FALL 2020 | VOL. 11 | ACTIVE MEMBER EDITION
IN THIS ISSUE 1 | AN UPDATE FROM YOUR BOARD OF TRUSTEES 1 | FULL COST OF LIVING ADJUSTMENT AWARDED TO MEMBERS 2 | NAMING YOUR BENEFICIARY 3 | YOUR NBPSPP IN 2019 5 | MID-YEAR INVESTMENT REPORT 7 | NBPSPP 2020 ANNUAL INFORMATION MEETING 7 | WELCOMING A NEW TRUSTEE TO YOUR BOARD 7 | AMENDMENTS TO GOVERNING DOCUMENTS
CONTACT US WRITE: New Brunswick Public Service Pension Plan Board of Trustees c/o Vestcor PO Box 6000 Fredericton, NB E3B 5H1 CALL: 1 800 561 4012 (toll free) 506 453 2296 (Fredericton) EMAIL: info@vestcor.org ISBN 978-1-4605-2739-9
Key points to remember:
AN UPDATE FROM YOUR BOARD OF TRUSTEES In these unprecedented times, we, as your NBPSPP Board of Trustees, understand the concerns you may have surrounding your pension. We want to reassure you that the NBPSPP remains well-funded. Our investment assets are diversified with significant risk-management in place, beyond what you would see in a traditional pension plan. These measures are designed to reduce the effect of volatile markets on the NBPSPP compared to traditional pension plans. Fluctuations in the quarterly investment performance of the NBPSPP are to be expected, so it’s important that we maintain a long-term focus when looking at the assets of the Plan. Despite the recent challenges, long-term investment returns for the NBPSPP still exceed what is required for the Plan to remain on a strong financial footing. We want to assure you; your pensions are secure. Finally, the Board would like to remind members that your Plan is a jointly trusteed plan. This structure, common across Canada and around the world, means that governance of your Plan is provided by an independent Board of Trustees that have a fiduciary duty to always act in the best interests of the Plan and its members, while abiding by the governing documents of the Plan. This differs significantly from the previous model, where the Province of New Brunswick acted as the Administrator. The independence of your Board ensures that they are removed from outside influence, and accountable to you as a Plan member. Your Board is committed to always following best practices when it comes to the governance of the NBPSPP, today and in the future.
• Your Plan remains well- funded, with enough assets to make the required pension payments for a very long time. • The investments of the NBPSPP are less risky than a traditional pension plan and designed to better withstand market downturns. • A more detailed Investment Report is available on page 5 of this newsletter. • More information on how the Plan performed in 2019 can be found in the NBPSPP 2019 Annual Report, available now at vestcor.org/nbpspp.
FULL COST OF LIVING ADJUSTMENT AWARDED TO MEMBERS Your Board of Trustees was able to approve a full cost of living adjustment (COLA) to all active, deferred and retired members for January 1, 2021. This year’s COLA matches Canada’s Consumer Price Index of 1.46%. For active and deferred members, the 1.46% increase will be applied to the pension benefits you’ve earned up to December 31, 2019. This will positively impact your future pension. The increase will be applied to retirees’ monthly pension as of January 1, 2021.
1.46%
increase for all active, deferred and retired members
To know how COLA was calculated, view the COLA fact sheet at vestcor.org/nbpspp under “Latest Information”. DISCLAIMER: This newsletter is a publication on behalf of the Board of Trustees of the New Brunswick Public Service Pension Plan. This publication is intended to provide information about the New Brunswick Public Service Pension Plan. If there is a discrepancy between the information contained herein and the pension plan text or other appropriate governing documents, the latter will prevail.
NBPSPP UPDATE | 1
NAMING YOUR BENEFICIARY:
YOUR PRE-RETIREMENT BENEFITS & THE PEOPLE THAT MATTER MOST TO YOU
WHAT IS A BENEFICIARY? Beneficiaries are the individuals designated by you to receive the benefit available under the NBPSPP in the event of your death. Your spouse is automatically entitled to the pre-retirement death benefit in the event of your death. You do not have to name your spouse as your beneficiary. Even if you were to name someone other than your spouse as your beneficiary, your spouse would still be entitled to the death benefit available upon your death. Under the NBPSPP a spouse is a person who is either: • legally married to the member; or • has cohabitated in a conjugal relationship with the member for a continuous period of at least two years immediately before the date in question. WHAT IF I WANTED SOMEONE OTHER THAN MY SPOUSE TO RECEIVE THE BENEFIT? If you would like someone other than your spouse to receive the pension benefit in the event of your death, and your spouse agrees, your spouse can sign a Pre-retirement Death Benefit Waiver Form and waive all or a portion of their entitlement to the death benefit. This form can be found at vestcor.org/nbpspp. If you do not have a spouse, you can name the beneficiary of your choice. ARE MY DEPENDENT CHILDREN AUTOMATICALLY MY BENEFICIARIES? No, any dependent children you may have are not automatically your beneficiaries. In the event of your death and the death of your spouse (if applicable), it is very important to be aware that dependent children who are named as beneficiaries will be eligible to receive a monthly dependent pension (assuming you are vested under the NBPSPP and a lump sum payout has not occurred) for as long as they continue to meet the definition of a dependent child in the plan text. However, dependent children are only eligible to receive this monthly dependent pension if they are your designated beneficiaries prior to your death. WHAT HAPPENS IF I DON’T NAME A BENEFICIARY? If you do not name a beneficiary and you do not have a spouse at the time of your death, the death benefit will be paid to your estate. Naming a beneficiary or beneficiaries allows for the direct payment of the death benefit without it having to go through your estate. HOW DO I DESIGNATE OR CHANGE MY BENEFICIARY? If you would like to designate or change a beneficiary, please complete the Designation/Change of Beneficiary Form found at vestcor.org/nbpspp and forward it to Vestcor. If you need additional help with the process, contact the Vestcor Member Services Team at 1 800 561 4012.
