NSAHO-annual report

ANNUAL REPORT 2001
2001
MESSAGE
' RE
CO
C
ON
NTTEEN
NTTSS
Table of
page
1.
Message from the Chair . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.
Message from the CEO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.
What is the NSAH0 Pension Plan? . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
4.
Whom do we Currently Serve? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
5.
How is the NSAHO Pension Plan Governed? . . . . . . . . . . . . . . . . . . . 7
6.
What is our Mission? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
7.
What is our Financial Position? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
8.
Where are the Assets Invested? . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
9.
What have the Rates of Return on Investments been? . . . . . . . . . . 11
10.
What about Future Contribution Rates? . . . . . . . . . . . . . . . . . . . . . . 12
11.
Items Under Consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
A) Phased Retirement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
12.
The Year’s Highlights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
13.
Auditors’ Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
14.
Financial Statement of Net Assets . . . . . . . . . . . . . . . . . . . . . . . . . . 17
15.
Financial Statement of Changes in Net Assets . . . . . . . . . . . . . . . . . 18
16.
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
17.
Employers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
18.
Corporate Directory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
3
1.
MEESSfromSStheA
M
AG
GEE
Chair
To the Members of the NSAHO Pension Plan:
We are pleased to present our inaugural annual report to you, the Plan Members. This
is the latest installment in our progression toward greater accountability, consistent with
our best practice governance. Hopefully you have already experienced one of our “road show” presentations and/or read our revised employee booklet – both of which have generated extremely favorable feedback. Nonetheless, we shall not “rest on our laurels,” and hereby acknowledge that much remains to be
done regarding future improvements in service. However, we hope you will agree that it is appropriate for
the Board of Trustees and staff to be proud of the improvements to date and for them to derive additional
energy from those accomplishments to meet the challenges that lie ahead. For example, although we are
extremely proud of the value added by significantly exceeding our investment return benchmark in the very
challenging investment environment of 2001, we expect the investment environment to remain challenging
for at least several years.
One of the basic fundamentals of the best practice governance, employed by our Board of 20 Pension Plan
Trustees, is to ‘vote the way the Members would vote’ if they knew what the Trustees know. Obviously, it is
not practical to report to all 19,000 Members with the frequency and detail in which staff report to the Board
of Trustees - who oversee staff on behalf of all Members. We are also familiar with the old but valuable
saying, “I did not have time to write you a short letter, so I wrote you a long letter.” We have attempted to
take the extra time to write the “short letter” and therefore, encourage you to read this concise (but hopefully
informative) annual report from cover to cover. For the majority of Plan Members, your defined benefit
Pension Plan will be your core retirement asset.
This is your Pension Plan – we have attempted to make this report meaningful to you in a relevant, understandable, yet concise manner. We hope you concur.
Sincerely,
Kenneth Eddy,
Chair
Board of Pension Trustees
A N N U A L
4
R E P O R T
2 0 0 1
2001
2.
MESSAGE
from the
' REPORT
CEO
To the Members of the NSAHO Pension Plan:
It has been said that most people “overestimate what they can accomplish in a year, and underestimate
what they can accomplish in a decade.” This came immediately to mind when I began reflecting on the
changes that have taken place in just the 4 years since I arrived here at the NSAHO Pension Plan. The
value and relevance of this adage is even more important when applied to the pension plan business,
where long-range planning – spanning several decades – is crucial!
While climbing a mountain however – even when one is still a distance from the peak – it is important to
enjoy the vistas enroute, to renew the energy required to complete the mission. Therefore, I would like to
take a moment to express my gratitude to staff for their diligence in implementing the improvements in service that I hope many of you have already experienced. Also, the significant value added from recent investment performance has enabled us to keep our contribution rates low (especially relative to many other public sector defined benefit pension plans) and maintain the Plan in a solid financial position.
This could not have occurred without the effective, best practice governance applied by the Board of
Trustees. They are a richly diverse group of volunteers who are united by the single purpose of governing
the NSAHO Pension Plan in the best interests of its Members. I am privileged to serve you, the Plan
Members, under the watchful eye of such a dedicated group, who are determined to “do the right thing.” As
our Chair has promised, we shall continue to improve our service.
We expect that the investment returns available from the broad equity and bond markets will fall short of our
actuarially required rate of return for the next several years. Therefore, our challenge will be to add value
by exceeding our investment return benchmarks. Although I cannot predict the future or offer any guarantee of success, I can express my confidence in the staff we have assembled to face this challenge and the
diligence that we shall employ on your behalf.
Sincerely,
Richard McAloney,
CEO
M e s s a g e
f o r
t h e
C E O
5
3. PEN SI ON
PENSION PPLLA
AN
N??
What is the NSAHO
The NSAHO Pension Plan is a defined benefit pension plan. That means your pension is calculated based
upon your earnings and the number of years you contributed to the Pension Plan. It has been available
since 1961 as a service to employERs who are members of the Nova Scotia Association of Health
Organizations (NSAHO). The cost of providing this benefit is shared (approximately 50/50) by both
employEEs and their employERs, and is viewed as an important component in attracting, retaining, and
motivating employees. This structure of aggregating the Pension Plan for numerous employERs via the
NSAHO not only generates tremendous economies of scale, it is also an efficient way to reduce some of the
uncertainty which is inherent in all pension plans, by spreading the uncertainty of assumptions about the
future across a much larger component of the population.
(For additional information regarding the contribution rates and the benefits, please refer to our booklet for
Plan Members entitled “Prescription for a Financially Healthy Retirement”.)
