Workers Compensation Board of Manitoba Retirement Plan

Transcription

1 Financial Statements of Workers Compensation Board of Manitoba Retirement Plan, 2013

2 Management's Responsibility for Financial Information The financial statements of the WCB Retirement Plan were prepared by management, which is responsible for the integrity and fairness of the data presented, including significant accounting judgments and estimates. This responsibility includes selecting appropriate accounting principles consistent with international financial reporting standards. Financial information contained elsewhere in the annual newsletter conform to these financial statements. Management believes the system of internal controls, review procedures and established policies provide reasonable assurance that relevant and reliable financial information is produced and that assets are properly safeguarded. Management also believes that the WCB's operations are conducted in conformity with the law and with a high standard of business conduct. The internal auditor performs periodic audits designed to test the adequacy and consistency of the WCB's internal controls. The Board of Directors is responsible for overseeing management in the performance of its financial reporting responsibilities and approved the financial statements and other financial information included in the annual newsletter on June 26, The Audit committee assists the Board of Directors in its responsibilities. This Committee reviews and recommends approval of the WCB Retirement Plan financial statement and annual newsletter. Internal and external auditors and actuaries have unlimited access to the Audit Committee. The Committee reviews the financial statements and the other contents of the newsletter with management and the external auditors, and reports to the Board of Directors prior to their approval for publication. The Consulting Actuary for the WCB Retirement Plan completed the actuarial valuations of the Plan included in the financial statements of the WCB Retirement Plan and reported thereon in accordance with accepted actuarial practices. Grant Thornton LLP, independent auditors appointed as a sub-agent to the Provincial Auditor General, has performed an independent audit of the financial statements of the WCB Retirement Plan in accordance with Canadian generally accepted auditing standards. Their Independent Auditors' Report outlines the scope of this independent audit and includes their opinion expressed on the 2013 financial statements. Winston Maharaj President and CEO Lorena B. Trann, CMA, FCMA Chief Financial Officer June 26, 2014 Page 2

3 Independent Auditors' Report To the Board of Directors of the Workers Compensation Board of Manitoba We have audited the accompanying financial statements of the Workers Compensation Board of Manitoba Retirement Plan, which comprise the statement of financial position as at December 31, 2013 and the statement of changes in net assets available for benefits and the statement of changes in pension obligations for the year then ended, and a summary of significant accounting policies and other explanatory information. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with Canadian accounting standards for pension plans, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor s Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the supplementary financial information. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements present fairly, in all material respects, the financial position of the Workers Compensation Board of Manitoba Retirement Plan as at December 31, 2013 and the changes in net assets available for benefits and the statement of changes in pension obligations for the year then ended in accordance with Canadian accounting standards for pension plans. Grant Thornton LLP Chartered Accountants Winnipeg, Manitoba June 26, 2014 Page 3

4 Statement of Financial Position December 31 (in thousands of dollars) Assets Investments (Note 4) $ 147,202 $ 121,018 Total assets 147, ,018 Liabilities Total liabilities - - Net assets available for benefits 147, ,018 Pension obligations (Note 6) (181,143) (172,692) Plan Deficit $ (33,941) $ (51,674) The accompanying notes are an integral part of the financial statements. Authorized for issue on June 26, 2014 on behalf of the Board of Directors, Michael D. Werier Chair, Board of Directors Wendy Sol Audit Committee of the Board of Directors Page 4

5 Statement of Changes in Net Assets Available for Benefits (in thousands of dollars) Pension fund contributions: Employee required $ 2,396 $ 2,317 Employee voluntary Employer required 3,698 3,329 Employer special payments 1,573 1,197 Reciprocal transfers and buybacks: Employee Investment income (Note 4) 21,435 8,916 Total increase in net assets 29,349 16,496 Decrease in net assets: Pension payments 2,819 2,609 Termination benefit payments 346 1,069 Total decrease in net assets 3,165 3,678 Increase in net assets 26,184 12,818 Net assets, beginnning of year 121, ,200 Net assets, end of year $ 147,202 $ 121,018 The accompanying notes are an integral part of the financial statements. Page 5

