board of governors pension benefits committee open … · absent: darren becks, lori cmtis, tim...

Board of Governors PENSION & BENEFITS COMMITTEE

Friday, 10 May 2013 8:30 a.m. to 12:00 noon

NH3001

OPEN SESSION

I) Approval of the 8 March 2013* and 19 April 2013 Minutes' and Business Arising

2) Execution Against Work Plan'

3) Update on Government Pension Initiatives [Shapira]

4) Previous Years Fees and Expenses" [McGrath]

5) Annual Audit of the Pension Plan Fund Financial Statements" [Huber]

6) Approval of the Statement of Investment Policies and Procedures' [Huber]

7) Report from Registered Pension Plan Investments Subcommittee [Jha, Forrest] a) Fund Performance for First Quarter 2013 b) Investment Recommendation

8) Pension \0 I, continued ± [Shapira, Byron]

9) Indexation Protocol"[Shapira]

I 0) Other Business

II) Next Meeting: Friday 14 June 2013,8:30 a.m. - 12:00 p.m. in NH 3001

CONFIDENTIAL SESSION

12) Approval of the 8 March 2013 Minutes' and Business Arising

'attached **to be distributed ±previously distributed

Action

Decision

Information

Information

Information

Decision

Decision

Information Decision

Information

Discussion

Decision

RW:cb112 April 2013 Rebecca Wickens, Associate University Secretary

Please .convey regrets to Cindy Baker at 519-888-4567 x32623 or [email protected]

List of Future Agenda Items Total Compensation Statements: Range of Options and Costs Reduced Load to Retirement (Federal Government initiative to enable older workers to work part-time and accrue pension benefits at a reduced rate proportional to the workload and simultaneously draw a partial pension corresponding to the reduced workload) Alternatives to the Flexible Pension Plan


Minutes of the Friday 8 March 2013 Meeting

blue pages confidential

Present: Monika Bothwell, Steve Brown, James Brox, Stewart Forrest, Dennis Huber, Ranjini Jha, GeoffMcBoyle, Cathy Newell Kelly, Christine Wagner, Bill Watson [chair]

Secretariat: Rebecca Wickens

Guests: Linda Byron, Jason Gorrie, Sue McGrath, Bruce Mitchell, Glenda Rutledge, Allan Shapira

Absent: Darren Becks, Lori Cmtis, Tim Jackson, Karen Wilkinson

Organization of Meeting: Bill Watson, chair of the committee, took the chair, and Rebecca Wickens, secretary of the committee, acted as secretary. The secretary advised that a quorum was present.

The agenda was approved as circulated without formal motion.

1. APPROVAL OF THE MINUTES AND BUSINESS ARISING Subject to correcting the date and time of the next meeting under Section 8 of the minutes, the minutes were approved as distributed. Newell Kelly and Brox. Carried.

2. EXECUTION AGAINST THE WORK PLAN Members heard that the link to the formatted repOlt to the community will be circulated to members as soon as it is ready.

3. ANNUAL ACTUARIAL VALUATIONS (RPP AND PPP) Aon Hewitt took members through the revisions made since the February meeting, noting: the bullet added to page 8 showing the positive impact of plan changes on the pension plan deficit; break-down of different asset classes under Pension Fund Asset Mix (page 18); mortality experience (loss); termination experience (large cost of commuted values in low interest rate environment); the note on page 26 to explain the difference between solvency and wind-up valuations; addition of definitions; other adjustments to finalize numbers.

Members discussed: page 20 and how to correct the perception that, post-plan changes, the university is not contributing an amount equal to employee contributions to the plan (agreed to add a note and slides showing total university contributions and how those are allocated); showing the going concern funding shortfall for the registered pension plan and payroll pension plan separately on page 8; concerns re: definition of going concern funding requirements (not used in the report, so agreed to remove definition).

Subject to incorporation of the agreed-upon changes, there was a motion to recommend the 1 January 2013 actuarial valuation report to the Board of Governors, recognizing that the valuation will not be filed with the regulatory authorities. Bothwell and Brox. Carried.

Aon Hewitt agreed to send the revised report to the secretary for posting on the committee webpage. [Note: the report is posted under "Documents".]

4. REVIEW OF CONTRIBUTION AND PROTOCOL CAPS Aon Hewitt took members through the presentation (included in the actuarial valuation results document), highlighting: the different types of caps impacting the registered pension plan and payroll pension plan and how they work; the purpose of the caps; the requirement to keep track of funding required to meet the pension promise under the UW pension plan assuming no maximum cap; impact on past service liabilities and current

Pension & Benefits Committee 8 March 2013 Minutes

blue pages confidential page 2

service cost if the caps are removed; numbers of individuals impacted if the caps do not change within the next 20 years; when caps are increased, pension plan costs increase and some liability shifts from payroll pension plan to the registered pension plan.

In response to questions, members heard: when caps were increased in the past, there was not any inequity for those who had already retired, because the Income Tax Act cap has never exceeded plan caps; the intention is to be able to adjust the plan caps before the Income Tax Act cap catches or passes them; the information in the document is for committee monitoring and decision-making purposes and is not a projection of what is intended to happen in the future.

Aon Hewitt agreed to add some background information before the calculations, explanatory notes on what is shown in each chart, and the salary assumption used.

5. TOTAL FUND REVIEW Jha and Forrest took members through the handouts, noting: fund return for the quarter ended 31 December 2012 was 1.6% and for the year-to-date was 7.3%; the fund outperformed the objective (3.85%+CPI) for the year-to-date by 2.6%, without adjusting for the currency hedge, and 1.5%, adjusting for the currency hedge; Sionna, the fund's Canadian equity manager, returned 2.9% for the quarter, outperforming the S&P/TSX; all of the global equity managers outperformed the benchmark (MSCI) for the qUaIter with Oldfield at 6.1 %, Trilogy at 4.7% and Walter Scott at 5.9%; for the year-to date, Oldfield returned 6.3% (7% below the benchmark), Trilogy returned 16.3% (3% above the benchmark) and Walter Scott returned 16.8% (3.5% above the benchmark); the subcommittee will continue to monitor Oldfield's performance; TDAM U.S. Equity and Universe Bond funds are tracking closely to the benchmark, although the bond fund underperformed for the quarter and the year; the market value of Brookfield Infrastructure Partners is currently well over its book value; $10 million was invested in the iShares XRE REIT fund at the end of December; the pension fund is currently underinvested in Canadian equities and continues to hold cash in excess ofthe 10% limit iIi the Statement ofInvestment Policies and Procedures; the pension fund is under its target for real return bonds and the bonds will be maturing in 2021 and 2024, so the committee continues to look for alternatives. Members heard that the subcommittee looked at liability driven investing at its last meeting, but decided that the approach is unsuitable at present.

Members discussed: Oldfield's performance and whether fees can be reduced for underperformance; drivers behind poor performance (investments in Japan and Europe, impact of having a highly concentrated portfolio); the need to look at the long term rather than measure performance quarter by quarter; fees for the overall portfolio are relatively good; the baITiers to acquiring more real return bonds (no supply, rates are too low).

6. COST-OF-LIVING INCREASES Pensioners. McGrath infonned members: as provided for under the pension plan text, pensions in pay will automatically increase by a cost of living adjustment effective 1 May 2013; the cost of living adjustment for this year is 1.52%.

Deferred Members. McGrath took members through the recommendation. Members discussed: concerns with fairness and the departure from past practice; the principles on which this decision should be made each year; how this is handled at other institutions; the fact that individuals taking the commuted value on termination had indexation built into the value of the pension; what deferred vested members were told when they terminated; the need to build fairness and financial considerations into the decision-making principles. There was a motion to defer the decision on this item to the April meeting. Watson and Forrest. Carried.

Pension & Benefits Committee 8 March 2013 Minutes

blue pages confidential page 3

Members agreed to form a working group to review the issue in-depth and to present a recommendation at the April meeting. Brown, Forrest, Brox, Wagner, Shapira and McGrath agreed to serve on the working group.

7. SALARIES FOR PENSION FOR INDIVIDUALS ON LTD McGrath spoke to the recommendation. There was a motion to approve the recommendation to index salaries for pension purposes for individuals on long-term disability by 1.52% effective I May 2013. Huber and Brox. Carried.