4. C UR RE NT LY
CURRENTLY SSEER
RV
VEE??
Whom do we
The details of our membership and the growth therein are listed below.
Active Members
2001
2000
1999
1998
14,822
14,532
13,842
12,394
3,756
3,643
3,530
3,475
343
331
296
286
18,921
18,506
17,668
16,155
2%
5%
9%
1%
Pensioners
Deferred
Members1
Total
Annual Growth
The Active Members are employed by the more than 60 employers listed in Section 17, (page 30).
1 Former employees entitled to a pension that will commence at a future date.
A N N U A L
6
R E P O R T
2 0 0 1
5. G OV ER NE D?
How is the NSAHO Pension Plan
GOVERNED?
Our Accountability Structure is depicted below.
Individual
Members
Employer
Sponsors
Plan Trust Agreement
Responsibilities
NSAHO
Board
• appoint Trustees
• appoint Auditors
• approve changes to benefits
• approve changes to contribution
rates
20 Pension
Plan Trustees
Plan Trust Agreement
Responsibilities
• all other responsibilities
Legislative Constraints
Plan Text
1. Federal Income Tax Act — establishes
maximums on tax-assisted pension
benefits
2. NS Pension Benefits — establishes
minimum standards for registered
plans. This Act also serves to
safeguard benefits promised by
pension plans
CEO & Staff
7
5. GOVE RN ED ?
How is the NSAHO Pension Plan
GOVERNED?
(continued)
The core of the governance is conducted by a Board of 20 (primarily volunteer) Trustees who bring a
wealth of experience from diverse backgrounds as outlined below. They employ a best practice governance model to ensure the Pension Plan achieves appropriate results and avoids unacceptable
actions.
Trustee Name
1. Pension Plan Expert
John Churchill
2. Pension Plan Expert
Frank Maxwell
3. Retired Plan Member
Mary MacIsaac
4. CAW
David Croxen
5. CUPE
Virginia Crane
Nominated by
N omi nated by
6. NSGEU
Carol Allen
7. NSNU
Bill Long
8. NSAHO Board of Directors
Anne Kennedy
9. Continuing Care Members’ Business Assembly
Lloyd Brown,Vice-Chair
10. Continuing Care Members’ Business Assembly
Jessie Macdonald
11. Annapolis Valley District Health Authority
12. Cape Breton District Health Authority
13. Capital District Health Authority
Sharon Sheppard
Calvin Crocker
14. Colchester East Hants Health Authority
Colin Stevenson
15. Cumberland Health Authority
Bruce Saunders
16. Guysborough Antigonish Strait Health Authority
17. Pictou County Health Authority
19. South West Nova District Health Authority
20. IWK Health Centre
A N N U A L
Kevin MacDonald
Patrick Flinn
18. South Shore District Health Authority
8
Sheila Rankin
Christopher Clarke
David Saxton
Kenneth Eddy, Chair
R E P O R T
2 0 0 1
6. M IS SI ON ?
What is our
MISSION?
The purpose of the NSAHO Pension Plan is for its Members and beneficiaries to
i) have confidence that all obligations from the Pension Plan will be met on time;
ii) make informed decisions regarding their alternatives under the terms of the Pension Plan; and
iii) feel they have been served as if they had a choice of where to take their “pension business” –
all delivered at a cost acceptable to the Trustees,
and
the Trustees shall monitor the effectiveness of the pension benefit.
7. FINANCIAL
FINANCIAL PPO
OSSIITTIIO
ON
N??
What is our
Even after enduring the challenging investment environment of 2001, we are still in a healthy financial position and enjoy a surplus of 12%, as detailed below.
( m i l l i on s )
( m i l l i on s )
Assets (Market Value)
$
1,328
112%
Less: Smoothing Reserve1
$
0
0%
Assets (Smoothed Actuarial Value)
$
1,328
112%
Liabilities
-$
1,182
-100%
146
12%
Surplus
(Dec 2000 Actuarial
Funding Valuation
projected forward 1 year)
$
1 (Investment returns greater than/less than 7% per year are amortized over a 5-year period. At December 31, 2001, the balance of this
smoothing reserve was amortized to its minimum balance of $0.)
Given our expectations for low rates of return from the broad public equity and debt markets for the next
several years, we expect maintaining a surplus will be challenging – even starting from the solid financial
position of the Pension Plan at December 31, 2001.
9
INVESTED?
A ss e t Mi x P o l i c y - D e c e m b e r 3 1 , 2 0 0 1
Benchmark
Cdn
TSE 300
29 %
S&P 500
12 %
MSCI EAFE
10 %
US
EAFE
Market
Neutral Hedge
Funds
Fixed
Income
Market
Neutral Hedge
Funds
Inflation
Hedge
Fixed
Income
T a r g et
8%
59%
59%
DJ AIG TR
5%
Real Estate
CPI + 5%
Subtotal…
4%
9%
Cdn - Higher Credit
Customized Bond Index
Foreign - Lower Credit
ML High Yield
Subtotal…
US$ 3 Mth Libor + 4%
TOTAL…
A N N U A L
10
Industry Indices
Subtotal…
T a r g et
Commodities
Market
Neutral Hedge
Funds
Inflation
Hedge
Fixed
Income
Equity
Equity
Global
Market
Neutral Hedge
Funds
Asset Class
Fixed
Income
Inflation
Hedge
Equity
A ss e t Mi x P o l i c y - D e c e m b e r 3 1 , 2 0 0 1
Inflation
Hedge
Equity
8. I NV ES TE D?
Where are the Assets
R E P O R T
2 0 0 1
9%
15 %
9%
24%
24%
8%
8%
1 00 %
1 00 %
9. RATE S
RATES O
OFF RREETTU
URRN
N
What have the
on Investments been?