6 Actuarial value of pension obligations, beginning of year $ 172,692 $ 138,559 Benefits accrued 8,819 7,510 Benefits paid (3,165) (3,678) Interest accrued on benefits 7,706 7,197 Effect of actuarial (gain) loss (8,332) 21,684 Effect of experience loss 3,423 1,420 Actuarial value of pension obligations, end of year $ 181,143 $ 172,692 The accompanying notes are an integral part of the financial statements. Page 6

7 1. General The Workers Compensation Board of Manitoba Retirement Plan (the Plan) is an employer sponsored jointly-funded defined benefit plan that was established January 1, The Plan is subject to the Pension Benefits Act of Manitoba (PBA). 2. Description of the Plan The following description of the Plan is a summary only. For more complete information reference should be made to the Plan text. (a) Eligibility Each full-time employee must become a member of the Plan on the first day of the month following or coincident with their date of hire. Each part-time employee must join on the first day of the month coincident with or next following the completion of three months of service. (b) Contributions Members who are employees are required to contribute to the Plan a certain percentage of the member's earnings up to the legislated Year's Maximum Pensionable Earnings (YMPE) plus a certain percentage of the members' earnings in excess of the YMPE, as established by the Plan. Member contribution rate percentages used for 2013 and 2012: Below YMPE 6.1% Above YMPE 8.0% Employer contributions vary depending on the current service costs of the Plan. The Employer is required to contribute the balance of the cost of a pension that is not covered by the member's required contributions, plus fund any plan deficiency through special payments. Employer contributions vary based on the actuarial valuation of the plan. For 2013, the Employer funded per cent (143.7 per cent for 2012) of member contributions. The Employer expects to fund per cent of member contributions in Page 7

8 Members may make voluntary contributions to the Plan, which will be credited to an individual voluntary contribution account maintained for the member. Interest is credited to a Member's voluntary contribution account at the end of the plan year and at the end of the month the Member separates from continuous service. The Employer does not match or contribute to a member's voluntary contribution account. (c) Retirement benefits Normal retirement pension benefits commence the last day of the month in which the member attains age 65. The annual earned pension payable to a member on normal retirement is based on years of credited service, final average earnings and the average YMPE calculated in accordance with the Plan formula. If a member has completed at least 10 years of continuous service and attained age 55, they may elect to receive an early retirement benefit in accordance with the Plan terms. Retirement benefits cannot be postponed beyond the end of the year in which a member turns 71 years of age. (d) Death benefits If a member dies before pension commencement, a death benefit is payable in accordance with the Plan text. Any death benefit payable upon the death of a member who has commenced to receive a pension will be paid in accordance with the form of pension the member elected at retirement. (e) Benefits on termination The terminating member is entitled to receive a pension payable at age 55 or later, based on the final average earnings and years of credited services to the date that employment ceased. (f) Income tax status The Plan is a Registered Pension Plan as defined in the Income Tax Act (Canada) and is not subject to income taxes. The Plan's registration number is Page 8

9 3. Significant accounting policies (a) Basis of presentation The Plan's financial statements are prepared in accordance with Canadian accounting standards for pension plans on a going concern basis and present the financial position of the Plan as a separate reporting entity independent of the Employer and plan members. The objective of these financial statements is to assist plan members and other users in reviewing the financial position and results of operations of the Plan for the year. However, these statements do not portray the funding requirements of the Plan or the security of benefits of an individual plan member. In accordance with Canadian Institute of Chartered Accountants (CICA) Section 4600, Pension Plans, which provide specific guidance on investments and pension obligations, the Plan adopted Accounting Standards for Private Enterprises (ASPE) in Part II of the CICA Handbook for accounting policies that do not relate to either investments or pension obligations. (b) Financial instruments Financial instruments include investments which are recorded at fair value on initial recognition. (c) Fair value measurement Fair value is the estimated amount of consideration that would be agreed upon in an arm's length transaction between knowledgeable willing parties who are under no compulsion to act. All investment assets are measured at fair value at the date of the statement of financial position. All changes in fair value are recognized in the statement of net assets available for benefits for the current period as investment income. The Plan is wholly invested in pooled funds. Pooled funds are valued at the unit value supplied by the pooled fund administrator and which represent the Plan's proportionate share of the underlying net assets at fair value determined using closing bid prices. Page 9