8. BENEFITS PLAN PREMIUM RENEWALS Life Insurance. Rutledge took members through the handout, describing the joint risk sharing arrangement the university has with other universities for life insurance; the plan to market the university life insurance plan next year; the plan by the participating universities to use the surplus in the university deposit accounts before the plan is marketed; the rate recommendations which reflect positive experience. There was a motion to approve the recommendations to: (a) decrease group rates by 10%; (b) use 50% of the funds in the university deposit account to offset university and employee premium paid rates for the one year period from 1 May 2013 to 30 April 2014; and (c) decrease rates for optional life insurance by 10%. lha and Newell Kelly. CaITied.

Extended Health aud Deutal Piau. Rutledge informed members: claims analysis supports an increase in both the budgeted health and dental rates for 2013; because additional billings divisions were added to the plan to separate claims experience for affiliated employers, retention charges will increase for health (from 4.53% to 4.81 %) and dental claims (from 4.44% to 4.64%) effective 1 May 2013; charges for pooling insurance will increase on 1 May 2013 from 1.89% to 2.19%. Members discussed: the increased retention charges and whether these costs are being recovered from affiliated employers; the need to revisit the fees paid for the addition of billing divisions in a couple of years; whether reasons for rate increases are communicated to the community with the rate increases.

9. INDEXING OF LTD PLAN BENEFITS AND MAXIMA Rutledge spoke to the hand-out, informing members that the maximum salary insured for LTD purposes will be indexed by 1.521% on 1 May 2013, resulting in an increase from $161,239 to $163, 690. Rutledge reviewed the status of the reserve funds used to subsidize the employee paid rate and this year's recommendations reo the group contract rate (no increase) and employee paid rate (increase of 1.5%). There was a motion to approve the rate recommendations. Newell Kelly and Brown. Carried.

10. OTHER BUSINESS Shapira reported: the regulation indicating which pension plans have been accepted into Stage 1 of the solvency relief regime during the third window for applications has not yet been adopted and is not likely to be adopted before April; the College and University Retiree Associations of Canada ("CURAC") has made a submission to the government in response to the Morneau RepOlt. Shapira agreed to send the CURAC submission to the secretary for circulation to members.

11. NEXT MEETING The next meeting will be held on Friday 19 April 2013, 9:00 a.m. - 12:00 noon in NH 3001

24 April 2013 Rebecca Wickens Associate University Secretary

(


Minutes of the Friday 19 April 2013 Meeting

Present: Darren Becks, Monika Bothwell, Steve Brown, James Brox, Lori Curtis, Stewart Forrest, Dennis Huber, Ranjini Jha, Christine Wagner, Bill Watson [chair], Karen Wilkinson

Secretariat: Rebecca Wickens

Guests: Linda Byron, Lawrence Folland, Sue McGrath, Bruce Mitchell, Kenton Needham, Glenda Rutledge, Allan Shapira

Absent: Tim Jackson, GeoffMcBoyle, Cathy Newell Kelly

Organization of Meeting: Bill Watson, chair ofthe committee, took the chair, and Rebecca Wickens, secretary of the committee, acted as secretary. The secretary advised that a quorum was present.

The agenda was approved as circulated without formal motion.

1. PENSION 101 Byron took members through the first twenty-two slides in the Aon Hewitt presentation, except for the governance portion, which was addressed by the committee secretary. In response to questions, Byron discussed grow-in provisions in more detail; pension adjustments and whether they are impacted by the changes to indexation; the calculation of commuted values; what plan documents members are permitted to see. Members discussed the governance structure in more depth and, in particular, the important due diligence function performed by the Registered Pension Plan Investments Subcommittee to support decisions made by the committee, Finance & Investment Committee and the Board of Governors. In order to address the other items on the agenda, members agreed to defer the remainder of the presentation until the May meeting.

McGrath took members through the slides, highlighting: sources of retirement income; different types of pension plans; the UW pension plan - formula, sample calculations, optional forms of pensions; early retirement options; additional benefits; inflation protection; reduced work load to retirement. Discussion included: the statement that defined benefit plan pensions are independent of the market and whether this statement is confusing or misleading; issues with the reduced work load to retirement policy and the need to have the appropriate governing bodies look at this policy.

Members heard that the intention is to merge the two presentations into one document to be used for education and orientation purposes in the future.

2. UPDATE RE: UNIVERSITY CONTRlBUTIONS TO THE PAYROLL PENSION PLAN Huber informed the committee that the university will be contributing one-time money to the payroll pension plan in the amount of $2.5 million in order to reduce the deficit.

3. COST OF LIVING INCREASE FOR DEFERRED MEMBERS McGrath took members through the materials distributed in advance, including the historical and contextual information considered by the working group, the wording ofthe option statement sent to terminating members, the working group's discussion, and the short-term and long-term recommendations from the working group. There was a motion that the pensions for eligible deferred vested members be indexed by 1.52% effective I May 2013 and that the working group develop principles to guide future committee decisions before I May 2014. Forrest and Brox. Carried.

Pension & Benefits Committee 19 April 2013 Minutes

4. BENEFITS REVIEW WORKING GROUP: SURVEY AND DRAFT COVERING EMAIL TO BENEFITS PLAN MEMBERS

page 2

Becks took members through the covering memo, including the purpose of the initial survey. In response to questions, members heard: the survey tool does not allow the responses to earlier questions to determine the questions that follow; the next steps in the consultation process will address changes that plan members would like to see in the benefits plan; when asking people what changes they would like to see to the benefits plan, people should be asked to rank their preferences; this survey was not designed to get feedback from retirees who pmticipate in the same plan as active members, so only active members will be surveyed at this point; the working group will be looking at the guiding principles behind the benefits plan. Members were asked to send any edits to the committee secretary. The committee secretary agreed to speak with the Office of Research and Institutional Analysis & Planning re: any approvals required for the survey. [Note: the survey does not require research ethics review, but does require review by the survey advisory group in Institutional Analysis & Planning. This review is underway.] Subject to changes discussed, there was a motion to approve the survey and covering memo for distribution to active members of the benefits plan. Watson and Curtis. Carried.

5. NEXT MEETING The next meeting will be held Friday 10 May 2013,8:30 a.m. - 12:00 noon in NH 3001.

22 April 2013 Rebecca Wickens Associate University Secretary

Pellsioll & Bellefits Commillee, Boart! oj Govemors, Ulliversity oj Waterloo Execlllioll agaillst Work Plall

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.

Task Frequency Sept. 7, Oct. 5, 2012

Approval of Actuarial Valuation Assumptions Annual

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

Preliminary Valuation Results (RPP and PPP) Annual

Actuarial Valuations (RPP and PPP) Annual

Actuarial Filing' 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 Annual on Long-term Disability

Benefits Plan Premium Renewals Annual

Indexing of Long-term Disability Plan Annual Benefits and Maxima

I Filed September 30,2011. 2 Usually addressed at the December meeting, but the information was available in November. 3 Addressed at special meeting in April 2013

Pension & Benefits Committee - Execution Against Work Plan 051013

2012 Nov. Dec 7, Jan. 18, Feb. 22, Mar. 8, May 10,

16, 2012 2013 2013 2013 2013 2012

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Task

Investment Status ofPPP

Review of Contribution and Protocol Caps eRPP and PPP)

Budget Overview4

Benefits/Financial Analysis Report'

Life-time Maximum on Out-Of-Province Health Care Coverage for Retirees'

Investment Manager Review

Total Fund Overview

Flexible Pension Plan

Previous Years' Fees and Expenses

Annual Audit of the Pension Plan Fund Financial Statements

Annual Report to the Community

Indexing of Health and Dental Plan Maxima

Committee Evaluation

4 To be discussed. 5 Will be addressed at the 14 June 2013 meeting 6 Will be addressed at the 14 June 2013 meeting

Frequency

Annual

Annual

Annual

Annual

Annual

Twice

Quarterly

Annual

Annual

Annual

Annual

Annual

Annual

Pension & Benefits Committee - Execution Against Work Plan 051013

Sept. 7, 2012

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Oct. 5, Nov. Dec 7, Jan. 18, Feb. 22, Mar. 8, May 10, 2012 16, 2012 2013 2013 2013 2013

2012

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University of Waterloo Pension Plan (-1-OOU2011) STATEMENT OF INVESTMENT POLICIES AND PROCEDURES January 1,2013