Year
Actual
Benchmark 1
Value Added 2
1998
10.42%
9.63%
0.79%
1999
9.71%
13.41%
-3.70%
2000
11.31%
6.29%
5.02%
2001
1.33%
-3.23%
4.56%
4 Years
8.11%
6.34%
1.77%
4 Year Cumulative Value Added $85 million
1 The benchmark rate of return is one of the principle standards used by the Board of Trustees to evaluate investment performance. It approximates the rate of return, which would be expected if the assets
were invested passively in the proportions dictated by the asset mix policy (see Section 8).
Unfortunately, we do not believe that passive investing will generate sufficient investment returns to
meet the promised pension benefits. Therefore, the majority of assets are actively managed in an
attempt to generate extra investment income (value added 2) above the return available from passive
investing, (which has the objective of generating a rate of return equal to the benchmark).
The benchmark rate of return is calculated by multiplying the asset mix policy weight for each asset
class by the rate of return from a broad index in that asset class. For example, the total fund benchmark return for the year ended December 31, 2001, of –2.67% is derived by multiplying the asset mix
policy weight for Canadian equities (29%), by the TSE 300 rate of return of –12.57%; and adding
together the similarly derived number for each asset class.
11
10. CO NTRI BUTI ON
CONTRIBUTION RRAATTEESS??
What about Future
EmployEE’s contribute 4.725% of their pensionable earnings up to the Year’s Maximum Pensionable
Earnings (YMPE) as established by the Canada Pension Plan, (2001 YMPE = $38,300) and 6.75% of their
pensionable earnings above the YMPE. EmployER’s contribute 5.6% of pensionable earnings (5% if the
employER did not participate in the early retirement incentive programs). The combined contributions equal
10.6% of pensionable earnings, approximately 50% of which comes from the employER. The average cost
for each Member’s additional year of pensionable service is approximately 12% of pensionable earnings;
thus, we currently have a funding shortfall of 1.4% of pensionable earnings.
Our actuarial consultants estimated that the average age of our Active Members will increase over the coming decades. Consequently, they estimate the cost of each additional year of pensionable service will rise
from approximately 12% to as high as 14% by the year 2011 and eventually level off at approximately
12.5%. Fortunately, favourable investment returns have not only made up for this funding shortfall to date
but have also generated the surplus (per Section 7) – thus allowing us to defer increases in contribution
rates. Given our outlook for low returns from the broad capital markets over the next several years, we
anticipate that this funding shortfall will likely need to be addressed by increasing the contribution rates.
11. C ON SI DE RATI ON
Items Under
CONSIDERATION
Now that we have put you on notice regarding a possible future increase in contribution rates, let us turn our
attention toward some more desirable items under consideration – possible benefit improvements.
At the top of the list is our objective to maintain regular base year upgrades to provide inflation protection for
the benefit accrued by our active Plan Members. (Our retired Members enjoy the benefit of automatic indexation each January 1st for 100% of the increase in the national Consumer Price Index [CPI] up to 3% per
year.)
The next most topical potential benefit improvement concerns our early retirement provisions. As always,
the biggest challenges when considering improvements in our early retirement provisions are the massive
A N N U A L
12
R E P O R T
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11. CO NS ID ER AT IO N
Items Under
CONSIDERATION
(continued)
costs and the diversity of interests among the Plan Membership. We do not anticipate any near term
change to our Rule of 85 (age, minimum of 55, plus the number of years of service totals 85 or more).
However, there are a minority of Plan Members who would benefit significantly from a change to a Rule of
80 (minimum age of 50) and would likely be supportive of the consequently significant increase in contribution rates – especially those who would only have to pay the higher contribution rate for a short time until
they retire. However, it is difficult to balance this against the interests of the majority of Plan Members who
would bear the same burden of significant increases in contribution rates from such a rule change, for little
or no increase in their benefit.
On the other hand, there are many other benefit improvements that the Trustees also consider on a regular
basis. For example, should the majority of our Members be willing to pay significantly increased contribution
rates, or if we were fortunate enough to generate sufficiently high investment returns (which is not being
predicted), the fairest way to spread those benefits among our Active Members may be to increase the
amount of pension benefit you accrue each year as a percentage of your salary. That way, any increase in
the value of the benefit for Active Members is enjoyed by all Active Members in proportion to the amount of
dollars they contribute to the Pension Plan.
(The accrual rate for your pension benefit is already 2.0% of each year’s pensionable earnings, multiplied by the number
of years you contribute to the Pension Plan. After you reach age 65 however, your pension is integrated with the CPP by
decreasing your pension from the 2% per year to 1.4% per year for pensionable earnings up to the YMPE. Please note
that the accrual rate for your pension on earnings above the YMPE remains at 2% even after age 65. Hopefully the following example will help clarify this.)
13
11. CO NS ID ER AT IO N
Items Under
CONSIDERATION
(continued)
A) PHASED RETIREMENT
Most legislation in Canada that regulates pension plans, and indeed the design of most Canadian pension
plans, appears to be based on the premise that employment and retirement are mutually exclusive. In other
words, they assume you are either 0% retired or 100% retired.
