Pension Security Robert Marchessault, FC IA, FSA Director – Pension & Actuarial Services May 28, 201 9 Page 1 | 2019 05 16
Canada’s largest communications company in 201 9 22M+ $23B $85B CUSTOMER CONNECTIONS ANNUAL REVENUE ENTERPRISE VALUE 1 in every 350 employed Canadians works at Bell 2
Canada’s largest private sector pension fund Bell Canada Plan Bell MTS Plan Bell Aliant Plan $2.1 B $3.8 B 100% solvent 98% solvent $15.3 B 100% solvent BCE Plan Other plans $0.5 B $1.6 B 100% solvent 100% solvent Active DB members Retirees and beneficiaries Deferred members 11,000 35,000 6,000 age 52 age 72 $20,000 lifetime pension 23 years of service + $20,000 bridge to age 65 Page 3 | 2019 05 16
Plan security – solvency basis § “What if plan were terminated now?” § Snapshot of plan’s security in current environment § Treatment of all benefits earned to date is set out, based on current market rates: § payment of commuted values Solvency valuation (Bell Plan) 20,000 § purchase of annuities 16,000 § replicating portfolio § Results are relatively volatile year-over-year 12,000 § reflects short-term fluctuations 8,000 § discount rates used to value the liabilities 4,000 § market rates of return 100% 100% 80% 99% 84% 0 § Any shortfalls are amortized over 5 years -4,000 Surplus Assets Liability Page 4 | 2019 05 16
Plan security – going-concern basis § Long-term view § Assumes plan will continue until last member dies § Uses conservative, long-term assumptions regarding § discount rates Going-concern valuation (Bell Plan) § mortality 20,000 § active employee assumptions (salary increases, 16,000 retirement/termination rates) 12,000 § Funding requirements are smoothed out (deficits & fluctuations in equity values are spread over several 8,000 years) 4,000 106% 110% § Year-over-year results generally more stable than 91% 0 solvency measurement -4,000 Surplus Assets Liability Page 5 | 2019 05 16
Security of the funds Under Canadian pension legislation, a pension plan’s assets must be invested separately from the plan sponsor’s assets § in trust, available only to pay for pension benefits § can not be used by the company for any other purposes under any circumstances Plan sponsor is responsible to fund any shortfall in the event of plan termination Page 6 | 2019 05 16
Addressing the risks Page 7 | 2019 05 16
Bell’s de-risking context and history De-risking De-risking De-risking & De-risking & END POINT: Bond Bond Funding Funding Plan design Plan design STARTING strategy strategy “Lock-down” “Lock-down” Target Risk portfolio portfolio strategy strategy changes changes POINT changes changes adjustments adjustments sophistication sophistication strategies strategies Level � Closed DB � Increased � Assess if � Daily tracking of � Risk transfer plans to new bond portfolio advance financial situation (longevity entrants duration over contribution is swap) � Split portfolio by Bell Initiatives several years desired � Added DC Return Generating � Fixed income component � Increased � Establish (RGP) and Low overlay to existing allocation: guidelines on Risk (LRP) to better strategy DB plans for Fixed income deficit funding align investment � Keep abreast all new hires grown from decision strategy with liability of emerging 40% of assets process � Align � Structure to initiatives and in 2008 to 70% provisions on progressively shift legislation of assets in acquisitions to ultimate asset changes 2017 mix with acceptable � Diversify to risk level (glide find spread path) Regularly reassess to adapt to constantly changing environment and evolution of the plans Page 8 | 2019 05 16
Interest rate risk Page 9 | 2019 05 16
Interest rate risk Bell Canada Pension Plan (solvency liability projection) 17,000 16,000 15,000 Projected Solvency Liability (2004) 14,000 13,000 ($M) 12,000 11,000 10,000 9,000 8,000 Page 10 | 2019 05 16
Interest rate risk Bell Canada Pension Plan (solvency liability projection vs. actual) 17,000 16,000 Actual Solvency Liability 15,000 Projected Solvency Liability (2004) 14,000 13,000 ($M) 12,000 11,000 10,000 9,000 8,000 Page 11 | 2019 05 16
Interest rate risk Bell Canada Pension Plan (solvency liability projection vs. actual vs. assets) Actual Market Value of Assets 17,000 16,000 Actual Solvency Liability 15,000 Projected Solvency Liability (2004) 14,000 13,000 ($M) 12,000 11,000 10,000 9,000 8,000 Page 12 | 2019 05 16