CONTENTS

I. Purpose

2. Background, Plan Type and Liabilities

3. Allocation ofInvestment Responsibilities

4. Return Expectations, Benchmark Portfolio, Fund Manager Investment Objectives

5. Aggregate Investment Limits, Permitted Investment Categories, Asset Mix Policy

6. Rebalancing

7. Conflict ofInterest Policy and Disclosure Requirements

8. Lending of Cash and Securities

9. Delegation of Voting Rights

10. Valuation ofInvestments

II. Borrowing

12. Conflicts Between the Policy and Pooled Fund Investment Policies

13. Dismissal of a Fund Manager

14. Policy Review

· l. PURPOSE

The primary goal of the University of Waterloo Pension Plan (~2011) (the "Plan") is to provide members with a defined retirement income at a reasonable cost. The prudent and effective management of the assets of the pension fund has a direct impact on the achievement ofthi5 goat. The University of Waterloo ("UW"), sponsor and legal administrator of the pension fund, is responsible for achieving this primary goaL

This document has been prepared in accordance with the relevant legislation affecting the Plan to ensure continued prudent and effective management of pension fund assets. Deviating from this Statement ofInvestment Policies and Procedures ("Statement") is only allowed with the prior written approval of the Pension and Benefits Committee ("P&B Committee").

2. BACKGROUND, PLAN TYPE AND LIABILITIES

The Plan is a contributory defined-benefit plan, based upon an individual's final average salary and years of participation in the Plan prior to retirement.

All pensions tte€Ttletiill.lli.l under the Plan are escalated annually by the cost-of-living factor described in the Plan. -I-f.4.Ae-w~~eIBr is 5'"!,) SF less it is autBffia~rl-ieBFor benelits accrued prior to ft!.l.-tJeA:ion3. I r il i,' breakl' IluUl 5%,.Innuarv I. 2014. liabilities \\ ill grow in direct relatio11 to the increase in the eonSUlller price index ("'CPl''), For benefits tlccrucd on or a tier .1:Hluar\, I. 201·1. liabilities will increase h\' 75%} orthe incrense in ell] 1. Nol\ylthstamiine. the foregoing. if the increase in CPI in a Ci\'Cll vear exceeds 5~'o. then the indexation naid in that \Car \\ ill be determined bv P&B Committee-t-ake;;.. in its discretion. taking into account the fund's ability to afford aRY inert:'!fl,-t:'! se~ ()fHI 5<1,), Liahilitie.; for BOlA aeti'Le FIlt:'!lflSeFtT-fltHI j'len .. ioner,' "'ill grs II ill fiireel reiHtil'n 10 in!latioA.such an increase.

Thus, to provide pensions at a reasonable cost, it is necessary to strive for high real investment returns on the Plan assets over medium- and long-term periods. The investment philosophy, policies and procedures adopted in this document will assist in the achievement of this goal in a prudent and effective manner. In addition to the investments described in Section 4, the Plan holds real return bonds that are not actively traded and are intended to provide protection against inflation for a significant portion of the Plan's indexed pensioner and beneficiary obligations. Subject to annual review, the long-term objective of the Plan is to hold a maximum 01'70% of the retiree liabilities in this type of investment.

This Statement has been developed taking into account factors such as: the nature of the Plan's liabilities; the allocation of such liabilities between active and retired members; the funded and solvency positions of the Plan; the net cash flow position of the Plan; the investment horizon of the Plan; historical and expected capital market returns; and the benefits of investment diversification,

3. ALLOCATION OF RESPONSIBILITIES

I A nrntocnl IS beln2 de\ cloned to set ntH the paramcll'fs under whio.::h the P&B Comm1ttee \\{luld incrca~c the lc\'t~l oftlldc'\<ltlOn o('vond 75%

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I. The Board o(Governors of the University-of Waterloo (the "Board") has establis'hed a Finance and Investment Committee ("F&I Committee") to assist in the detennination ofUW's overall investment philosophy, policies, objectives and strategies, and a P&B Committee to assist in the management of the pension fund. A Registered Pension Plan inycstmcnts Subcommittee ("'RPPI'") \\as ronned cnnsistinl! ofmclllhcrs from hoth F&! COl11tniucc and p&n Committee to USSiSl in calT"!!}!! out the responsibilities listed below,

RPPI will:

Ic\'k~y thi:Hktl;wncnt jJnJ1uall\'~ n;\ jew pensjon lilllel pcrforlllHD.£.Q illUI..llCtl''-I a SI'ID i-anm!.iJl.b.as.i..s tG..,,:iC\\, l:uruLM.imaw:x PC.r.ilirOllUlCC---.ililllUcJlSiJ.l s.cmi-anmlaLbasi}: and report to P&B Committee.

RPPJ will make recommendations to P&B Committee and F&I Committee on: the ~ntclH QfJhi~_.d.o.cl1mcnl; the selection of Fund jI.'lal1agcrs: and the purchase ofsnecific imestments. induding real return bonds.

Working with the F&I Committee with respect to investment philosophy, policies, objectives and strategies and takin" into consideration the I\:commendations ofRPPI, the P&B Committee will make recommendations to the Board in the following areas:

lhd 2{JIl~l"P1:'~ i, ~1a 3tIllWll¥.

the content or this document aftcr its allnual rcyicw: the selection of a Consulting Actuary; the selection of Fund Managers; the selection of a CustodianlTrustee to hold the pension fund assets; and the purchase of real return bonds.

In- adeli'tion, the P&B Committee will:

reyie\v this document <l!11l11allv. taking into cOllsidcrlltion allY recommended changes from RPPI and F&I Committee: consider rcomts from R]lPI on pension fum! performance on at least 1I sCllli~annual basis: COl1:"id(:r :cport~ from RP~)I on Fund Mnna!!er performance on at least a semi-annual basls:~~

~*'1}tW~HOO1@g I allgn:1 tt_JIl i tlHiUlnl t~~t

re, ie'i l2tit-ttM\4afl~I'1~H}ffi~~~ provide cash flow information to the Fund Managers, if necessary; be responsible for the delegation of any responsibilities not specifically mentioned; and, report to Plan members on at least an annual basis.

.. The Fund Managers will:

participate, at least annually, in performance reviews by the p&n CemmitLccRPP1; forward to the p&n C()m~nitteeRPPI quarterly reviews of investment performance, expectations of future returns on various asset classes and proposed investment strategies for the following 12 to 24 months;

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Formatted: Levell, Tab stops: 0.38", Left + 0.71", Left + 1.38", Left + 1.88", Left + 2.38", Left + 2.88", Left + 3.38", Left + 3.88", Left + 4.38", Left + 4.88", Left + 5.38", left + 5.88", Left + 6.38", left + Not at 0" + 0.34" + 1"

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- -I Formatted: Font: Not Bold

I. upon direction of the P&B Committee, invest in passive asse-t classes such as indexed bond funds, indexed equity funds, real-return bonds, etc.; manage asset mix and select securities within each asset class, subject to applicable legislation and the philosophy and other constraints set out in this document; 13Hl\ ia~ the P&B CSFflmittee "itL month!..- <nll1Blis!'l :IHtements reF the--futt6..: advise the P&B Committee immediately of any changes in its senior investment personnel and/or significant changes in the size or mix of assets managed; comply with all relevant laws concerning the investment of the pension fund; and complete and deliver a compliance report (see page -1-~lQ) to the P&B Committee and the Fund's Consulting Actuary each quarter. The compliance report will indicate whether or not the Fund Manager was in compliance with this Statement during the quarter. In the event that the Fund Manager is not in compliance with this Statement, the Fund Manager is required to advise the P&B Committ~e immediately, detail the nature of the non~compliance and recommend the appropriate course of action to remedy the situation.

The Fund MflFluger i.;rvtanae.crs arc expected to comply, at all times and in all respects, with the Code of Ethics and Standards of Professional Conduct as promulgated by the CF A Institute.

The Fund ~Mlll1lU.!crs will manage the assets with the care, diligence and skill that an investment manager of ordinary prudence would use in dealing with pension plan assets. The Fund ~t\411nagCrS will also use all relevant knowledge and skill that it fllL"t.i.;e.;thcv possess or ought to possess as a prudent investment manager.