Perhaps it can be attributed to actual and predicted shortages of certain skills in our nation’s workforce, but
phased retirement has become more topical. Phased retirement can loosely be described as dispensing
with the traditional assumption of “all or nothing” for retirement and considering a third status, namely “partial retirement.” For example, perhaps a person could be compensated as if they were employed for 3 days
of the workweek, and retired for 2 days of the workweek.
Currently, phased retirements are permitted for certain pension plans in Alberta and Quebec but are prohibited in most (perhaps all) other jurisdictions in Canada. This is not a legal alternative for the NSAHO
Pension Plan at this time. Nonetheless, staff and the Pension Trustees will continue to review this topic to
determine:
a) the legislative changes required before this could become a legitimate option for the
NSAHO Pension Plan;
b) the potential impact on the financial position of the NSAHO Pension Plan;
c) the potential impact on the future cost of our pension benefit; and
d) the potential impact on the workforce.
A N N U A L
14
R E P O R T
2 0 0 1
12. HI GH LI GHT S
The Year’s
HIGHLIGHTS
A) In March 2001, the “new and improved” employee booklet was released.
B) Producing The Annual Pension Plan Statement on a timely basis is always challenging for both the
staff of the NSAHO Pension Plan and the employERs. The annual process involves collecting
invidual pension information, from over 60 employERs for each of our 14,822 current Members.
However, we are pleased to report that 93% of all individual Member Statements were
prepared and sent by June 30th of 2001.
C) Over 40 employee information sessions were held on-site at various facilities throughout the
province. Our on-site visits will continue in 2002 and we encourage all Plan Members to attend one
of these informative sessions to learn about the Pension Plan and ask questions.
D) Pensions in payment were automatically increased by 2.66% on January 1, 2001, in response to
the increase in the Consumer Price Index.
E) Several Plan improvements were made in 2001:
1. The base year was upgraded from 1998 to 1999 for all Active Members.
2. This report also includes the cost of upgrading the base year to 2000, even though
this only became effective January 1, 2002.
3. Deferred Members’ pensions were increased to reflect inflation by the same
percentage applied to pensioners up to January 1, 2001.
4. Effective April 1, 2001, the opportunity to purchase a maternity leave (for a leave
commencing before January 1, 1999) via bi-weekly payroll deductions was
introduced.
5. In response to agreements being reached through the collective bargaining process
in the fall of 2001, the Plan’s definition of pensionable earnings was amended
to include certain cash bonuses provided as part of the settlement of a collective
agreement or negotiation of an employment contract with a group of Members.
We will continue to work diligently to further improve our service to Members, particularly in the areas of:
1) Communications - future communication plans include a website, which Members can access and
obtain pertinent and personal pension information; and
2) Timely response to Members’ requests and needs for information - a new pension administration
system has been installed, which puts us in a better position to respond to Members’ information
needs.
15
13.
MESSAGE
' REPORT
To the Board of Directors of the
Nova Scotia Association of Health Organizations
and the Trustees of the
Nova Scotia Association of Health Organizations Pension Plan
We have audited the statement of net assets available for benefits and accrued pension benefits and surplus of the Nova Scotia Association of Health Organizations Pension Plan as at December 31, 2001 and the
statement of changes in net assets available for benefits for the year then ended. These financial statements are the responsibility of the Pension Plan's management. Our responsibility is to express an opinion
on these financial statements based on our audit.
We conducted our audit in accordance with Canadian generally accepted auditing standards. Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as evaluating the overall financial
statement presentation.
In our opinion, these financial statements present fairly, in all material respects, the financial position of the
Pension Plan as at December 31, 2001 and the changes in net assets available for benefits for the year
then ended in accordance with Canadian generally accepted accounting principles.
Chartered Accountants
Halifax, Canada
May 10, 2002
A N N U A L
16
R E P O R T
2 0 0 1
14. STATEMENT OF NET ASSETS
STATEMENT OF NET ASSETS
Available for Benefits and Accrued Pension Benefits and Surplus
As at December 31, 2001, with comparative figures for 2000.
($ Thousands)
2001
2000
NET ASSETS AVAILABLE FOR BENEFITS
Assets
Investments (note 3)
$
1,314,932
$
1,299,806
Other receivables (note 4)
8,598
12,100
Cash
6,104
1,032
79
106
1,329,713
1,313,044
1,881
1,662
1,327,832
1,311,382
-
97,855
Fixed assets
Liabilities
Accounts payable and accrued liabilities (note 5)
Net assets available for benefits
Actuarial asset value adjustment (note 2g)
Actuarial value of
net assets available for benefits
$
1,327,832
$
1,213,527
$
1,182,128
$
1,076,370
ACCRUED PENSION BENEFITS AND SURPLUS
Accrued pension benefits (note 6)
Surplus
145,704
137,157
Accrued pension benefits
and surplus
$
1,327,832
$
1,213,527
Approved on behalf of the Trustees:
John Churchill
David Saxton
17
15. STAT EME NT OF CHA NG ES IN NET AS SE TS
STATEMENT OF CHANGES IN NET ASSETS
Available for Benefits
For the year ended December 31, 2001,
with comparative figures for 2000.