10 (d) Pension obligations Pension obligations are the actuarial present value of accrued pension benefits determined by applying best estimate assumptions and the projected benefit method prorated on service. (e) Contributions Contributions from members and the Employer are recorded on the accrual basis. Cash received from members for credited service and cash transfers from other plans are recorded as received. (f) Measurement uncertainty These financial statements have been prepared in conformity with Canadian accounting standards for pension plans which requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. Pension obligations are estimated by management with the assistance of an independent actuary however the actual outcome may vary due to estimation uncertainty. The estimated pension obligation is based on assumed rates of retirement, mortality and termination. Discount factors are determined at year end by reference to high quality corporate bonds that have terms to maturity approximating the terms of the pension obligation. Page 10

11 4. Investments The assets of the Plan are held by Great West Life Assurance Company and managed by Foyston, Gordon & Payne Inc. (a) Fair Value of the Investment Portfolio The holdings consist of pooled funds as follows: Pooled equity funds Canadian $ 47,370 $ 36,775 Foreign (including U.S.) 46,351 36,140 Total pooled equity funds 93,721 72,915 Pooled fixed income funds 52,122 44,081 Short term investment fund 1,322 3,489 Cash Investments $ 147,202 $ 121,018 (b) Investment income Investment income was comprised of the following: Interest income $ 1,863 $ 1,619 Foreign income (including U.S.) 1,197 1,051 Dividend income 1, Market gains (losses) Realized 2,610 (2,014) Unrealized 14,459 7,299 Investment income $ 21,435 $ 8,916 Page 11

12 (c) Fair value hierarchy For financial instruments measured at fair value, the Plan is required to classify fair value measurement based on the three-level fair value hierarchy where: level 1 financial instruments are valued using unadjusted quoted prices in active markets for identical assets, level 2 financial instruments are valued using inputs that are observable for the asset either directly or indirectly, and level 3 financial instruments are valued using inputs that are not based on observable market data. The plan assets are wholly invested in pooled funds. Therefore, at December 31, 2013 and 2012 the plan held financial instruments valued using inputs that are observable for the asset either directly or indirectly (level 2). 5. Investment risk management In accordance with the Statement of Investment Policies and Objectives (SIP&O), the overall investment objective is to generate a consistent, positive and real rate of return on invested assets which will provide for payment of all liabilities required. A Benchmark Portfolio has been established to achieve this objective at a reasonable and acceptable level of risk. The most significant financial risks to which the Plan is exposed are described below. (a) Market risk Market risk consists of price risk, interest rate risk and foreign currency risk. i. Price risk Price risk is the risk that the value of an investment will fluctuate as a result of changes in market prices, whether those changes are caused by factors specific to the individual financial instrument or its issuer or factors affecting all similar financial instruments traded in the market. The Plan mitigates exposure to price risk by investing in a diversified portfolio of investments as stipulated in the SIP&O. ii. Interest rate risk Interest rate risk refers to the effect on the market value of the Plan's assets and liabilities due to changes in interest rates. The value of the Plan's fixed income assets is affected by changes in nominal and real interest rates. Pension liabilities are affected by changes in long-term interest rates. Interest rate risk is managed by the SIP&O guidelines Page 12