J~e. C;:o.n~l!ltil!R ~ctuary. (or !)is/her dclcfW[C apnrO\ cd 11\ P~B_ ~'om!l!il1<:c and RPP! twill:

assist in the preparation and subsequent annual reviews of this document; participate in all reviews of the Fund Managers and the Plan; report, at least semi-annually, on the performance of the Fund Managers and the Plan; comment on any changes in the Plan's benefits, membership or contribution flow which may affect how the Plan's assets are invested; comment on the impact of potential investment opportunities/strategies/legislative changes which may affect how the Plan's assets are invested; assist in the~lfI€ttl--tmtl implementation of this Statement; monitor the performance of the Plan and the Fund Managers on a regular basis, and contact the chair of the P&B Committee immediately if there are adverse changes of any kind, which warrant further review and/or investigation; support RPPI llnd the P&B Committee on matters related to investment management and administration of the Plan; and meet with RPPI and the P&B Committee as required.

fulfill the regular duties required by law of a CustodianlTrustee and perform the specific duties required of the Custodianffrustee pursuant to agreements entered into from time to time with UW; and provide the P&B Committee with monthly portfolio printouts of all assets of the Plan and transactions during the period.


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4. RETUlli'.( EXPECTATION, BENCHMARK PORTFOLIO, FUND MANAGER INVESTMENT OBJECTIVES.

Return Expectation. The annualized rate of return of the Plan must exceed the annualized rate of increase in the Consumer Price Index by at least 400 basis points (bps) net of the associated investment management fees over any ten-year period.

Investment Philosophy. All equity investments are to be made using the long-term value approach by investing in companies at prices below their underlying long-term values to protect capital from loss and earn income over time. The fund managers will attempt to identify financially-sound companies with good potential profitability which are selling at a discount to their intrinsic value. Appropriate measures of low prices may consist of: low price-earnings, high dividend yields, significant discounts to book value and low price to free cash flow. Downside protection is obtained by seeking a margin of safety in tenns of sound financial position and a low price in relation to intrinsic value. Appropriate measures of financial integrity include debt/equity ratios, financial leverage, asset turnover, profit margin, return on equity, and interest coverage. It is anticipated that purchases will be made when economic and issue-specific conditions are less than ideal and sentiment is uncertain or negative. Conversely, it is expected that gains will be realized when issuespecific factors are positive and sentiment is buoyant. Assets of the Fund are administered and managed on a combined basis through specialist portfolios. Fund managers will be expected to generate a rate of return in the first quartile or better over a market cycle.

Volatility Expectation. The volatility of the Plan is directly related to its asset mix, and specifically, the balance between Canadian bonds, Canadian equities and foreign equities. Since the Fund Managers do not have authority to make any type ofleveraged investment on behalf of the Plan, the volatility of the Plan should be similar to the volatility of the Benchmark Portfolio set out below.

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Benchmarl{ Po-rt"folio: A- rllc -1i.11Io\\ in!:! hcnchmark portfolio 'iF!' 'e:ted if1is used bv the !8Ih~l!'iH'; f1,"Set fHi', sheulr:! a€H-tev-eConsultin!! Actuarv to cnlclllatc the return ~eetalioA at lill lIeee["ltuhle JeyeJ ef ill ,'e.ilmi;'!nt risk 8' erasstlmptiolls for the Plan, t\ norlion nell1\' Plan is i!lvesled in a buv~jlnd-bQld

(caL[~.tJlIJLb.On<Lporllk)lkLlen6 tennThc [ollowinc tabk applics to the rcmaininrr portion of the Plan.

'As'set' ci~s Benchmark. .', Acll¥e':~1l1tilt!ti1ll ',"<,'. ' MtiW, PiIMe.



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Global Equities MSCI World S Cdn I: W:!Q,O% - . --

Fixed Income DEX Universe Bond ~: ~

~f.~=I4l~hln=kFi-i't"'~"h:X:HtWF-I-~mI~~,tFhOfHI1)ortr8Iio, -"ilt! (oFt!going table applie: to t:he felFHliFling ~el~e--fl-l-afr.

A diversified management structure has been adopted for the Plan consisting of several managers. This structure has been adopteq as it is believed that the different investment mandates will result in increased diversification, while reducing the "manager risk" effect for the total Plan.

The investment management structure employs a mix of active and passive management styles, Active management has been adopted for portions of the assets as it provides the opportunity to outperfonn common market indices over the long-term, while controlling active risk levels, Passive management has been adopted for portions of the assets as it minimizes the risk of underperformance relative to a benchmark index and is generally less expensive than active management.

Fund Manager Investment Objectives. Subject to the constraints cited in section 5, Fund Managers will employ security,selection and asset allocation strategies to try to add to the returns that would be earned by the alternative of passively managing their respective investment portfolio as described below. The objective of passive management is to match the return that could be earned by investing in securities that compose an index which is representative of a specific market.

Active Fund Manager performance will be considered satisfactory if the annualized return (be/ore investment management fees) over consecutive/our-year periods exceeds the return that could have been earned by passively managing the combined Benchmark Portfolio by 100 bps/or ~ Canadian Equity Managers, 200 bps/or ~Global EqUity Managers and 50 bps/or,..J--e-ffi;e Canadian Fixed income Alanagers, ,'::i",;!t", (i', fa" ,"it Ce, 7"'/:"'7 Ih'/a It t d.' Iu' lege' 'S, pt!ffaj'lIltfHt'r 'I'if-l he e6,), ';,,4 /'cd,-ailt:/6tH<#'-y-ij-fHe-rlf1ff/ttd::::,J ,'etl;;',1 /&e/o 'e f']',';f!flmenl-mtHfflgc,lh 'lffl t,'l )j't r C( "'ftC,,::l t (.sit '.it ell fli, .,',.,/.; f;Xtt'(\L' t.J.:c I'ch,,'j, <,hell (6,.!dhr:,J'c IX (¥I (',,;".cd~, pen: ii 6:,' mt1"'d<:,>";/~

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l're wJ'1hih'edBc neitrlld,k /'0((/8J;O ax 'J(} a~For Passive Canadian Fixed Income Managers <e.\'(lh.t:'I~ l '.S. " '( £I, '/. 'lts1,~pelformance will be considered salisfaclDlY if the tracking error is not more than +/- 10 bps over one-year periods and +/- 6 bps over consecutive jour-year periods. Similarly, for the hedged U.S. Equity Passive Managers, peljormance will be considered satisjactOJY if the trackingerl'ol' is no more than +/- 20 bps over one-year periods and +/- 10 bps over consecutive four-year periods.

5. AGGREGATE INVESTMENT LIMITS and PERMITTED CATEGORIES, ASSET MIX POLICY

Aggregate Investment Limits and Permitted Categories. At all times, the market value of the individual asset classes will be within the following minimum and maximum aggregate investment limits:

Asset Classes (excluding real return bonds)

,'AssefChiss,* + ' ....... 'Minimum' ,** , Maximum ** ", Fixed Income 30% 70% Cash or Equivalent 0% 10% Equities

30% 70% Alternatives

0% 20% Total

* These assets can be held in any combination of pooled funds or individual investments. + The asset classes exclude real return bonds. The long-term objective of the plan is to hold 70% of retiree liabilities in this type of investment.

** Minima and maxima do not sum to the total, as this would introduce artificial constraints.

Liquidity. All investments should be reasonably liquid (Le. under normal circumstances, they should be capable ofliquidation within one month).

Passively Managed and Specialty Investments. Assets that are passively managed or managed by specialty managers (e.g. global equities) are nonnally expected to be 100% invested with minimal, generally less than 2%, cash. The Passive Manager may equitize cash within its pooled funds.

Cash or Equivalents. Cash on hand, demand deposits, treasury bills, short-term notes and bankers' acceptances, term deposits and guaranteed investment certificates.

Equities. Common shares, rights, warrants, global depository receipts, exchange-traded index participation units, units of income trusts domiciled in jurisdictions that provide limited liability protection to unitholders and securities convertible into common shares. American Deposit Receipts (ADRs) are considered to be Non-CanadianINon-US investments. No single equity shall represent mOre than 10% of the total market value of any one of the Fund Manager's equity portfolios.