($ Thousands)
2001
2000
Net assets available for benefits,
beginning of year
$
1,311,382
$
1,185,731
Asset management & governance operations
Investment income (note 8)
16,746
127,894
Asset management & governance expenses (note 9)
(5,699)
Net asset management & governance operations
11,047
123,134
51,177
44,394
(44,588)
(40,770)
(1,186)
(1,107)
Net client service operations
5,403
2,517
Net increase in net assets
16,450
125,651
(4,760)
Client service operations
Contributions (note 10)
Benefits (note 11)
Client service expenses (note 9)
Net assets available for benefits, end of year
A N N U A L
18
R E P O R T
2 0 0 1
$
1,327,832
$
1,311,382
16. N OT ES
NOTES
to Financial StatementsFor the Year ended December 31, 2001
1 .. D
1
D EE SS C
CR
R II PP TT II O
ON
NO
O FF PP LLA
AN
N ::
The following description of the Nova Scotia Association of Health Organizations (NSAHO) Pension Plan is
a summary only. For more complete information, reference should be made to the Plan Text.
a) General:
The Plan is a contributory defined benefit pension plan covering employees of participating member
organizations of the Nova Scotia Association of Health Organizations. Contributions are made by
both employees and employers. The Plan is registered under the Pension Benefits Act of Nova
Scotia (Registration number 0355925).
Benefits are based on career average earnings. As at the end of 2001, the plan had a 1999 base
year, meaning that benefits with respect to service up to and including 1999 are based on earnings
and the YMPE (Yearly Maximum Pensionable Earnings level for Canada Pension Plan purposes) in
1999. A base year improvement to 2000 became effective on January 1, 2002 (the cost of which is
included in the 2001 financial statements).
b) Funding Policy:
Plan benefits are funded by contributions and investment earnings. The determination of the value of
the accumulated benefits and the required contributions is made on the basis of periodic actuarial valuations (see note 7).
c) Current Service Pension:
The current service pension provides 1.4% of earnings up to the YMPE and 2% of any earnings in
excess of the YMPE for each year of participation. A bridge benefit of .6% of earnings to the YMPE
for each year of participation is also available from retirement to age 65 (or death if earlier).
d) Indexing:
Pensions in payment are subject to annual indexation for inflation up to a maximum of 3% per year.
Indexing above 3% (if applicable) may be provided on an ad-hoc basis subject to the approval of the
Trustees.
19
16. N OT ES
NOTES
to Financial StatementsFor the Year ended December 31, 2001 (continued)
e) Early Retirement Incentive Program:
An early retirement incentive pension was available until March 31, 1998 to qualifying individuals who
were:
(i) 55 years of age and whose age and continuous service totalled at least 80;
(ii) age 50 - 54 and whose age and continuous service totalled at least 80;
(iii) age 60 with 10 years of continuous service but whose age and service were less than 80.
Early retirement incentive pension is calculated as described in (c) with a lifetime pension adjustment and
a possible CPP Bridge to age 60 if an individual meets the criteria described in the plan.
f) Disability Pensions:
A disability pension is available to qualifying individuals for service prior to January 1, 1993, who joined
the plan prior to October 1, 1999, who have 10 years of continuous service prior to 1993, and who do not
participate in an employer Long-Term Disability Plan.
g) Survivor Pensions:
A Survivor pension is paid to a spouse or common-law partner, and/or a dependent child, of a member
who dies after retirement, or prior to retirement with a minimum of 10 years continuous service.
h) Death Refunds:
When no survivor pension is applicable, a lump sum payment will be made to the surviving spouse, beneficiary, or estate as applicable with respect to any member who dies before retirement.
i) Termination Refunds:
On termination of employment, a member will receive a refund of contributions with interest, a deferred
pension, or a locked-in transfer, dependent on their years of membership in the Plan and the option they
choose.
j) Income Taxes:
The Plan is a Registered Pension Trust as defined in the Income Tax Act and is not subject to income
taxes.
A N N U A L
20
R E P O R T
2 0 0 1
16. NOT E S
NOTES
to Financial StatementsFor the Year ended December 31, 2001 (continued)
2. SIGNIFICANT ACCOUNTING POLICIES:
a) Basis of Presentation:
These financial statements are prepared based on the going concern basis and present the aggregate financial position of the Plan as a separate financial reporting entity independent of the employers and plan members. They are prepared to assist plan members and others in reviewing the activities of the Plan for the fiscal period. They are prepared in accordance with Canadian generally
accepted accounting principles.
The preparation of financial statements requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities at the date of the financial statements and the
reported amounts of changes in net assets available for benefits during the year. Actual results could
differ from these estimates.
b) Contributions:
Contributions from employees of member organizations and contributions from member organizations
are recorded in the period that payroll deductions are made.
c) Investments:
Investments are recorded as of the trade date and are stated at fair value as at December 31. Fair
value is the amount of the consideration that would be agreed upon in an arm’s length transaction
between knowledgeable, willing parties who are under no compulsion to act.
Money market, publicly traded bonds, equity securities, and derivatives are valued at year-end market
prices. Other investments for which market quotations are not available such as real estate, are valued on a current market yield or appraised basis.
The change in the difference between the fair value and carrying value of investments at the
beginning and end of each year is reflected in the statement of changes in net assets available
for benefits as part of the net (loss) gain on investments (see note 8).
21
16. N OT E S
NOTES
to Financial StatementsFor the Year ended December 31, 2001 (continued)
d) Fixed Assets:
Fixed assets are stated at cost and consist entirely of costs related to a software license.
Depreciation on the software license is being recorded on a straight-line basis over five years. Fixed
assets, costing less than $10,000, are expensed in the year of purchase.
e) Investment Income:
Dividends and other investment income, which are recorded on the accrual basis, include interest
income, dividends and real estate operating income.
f) Translation of Foreign Currencies:
(i) Assets and liabilities denoted in foreign currencies are translated into Canadian dollars
at approximate quoted rates of exchange at December 31.
