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L’Institut canadien des actuaires. Canadian Institute of Actuaries. 2009 General Meeting ● Assemblée générale 2009 Ottawa, Ontario ● Ottawa (Ontario). Session/séance: PD6 Speaker(s)/conférencier(s) : J. David Vincent and Martin Rochette.

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2009 general meeting assembl e g n rale 2009 ottawa ontario ottawa ontario

L’Institut canadien

des

actuaires

Canadian

Institute

of

Actuaries

2009 General Meeting ●Assemblée générale 2009

Ottawa, Ontario ● Ottawa (Ontario)

Session/séance: PD6Speaker(s)/conférencier(s) : J. David Vincent and Martin Rochette


Speaker s conf rencier s j david vincent and martin rochette ogilvy renault llp

Evolution of the Law of Pension and Benefits:  Courts and Legislatures Grapple with the Growing Importance of Retirement Savings and Other Employee Benefit Plans in the Workplace

Speaker(s)/conférencier(s) :

J. David Vincent and Martin RochetteOgilvy Renault LLP


2009 developments in the Ontario and Federal Jurisdictions Legislatures Grapple with the Growing Importance of Retirement Savings and Other Employee Benefit Plans in the Workplace

The Kerry case

The Slater Steel case

The Burke v. Hudson’s Bay case

Ontario pension reform

Federal pension reform

2009 General Meeting

Assemblée générale 2009


Nolan v kerry canada inc

“Soft” DB to DC conversion Legislatures Grapple with the Growing Importance of Retirement Savings and Other Employee Benefit Plans in the Workplace

Cross-subsidization of DC plan using surplus in DB portion permissible, not revocation of trust

Payment of plan expenses from pension fund permitted, not revocation of trust

Adversarial claims will not qualify forcosts award from plan trust fund

Nolan v. Kerry (Canada) Inc.


Nolan v kerry canada inc cont d

Case is important for several reasons Legislatures Grapple with the Growing Importance of Retirement Savings and Other Employee Benefit Plans in the Workplace

SCC decision – highest court

Trust law principles circumscribed in application to pension trusts

Ontario C.A. decision written by Eileen Gillese upheld

DB to DC conversions popular with employers

Nolan v. Kerry (Canada) Inc. (cont’d)


Slater steel inc

Liability of plan actuary and employer’s board of directors for underfunding pension plan in period before bankruptcy

Charges against plan actuary for offences against PBA were dismissed

Third party administrator appointed by Superintendent suing plan actuary for negligence

Slater Steel Inc.


Slater steel inc cont d

The actuary claimed over for contribution and indemnity against the directors and officers of Slater

The claim over against the directors and officers was quashed in lower Court

Court of Appeal (per Eileen Gillese) overturned, allowing claim over to proceed

Slater Steel Inc. (cont’d)


Slater steel inc cont d1

Courts have not yet ruled on the main issue in this case, namely the liability of plan actuary or the directors and officers to fund some portion of the wind-up deficiency in the pension plan

Slater Steel Inc. (cont’d)


Slater steel inc cont d2

In effect, the plan actuary’s defence is: assumptions used in the valuation to determine the company’s required contributions to the pension plan were permissible, but if not I am not responsible since the Board of Directors instructed me to use these assumptions

Case has had a chilling effect on directors’ decisions regarding pension plan funding

Slater Steel Inc. (cont’d)


Burke v hudson s bay co

2008 decision of the Ontario Court of Appeal written by Eileen Gillese

Issue was whether seller of a business is obliged to transfer a pro rata share of pension surplus to the purchaser

Court of Appeal reversed the lower Court decision and held the transferred employees had no entitlement to surplus at the time of the sale

Burke v. Hudson’s Bay Co.


Burke v hudson s bay co cont d

The Supreme Court of Canada recently granted leave to appeal this case

Burke v. Hudson’s Bay Co. (cont’d)


Why are these cases important

Ontario Court of Appeal and Supreme Court of Canada decisions – two of Canada’s best Courts

They are “employer friendly” decisions

They mark significant evolution of the application of trust law principles to pension trusts

Eileen Gillese is the common thread

Why are these cases important?