I. Fixed Income. 'Bonds (including real-return bonds), debentures: mortgage loans, mortgage-backed securities, preferred shares and asset-backed securities (ABS's). Investments in Canadian bonds and debentures will have a minimum rating arBBB or an equivalent rating, as rated by at least two of the three Recognized Bond Rating Agencies at the time of purchase. The following rating agencies shall be considered to be "Recognized Bond Rating Agencies": (i) Dominion Bond Rating Service (Canadian issuers only); (ii) Standard and Poor's and (iii) Moody's Investor Services. Not more than 10 % orthe market value of the Canadian fixed income securities shall be invested in BBB bonds or debentures. In addition, up to 10% of the actively managed fixed income portfolio (e).clu(;!in,; ~he-bI;:l)'--aH4-H~tfeH'lifi~ may be invested in debt denominated in U.S. currency, including debt issued by the U.S. Government, its agencies and instrumentalities. No other foreign currency debt will be purchased.

Alternatives. Investments outside the traditional asset classes of stocks, bonds and cash. Examples of alternative investments are real estate, infrastructure, private equity, and hedge funds

Downgrades in Rating Quality. In the event that a security is downgraded below the stated minimum in the Statement, the following steps will be taken: (i) The Fund Manager will notify UW of the downgrade by telephone at the earliest possible opportunity; (ii) Within ten business days of the downgrade, the Fund Manager will advise UW in writing of the course of action taken or to be taken by the Fund Manager, and its rationale; and (iii) Immediately upon downgrade, the Fund Manager will place the asset on a Watch List subject to monthly review by the Fund Manager with UW until such time as the security matures, is sold or until it is upgraded to a level consistent with the purchase quality standards as expressed in the guidelines mentioned above.

Split Ratings. In cases in which the Recognized Bond Agencies do not agree on the credit rating, the bond will be classified according to the methodology used by DEX, which states: (i) if two agencies rate a security, use the lower of the two ratings; (ii) if three agencies rate a security, use the most common; (iii) if all three disagree, use the middle rating.

Derivatives, Options and Futures. Derivatives, options and futures on any securities allowable under the Statement, including index options and futures. These instruments will be used to protect against losses from changes in exchange rates, interest rates and market indices. Aggregate limits encompass the securities underlying the futures and options. Upon prior written confirmation from the P&B Committee that such investments may be made, derivatives may be used as a substitute for mOre traditional investments if.they are based on and are consistent with achieving the Plan's longterm asset mix goal and rate of return objectives. Such products include debt, equity, commodity and currency futures, options, swaps and forward contracts, pooled or segregated funds that employ derivatives and synthetic products for purposes consistent with the investment objectives of the fund. Synthetic products used as substitutes for more traditional investments will not be used to gain leveraged exposure to various asset classes and will be collateralized by cash equal to the riskadjusted market value of the synthetic exposure. Hedging the currency on a fund position in a nonCanadian dollar investment is allowed into Canadian dollars only. Sufficient assets must be held to cover commitments due to the derivatives transactions. No derivatives can be used for speculative trading or to create a portfolio with leverage. Purchase or sale of any of these instruments for speculative purposes is prohibited.

Pooled Funds. Open-ended pooled funds investing in the asset categories noted above. The aggregate limits for these categories are inclusive of the underlying assets in the pooled funds.

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-Global investments-,nay-only -b~ ,nade by the ~Global Equity' Mcmcige-rs. ~ Canadian -Managers may only invest in Canadian investments, excluding any references to the contrwy specifically outlined above. Passive Managers may only invest in securities that are contained in the appropriate benchmark index(es) for their mandate(s), subject to residual cash holdings-tffTtl t,'f7fJ,·e\,tc!jJ/h"e1o\uc.; 0/ C<.S. {. (t,,-,{ .. 'ies.

Asset Mix Policy. The selection of investments is to be made with consideration given to the overall context of the investment portfolio without undue risk of loss or impairment and with a reasonable expectation of fair return or appreciation given the nature ofthc investments. All investments shall be made in accordance with all applicable legislation and the investment principles outlined above.

6. REBALANCING

The Plan will adjust the asset mix consistent with the investment philosophy described in this document.

7. CONFLICT OF INTEREST POLICY AND DISCLOSURE REQUIREMENTS

These guidelines apply to members oftl-leRPPI. P&B afltlCommillcc, F&I C;;entltH-H€%CnmmiLlcc, Fund Managers, Consulting Actuary, Custodian/Trustee, the Administrator and any employee or agent retained to provide services to the Plan.

Conflict of Interest Policy. Consistent with UW Policy 69, "Conflict ofInterest", any person listed above must disclose any direct or indirect association or material interest or involvement in aspects related to her/his role with regard to the Pension Plan investments that would result in any potential or actual conflict of interest.

Without limiting the generality of the foregoing, this would include fiR..- iAtZrz,;t iA lill) fl.-, t"!l erth2 ren.-iDR ItlArA. material ownership:- of or control mer nn asset held lw the Fund. participation in thc manae.emcnl or membership on the boards of etRe-rcorporations.,.er- with which the Fund is invcsted or which have sie.nificant im'cstmellts in assets held \1\- Ihe Fund. or interest in actual or proposed contracts im olving, thc Fund. However, being a member of the Plan itself is not sufficient to constitute a potential conflict of interest.

Persons \\ 110 me unsure as to whether or not a conniet of intcrest e\ist:'. can seck clarification from the Secretariat on \\ ht'lher it is necessar\' to rollo\, the proccdures below

Disclosure Requirements. lersons listed above shall disclose t~e nature and extent of any conflict to the Committee in writing upon becoming aware ofthe conflict; ifknc)\vfedge of the conflict arises in the course of a discussion at a meeting, such disclosure will be made verbally and recorded in the minutes of the meeting.~

Irthe person diselosin!llhe conniel has voting, powcr. he/she will refrain from participatin£l. in discussion and Volin£.!. on the mal tel' in respect o{"\\ hieh the individual has a notentia! or aetunl connie! ofintercsL If the person is the chair. Ihe chair \\ill stcp dm,n 1'01' Ihe 011 ration ofthc discllssion and Ihc members \,ill choose one nflhcir llull1berto iiI! the chair durin!! thnt period.



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I. {rihe -person disclosing the con-tl-ict does not have voting power, he/she-may-elect to continue in her/his activities with respect to the issue in conflict only with the unanimous approval of the members with voting rights.

The notification ffltl.tle by her.Jhimof a conflict shall be considered a continuing disclosure on that issue, until such time as he/she advises that the conflict no longer exists.

Related Party Transactions. For the purpose of this section, a "related party" and a "transaction" in respect orthe Plan have the meanings given to such terms in Schedule III of the Pension Benefits Standards Regulations, 1985 (Canada), The following related party transactions are permitted for the Plan:

any transaction that is required for the operation or administration of the Plan, the terms and conditions of which are not less favourable to the Plan than market terms and conditions;

any transaction the value of which is nominal (that is, less than 3% of the market value of the Plan) or which is immaterial to the Plan (that is, the terms and conditions of the transaction are not less favourable to the Plan than market terms and conditions); two or more transactions with the same related party shall be considered a single transaction; and

any purchase of securities of a related party, provided that those securities are acquired at a public exchange recognized under the Pension Benefits Standards Act and Regulations, 1985 (Canada).

8. LENDING OF CASH AND SECURITIES

The pension fund may not lend cash other than through investments described in this policy. Upon approval of the P&B Committee, the pension fund may enter into securities loan agreements. Such loans must be secured by cash and/or readily marketable government bonds, treasury bills and/or letters of credit, discount notes and banker's acceptances of Canadian chartered banks. The amount of collateral taken for securities lending should reflect best practices in local markets. The market value relationship between collateral and securities on loan must be calculated at least daily. For equity loans, high quality, liquid assets, may also be accepted as collateral. The terms and conditions of any securities lending program will be set out in a contract with the Custodian. The Custodian shall, at all times, ensure that the UW has a current list of those institutions that are approved to borrow the Plan's investments. Where the Plan is invested in a pooled fund, security lending will be governed by the terms and conditions set out in the pooled fund contract.

9. DELEGATION OF VOTING RIGHTS

The Fund Managers are delegated the responsibility of exercising all voting rights acquired through the Plan's investments. The Fund Managers will exercise acquired voting rights with the intent of fulfilling the investment objectives and policies of the Plan, At least on an annual basis, the Fund Managers shall report their voting rights to the P&B Committee. However, in those situations in which the exercise of voting rights could have significant financial impact upon the Plan's assets, the Fund Managers will secure guidance from the P&B Committee as to how the rights should be voted. Further, the Fund Managers should advise the P&B Committee regarding their voting on any unusual items or items they voted against management (together with reasons) at least on an annual basis.