13 on weighting and minimum quality standards for fixed income investments. As at December 31, 2013, an increase of one per cent (100 basis points) would result in a decline in the value of the fixed income funds of approximately $3.1 million or 6.0 per cent ($2.6 million or 6.0 per cent in 2012). iii. Foreign currency risk Foreign currency exposure results where investments are denominated in a foreign currency. Fluctuations in the relative value of foreign currencies against the Canadian dollar can result in a positive or negative effect on the fair value of investments. (b) Credit risk The Plan is exposed to foreign currency risk via the U.S. pooled equity fund and the international pooled equity fund. Total foreign currency exposure was $46.4 million CDN ($36.1 million in 2012) or 31.5 per cent of the investment assets (29.9 per cent in 2012). As at December 31, 2013, a one per cent appreciation of the Canadian dollar versus the foreign currencies would result in a $0.5 million decrease in the fair value of the investment assets ($0.4 million in 2012). Credit risk arises from the possibility that an investee or counterparty fails to meet its obligation to the Plan. To mitigate the risk of credit default on investment assets, the SIP&O stipulates minimum quality standards for individual bonds and debentures. At the time of purchase, bonds must be rated as BBB or higher by an established bond rating service. To further mitigate this risk, bonds with a BBB rating are limited to a maximum of 15 per cent of the bond portfolio. The balance of the portfolio should be invested in bonds with a minimum rating of A or higher. Of the pooled fixed income fund, 91.4 per cent of the underlying assets have at least an A credit rating. Credit risk associated with contributions receivable is minimal due to their nature. Contributions are deducted from members via bi-weekly payroll and remitted to the custodian with the corresponding Employer contribution. Page 13

14 (c) Liquidity risk Liquidity risk is the risk that the Plan will be unable to meet its obligations as they come due. As current pension payments can be met out of current contributions, liquidity risk is not considered an issue. (d) Securities lending In accordance with the SIP&O, the Plan may lend, for fee income, any of its securities to third parties, provided the loans are secured by cash or readily marketable securities having a market value of at least 105 per cent of the market amount of the asset borrowed. The Plan does not participate in securities lending at this time. 6. Pension obligations The most recent actuarial valuation of the Plan for funding purposes was prepared by independent actuary AON Hewitt at December 31, This valuation was filed with the pension regulators and showed a funding surplus of $0.4 million (2012 valuation, deficit of $14.7 million). The key actuarial assumptions used to value the plan liabilities for accounting purposes are as follows: Discount rate 5.00% 4.50% Rate of compensation increase 3.75% 3.75% The next actuarial valuation is expected to be valued as of December 31, Page 14

15 7. Administration expenses Administration expenses paid by the Employer on behalf of the Plan consisted of: Investment management fees $ 423 $ 339 Actuarial fees Other administrative expenses $ 769 $ 613 As per Section 59(3) of the Workers Compensation Act of Manitoba the costs of maintaining and administering the Plan shall be deemed part of the cost of the administration of the WCB and shall be chargeable to the accident fund. Therefore, administration expenses noted above are paid directly by the Employer and are included here for information only. 8. Capital management The Plan defines its capital as the funded status of the plan as determined annually by the independent actuary. The objective of managing the Plan's capital is to ensure that the Plan is fully funded over the long term. This is achieved through the monitoring and management of investments, contribution rates and benefits and through the risk mitigation strategies discussed in Note 5. The Plan is subject to the Pension Benefits Act of Manitoba (PBA), which requires that an actuarial valuation for funding purposes be filed at least once every three years. The going concern funding valuation is detailed in Note 6. The PBA requires that the plan be valued on a solvency basis also, which simulates a plan wind-up. The solvency deficit as at December 31, 2013 was $22.6 million (2012 valuation, deficit of $40.3 million). The WCB is not required to fund this deficiency as the WCB is exempt from the solvency and transfer deficiency provisions of the PBA. Page 15