Message for McMaster's Surplus Sharing Group Members
(General Notice sent to McMaster Community on December 23, 2002)

Last week, we updated you on the status of the pension surplus distribution. We also committed to providing additional information as it became available. As previously communicated, the University has decided to report updated financial information regarding the pension plan to the Superintendent of Financial Services of Ontario (the Superintendent). The Superintendent is the provincial officer who has the authority to approve the excess pension surplus distribution.

The University will confirm to the Superintendent that it intends to proceed with the pension surplus distribution but that, as with most pension plans, the current turbulence in the stock market has had a negative impact on the value of McMaster's pension plan.

We would like to share with you the information that the University will be sending to the Superintendent.

For more than a decade, McMaster has not changed the way it values its pension plan assets.  The asset value is assessed on July 1 and the calculation is based on the lower of market value on that given day or a five-year average of market value to book value.   Although the University has used this formula for many years, our actuary has advised us that this is not the valuation method used today by most public sector institutions and most large pension plans.  In most cases they use a five-year rolling market average to calculate the value of their pension plan assets.  This method provides a valuation of plan assets that would not be as susceptible to volatile stock market increases or decreases and is recommended as a better methodology to support a long term funding strategy.  Using this proposed asset valuation method would result in an ongoing surplus in the pension plan of approximately $115 million or 15.8% of liabilities as of July 1, 2002 after the proposed surplus distribution.

Under McMaster's current valuation method, which results in the valuation of assets at their market value, the pension plan on July 1, 2002 would continue to have a surplus of approximately $40 million or 5.5% of liabilities following the planned excess pension surplus distribution.  It is estimated that if the same market value calculation was performed at November 30, 2002, the pension plan would have a deficit of approximately $16 million or (2.2%) of liabilities following the distribution; however, we are reminded by our actuary that the five-year rolling market average method would show the plan in a surplus position at that date and would better support the long term nature of the plan.  The University will be forwarding this information to the Superintendent.

In the new year, the Pension Trust Committee and Board of Governors will review in detail the implications of changing the valuation method with the goal of choosing the method which best supports a long term funding strategy for the plan.

As we stated earlier, it is the University's intention to proceed with the pension surplus distribution.  Any new information that is received from the Superintendent will be passed along to plan members when it is available.
 

Les Robb for the Employee Groups
Lilian Scime for the University