective.

An actuarial evaluation must be filed with the authority of regulation at least every three years. If the Plan is overdrawn, an actuarial valuation including a plan of elimination of any deficit must be filed with the authority of regulation at every year.

8. Related party transactions In 2013, the Plan paid management fees of $140,000 ($131,250 in 2012) to RBA Financial Group.

9. Financial instruments and risk management The Plan has exposure to the following risks from its use of financial instruments: credit risk, market risk and liquidity risk. The following analysis provides a measurement of risk as at December 31, 2013.

The objective of risk management is to achieve a diversifying of risks and returns in order to minimize the likelihood of an overall reduction in total Plan value and maximize the opportunity for gains over the entire portfolio. The trustees also manage the liquidity risk so that there is sufficient liquidity to meet current benefit payments and to give the Plan the ability to adjust the asset mix in response to the changes in the market conditions.


DECEMBER 31, 2013



Page 9

9. Financial instruments and risk management (cont’d) Policies

Through its Investment Committee, the Pension Plan Committee has developed an investment policy addressing the manner in which the Plan shall be invested. Investments shall be selected and held in accordance with the criteria and limitations set forth in the policy and in accordance with the relevant legislation. The policy is reviewed at least annually.

The investment policy includes guidelines on asset mix and risk allocation. The document lists the investment constraints, for example, the maximum exposure permitted for a single issuer, the liquidity requirements, and currency management. The policy also identifies the authorized counterparties and includes the approval requirements and trading limits.

The Investment Committee meets regularly to assess the investment risk associated with the portfolio and determine action plans, if required.

The risk management strategy of the Plan has not changed during the year ended December 31, 2013.

Credit risk

The concentration of credit risk exists when a significant part of portfolio is invested in securities having similar characteristics or subject to similar variation linked to the economical or political conditions. The Plan established an investment policy to which must conform assets managers, which allows it to minimize the credit risk.

The Plan’s principal financial assets are cash, accounts receivable and investments held in the global trust, which are subject to credit risk. The carrying amounts of financial assets on the statement of net assets available for benefits represent the Plan’s maximum credit exposure at year end date.

The Plan’s credit risk is primarily attributable to its investments in bonds held through units of the global trust.

The credit risk associated with units held in the global trust and represented by bonds is limited, since the investment policy provides that the counterparties shall be either governments, governmental agencies or companies (which can be issued in foreign currency). Further, all bonds shall be made up of investments rated below a “DBRS” or “Standard & Poor’s” credit rating of BBB or equivalent.

As at December 31, 2013, the Plan has a significant concentration of risk with the Canada and provincial governments, cities and other companies. This concentration relates primarily to the holding, through units held in the global trust of $3,217,731 of securities issued by provincial governments and $2,054,373 of securities issued by cities and other companies.

Market risk

Market risk is the risk of loss that results from fluctuations in equity prices, interest and exchange rates. The Plan is exposed to market risk from its investing activities. The level of risk to which the Plan is exposed varies depending on market conditions and the composition of the asset mix.


DECEMBER 31, 2013



Page 10

9. Financial instruments and risk management (cont’d) Price risk

The Plan manages the price risk primarily through diversifying the investments held in the global trust across industry sectors and through investment strategies.

As at December 31, 2013, a 10% change in market prices would result in a $1,288,477 change in investment in shares and net assets of the Plan.

Interest rate risk

Interest rate risk refers to the effect on the fair value of the Plan’s assets due to fluctuations in interest rates. The fair value of the Plan’s assets is affected by short-term changes in interest rates.

A 1% increase or decrease in interest rates would result in a $530,451 decrease and a $530,451 increase, respectively, in the value of the Plan’s investment in fixed-income securities and net assets as at December 31, 2013.

Currency risk

Currency risk arises from the Plan’s holdings of foreign currency-denominated investments through units held in the global trust. As at December 31, 2013, the Plan’s exposure to currency risk in Canadian dollars is $7,484,433. As at December 31, 2013, a 1% change in exchange rate between the Canadian dollar and any other currency would have a $74,103 impact on the Plan’s foreign currency-denominated investments through units held in the global trust and net assets.

