Surplus Sharing Project – Update on Financial Status of the Pension Plan


As many of you know, the financial markets have generally performed poorly over the last several months. Concerns have been raised by some surplus sharing participants about the ability of the McMaster Salaried Pension Plan to distribute the $150 million of surplus and still maintain a healthy financial position. After consulting with our actuarial advisors, we are of the view that the assets of the McMaster Salaried Pension Plan have performed very well relative to the market indices over the last several months and the Plan remains in a sufficiently sound financial position to allow the surplus distribution to proceed.


The maintenance of a prudent diversified investment portfolio and the use of professional investment managers has allowed the Plan to enjoy
excellent long term investment results without suffering sharp short term drops in total asset values. Over the last 15 Plan years, the average annual return on Plan assets is over 11% and, although there have been a few instances of market declines over that period, the Plan has achieved a positive rate of return in each Plan year. While this is no guarantee of future returns, it does demonstrate that the assets of the Plan are invested in a manner which offers some protection against short term declines in market indices.


The most recent financial statements on the Plan assets show that the
market value of assets as of March 31, 2001 is $956 million. The Plan
actuary estimates the liabilities of the Plan to be $668 million at that date, resulting in a surplus of $288 million at the end of March. In spite of a drop in the markets, the assets of the Plan have earned a positive rate of return from July 1, 2000 to March 31, 2001. This rate of return is not high enough to keep the total Plan surplus at the July 1, 2000 level of $324 million but the University is advised that it is easily sufficient to allow the surplus distribution to proceed without any concerns about the financial health of the Plan.

We will continue to keep you updated on the financial status of the
Pension Plan throughout the surplus distribution process.

McMaster University