(ii) Investment income and expenses are translated into Canadian dollars using the
exchange rate prevailing at the date of the transaction.
(iii) Gains and losses arising from translations are included in the current period change in
market value of investments.
g) Actuarial Asset Value Adjustment:
The actuarial value of net assets available for benefits is determined by reference to long-term market
trends consistent with assumptions underlying the valuation of accrued pension benefits. The adjustment represents the difference between the actual and management’s estimate of return on the Plan
(7%), amortized over five years. Using this adjustment, fair value remains the underlying basis for
asset valuation, but fluctuations are averaged over a five-year period. This adjustment has been
restricted to a minimum value of zero.
3. INVESTMENTS AND DERIVATIVES:
The investment objectives of the Plan are to provide long-term security of pension benefits to
members and to minimize any increases in contributions required by members and the employers.
A strategy of investing in assets of equities, bonds, debentures, real estate and money market
securities is aimed at achieving these objectives.
A N N U A L
22
R E P O R T
2 0 0 1
16. NOT E S
NOTES
to Financial StatementsFor the Year ended December 31, 2001 (continued)
a) Market value of investments before allocating the effects of derivative contracts:
2001
2000
Asset
%
474,480,203
36.5
29.3
491,276,242
37.8
369,671,286
28.1
116,816,439
9.0
59,717,949
4.5
118,147,685
9.1
Real estate
50,964,674
3.9
49,574,279
3.8
Short-term money market
84,407,826
6.4
49,511,207
3.8
Derivatives
(4,300,712)
(0.3)
-
-
1,299,806,055
100.0
Fixed income
$
Equities - Canadian
- US
- Other foreign
Total
$
Asset
%
368,935,202
28.1
385,535,641
1,314,931,866
100.0
$
$
b) Derivative contracts:
Derivatives are financial contracts, the value of which is “derived” from the value of underlying
assets or interest or exchange rates. Derivatives provide flexibility in implementing investment
strategy.
Notional amounts of derivative contracts serve as the basis upon which the returns from, and the
fair value of, the contracts are determined.
The following schedule summarizes the Plan’s derivative contracts at December 31:
2001
Forwards
Commodity Swaps
Equity Swaps
Total
Maturity (Years)
Notional
Fair Value
2.5
US $ 120,000,000
$ (6,472,000)
10.0
US $ 41,000,000
(553,386)
4.5
C $ 62,668,814
2,724,674
$ (4,300,712)
23
16. N OT E S
NOTES
to Financial StatementsFor the Year ended December 31, 2001 (continued)
c) Market value of investments after allocating the effect of derivatives:
2001
2000
Asset
%
Asset
%
240,969,788
18.3
474,480,203
36.5
385,535,641
29.3
491,276,242
37.8
- US
369,671,286
28.1
116,816,439
9.0
- Other foreign
125,111,437
9.5
118,147,685
9.1
Real estate
50,964,674
3.9
49,574,279
3.8
Short-term money market
84,407,826
6.4
49,511,207
3.8
Commodities
64,743,214
4.9
-
-
Forwards
(6,472,000)
(0.4)
-
-
1,299,806,055
100.0
Fixed income
$
Equities - Canadian
Total
$
1,314,931,866
100.0
$
$
d) Interest Rate Risk:
Interest rate risk refers to the fact that the Plan’s financial position will change as market interest
rates change. Interest rate risk is inherent in the nature of the pension plan business due to prolonged timing differences between cash flows related to the assets and liabilities of the Plan.
The value of the Plan’s assets is affected by short-term changes in nominal interest rates and
equity markets. Pension liabilities are exposed to the long-term expectation of rate of return on
the investments as well as expectations of inflation and salary escalation. To meet these liabilities the Plan has established a policy asset mix of approximately 59% equities, 24% fixed income
securities, 9% real estate and commodities, and 8% alternative investments. Long-term equity
returns have historically shown high correlation with changes in inflation and salary escalation,
while fixed income securities are sensitive to changes in nominal interest rates.
e) Credit Risk:
Credit risk is the risk of loss in the event the counterparty to a transaction fails to discharge an
obligation and causes the other party to incur a loss. Credit risk is controlled by limiting to 10%
or less the percentage of the market value of Plan assets invested in a single issuer or family of
legally related entities (this does not apply to securities guaranteed by the Government of
Canada, World Bank, or a Canadian Province).
A N N U A L
24
R E P O R T
2 0 0 1
16. NOT E S
NOTES
to Financial StatementsFor the Year ended December 31, 2001 (continued)
f) Foreign Currency Risk:
Foreign currency exposure arises from the Plan’s holding of foreign currency-denominated
investments. Foreign currency risk is controlled by limiting foreign investments through asset
allocation guidelines.
The Plan’s foreign currency exposure, after the effect of derivatives, at December 31, 2001 is
summarized in the following table:
Currency
Exposure
United States
$ 185,273,860
European Union
41,812,151
United Kingdom
28,998,660
Japan
16,234,328
Switzerland
12,411,684
Hong Kong
5,883,625
Other
19,770,991
Total
$ 310,385,299
4. OTHER RECEIVABLES:
2001
Dividends and accrued interest
2000
$ 3,188,756
$ 6,738,771
Employees’ contributions
2,295,495
2,417,315
Employers’ contributions
2,270,624
2,391,920
842,804
552,280
$ 8,597,679
$12,100,286
Other
Total
5. ACCOUNTS PAYABLE AND ACCURED LIABILITIES:
2001
Trade and accrued liabilities
Nova Scotia Association of Health Organizations
Total
2000
$ 1,875,334
$ 1,655,620
5,852
6,504
$ 1,881,186
$ 1,662,124
25
16. N OT E S
NOTES
to Financial StatementsFor the Year ended December 31, 2001 (continued)
6. ACCRUED PENSION BENEFITS:
An actuarial valuation for funding purposes was performed as of December 31, 2000 by William M.
