Governors’ Orientation

Facilitator

Partner, Borden Ladner Gervais LLPPlan Manager & CEO, CAAT Pension Plan

Pierre Giroux

Steven IczkovitzPaul Owens

CAAT Pension PlanBoard of Governors’

Orientation

Paul Owens

Plan Manager & CEO

February 10, 2008

Plan Overview

• CAAT Pension Plan: Colleges of Applied Arts and Technology Pension Plan• Covers 24 Ontario Community Colleges• Established in 1967• Administered by OMERS up to 1995 -- liabilities: separate plan -- assets: commingled • Independent: January 1, 1995• Transfer of assets and administration -- January 1, 1996

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Plan Overview

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Membership Active 17,999

Deferred Pensioners 1,058

Pensioners 10,392

Total 29,449

Average Age 48

Average Service 12

Plan Overview

• Standard Public Sector Design• Defined Benefit: 1.3%/2.0%• Integrated plus Bridge Benefit• Contributory: 10.1%/8.3%/10.1%• Employer Match• Surplus/Deficit Sharing• Early Retirement Provisions• Automatic 60% Survivor Pension• Indexed to 75% of CPI

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A Jointly Trusteed Plan

Employer Employee

Consultant

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Colleges Ontario

Executive Committee

Sponsors

(4)

Trustees

(6)

OPSEU/

OCASA

Sponsors

(4)

Trustees

(6)

Asset Structure

Assets $5.4 billion (31/12/07) 100% External Management 17 Managers (11 new since 2004)

Canadian Equities 16% International Equities 27%

U.S. Equities 15%Bonds 39%

Infrastructure/Other 3%

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Fund Performance

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-5.68

13.33

9.65

13.08 13.88

3.33

-10

-5

0

5

10

15

%

2002 2003 2004 2005 2006 2007 toNov.

Return vs. Risk

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RETURN RISK

Achieving higher returns is the expected result of assuming more risk, but …

Assuming more risk does not guarantee higher returns, they too often result in higher losses.

We must strike the right balance.

Major Factors Affecting Funding Position

Good Bad

Long-term interest rates

-- Nominal Increase Decrease

-- Real Increase Decrease

Fund returns Above 6% Below 6%

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Initial Actuarial Results

Funding/

Going Concern Solvency

($ millions)

1/1/05 $90 surplus $141 surplus

1/1/06 $545 deficit $289 deficit

1/1/07 $585 deficit $64 deficit

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Experience in 2007

• Volatile fund performance

• No major improvements in Long Term Interest Rates

• New asset mix policy: Alternatives from 5% - 20%

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Funding Policy

On June 21, 2006, agreement reached to:• File 1/1/05 valuation with a $90 million surplus using

projected unit credit method• Develop Funding Policy

On September 27, 2006, agreement reached to:• Adopt Funding Policy• Increase contribution rates by 1% on January 1,

2008, 2009, and 2010• Make indexation in respect of service after 2007

contingent upon affordability

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Contribution Rates

Rate above YMPE

1/1/03 7.6%

1/1/04 9.1%

1/1/08 10.1%

1/1/09 11.1%

1/1/10 12.1%

Contribution Rates -- Integrated with CPP: 1.8%

less for earnings between

YBE and YMPE

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A one percent increase in contribution will cost the System $10 million a year

• Impact of increased contribution:

Cumulative, $ millions Fiscal Year07/08 08/09 09/10 10/11

To the System 2.5 12.5 22.5 30.0

To Mid Size College .1 .5 .9 1.2

• Plus higher employee contributions will put pressure on wages and on a college’s ability to attract and retain staff

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Lawyers

Patent and Trade-mark Agents

2008 COLLEGES ONTARIO CONFERENCE

GOVERNORS’ ORIENTATION PROGRAM

Steven Iczkovitz

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What is Corporate Governance?

"Corporate governance is the system by which … corporations are directed and controlled.

The corporate governance structure specifies the distribution of rights and responsibilities among different participants in the corporation…and spells out the rules and procedures for making decisions on corporate affairs.

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What is Corporate Governance?

…it also provides the structure through which the company objectives are set, and the means of attaining those objectives and monitoring performance“.

