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					TO    :     Pension Board, Academic Employees' Pension Plan
            University of New Brunswick

FROM :     John Pettigrew and Peter Hayes

DATE :     September 18, 2003

RE    :    Actuarial Valuation – Update as at July 1, 2003



1.   EXECUTIVE SUMMARY

     We were requested to prepare an actuarial "update" as at July 1, 2003. This update is
     based on the filed valuation prepared as of July 1, 2002. It takes into account actual
     asset values at July 1, 2003, but only estimates the plan's liabilities at that date, using
     extrapolations based on membership data at July 1, 2002.

     a)      The results of the update indicate a deterioration of the plan's financial status
             at July 1, 2003, as follows:

                                                                               July 1
                                                                        2003           2002
                                                                     (Estimates)    (Valuation)

             Going Concern Valuation (uses smoothed assets)
                  – deficit                                 28,215,000              22,519,000
                  – funded ratio                              74.6%                   77.6%

             Solvency Valuation (uses smoothed assets)
                  – deficit                                           6,765,000      1,346,000
                  – funded ratio                                       94.2%          98.7%

             Wind-Up Valuation (uses smoothed assets)
                 – deficit                                           39,626,000     29,770,000
                 – funded ratio                                        66.2%          70.5%



     b)      If a valuation was filed at July 1, 2003 using the updated results, the higher
             deficits would result in an increase in contribution requirements of about
             1.1% of earnings from each party, starting in July 2004. This would increase
             the current average (blended) contribution rate from 10.15% to 11.25% of
             pensionable earnings.


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                                                                                               2.



     We emphasize that this update is an estimate of the results of a full valuation at July
     1, 2003. The next full valuation must be completed no later than July 1, 2005 [3 years
     after the previous valuation].


2.   METHODOLOGY

     a)     Assets
            For this valuation, we have again valued assets on an adjusted market value
            basis, which "smooths" the effects of investment gains or losses over a
            period of three years. On that basis, this valuation recognizes only 1/3 of
            the losses from the latest 12 month period and 2/3 of the losses from the
            previous 12 months.

            The adjusted asset value at July 1, 2003, based on financial statements for the
            first six months of 2003 prepared by the University, is as follows:

             Assets at market value                                 $77,823,738
             Plus adjustment for investment losses                    5,211,395
             Adjusted Value                                          83,035,133


            Adjusted assets represent 106.7% of the market value on July 1, 2003 (the
            corresponding figure was 109.3% on July 1, 2002).

            Details of the methodology are set out in the attached Appendix A.

     b)     Liabilities
            We have extrapolated liabilities, based on the data used for our formal
            valuation at July 1, 2002. We have adjusted liabilities to allow for the actual
            impact of the following general economic factors.

            general salary increases :         actual Economic Adjustments received on
                                               January 1, 2003 and July 1, 2003 were 1.68%
                                               and 0.99% respectively, plus adjustments
                                               totalling $400 – these were lower than the
                                               assumed rate of 3.5% per year.

            CPP earnings ceiling     :         actual CPP earnings ceiling was $39,900 in
                                               2003, which is an increase of 2.0% over the
                                               2002 ceiling – this is lower than the assumed
                                               increase of 4.5% per annum.




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                                                                                             3.



            pension escalation       :         actual escalation was 1.7% on January 1, 2003
                                               – this is lower than the assumed rate of 3.0%.

            Since this is an update rather than a full actuarial valuation, we have based
            our calculations on the membership data used for the July 1, 2002 valuation.
            The consequences of this are that the liabilities make no allowance for actual
            demographic experience – i.e., promotional salary increases, retirement
            utilization, and the effects of termination and mortality experience.


3.   GOING CONCERN VALUATIO N

     The main purposes of the "going concern" valuation are:

                   to review the financial position of the plan as at July 1, 2003;

                    and

                   to reassess the required current service contributions (i.e., expected
                    cost of the plan for active participation for service in the year
                    following the valuation).

     For the purpose of this update, we used exactly the same actuarial assumptions that
     we used for the July 1, 2002 valuation. The main economic assumptions used are
     summarized in Appendix B.

     a)     Financial Position at July 1, 2003
            The estimated financial status of the plan as at July 1, 2003, based on the
            methodology described above, is set out in the following valuation balance
            sheet. The comparative figures from the July 1, 2002 valuation are also
            provided.




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                                                                                            4.