Asset mix strategy Focus is on managing assets in relation to liabilities with a primary goal of reducing risk in the pension plan over time To achieve this, the investment policy allocates assets into two categories: § 70% low-risk assets (mainly long-term fixed income assets) § Objective of tracking liabilities with low surplus/deficit volatility § 30% return-generating assets (mainly equities) § Objective of adding value above liability Continuous monitoring of the situation § Daily tracking of the solvency situation of the major plans § Quarterly reporting at the Board level § Allows timely intervention if necessary (investment changes, advance contributions) Page 13 | 2019 05 16
Asset mix minimizes volatility Return on assets Change in liability Roller-coaster ride in the 2018 Q4 -1.5% $250M decrease markets in the last 6 months 2019 Q1 +7.5% $900M increase 20,000 100% 99% For each quarter, 19,000 96% 94% impact on solvency ratio 93% 93% 18,000 was kept to ~0.5% 17,000 85% 16,000 15,000 100.8% 100.5% 100.2% 14,000 13,000 12,000 2012 Q4 Q1 Q2 Q3 2013 Q4 Q1 Q2 Q3 2014 Q4 Q1 Q2 Q3 2015 Q4 Q1 Q2 Q3 2016 Q4 Q1 Q2 Q3 2017 Q4 Q1 Q2 Q3 2018 Q4 Q1 While market swings are inevitable, investment policy aims to protect against volatility in solvency position Page 14 | 2019 05 16
Longevity risk Page 15 | 2019 05 16
First longevity insurance in North America ASSUMES STABLE NO IMPACT RISK PAYMENTS Fixed Cash Flow = agreed monthly schedule ~17,000 Bell Sun Life Bell Pension Assurance Pension Payments Retirees Variable Cash Flow = Plan Company Unindexed Pension Payments As per pension plan provisions Not impacted by longevity insurance Longevity Insurance Contract Partially re-insured with two global re-insurers Protection against variability in pension payments Page 16 | 2019 05 16
Sample longevity swap cashflows § About half of pension payments are fixed and known from day 1 § Monthly exchange in cash flows is minimal, representing the difference between § Fixed payments as established in the contract § Actual pension payments to retirees § Protection against greater increases in future longevity than already anticipated Annual Cash Flow Exchange - Scenario 3 (Cure for Cancer ) Scenario 1 – actual longevity in line with expected Annual Cash Flow Exchange - Scenario 1 Scenario 2 – retirees living longer than expected (“cure for cancer” scenario) Assuming actual longevity in line with expected longevity Retirees dying later than expected 90,000 90,000 Pension Plan Payment to Pension Plan Payment to 80,000 80,000 Insurance Company (Fixed Cash Flow) Insurance Company (Fixed Cash Flow) Insurance Company Payment to Insurance Company Payment to 70,000 70,000 Pension Plan (Variable Cash Flow) Pension Plan (Variable Cash Flow) 60,000 60,000 ~$7K net payment by Insurance Company in 2035 small net payment by Insurance Company 50,000 50,000 in 2035 - only net amount is transferred from one entity to the other 40,000 40,000 30,000 30,000 20,000 20,000 10,000 10,000 0 0 2015 2020 2025 2030 2035 2040 2045 2050 2055 2015 2020 2025 2030 2035 2040 2045 2050 2055 Page 17 | 2019 05 16
Retiree Audit Page 18 | 2019 05 16
Retiree Audit Performed annually to maintain strong administrative processes and part of good governance Administrative oversight ensures exactness of pension records 2019 audit § already started, same process as in prior years § initial letter in April (~8,000) § 1 st reminder to be sent in June-July § 2 nd reminder to be sent in August-September § temporary suspension of payments would start in November § audited retirees can either complete and send in paper audit form enclosed with initial letter or the electronic audit form can be completed online in minutes (same process as last year) Bell.ca/ mybenefits § online access through the Benefits site § ID and password were supplied in the initial letter in April Page 19 | 2019 05 16
Conclusion On- going monitoring coupled with continual assessment of de- risking initiatives ensure good plan governance The pension plan is doing well and is backed by a strong sponsor Page 20 | 2019 05 16
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