– OECD April 1999

“Corporate governance is about promoting corporate fairness, transparency and accountability"

– J. Wolfensohn, 1999

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Agenda

1. Establishment of Colleges

2. General legal duties of governors

3. Specific legal duties

4. Personal liability for corporate acts & omissions

5. Risk management

6. Best practices

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Legislative Framework - The Act

The Ontario Colleges of Applied Arts and Technology Act, 2002 (the “Act”)

proclaimed in 2003 regulations establish Colleges requires board of governors establishes authority of Minister of Training,

Colleges & Universities (“Minister”) establishes Council

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Authority of Minister

Minister may - issue binding policy directives impacting

how Colleges carry out their objects or conduct their affairs

intervene in the affairs of a College

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Binding Policy Directives

Governors should be familiar with directives, including -

Governance and Accountability Framework Conflict of Interest Banking and Investments Purchase, sale or Encumbrance of College

Property

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Governance and Accountability Framework

“The board of governors of a college is to govern effectively and is accountable to the citizens of Ontario for the successful achievement of this mandate in view of the financial support provided by the province.”

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Governance and Accountability Framework

“Good governance requires that policies, processes, and structures be put in place to promote effective operation of the organization and to allow a corporation to fulfill its mandate and meet its objectives.”

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Governance and Accountability Framework

At a minimum, role of the board is to – establish governance structures set corporate goals/strategic direction &

monitor alignment of operations take corrective action as necessary hire & assess CEO performance, delegate

accountability to CEO approve business plan, budget, annual

report

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Conflict of Interest

Governors are expected to -• act honestly and uphold the highest

ethical standards

• conduct themselves in a manner that will bear the closest public scrutiny

• try to arrange their private interests so as to avoid conflicts of interest

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Conflict of Interest

Exists where a governor –• has personal interests that supersede, compete

with or could influence the exercise of his or her responsibilities as a board member

• is party to a proposed or actual contract with the College

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Conflict of Interest

Conflict of interest may be “real”, “potential” or “apparent”

Governors - • must declare & explain nature of conflict at

earliest opportunity• may or may not participate in discussion• should not participate in vote

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Other Applicable Legislation

Under the Act, Colleges are agents of the Crown & subject to - Financial Administration Act Freedom of Information and Protection of

Privacy Act Other acts applicable to public sector bodies

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Financial Administration Act (Ontario)

Prohibits Colleges from giving indemnity w/o prior permission of Minister if indemnity would increase indebtedness or contingent liabilities of Province

Implications for contracts

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Freedom of Information and Protection of Privacy Act (“FIPPA”) (Ontario)

FIPPA governs collection, use & disclosure of “personal information” (recorded information about an identifiable individual)

[Personal Information Protection and Electronic Documents Act (“PIPEDA”) not applicable except where College engages in “commercial activity”]

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Corporations Act (Ontario)

Colleges are non-share capital corporations subject to the Corporations Act

Corporation distinct entity from directors & officers which gives governors some protection from personal liability for acts & omissions of College

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Legislative Authority to Manage Affairs of Colleges

Government may make regulations amending objects, amalgamating or closing and directing programs

Minister has powers noted above

Council (established under regulations under Act), appoints governors, establishes benefit plan for College staff

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General Legal Duties - Duty of Care

Governors must meet a minimum standard of care in discharging duties

Governor must exercise the care, diligence & skill that may be reasonably expected of a person with the knowledge and experience of governor (subjective test - standard may vary)

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General Legal Duties - Fiduciary Duty

Encompasses conflict of interest Requires a governor to act loyally,

honestly, in good faith, without personal profit & in the best interests of College

Owed by each governor to College College’s interest must supersede self-

interest

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Specific Duties (under Regulations made under Act)

Governors to – draft, submit to Minister & make available to

public: strategic plan; business plan; annual report; key performance indicators identified by Minister

balance College’s budget if deficit, seek Minister’s approval & submit

recovery plan

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Personal Liability for Acts & Omissions of College

Failure to deduct & remit taxes

Contravention of occupational health & safety laws, employment standards, building code, environmental standards

Misrepresenting authority, failure to discharge standard of care

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Risk Management - Indemnification & Insurance

Establishment of & adherence to sound corporate governance practices• due diligence defense• business judgment rule

Indemnification by College (permitted by Corporations Act (Ontario))

Insurance coverage by College (D&O liability insurance)

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Best Practices

Be familiar with College operations & responsibilities of key senior staff

Attend board meetings where possible Thoroughly review financial statements,

minutes, reports, etc. Ask questions

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Best Practices

Test credibility of advice

Exercise prudence & common sense - keep corporate information confidential & avoid/declare conflicts of interest

Ensure College has C&O insurance & review coverage annually - investigate indemnification

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Sound Corporate Governance

Governors should establish – • a written mandate for board• a code of conduct of acceptable

organizational behavior• policies (& procedure for making them) &

review/update them periodically• committees & reporting requirements• performance measures & implement

performance reviews• ongoing training to ensure proficiency

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Steven Iczkovitz

Borden Ladner Gervais LLP siczkovitz@blgcanada.com

(416) 367-6214