Naming more than one beneficiary? When filling out your Designation/Change of Beneficiary Form, you will be asked to assign a percentage of the benefit to each beneficiary. Remember, the percentages assigned to your beneficiaries must total 100%. For example, if you include three beneficiaries and wish to provide them with equal shares, two must receive 33.33% and one 33.34%, so that the total equals 100%.
2 | NBPSPP UPDATE
Your NBPSPP in 2019 Membership Your NBPSPP had
39,981
active, retired, & deferred members
in New Brunswick & around the world.
2019 Investment Performance
11 .65%
Gross Investment Return at Dec. 31, 2019
As compared to 2018...
The gross investment return was 1.75%, adding $132.3 million in net investment income.
NBPSPP UPDATE | 3
$720 million
Increase in Net Assets Since Dec. 31, 2018
Our investment manager, Vestcor, recently released a brief video summarizing how their long-term investment performance has cost effectively met the long-term return goals of their clients while experiencing a relatively low level of risk. The video can be found at vestcor.org/investments.
$8.334 billion
in Investment Assets as at Dec. 31, 2019
Read more about the Plan’s Mid-Year Investment Performance on page 5.
Actuarial Valuation WHAT IS AN ACTUARIAL VALUATION REPORT?
The actuarial valuation report is an important tool used by the Board of Trustees. It assesses the NBPSPP’s ability to provide pension benefits to you, as a member. It also helps guide the Board in making decisions regarding the finances of the NBPSPP, such as granting COLA. The Pension Benefits Act requires the Board to hire an actuary to conduct this report annually.
WHAT WERE THE RESULTS IN 2019?
As of January 1, 2020, the NBPSPP passed all of the risk management goals outlined in the actuarial valuation report. A summary of these are included below. The full report is available at vestcor.org/nbpspp, under “Financial Results”, “Actuarial Valuation”.
Target
Current results as at January 1, 2020
Prior results as at January 1, 2019
97.5%
99.35%
99.15%
1st Secondary Risk Management Goal Provide indexing in excess of 75% of CPI to members and retirees over the next 20 years.
75%
88.60% of CPI
88.90% of CPI
2nd Secondary Risk Management Goal Achieve at least 75% probability that ancillary benefits (i.e., early retirement subsidy) can be provided over the next 20 years.
75%
98.90%
98.70%
Primary Risk Management Goal Achieve 97.5% probability that past base benefits earned will not be reduced over the next 20 years.
The report also provides an update on how well the NBPSPP is funded, known as the funding status.
Termination Funded Ratio
15-Year Open Group Funded Ratio
Used in calculating a member’s benefits upon termination of employment, death or marriage breakdown.
Used to determine the actions to be taken by the Board of Trustees per the NBPSPP Funding Policy, such as granting COLA.
114.7%
131.7%
Want to learn more about your Plan? The NBPSPP 2019 Annual Report is now available at vestcor.org/nbpspp.
4 | NBPSPP UPDATE
MID-YEAR INVESTMENT REPORT
A SNAPSHOT OF YOUR PENSION FUND AT JUNE 30, 2020 NBPSPP RETURN (GROSS)
NET DECREASE OF
0.12%
INVESTMENT ASSETS ARE
$84.4 million
$8.250 billion
SINCE DEC. 31, 2019
AT JUNE 30, 2020
INVESTMENT RETURNS (AS AT JUNE 30, 2020) 8%
7.03% 6.47% 6.05%
6%
6.77%
5.76% 5.40%
4.06% 4.22%
4%
2%
1.11% 0.12%
0% Year-to-Date
Portfolio Return
One-Year
Four-Year
Value Added Return (Over Investment Policy Benchmark)
Since Plan Conversion (2014)
Since Mandate Inception (1996)
Benchmark Return
The first half of 2020 proved to be an extremely challenging investment environment. Global economic activity declined significantly during the first quarter of the year as most governments essentially shut down their economies to try to mitigate the COVID-19 virus outbreak. This subsequently caused unprecedented financial market volatility, with a significant decline in global risk assets in the first quarter undergoing a strong recovery in the second quarter. As of June 30th, the well diversified NBPSPP investment program experienced a positive year-to-date return of 0.12%. More importantly, both the longer term four-year annualized return of 6.05%, and the annualized return since the inception of Vestcor’s management in 1996 of 7.03%, remain in excess of the 4.75% discount rate set for the Fund.