(

10. VALUATION OF INVESTMENTS

It is expected that all the securities held by the Plan will have an active market and therefore valuation of the securities held by the Plan will be based on their market values.

The Fund Managers will notify the P&B Committee if the market for any investment held by the Plan becomes inactive and provide for the Committee's consideration a method for valuing the affected investment.



PallC 11 orI()

II. BORROWING

The Plan shall not borrow money.

12. CONFLICTS BETWEEN THE POLICY AND POOLED FUNDS INVESTMENT POLICIES

To the extent that the Plan's assets are invested in a pooled fund, the provisions of the pooled fund's own investment policy will supersede the above guidelines. The Fund Manager is required to advise UW in a quarterly compliance report in the event of any material discrepancies between the above guidelines and the pooled fund's own investment guidelines.

In the event that the Fund Manager is not in compliance with the Fund Manager's own investment policy, the Fund Manager is required to advise UW immediately, detail the nature of the noncompliance and recommend an appropriate course of action to remedy the situation.

13. DISMISSAL OF A FUND MANAGER

Reasons for considering the termination of the services of a Fund Manager include, but are not limited to, the following factors:

perfonnance results which are below the stated performance benchmarks; changes to the overall structure of the Plan's assets such that the Fund Manager's services are no longer required; changes in personnel, firm structure, ownership or investment philosophy; and/or, failure to adhere to this Statement.

In the event that a new Fund Manager must be selected or additional Fund Manager(s) are added to the existing structure, UW will undertake an investment manager search. The criteria used for selecting a Fund Manager will be consistent with the investment and risk philosophy set out in Section 4.

14. POLICY REVIEW

The Statement may be reviewed and amended at any time, but it must be formally reviewed by UW at least annually.

JOllllmy 2013



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I. To be completed by Fund Mallagers immediately prior to each quarterly review.

UNIVERSITY OF WATERLOO REGISTERED PENSION PLAN INVESTMENTS SUBCOMMITTEE

_____ ,201_

Pa!.!c 12 01'10

This is to certiry that I1we have adhered to the guidelines contained in the January 2013 version of the "Statement of Investment Policies and Procedures" for the University of Waterloo Pension Plan (MOO20 11 ), approved by the Board of Governors of the University of Waterloo.

Signed _________ _

On behalfof _______ _

Date __________ _



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University of Waterloo Pension Plan (2011) STATEMENT OF INVESTMENT POLICIES AND PROCEDURES January 1, 2013

CONTENTS

I. Purpose

2. Background, Plan Type and Liabilities

3. Allocation oflnvestment Responsibilities

4. Return Expectations, Benchmark POltfolio, Fund Manager Investment Objectives

5. Aggregate Investment Limits, Permitted Investment Categories, Asset Mix Policy

6. Rebalancing

7. Conflict of Interest Policy and Disclosure Requirements

8. Lending of Cash and Securities

9. Delegation of Voting Rights

10. Valuation of Investments

II. Borrowing

12. Conflicts Between the Policy and Pooled Fund Investment Policies

13. Dismissal of a Fund Manager

14. Policy Review

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1. PURPOSE

The primary goal of the University of Waterloo Pension Plan (2011) (the "Plan") is to provide members with a defined retirement income at a reasonable cost. The prudent and effective management of the assets ofthe pension fund has a direct impact on the achievement of this goal. The University of Waterloo ("UW"), sponsor and legal administrator of the pension fund, is responsible for achieving this primary goal.

This document has been prepared in accordance with the relevant legislation affecting the Plan to ensure continued prudent and effective management of pension fund assets. Deviating from this Statement ofInvestment Policies and Procedures ("Statement") is only allowed with the prior written approval of the Pension and Benefits Committee ("P&B Committee").

2. BACKGROUND, PLAN TYPE AND LIABILITIES

The Plan is a contributory defined-benefit plan, based upon an individual's final average salary and years of participation in the Plan prior to retirement.

All pensions paid under the Plan are escalated annually by the cost-of-living factor described in the Plan. For benefits accrued prior to January 1,2014, liabilities will grow in direct relation to the increase in the consumer price index ("CPI"). For benefits accrued on or after January 1,2014, liabilities will increase by 75% of the increase in CPl'. Notwithstanding the foregoing, if the increase in CPI in a given year exceeds 5%, then the indexation paid in that year will be determined by P&B Committee, in its discretion, taking into account the fund's ability to afford such an increase.

Thus, to provide pensions at a reasonable cost, it is necessary to strive for high real investment returns on the Plan assets over medium- and long-term periods. The investment philosophy, policies and procedures adopted in this document will assist in the achievement ofthis goal in a prudent and effective manner. In addition to the investments described in Section 4, the Plan holds real return bonds that are not actively traded and are intended to provide protection against inflation for a significant portion of the Plan's indexed pensioner and beneficiary obligations. Subject to annual review, the long-term objective of the Plan is to hold a maximum of70% of the retiree liabilities in this type of investment.

This Statement has been developed taking into account factors such as: the nature of the Plan's liabilities; the allocation of such liabilities between active and retired members; the funded and solvency positions of the Plan; the net cash flow position of the Plan; the investment horizon of the Plan; historical and expected capital market returns; and the benefits of investment diversification.

3. ALLOCATION OF RESPONSmILITIES

The Board of Governors ofthe University of Waterloo (the "Board") has established a Finance and Investment Committee ("F&I Committee") to assist in the determination ofUW's overall investment philosophy, policies, objectives and strategies, and a P&B Committee to assist in the management of the pension fund. A Registered Pension Plan Investments Subcommittee ("RPPI") was formed consisting of members from both F&I Committee and P&B Committee to assist in carrying out the responsibilities listed below.

1 A protocol is being developed to set out the parameters under which the P&B Committee would increase the level ofindexation beyond 75%.

RPPI will:

review this document annually; review pension fund performance on at least a semi-annual basis; review Fund Manager performance on at least a semi-annual basis; and report to P&B Committee.

RPPI will make recommendations to P&B Committee and F&I Committee on: the content of this document; the selection of Fund Managers; and the purchase of specific investments, including real return bonds.

Page 2 of 10

Working with the F&I Committee with respect to investment philosophy, policies, objectives and strategies and taking into consideration the recommendations of RPPI, the P &B Committee will make recommendations to the Board in the following areas:

the content of this document after its annual review; the selection of a Consulting Actuary; the selection of Fund Managers; the selection of a Custodian/Trustee to hold the pension fund assets; and the purchase of real return bonds.

In addition, the P&B Committee will:

review this document annually, taking into consideration any recommended changes from RPPI and F&I Committee; consider reports from RPPI on pension fund performance on at least a semi-annual basis; consider reports from RPPI on Fund Manager performance on at least a semi-annual basis; provide cash flow information to the Fund Managers, if necessary; be responsible for the delegation of any responsibilities not specifically mentioned; and, report to Plan members on at least an annual basis.

The Fund Managers will:

participate, at least annually, in performance reviews by the RPPI; forward to RPPI quarterly reviews of investment performance, expectations of future returns on various asset classes and proposed investment strategies for the following 12 to 24 months; upon direction of the P&B Committee, invest in passive asset classes such as indexed bond funds, indexed equity funds, real-return bonds, etc.; manage asset mix and select securities within each asset class, subject to applicable legislation and the philosophy and other constraints set out in this document; advise the P&B Committee immediately of any changes in its senior investment personnel and/or significant changes in the size or mix of assets managed; comply with all relevant laws concerning the investment of the pension fund; and complete and deliver a compliance report (see page 10) to the P&B Committee and the Fund's Consulting Actuary each quarter. The compliance report will indicate whether or not the Fund Manager was in compliance with this Statement during the quarter. In the event that the Fund Manager is not in compliance with this Statement, the Fund Manager is required to advise the P&B Committee immediately, detail the nature of the non-compliance and recommend the appropriate course of action to remedy the situation.

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The Fund Managers are expected to comply, at all times and in all respects, with the Code of Ethics and Standards of Professional Conduct as promulgated by the CF A Institute. The Fund Managers will manage the assets with the care, diligence and skill that an investment manager of ordinary prudence would use in dealing with pension plan assets. The Fund Managers will also use all relevant knowledge and skill that they possess or ought to possess as a prudent investment manager.

