Every two years, the UBC Faculty Pension Plan (FPP) Board of Trustees reviews the Statement of Investment Objectives and Beliefs as required by the Plan’s Governance Policy. The Statement of Investment Objectives and Beliefs forms part of the Statement of Investment Policies and Goals. At their January 18, 2017 meeting, the Board approved a change in one of the two Objectives in the Statement of Investment Objectives and Beliefs as discussed below. There were no changes to any of the Beliefs.
Objective A is to earn a real return on the Balanced Fund, with the goal of achieving a target Income Replacement Ratio (IRR) of 60-70% of the final year’s salary for the “typical” member without taking undue risk. The typical member is defined as having at least 30 years of service at UBC, invested in the Balanced Fund option throughout their career and not retiring before the age of 65 years. The analysis conducted by the Board shows that the strong historical performance of the Balanced Fund supports that the objective of a 60-70% IRR as likely being attainable for those very near retirement. However, for those retiring later, the expected IRR is lower. The annualized return of the Balanced Fund over the last 40 years is close to 9%. Given that expected future returns are likely lower than what has been achieved historically, the Board has amended Investment Objective A to state that the expectation of an IRR of 50% or higher is more reasonable. This reflects that future returns may not be as high as the past experience of the Balanced Fund.
Objective B is to mitigate the probability of a negative annualized three year nominal return on the Balanced Fund. The Board reviewed the Balanced Fund returns over the last 35 years. Over the 33 three-year rolling periods, there were no periods that experienced a negative three-year annualized return. The lowest three-year annualized return was 0.3% and the highest 17.2%. Based on this data, Investment Objective B is being met and remains valid.
Click here to review the Governance Policy and the revised Statement of Investment Policies and Goals.