Mercer Limited, a firm of consulting actuaries. This actuarial valuation indicated a funding surplus of
$107.5 million at December 31, 2000. This valuation assumed a base year upgrade to the year 2000.
An extrapolation to December 31, 2001 was performed, which indicates a funding surplus of $145.7 million.
The comparative figures for fiscal 2000 that are presented in these financial statements indicate a surplus of $137 million. This was an extrapolation from the December 31, 1998 actuarial funding valuation, and assumed a base year upgrade to the year 1999.
The actuarial present value of benefits as at December 31 and the principal components of changes in
actuarial present values during the year, were as follows:
2001
2000
Actuarial present value of
accrued pension benefits,
beginning of year
$ 1,076,370,000
$ 949,286,800
Amendments to the plan
20,433,000
61,549,000
Interest accrued on benefits
51,420,000
45,653,200
Benefits accrued
58,309,000
50,341,000
(43,819,000)
(40,459,000)
Benefits paid, refunds, and transfers
Actuarial Gain on valuation Dec. 31, 2000
(5,389,000)
-
Changes to Actuarial Assumptions
14,647,000
-
Impact of Pensioner Indexing Jan. 1, 02/01
10,157,000
9,999,000
Actuarial present value of
accrued pension benefits, end
of the year (funding basis)
$ 1,182,128,000 100.0%
$ 1,076,370,000
$ 1,327,832,000 112.3%
$ 1,213,527,000
Actuarial value of net assets
available for benefits
A N N U A L
26
R E P O R T
2 0 0 1
16. N OTE S
NOTES
to Financial StatementsFor the Year ended December 31, 2001 (continued)
The assumptions used in determining the actuarial value of assets and accrued pension benefits were
developed by reference to expected long-term market conditions. Significant long-term actuarial assumptions used in the funding valuation were:
2001
2000
4.5%
4.5%
7%
7%
Investment Assumption (discount rate)
Assumption used to “smooth” investment returns
By using a real (after inflation) investment assumption, implicit provision is provided for indexing of pensions
and inflationary salary increases. While no provision (explicit or implicit) is made for salary increases
beyond inflation, the career average design of the plan provides the latitude to delay base year
improvements when necessary.
7. FUNDING POLICY:
In accordance with the Plan, employees are required to contribute 4.725% of their earnings up to the Year’s
Maximum Pensionable Earnings (YMPE; $38,300 in 2001, $37,600 in 2000) as defined under the Canada
Pension Plan, and 6.75% of earnings in excess of the YMPE.
Employers are required to provide the balance of funding, based on annual valuations, necessary to ensure
that benefits will be fully provided for at retirement. Employers remitted 5.6% or 5.4% during 2001 (5.4% or
5.2% during 2000), or 5.0% if the employer did not participate in the early retirement incentive program.
8. INVESTMENT INCOME:
2001
Bond interest
2000
$ 26,481,494
$ 29,082,582
Dividends
7,739,502
8,989,453
Real estate income
3,178,665
4,729,419
Short-term interest
935,468
2,205,245
Foreign exchange gain (loss)
(700,102)
50,093
Security lending income
78,810
81,846
Recaptured commissions
50,324
68,996
Net (loss) gain on investments
Total
(21,017,682)
$ 16,746,479
82,686,516
$ 127,894,150
27
16. N OTE S
NOTES
to Financial StatementsFor the Year ended December 31, 2001 (continued)
9. EXPENSES:
ASSET MANAGEMENT & GOVERNANCE
2001
Investment management
$ 4,982,717
$ 3,959,988
Executive administration
374,140
401,098
Custodial
195,482
275,115
Miscellaneous
51,049
52,001
Consulting & performance measurement
77,627
54,525
Audit
18,022
16,878
$ 5,699,037
$ 4,759,605
Total
CLIENT SERVICE
2001
Salaries and benefits
$ 557,807
2000
$
511,612
Professional fees
204,845
174,626
Benefit payment fees
124,579
99,639
Computer services
52,056
59,970
Premises
52,629
51,193
Equipment & software
53,746
63,832
Miscellaneous
35,538
36,937
Education & related travel
12,191
12,743
Trustee expenses
19,911
45,049
Insurance
20,512
7,801
9,056
8,384
Printing
17,041
9,285
Depreciation
26,400
26,400
$1,186,311
$ 1,107,471
Audit
Total
A N N U A L
28
2000
R E P O R T
2 0 0 1
16. N OT E S
NOTES
to Financial StatementsFor the Year ended December 31, 2001 (continued)
10. CONTRIBUTIONS:
2001
2000
Employees
$ 23,891,898
$ 21,338,301
Employers
26,385,051
23,074,770
ERIP Contributions – Province of N.S.
-
(482,500)
Transfers from other plans
769,441
310,501
Buybacks
130,098
153,162
$ 51,176,488
$ 44,394,234
Total
11. BENEFITS:
2001
Pension benefits
2000
$ 32,158,722
$ 30,029,204
Refunds of contributions
11,720,178
9,633,388
Transfers to other plans
470,130
741,422
Death benefits
238,942
366,491
$ 44,587,972
$ 40,770,505
Total
12. COMMITMENTS:
The Plan has committed to enter into investment transactions, which may be funded over the next several
years in accordance with the terms and conditions agreed to. As at December 31, 2001, these potential
commitments totaled $66.7 million (2000 = $11.2 million).