The Consulting Actuary (or his/her delegate approved by P&B Committee and RPPI) will:

assist in the preparation and subsequent annual reviews of this document; participate in all reviews of the Fund Managers and the Plan; report, at least semi-annually, on the performance of the Fund Managers and the Plan; comment on any changes in the Plan's benefits, membership or contribution flow which may affect how the Plan's assets are invested; comment on the impact of potential investment opportunities/strategies/legislative changes which may affect how the Plan's assets are invested; assist in the implementation of this Statement; monitor the performance of the Plan and the Fund Managers on a regular basis, and contact the chair of the P&B Committee immediately ifthere are adverse changes of any kind, which warrant fmiher review and/or investigation; support RPPI and the P&B Committee on matters related to investment management and administration of the Plan; and meet with RPPI and the P&B Committee as required.

The Custodian/Trustee will:

fulfill the regular duties required by law of a Custodian/Trustee and perform the specific duties required of the Custodian/Trustee pursuant to agreements entered into from time to time with UW;and provide the P&B Committee with monthly portfolio printouts of all assets of the Plan and transactions during the period.

4. RETURN EXPECTATION, BENCHMARK PORTFOLIO, FUND MANAGER INVESTMENT OBJECTIVES

Return Expectatio~. The annualized rate of return of the Plan must exceed the annualized rate of increase in the Consumer Price Index by at least 400 basis points (bps) net of the associated investment management fees over any ten-year period.

Investment Philosophy. All equity investments are to be made using the long-term value approach by investing in companies at prices below their underlying long-term values to protect capital from loss and earn income over time. The fund managers will attempt to identify financially-sound companies with good potential profitability which are selling at a discount to their intrinsic value. Appropriate measures of low prices may consist of: low price-earnings, high dividend yields, significant discounts to book value and low price to free cash flow. Downside protection is obtained by seeking a margin of safety in terms of sound financial position and a low price in relation to intrinsic value. Appropriate measures of financial integrity include debt/equity ratios, financial leverage, asset turnover, profit margin, return on equity, and interest coverage. It is anticipated that purchases will be made when economic and issue-specific conditions are less than ideal and sentiment is uncertain or negative. Conversely, it is expected that gains will be realized when issuespecific factors are positive and sentiment is buoyant. Assets of the Fund are administered and

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managed on a combined basis through specialist pOltfolios. Fund managers will be expected to generate a rate of retUl11 in the first quartile or better over a market cycle.

Volatility Expectation. The volatility of the Plan is directly related to its asset mix, and specifically, the balance between Canadian bonds, Canadian equities and foreign equities. Since the Fund Managers do not have authority to make any type of leveraged investment on behalf of the Plan, the volatility of the Plan should be similar to the volatility of the Benchmark Portfolio set out below.

Benchmark Portfolio. The following benchmark portfolio is used by the ConSUlting Actuary to calculate the retUl11 assumptions for the Plan. A portion of the Plan is invested in a buy-and-hold real return bond portfolio. The following table applies to the remaining pOltion of the Plan.

Asset Class Benchmark Canadian Global Equity Camidiari Fixed Equity .1vHm'agers M<iI1ag~~s

Canadian S&PfTSX 20.0% Equities Composite

Global Equities MSCI World $ 40.0% Cdn

Fixed Income DEX Universe 40% Bond

A diversified management structure has been adopted for the Plan consisting of several managers. This structure has been adopted as it is believed that the different investment mandates will result in increased diversification, while reducing the "manager risk" effect for the total Plan.

The investment management structure employs a mix of active and passive management styles. Active management has been adopted for pOltions of the assets as it provides the opportunity to outperform common market indices over the long-term, while controlling active risk levels. Passive management has been adopted for portions of the assets as it minimizes the risk of underperformance relative to a benchmark index and is generally less expensive than active management.

Fund Manager Investment Objectives. Subject to the constraints cited in section 5, Fund Managers will employ security selection and asset allocation strategies to try to add to the returns that would be earned by the altel11ative of passively managing their respective investment portfolio as described below. The objective of passive management is to match the return that could be earned by investing in securities that compose an index which is representative of a specific market.

Active Fund Manager performance will be considered satisfactory if the annualized return (before investment managementfees) over consecutivefour-yearperiods exceeds the return that could have been earned by passively managing the combined Benchmark Portfolio by 100 bps for Canadian Equity Managers, 200 bps for Global Equity Managers and 50 bps for Canadian Fixed Income Managers. For Passive Canadian Fixed Income Managers, performance will be considered satisfactory if the tracking error is not more than +/-10 bps over one-year periods and +/- 6 bps over consecutive four-year periods. Similarly, for the hedged us. Equity Passive Managers,

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performance will be considered satisfactory if the tracking error is no more than +/- 20 bps over one-year periods and +/- 10 bps over consecutive four-year periods.

5. AGGREGATE INVESTMENT LIMITS and PERMITTED CATEGORIES, ASSET MIX POLICY

Aggregate Investment Limits and Permitted Categories. At all times, the market value of the individual asset classes will be within the following minimum and maximum aggregate investment limits:

Asset Classes (excluding real return bonds)

;'; ·Asset.Class *+.< 0' Minilllnm*~ Maximnm.**···o; .. Fixed Income 30% 70% Cash or Equivalent 0% 10% Equities

30% 70% Alternatives

0% 20% Total

* These assets can be held in any combination of pooled funds or individual investments. + The asset classes exclude real return bonds. The long-term objective of the plan is to hold 70% of retiree liabilities in this type of investment. * * Minima and maxima do not sum to the total, as this would introduce artificial constraints.

Liquidity. All investments should be reasonably liquid (i.e. under normal circumstances, they should be capable Of liquidation within one month).

Passively Managed and Specialty Investments. Assets that are passively managed or managed by specialty managers (e.g. global equities) are normally expected to be 100% invested with minimal, generally less than 2%, cash. The Passive Manager may equitize cash within its pooled funds.

Cash or Equivalents. Cash on hand, demand deposits, treasury bills, short-term notes and bankers' acceptances, term deposits and guaranteed investment certificates.

Eqnities. Common shares, rights, warrants, global depository receipts, exchange-traded index participation units, units of income trusts domiciled in jurisdictions that provide limited liability protection to unitholders and securities convertible into common shares. American Deposit Receipts (ADRs) are considered to be Non-CanadianlNon-US investments. No single equity shall represent more than 10% of the total market value of anyone of the Fund Manager's equity portfolios.

Fixed Income. Bonds (including real-return bonds), debentures, mortgage loans, mortgage-backed securities, prefen'ed shares and asset-backed securities (ABS's). Investments in Canadian bonds and debentures will have. a minimum rating ofBBB or an equivalent rating, as rated by at least two of the three Recognized Bond Rating Agencies at the time of purchase. The following rating agencies shall be considered to be "Recognized Bond Rating Agencies": (i) Dominion Bond Rating Service

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Page 6 of 10

(Canadian issuers only); (ii) Standard and Poor's and (iii) Moody's Investor Services. Not more than 10 % of the market value of the Canadian fixed income securities shall be invested in BBB bonds or debentures. In addition, up to 10% of the actively managed fixed income portfolio may be invested in debt denominated in U.S. currency, including debt issued by the U.S. Government, its agencies and instrumentalities. No other foreign currency debt will be purchased.

Alternatives. Investments outside the traditional asset classes of stocks, bonds and cash. Examples of alternative investments are real estate, infrastructure, private equity, and hedge funds

Downgrades in Rating Quality. In the event that a security is downgraded below the stated minimum in the Statement, the following steps will be taken: (i) The Fund Manager will notify UW of the downgrade by telephone at the earliest possible opportunity; (ii) Within ten business days of the downgrade, the Fund Manager will advise UW in writing of the course of action taken or to be taken by the Fund Manager, and its rationale; and (iii) Immediately upon downgrade, the Fund Manager will place the asset on a Watch List subject to monthly review by the Fund Manager with UW until such time as the security matures, is sold or until it is upgraded to a level consistent with the purchase quality standards as expressed in the guidelines mentioned above.