Liquidity risk

Liquidity risk refers to the risk that the Plan does not have sufficient cash to meet its current payment liabilities, including benefit payments, and to acquire investments in a timely and cost-effective manner.

The liquidity position of the Plan is analyzed weekly to ensure the Plan maintains a sufficient percentage of its net assets in very liquid assets such as cash and money market securities. The Plan maintains, through units held in the global trust, a portfolio of highly marketable assets, specifically Canada and provincial governments bonds that can be sold or funded on a secured basis as protection against any unforeseen interruption to cash flows.

Fair value

The fair value of cash, accounts receivable and accounts payable approximates their carrying value due to their short-term maturity.


DECEMBER 31, 2013



Page 11

9. Financial instruments and risk management (cont’d) Fair value hierarchy

Financial instruments recorded at fair value on the statement of net assets available for benefits are classified using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. The fair value hierarchy has the following levels:

Level 1 – valuation based on quoted prices (unadjusted) in active markets for identical assets or liabilities;

Level 2 – valuation techniques based on inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices);

Level 3 – valuation techniques using inputs for the asset or liability that are not based on observable market data (unobservable inputs).

The fair value hierarchy requires the use of observable market inputs whenever such inputs exist. A financial instrument is classified to the lowest level of the hierarchy for which a significant input has been considered in measuring fair value.

The following table presents the composition of investments held by the Plan through units issued by the global trust. These units are recorded at fair value in the statement of net assets available for benefits:

2013 Level 1 Level 2 Level 3 Total $ $ $ $ Investments held in the global trust Money market 172,932 4,797 — 177,729 Canadian bonds — 8,041,627 47,970 8,089,597 Canadian shares 5,491,119 214,610 — 5,705,729 International shares funds — 6,702,744 — 6,702,744 Global small cap fund — 490,665 — 490,665 Real estate companies — — 2,178,324 2,178,324 Infrastructure funds — — 707,586 707,586Total investments 5,664,051 15,454,443 2,933,880 24,052,374


DECEMBER 31, 2013



Page 12

9. Financial instruments and risk management (cont’d) Fair value hierarchy (cont’d)

2012 Level 1 Level 2 Level 3 Total $ $ $ $ Investments held in the global trust Money market 57,460 9,519 — 66,979 Canadian bonds — 7,251,875 47,714 7,299,589 Canadian shares 4,448,453 166,691 — 4,615,144 International shares funds — 6,131,910 — 6,131,910 Real estate companies — — 1,613,090 1,613,090 Infrastructure funds 47,149 — 612,295 659,444 Total investments 4,553,062 13,559,995 2,273,099 20,386,156 During the year, there has been no significant transfer of amounts between Level 1 and Level 2.

The following table reconciles the fair value of financial instruments classified in Level 3 from the beginning balance to the ending balance:

2013 Canadian

bondsReal estate companies

Infrastructurefunds

$ $ $ Fair value, beginning of year 47,714 1,613,090 612,295Gains (losses) recognized in the statement

of changes in net assets available for benefits 256 63,596 44,992

Purchases — 475,063 46,981Sales/distribution — 26,575 3,318Fair value, end of year 47,970 2,178,324 707,586 Unrealized gains (losses) included in change

in market values of investments with respect to financial assets held as at December 31 256 63,596 44,992


DECEMBER 31, 2013



Page 13

9. Financial instruments and risk management (cont’d) Fair value hierarchy (cont’d)

2012 ABCP Canadian

bonds Real estate companies

Infrastructurefunds

$ $ $ $ Fair value, beginning of year 12,008 — 652,265 675,770 Gains (losses) recognized in

the statement of changes in net assets available for benefits — 2 (18,554 ) 98,115

Purchases — 47,712 995,942 8,528 Sales/distribution (12,008) — (16,563 ) (170,118) Fair value, end of year — 47,714 1,613,090 612,295 Unrealized gains (losses)

included in change in market values of investments with respect to financial assets held as at December 31 — 2 (18,554 ) 98,115


Page 14

10. Derivative products As at December 31, 2013, the Plan, through units held in the global trust, does not hold any foreign exchange contract.