                                                                    July 1
                                                             2003               2002

     Assets (adjusted value)                          83,035,000             77,791,000

     Liabilities
     Accrued for service to date                     111,250,000         100,310,000
     Estimated Deficit                                28,215,000          22,519,000

     Funded ratio (= assets ÷ liabilities)               74.6%                 77.6%


     The main sources of the deficit at July 1, 2003 are as follows:

                                                                                  $

     Expected deficit at July 1, 2003                                        (22,990,000)
     (equals deficit at July 1, 2002, allowing
     for interest at 7.25% and actual
     amortization payments)

     Net loss due to unfavourable
     experience from July 1, 2002 to July 1,
     2003

     a)    economic factors
              – investments                           (5,500,000)
              – salaries                                 275,000
              – CPP earnings ceiling                    (400,000)
              – pension escalation                       400,000
                                                                              (5,225,000)

     b)    demographic factors
           – (not measured)

     Estimated deficit at July 1, 2003                                       (28,215,000)


b)   Current Service Contributions
     Since we are not using updated membership data, we are unable to review
     current service contributions. These contributions will increase or decrease
     according to the demographics of the active membership [an increase or decrease
     in the salary-weighted average age will tend to increase or decrease rates].



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                                                                                                          5.



4.   SOLVENCY VALUATION

     In addition to the "going concern" valuation set out above, the New Brunswick
     pension legislation requires an actuary to report on a "solvency" valuation of the
     plan. This is required mainly for minimum funding purposes.

     A solvency valuation is intended to duplicate a valuation that would be required if
     the plan were terminated as of the valuation date. If there is a deficiency on this
     basis, it must be amortized over a specified period (see 6. below).

     New Brunswick pension legislation was amended in 2001 to require inclusion of
     pension escalation in a solvency valuation. [The only other Canadian jurisdiction with this
     feature is Federal legislation; it is not required by any other provincial legislation.] On that basis,
     the entitlements for active and retired members must include pension escalation –
     for active members, this is for the period both before and after retirement. The
     effect of this change on the UNB plan is extremely significant.

     Under New Brunswick legislation, the methods and assumptions to be used for a
     solvency valuation are regulated. Liabilities are valued on the following bases:

             Benefits are the member's entitlements if the plan is terminated on the
              valuation date. For this purpose, all members are assumed to be entitled to
              vested pensions (even if they have less than 5 years of membership) and, for
              members who are eligible for unreduced early retirement on the valuation
              date, the pensions are assumed to start immediately.

             The value of vested pensions is determined on a basis that is a proxy for the
              amount required to purchase annuities from an insurance company. Based
              on methodology discussed earlier this year with the Superintendent of
              Pensions, the basis reflects long-term bond rates at the valuation date, with
              allowance for the plan's pension escalation features and potential expenses
              included in annuity purchase rates. The rates at July 1, 2003 are as follows
              [July 1, 2002 rates are also provided for comparison purposes].

                                                                                 July 1
                                                                         2003                2002

              Net interest rate
                    – first 15 years                                     3.5%                4.0%
                    – after 15 years                                     3.5%                3.5%




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                                                                                                    6.



     Based on the above methodology, the estimated solvency balance sheet at July 1,
     2003 is as follows (comparative figures from the July 1, 2002 valuation are also
     provided):

                                                                            July 1
                                                                     2003               2002

             Solvency Assets
                  At adjusted market value                    83,035,000              77,791,000
                  Plus past service contributions             27,650,000              21,814,000
                        for periods to June 1,
                        2016
                  Less wind-up expenses                         (100,000)               (100,000)
                  Total Solvency Assets                      110,585,000              99,505,000

             Estimated Solvency Liabilities                  117,350,000             100,851,000

             Estimated Solvency Deficit                         6,765,000              1,346,000


     The increase in the solvency is due entirely to the change in the solvency valuation
     assumptions (i.e., reduction in the net interest rate to 3.5% throughout).


5.   WIND-UP VALUATION

     The estimated financial status of the Plan in the event of a hypothetical wind-up on
     July 1, 2003 is as follows [July 1, 2002 figures are provided for comparison purposes].

                                                                            July 1
                                                                     2003               2002

             Wind-up assets
                 At market value                              77,824,000              71,181,000
                 Less wind-up expenses                          (100,000)               (100,000)
                                                              77,724,000              71,081,000

             Estimated Wind-Up liabilities
                  (same as solvency liabilities)             117,350,000             100,851,000
             Estimated Wind-Up deficit                        39,626,000              29,770,000

             Estimated Wind-up funded ratio
                  (assets ÷ liabilities)                         66.2%                  70.5%



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                                                                                                 7.