29
17. E MP LOY ER S
EMPLOYERS
of the Members of the NSAHO Pension Plan
Annapolis Valley District Health Authority
Annapolis Community Health Centre
Eastern Kings Memorial Community Health Centre
Soldiers Memorial Hospital
Valley Regional Hospital
Western Kings Memorial Health Centre
Kings Regional Rehabilitation Centre
Western Kings Memorial Health Society
Cape Breton District Health Authority
Buchanan Memorial Hospital
Cape Breton Healthcare Complex
Glace Bay Healthcare Complex
Inverness Consolidated Memorial Hospital
New Waterford Consolidated Hospital
Northside Harbor View Hospital
Sacred Heart Hospital
Victoria County Memorial Hospital
Alderwood Rest Home
Braemore Home
MacDonald Hall Society
Northside Community Guest Home
Victoria Haven Nursing Home
A N N U A L
30
R E P O R T
2 0 0 1
MPLOYERS
17. E
of the Members of the NSAHO Pension Plan
EMPLOYERS
(continued)
Capital District Health Authority
Cobequid Multi-Service Centre
Dartmouth General Hospital
Eastern Shore Memorial Hospital
Hants Community Hospital
Musquodoboit Valley Memorial Hospital
QEII Health Sciences Centre
The Nova Scotia Hospital
Twin Oaks/Birches Continuing Care Centre
Cobequid Multi-Service Centre Foundation
Home Support Central
IWK Health Centre
Northwoodcare Incorporated
NSAHO
NSAHO Pension Plan
NSHOPA
Oakwood Terrace
Saint Vincent’s Guest House
Scotia Nursing Homes Adult Residential Centre
Twin Oaks Senior Citizens Association/The Birches
Colchester East Hants Health Authority
Colchester Regional Hospital
Lillian Fraser Memorial Hospital
Cumberland Health Authority
All Saints Springhill Hospital
Bayview Memorial Health Centre
Drug Dependency Services
Highland View Regional Hospital
North Cumberland Memorial Hospital
South Cumberland Community Care Centre
All Saints Community Health Care Foundation
Sunset Residential & Rehabilitation Services Incorporated
31
17. EM PLOYE RS
EMPLOYERS
of the Members of the NSAHO Pension Plan
Guysborough Antigonish Strait Health Authority
Eastern Memorial Hospital
Guysborough Memorial Hospital
St. Martha’s Regional Hospital
St. Mary’s Memorial Hospital
Strait Richmond Hospital
Milford Haven Corporation
Port Hawkesbury Nursing Home
St. Anne Community & Health Centre
Pictou County District Health Authority
Aberdeen Hospital
Sutherland Harris Memorial Hospital
Shiretown Nursing Home Incorporated
South Shore District Health Authority
Fishermen’s Memorial Hospital
Queens General Hospital
South Shore Reginal Hospital
Mahone Nursing Home
South West Nova District Health Authority
Digby General Hospital
Roseway Hospital
Yarmouth Regional Hospital
Surf Lodge Nursing Home
A N N U A L
32
R E P O R T
2 0 0 1
(continued)
18. DI RE CTO RY
Corporate
DIRECTORY
Richard McAloney, CA, CIA, CFA
Executive Assistant – Pam Verge
Support Clerk – Linda Taylor
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Chief Executive Officer
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Chief Investment Officer
Cameron Richards, LLB, MBA, CFA
Vice President Investment Research – Mark White, MBA
Research Assistant – Ernest Buist, BBAH
Technology Officer – Sandi Eaves, MASc
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Vice President Investments – Patricia Muzyk, CFA, MBA
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Director of Finance and Control
Wade Tattrie, CA, CIA, CFE
Quality Control Officer – Carole Arsenault
Manager of Pension Client Services
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Financial Services Officer – Neil Norwood, BCom
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Judy Paul, BSc, MBA
Pension Officer – Cathy Beaulieu
Pension Officer – Judi Kavanagh
Pension Officer – Laurene MacDonald, BCom
Special Projects Officer – Raye Billard, CEBS
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Pension Officer – Eileen O’Toole, BA
33
NPension
N
SA
S
APlanH
HTrustees
O
O
June 17, 2002
Front Row: Patrick Flinn, Virginia Crane, Anne Kennedy, Sheila Rankin, Carol Allen, Sharon Sheppard,
Ken Eddy Chair, Bruce Saunders Back Row: Lloyd Brown, Colin Stevenson, Frank Maxwell, David
Saxton, Bill Long, Jessie Macdonald, David Croxen, Mary MacIsaac, Kevin MacDonald, John Churchill
Missing: Calvin Crocker, Christopher Clarke
N
N
SA
S
AH
HO
O
Pension Plan
Independent Auditor
KPMG
Independent Actuary
William M. Mercer Limited
Independent Legal Counsel
Pink • Breen • Larkin
Please send your comments and/or suggestions regarding this annual report or our communication program
to:
[email protected]
or
NSAHO Pension Plan
2 Dartmouth Road
Bedford, NS, B4A 2K7
Attention: Communications Manager
A N N U A L
34
R E P O R T
2 0 0 1
Bedford Professional Centre, 2 Dartmouth Road, Bedford, Nova Scotia, Canada B4A 2K7
Tel: (902) 832-8500 Fax: (902) 832-8506