INVESTMENT ASSETS
The fair value of the NBPSPP investment assets on June 30, 2020 was $8.250 billion, a decrease of $84.4 million from the fair value at December 31, 2019. This decrease represents approximately 1% of the overall pension fund. The decline in fund assets from December 31, 2019, is due to the sum of active member contributions and investment returns being slightly less than the benefits paid out to retirees in the first six months of the year.
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MID-YEAR INVESTMENT REPORT (CONTINUED) ASSET MIX
The breakdown of where the Pension Fund was invested at June 30, 2020, known as the investment asset mix, is displayed below. The proportion of each type of investment to the total Pension Fund was held close to the Pension Fund Investment Policy targets set by the Board of Trustees. Asset Mix Breakdown as at June 30, 2020 Short-Term Assets - 0.78%
Fixed Income
U.S. Equity - 3.55%
Equities
International Equity - 4.48% Real Return Bonds - 5.10%
Inflation Linked Assets
Private Equity - 5.17%
Absolute Return Strategies
Canadian Equity - 7.86% Absolute Return Strategies - 7.98% Real Estate & Infrastructure - 9.76%
Nominal Return Bonds - 17.36% Corporate Bonds - 18.02% Low Volatility Equity - 19.94%
0%
5%
10%
15%
20%
MARKET SNAPSHOT
After the significant volatility in the first quarter of 2020, most equity markets recovered rapidly to close the first half of the year just slightly below the levels at the end of 2019. The U.S. S&P 500 equity market Index ended 2019 at 3230, reached a low of 2237 (-31% return) in late March, but rallied 39% from the lows to close the month of June at 3100. Interest rates have declined further as global central banks try to further stimulate economic activity. Outside of the U.S., global equity markets have also recovered significantly, although remain somewhat lower relative to previous peak values when compared to the U.S. market. The global geopolitical outlook continues to remain mixed as uncertainty as to the long-term impact of the coronavirus, U.S.-China trade relations, and various political events around the globe continue to weigh on investors. For more information, including a summary of the market outlook for this period, visit the Quarterly Market Updates provided by Vestcor at vestcor.org/marketupdates.
HELPFUL DEFINITIONS Asset Mix: A breakdown that details the proportion of investment assets within a fund or portfolio. Equities: Investment securities that represent an ownership interest in an asset such as shares in a company or real estate assets. Discount Rate: Set by the Plan’s independent actuary. The rate at which a fund’s expected benefit cash flows to members are discounted to determine its present value. In a Pension Fund, the assumed, net investment rate of return that the Pension Fund needs to conservatively earn over the long-term. Gross Investment Return: Return before fees are deducted (for example, investment management fees). Statement of Investment Policies: A legal document that outlines the investment policies and procedures of a fund. For even more helpful definitions, you can find a glossary of terms relevant to the NBPSPP at vestcor.org/glossary. 6 | NBPSPP UPDATE
NBPSPP 2020 ANNUAL INFORMATION MEETING On September 21st, 2020 we held our 6th Annual Information Meeting via live webcast. If you had difficulties attending, or if you would like more information, visit vestcor.org/NBPSPP2020AIM, where you can: • watch the recording of the meeting; • access the presentations;
• read the questions and answers; and • find our Key Resources Guide.
WELCOMING A NEW TRUSTEE TO YOUR BOARD Your Board’s composition changed in early 2020 with Denise Pinette’s term as a Trustee ending on January 31, 2020, at which time she chose not to seek reappointment. Denise’s knowledge and contributions provided much value to your Board. As of February 1, 2020, your Board of Trustees had the pleasure of welcoming Paul Martin to the Board. Paul Martin is the Comptroller for the Province of New Brunswick with oversight of accounting, internal audit, enterprise risk management, financial systems and consulting. He has 38 years of experience in public practice as a former partner with a national accounting firm and currently with the Provincial Government. Paul is a Fellow Chartered Professional Accountant and a past president of the New Brunswick Institute of Chartered Accountants. He currently serves as a member of the Chartered Professional Accountants of Canada’s Public Sector Accounting Discussion Group and the Employment Benefits Task Force. Paul is also a Trustee of the New Brunswick Teachers’ Pension Plan.
AMENDMENTS TO GOVERNING DOCUMENTS The New Brunswick Pension Benefits Act (PBA) requires that members be provided with an update on any amendments to the NBPSPP governing documents. As such, the Board of Trustees would like to inform you that the Statement of Investment Policies was amended to reflect minor asset mix changes and approved by the Board of Trustees at their March 18, 2020 meeting. This amendment was filed with the Superintendent of Pensions. The updated version of the Statement of Investment Policies is available at the following website: vestcor.org/nbpspp.
NBPSPP UPDATE | 7