On September 23, the GENMO pension plan subcommittee met with Dave Courtney our contact in the Finance Department, and Jeff Rolfs, Vice President of Finance and Chief Financial Officer, to review the performance of our Pension Plan for the quarter ending June 30, 2013. GENMO was represented by Lynn McCullough, Mike Powell and Garry Marnoch. Mike will be replacing Lynn in these reviews going forward.
The overall return is down nearly two percent over the quarter, carried down by rising interest rates which negatively affect bonds. The fund has moved toward less risky instruments, and benefited during the three years that interest rates were expected to rise but did not. The rising interest rate increases the discount rate which is used to determine the plan's liabilities, thus decreasing the overall liabilities at a greater rate than the bond asset drop.
Mitigating the bond fund performance were the various equity funds, which went up quite a bit, and even those that declined still performed better than their benchmarks in a declining market. Although the Canadian real estate asset category increased in absolute numbers, it underperformed the benchmark because of a single project. Replacing fund managers and rebalancing asset categories are not based on performance in a single quarter but with a view to long-term stability in the capacity of the fund to meet its payout obligations.
The one-year, three-year and ten-year views are quite favourable and exceeded their benchmarks. The five-year view is positive but not as strong, and underperforms its benchmark slightly. As the effect of the 2008-9 market collapse drops out of the calculation, expect to see the five-year picture brighten.
Benefits paid out of the plan during the quarter were way up over the previous year. This may be attributed to GMCL's offer to take commuted value in place of regular pension payments; the offer has been extended to all future retirees, not just those involved in special shutdowns. For those who accept, their full commuted value comes out of the underfunded pension plan. This may be expected to continue until drainage to the fund reaches the regulatory limit. In future, benefit payments from the fund will decline, for there will be no new participants now that all active employees have been switched to the Defined Contribution programme.