         The difference between a wind-up valuation and a solvency valuation is in the
         valuation of assets. In a wind-up, assets are valued at straight market values (less an
         allowance for wind-up expenses). The solvency valuation includes additional assets
         that would not be available in the event that the Plan was terminated.


6.       CONTRIBUTION REQUIREMENTS

         We have calculated the estimated contributions that would be required as a result of
         the updated financial results at July 1, 2003. These calculations assume that any
         revisions in contributions are implemented one year following the valuation date, as
         has been the pattern previously. Revised contributions (effective July 1, 2004), and
         the current contributions (effective July 1, 2003) are set out in the schedule below:

                                                               Estimated Rates   Current Rates
                                                                (from July/03    (from July/02
          Rates for Each Party                                      update)        valuation)

          Current service (Note 1)                                    7.55%         7.55%

          Past service
              – going concern deficit (Note 2)                      2.86%           2.36%
              – solvency deficit (Note 3)                           0.84%           0.24%
                                                                   11.25%          10.15%


         Notes:
         1.     The current service contribution rate from the July 2003 update is assumed
                to be the same as the rate calculated at our July 1, 2002 valuation. The rate
                provided above is the average (blended) contribution rate for each party (the
                actual rates are 6.70% of earnings to CPP earnings ceiling plus 8.4% of
                excess earnings).

         2.       The going concern deficit must be amortized over a maximum of 15 years
                  and, for this Plan, is expressed as a percentage of earnings. The increase in
                  contributions from the July 2003 update reflects the additional going concern
                  deficit (total increase of $5,225,000).

         3.       The solvency deficit must be amortized over a maximum of 5 years, although
                  the legislation allows a longer amortization period – up to January 31, 2016 –
                  if the 5 year amortization period gives rise to "onerous" special contributions.
                  The increase in contributions from the July 2003 update reflects the
                  additional solvency deficit.

JP:mm
att.
C:\docJmm\Clients\UNBR\Report\2003_Actuarial Val.Update@31Jul03.doc

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                                                                                                   8.



                                    APPENDIX A
                                 Valuation of Assets


For actuarial valuation purposes, we used an adjusted market value which smoothes the
effects of investment gains and losses over a three year period. In determining an
investment gain or loss, we have used the assumed rate of investment return as a base, and
treated any investment income (interest, realised and unrealised capital gains) in excess of the
assumed rate of 7.25% as a "gain" and any shortfall below 7.25% as a "loss".

The operation of the method as of July 1, 2003 is illustrated below:

                                              Actual                              Excess
                                            Investment          Expected       (Shortfall) as
                                            Earnings (1)       at 7.25% (2)     Gain (Loss)

         2002 (last 6 months)                (806,856)          2,624,362       (3,431,218)
         2003 (first 6 months)              2,475,554           2,685,265         (209,711)
                                            1,668,698           5,309,627       (3,640,929)


Notes:
(1)    Actual earnings represent total investment earnings (including capital gains and
       losses) less invested-related expenses (investment management, investment consulting
       and custodial).

(2)     Expected earnings assume an investment return of 7.25%.


Adjusted Market Value at July 1, 2003
                                                                                                    $
 Market Value, July 1, 2003                                                                     77,823,738
 Plus   1/3 of investment losses from July 1, 2001
        to June 30, 2002 (from July 2002 report)                        = 1/3 of 8,352,328       2,784,109
 Plus   2/3 investment losses from July 1, 2002
        to June 30, 2003                                                = 2/3 x 3,640,929        2,427,286
                                                                                                83,035,133




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                                                                                                       9.



                          APPENDIX B
          Economic Assumptions – Going Concern Valuation



For the purposes of this memo, we used exactly the some assumptions that we used for the
July 1, 2002 valuation. The main economic assumptions are as follows:


                                                           Rate             Rationale

 Inflation (CPI)                                           3.5%

 Investment Return                                         7.25%        = inflation of 3.5% plus a
                                                                          deemed real return of
                                                                          3.75%

 General Salary Increases                                  3.5%         = inflation (plus separate
                                                                          scale for PTR)

 Pension Indexing
   – pension earned to June 30/03                          3.0%         = inflation less ½%
   – pension earned from July 1/03                         2.625%         allowance for effect of 6%
                                                                          cap (lower allowance for
                                                                          4.5% cap)

 CPP increases                                             4.5%         = inflation plus 1% to
                                                                          represent general salary
                                                                          increases




September 18, 2003
C:\docJmm\Clients\UNBR\Report\2003_Actuarial Val.Update@31Jul03.doc



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