As at December 31, 2012, the Plan, through units held in the global trust, held foreign exchange contracts (USD currency sale contracts) for a notional amount of US$2,066,049 and a negative fair value of $9,915.

As at December 31, 2012, the Plan, through units held in the global trust, held foreign exchange contracts (USD currency purchase contract) for a notional amount of US$1,036,796 and a fair value of nil.

The gains or losses from the fluctuation of the fair value of these contracts are accounted for in the statement of changes in net assets available for benefits under the “Investment income from the units held in the global trust” account.

11. Comparative figures Certain of the comparative figures have been reclassified to conform to the current year’s presentation.


DECEMBER 31, 2013


MaiN exterNal adViSerS aNd PortFolio MaNagerSMAin externAl Advisers

Actuaries Normandin Beaudry

Legal advisers Gagné, Letarte, s.e.n.c.

Courier of values Fiducie Desjardins

Information network administrators BZ inc.

External auditors Deloitte s.e.n.c.r.l./s.r.l.

Financial Institution Banque Royale du Canada

Asset management adviser Normandin Beaudry

Portfolio MAnAGers

Canadian Bonds TD Asset Management Optimum

Canadian stocks Fiera Capital Letko Brosseau Triasima

Global large cap fund Hexavest Sprucegrove

Global small cap fund Mawer (Since January 2014)

Emerging markets Wellington (Until January 2014) Westwood (Since february 2014)

Real Estate Bentall Kennedy (Westpen properties) Manulife

Infrastructures Steel River IFM Infrastructure Funds Brookfield

34 MaiN exterNal adViSerS aNd PortFolio MaNagerS

eMPloyer MeMberS DECEMBER 31, 2013

Conseil de la Première Nation Abitibiwinni - Service de Pikogan

Corps policier des Abénakis

Eagle Village First Nation - Kipawa

Gesgapegiag Police

Kitigan Zibi Anishinabeg Police Department

Sécurité Publique de Mashteuiatsh

Sécurité publique de Wemotaci

Sécurité publique Innu Takuaikan Uashat Mak Mani Utenam

Service de police de Manawan

Service de police du Lac Simon

Services policiers d’Obedjiwan

Services policiers de Pakua Shipu

Timiskaming Police Service


proFile oF the rbA FinAnciAl Group

The First Nations Public Security Pension Plan is offered through the RBA Financial Group, an organization registered with the Autorité des marches financiers (No. 508106).

The RBA Financial Group is a non-profit organization owned and managed by First Nations. It has operated as a promoter and administrator of pension plans for First Nations since 1979. The Group specializes in developing and offering individual and group financial products and services adapted to its clientele’s financial security needs.

The RBA Financial Group administers the following pension plans for First Nations: the Native Benefits Plan (NBP), the First Nations Public Security Pension Plan (FNPSPP) and the NBP Defined Contribution Pension Plan.

Over the years, the RBA Financial Group has directed all efforts toward offering competitive fringe benefits to employers adapted to the fiscal specificities and rights of First Nations, including group insurance, occupational health and safety and other financial products.

SociAl outreAch

In 2013, the RBA Financial Group established a foundation (RBA Foundation) whose mission is to improve living conditions and contribute to the wellbeing of First Nations in Quebec.

All our organizations have been involved socially for several years through sponsorships. In 2013, we contributed to several projects in the fields of health, education and sports for a total of $30,000.

2936, rue de la Faune, Suite 202Wendake (Québec) G0A 4V0T 418 847-1840 • 1 888 242-0277F 418 847-3990

rbagroupefinancier.com Recycled paper

annual report2013 2013.pdf · and portfolio managers employer members. 2 first nations public...

Documents