Split Ratings. In cases in which the Recognized Bond Agencies do not agree on the credit rating, the bond will be classified according to the methodology used by DEX, which states: (i) if two agencies rate a security, use the lower of the two ratings; (ii) if three agencies rate a security, use the most common; (iii) if all three disagree, use the middle rating.

Derivatives, Options and Futures. Derivatives, options and futures on any securities allowable under the Statement, including index options and futures. These instruments will be used to protect against losses from changes in exchange rates, interest rates and market indices. Aggregate limits encompass the securities underlying the futures and options. Upon prior written confirmation from the P&B Committee that such investments may be made, derivatives may be used as a substitute for more traditional inVestments if they are based on and are consistent with achieving the Plan's longterm asset mix goal and rate of return objectives. Such products include debt, equity, commodity and currency futures, options, swaps and forward contracts, pooled or segregated funds that employ derivatives and synthetic products for purposes consistent with the investment objectives of the fund. Synthetic products used as substitutes for more traditional investments will not be used to gain leveraged exposure to various asset classes and will be collateralized by cash equal to the riskadjusted market value of the synthetic exposure. Hedging the currency on a fund position in a nonCanadian dollar investment is allowed into Canadian dollars only. Sufficient assets must be held to cover commitments due to the derivatives transactions. No derivatives can be used for speculative trading or to create a portfolio with leverage. Purchase or sale of any of these instruments for speculative purposes is prohibited.

Pooled Funds. Open-ended pooled funds investing in the asset categories noted above. The aggregate limits for these categories are inclusive of the underlying assets in the pooled funds.

Global investments may only be made by the Global Equity Managers. Canadian Managers may only invest in Canadian investments, excluding any references to the contrary specifically out/bled above. Passive Man.agers may only invest in securities that are contained in the appropriate benchmark index(es) for their mandate(s), subject to residual cash holdings.

Asset Mix Policy. The selection of investments is to be made with consideration given to the overall context of the investment portfolio without undue risk of loss or impairment and with a reasonable expectation of fair return or appreciation given the nature of the investments. All

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investments shall be made in accordance with all applicable legislation and the investment principles outlined above.

6. REBALANCING

The Plan will adjust the asset mix consistent with the investment philosophy described in this document.

7. CONFLICT OF INTEREST POLICY AND DISCLOSURE REQUIREMENTS

These guidelines apply to members ofRPPI, P&B Committee, F&I Committee, Fund Managers, Consulting Actuary, CustodianlTrustee, the Administrator and any employee or agent retained to provide services to the Plan.

Conflict of Interest Policy. Consistent with UW Policy 69, "Conflict of Interest", any person listed above must disclose any direct or indirect association or material interest or involvement in aspects related to her/his role with regard to the Pension Plan investments that would result in any potential or actual conflict of interest.

Without limiting the generality of the foregoing, this would include material ownership of or control over an asset held by the Fund, participation in the management or membership on the boards of corporations with which the Fund is invested or which have significant investments in assets held by the Fund, or interest in actual or proposed contracts involving the Fund. However, being a member ofthe Plan itself is not sufficient to constitute a potential conflict of interest.

Persons who are unsure as to whether or not a conflict of interest exists can seek clarification from the Secretariat on whether it is necessary to follow the procedures below

Disclosure Reqnirements. Persons listed above shall disclose the nature and extent of any contlict to the Committee in writing upon becoming aware of the conflict; if knowledge of the conflict arises in the course of a discussion at a meeting, such disclosure will be made verbally and recorded in the minutes of the meeting.

If the person disclosing the conflict has voting power, he/she will refrain from participating in discussion and voting on the matter in respect of which the individual has a potential or actual conflict of interest. If the person is the chair, the chair will step down for the duration of the discussion and the members will choose one of their number to fill the chair during that period.

If the person disclosing the conflict does not have voting power, he/she may elect to continue in her/his activities with respect to the issue in conflict only with the unanimous approval of the members with voting rights.

The notification of a conflict shall be considered a continuing disclosure on that issue, until such time as he/she advises that the conflict no longer exists.

Related Party Transactions. For the purpose of this section, a "related party" and a "transaction" in respect of the Plan have the meanings given to such terms in Schedule III of the Pension Benefits Standards Regulations, 1985 (Canada). The following related party transactions are permitted for the Plan:

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any transaction that is required for the operation or administration of the Plan, the terms and conditions of which are not less favourable to the Plan than market terms and conditions;

any transaction the value of which is nominal (that is, less than 3% of the market value ofthe Plan) or which is immaterial to the Plan (that is, the tenTIS and conditions of the transaction are not less favourable to the Plan than market terms and conditions); two or more transactions with the same related party shall be considered a single transaction; and

any purchase of securities of a related party, provided that those securities are acquired at a public exchange recognized under the Pension Benefits Standards Act and Regulations, 1985 (Canada).

8. LENDING OF CASH AND SECURITIES

The pension fund may not lend cash other than through investments described in this policy. Upon approval of the P&B Committee, the pension fund may enter into securities loan agreements. Such loans must be secured by cash andlor readily marketable government bonds, treasury bills andlor letters of credit, discount notes and banker's acceptances of Canadian chartered banks. The amount of collateral taken for securities lending should reflect best practices in local markets. The market value relationship between collateral and securities on loan must be calculated at least daily. For equity loans, high quality, liquid assets, may also be accepted as collateral. The terms and conditions of any securities lending program will be set out in a contract with the Custodian. The Custodian shall, at all times, ensure that the UW has a current list of those institutions that are approved to borrow the Plan's investments. Where the Plan is invested in a pooled fund, security lending will be governed by the terms and conditions set out in the pooled fund contract.

9. DELEGATION OF VOTING RIGHTS

The Fund Managers are delegated the responsibility of exercising all voting rights acquired through the Plan's investments. The Fund Managers will exercise acquired voting rights with the intent of fulfilling the investment objectives and policies of the Plan. At least on an annual basis, the Fund Managers shall report their voting rights to the P&B Committee. However, in those situations in which the exercise of voting rights could have significant financial impact upon the Plan's assets, the Fund Managers will.secure guidance from the P&B Committee as to how the rights should be voted. Further, the Fund Managers should advise the P&B Committee regarding their voting on any unusual items or items they voted against management (together with reasons) at least on an annual basis.

10. VALUATION OF INVESTMENTS

It is expected that all the securities held by the Plan will have an active market and therefore valuation of the securities held by the Plan will be based on their market values.

The Fund Managers will notifY the P&B Committee if the market for any investment held by the Plan becomes inactive and provide for the Committee's consideration a method for valuing the affected investment.

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11. BORROWING

The Plan shall not borrow money.

12. CONFLICTS BETWEEN THE POLICY AND POOLED FUNDS INVESTMENT POLICIES

To the extent that the Plan's assets are invested in a pooled fund, the provisions of the pooled fund's own investment policy will supersede the above guidelines. The Fund Manager is required to advise UW in a quarterly compliance report in the event of any material discrepancies between the above guidelines and the pooled fund's own investment guidelines.

In the event that the Fund Manager is not in compliance with the Fund Manager's own investment policy, the Fund Manager is required to advise UW immediately, detail the nature of the noncompliance and recommend an appropriate course of action to remedy the situation.

13. DISMISSAL OF A FUND MANAGER

Reasons for considering the termination of the services of a Fund Manager include, but are not limited to, the following factors:

performance results which are below the stated performance benchmarks; changes to the overall structure of the Plan's assets such that the Fund Manager's services are no longer required; changes in personnel, firm structure, ownership or investment philosophy; and/or, failure to adhere to this Statement.

In the event that a new Fund Manager must be selected or additional Fund Manager(s) are added to the existing structure, UW will undertake an investment manager search. The criteria used for selecting a Fund Manager will be consistent with the investment and risk philosophy set out in Section 4.

14. POLICY REVIEW

The Statement may be reviewed and amended at any time, but it must be formally reviewed by UW at least annually.

JanllWY 2013

To be completed by Fund Managers immediately prior to each quarterly review.

UNIVERSITY OF WATERLOO REGISTERED PENSION PLAN INVESTMENTS SUBCOMMITTEE

_____ ,201_

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This is to certify that I/we have adhered to the guidelines contained in the January 2013 version of the "Statement ofInvestmentPolicies and Procedures" for the University of Waterloo Pension Plan (2011), approved by the Board of Governors of the University of Waterloo.

Signed _________ _

On behalf of ________ _

Drue ___________ _