Speakers:Heather WolfeManaging Director, Client Relationships, Defined Benefit SolutionsSun Life Financial

Mathieu TessierDirector, Client Relationships, Defined Benefit SolutionsSun Life Financial

Throw away your crystal ball

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T H E S H O E M A K E R ’ S S T O R Y

O N C E U P O N A T I M E …

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T I M E S W E R E D I F F I C U LT …

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Cash infusions

Time and attention

T H E S H O E M A K E R D E C I D E D T O TA K E A C T I O N

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Look for a

buyer

Put it in run-off

Company Pension Plan

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A N A L L E G O R Y F O R …

W H AT T H E S H O E M A K E R L E A R N E D

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R ISK AND REWARDA C L O U D Y R E S U LT

W H AT ’ S Y O U R R E W A R D F O R TA K I N G R I S K ?

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C o r e b u s i n e s s r i s k

P r o f i t

C o m p e t i t i ve a d va n t a g e

G r o w t h

S h a r e h o l d e r va l u e

P e n s i o n p l a n r i s k

N o c o m p e t i t i ve a d va n t a g e

M a n a g e m e n t t i m e a n d a t t e n t i o n

Tr a p p e d s u r p l u s

Risk budget

Vo l a t i l i t y

Material rewards for reducing pension risk

R E D U C I N G P E N S I O N R I S K PAY S O F F

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Avoids trapped surplus

Reduced pension volatility

Potential tax savings

Reduced investment management fees

Additional reward: ensure benefit security for plan members

T H E M A R K E T R E W A R D S P L A N S T H AT D E - R I S K

11Announcement day returns relative to the S&P 500 Index

+0.1%Kimberly-Clark

2015Annuity purchase

+0.8%Bristol-Myers

Squibb2014

Annuity purchase

+2.3%Motorola

2014Annuity purchase

+0.6%NCR2013

Annuity purchase

+2.6%Verizon

2012Annuity purchase

+6.4%NCR2012

Lump sum

+1.6%General Motors

2012Annuity purchase

and lump sum

-2.50%Ford2012

Lump sum

+3.4%Honeywell

2010Accelerated funding

W H AT ’ S T H E B E S T O P T I O N F O R F I X E D I N C O M E A S S E T S ?

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Focus on fixed income assets

Universe bond portfolio

Customized matching bond portfolio

I S W A I T I N G F O R I N T E R E S T R AT E S T O R I S E W O R T H I T ?

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Magic number is 2.5%

over 5 years

Source: Sun Life analysis for a typical Canadian defined benefit pension plan

I S A 2 . 5 % R AT E I N C R E A S E R E A L I S T I C ?

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Bond market expecting rate

increases

Rate increase anticipated over the next 5 years

1-year Government of Canada bond

1.49%

10-year Government of Canada bond

0.98%

Rates as of March 31, 2017

I S A 2 . 5 % R AT E I N C R E A S E R E A L I S T I C ?

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Long-term rates may not move

in line with short-term

rates

Bank of Canada rate hike history

Period Total rate hike Yield curve

Change in 10-year spot

rate

Change in 30-year spot

rate

Nov. 8, 1996 – Aug. 26, 1998 2.75% Flattens -0.83% -1.34%

Nov. 17, 1999- May 17, 2000 1.25% Flattens 0.17% -0.67%

Apr. 16, 2002 – Apr. 15, 2003 1.25% Flattens -0.52% -0.21%

Sep. 7, 2004 – Jul. 9, 2007 2.50% Flattens -0.13% -0.76%

May 28, 2010 – Sep. 8, 2010 0.75% Flattens -0.30% -0.13%During the rate increase period, longer duration credit spreads typically increased only slightly, which was not enough to materially counterbalance the decrease in risk free rates noted above.

I S A 2 . 5 % R AT E I N C R E A S E R E A L I S T I C ?

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Demand for long duration assets may

keep rates low

T O P T I P S T O AV O I D A C L O U D Y R E S U LT

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Throw away your crystal ball

Take action instead

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Source: Aon Hewitt Median Solvency Index, February 1, 2017

W H AT W E ’ R E H E A R I N G F R O M S P O N S O R S – R E G R E T

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0 %

20 %

40 %

60 %

80 %

100 %

120 %

Median solvency ratio

69%

102%

94%99% 97%

86%93%

94%

76%

86%

83%68%

93%

91%

86%

95% 97%

W H AT W E ’ R E H E A R I N G F R O M S P O N S O R S – U N C E R TA I N T Y

T H E F U T U R E I S R E A L LY C L O U D Y

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M A N Y H AV E D E C I D E D T O TA K E A C T I O N

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PPG (U.S.)

Bell Canada (Canada)

General Motors (U.S.)

Verizon (U.S.)

Loblaw (Canada)

Kimberly Clark (U.S.)

AstraZeneca (U.K.)

Rolls Royce (U.K.)

TRW (U.K., U.S., Canada)

British Airways (U.K.)

Siemens (U.K.)

Bristol-Myers-Squibb (U.S.)

O P T I O N S F O R P E N S I O N P L A N S

•Sell equities, buy bonds

•Buy longer bonds

•Custom portfolio•Custom benchmarking

•Wind up•Buy annuities or longevity insurance

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Pension risk

transferCustom

LDIReduce equities

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WHAT’S HOLDING

YOU BACK?