Ontario pension reform

Harry Arthurs report released in October, 2008 - overshadowed by financial crisis

Ontario has promised pension reform in two stages

the first promised for November, 2009 is expected to address simpler issues

the second more comprehensive reform promised in 2010

Ontario pension reform


Ontario pension reform cont d

Speculation on some expected reforms? overshadowed by financial crisis

PBGF reform

Increase Superintendent’s powers to address pension issues in corporate insolvency

Ontario pension reform (cont’d)


Ontario pension reform cont d1

Surplus distribution on partial wind-ups ( overshadowed by financial crisisMonsanto)

Surplus sharing Regulation (1991 temporary amendment)

Rules on plan splits, mergers, sale transactions (Burke v. Hudson’s Bay and Aegon v. ING cases)

Ontario pension reform(cont’d)


Ontario pension reform cont d2

Ontario government implemented temporary pension solvency funding relief measures in August, 2009

A less well publicized amendment requires Superintendent approval for commuted value transfers from pension plans if last filed transfer ratio less than 1.0 and it has since declined by 10% or more

Ontario pension reform(cont’d)


Federal pension reform

October, 2009 news release and backgrounder from Minister of Finance

Legislative package expected before December 31

Numerous changes to PBSA, Income Tax Act and investment rules

Mostly housekeeping but a few small surprises

Federal Pension Reform


Federal pension reform cont d

Some of the housekeeping changes Finance

Employers to fully fund plans on wind-up

Plan sponsors cannot partially wind-up pension plan

Immediate vesting

More information disclosure to members including annual statement to deferred vested members

Increase surplus threshold under ITA from 10% to 25% of liabilities

Change investment rules to eliminate direct self-investment and apply 10% rule to market, not book value

Federal Pension Reform(cont’d)


Federal pension reform cont d1

Surprises Finance

“workout scheme for distressed pension plans” – aka “Let’s make a deal”

Sponsors, plan members and retirees can negotiate funding arrangements which are not in conformity with regulations, subject to approval of the Minister

If Board of Directors of plan sponsor declares an upcoming special payment cannot be made, becomes eligible for immediate moratorium on special payments, to permit negotiation of longer term solution

Federal Pension Reform(cont’d)


Federal pension reform cont d2

Surprises Finance

It is unclear whether the negotiated workout could include benefit reduction in addition to funding relief (in April, 2006 OSFI published a policy outlining its views regarding “Reducing Amendments”)

Proposal is modelled on the Air Canada and Canadian Press precedents

These precedents show that the federal government is more willing than other pension regulators to bend the rules, as long as it believes the employees and the unions understand and agree with the plan sponsor’s postponement of its pension obligations

Federal Pension Reform(cont’d)


Federal pension reform cont d3

The Canadian Press deal Finance

Precipitated by looming insolvency of CP and December 31, 2008 solvency deficit of $37 million

One year deferral of 2008 normal and special payments

Special payments for first two years ($10 million) deferred, deemed trust subordinated to $5 million new debt

13 year amortization of solvency deficit

Consent early retirement benefits excluded from calculation of solvency deficit

Federal Pension Reform(cont’d)


Quebec legislative and regulatory changes

New measures for plan funding (effective January 1, 2010) (Regs: 2009, G.O. 42, 3515)

Bill 68 (June 2008)

Bill 1 (January 2009) (Regs: 2009, G.O. 45, 3649)

Member-Funded Pension Plan

Quebec Legislative and Regulatory Changes


New measures for plan funding

Provision for adverse deviation (Regs: 2009, G.O. 42, 3515)

Funded by actuarial gains

Generally around 7% of plan liabilities

Letters of credit

Annual actuarial valuations

90% Rule (Plan amendments)

Equity principle (if surplus is used to fund an improvement)

New Measures for Plan Funding


Bill 68

Phased retirement (Regs: 2009, G.O. 42, 3515)benefit

Prohibition of suspensive conditions

Recognition of retiree associations

Housekeeping changes affecting funding measures

BILL 68


Phased retirement benefit

Different from early benefit (Regs: 2009, G.O. 42, 3515)

Working time need not to be reduced

Voluntary (plan must be amended)

Eligibility:

At least 60 years ; or

At least 55 years and eligible to unreduced pension; and

Under 65 years

Maximum benefit: 60% of pension

Phased Retirement Benefit


Prohibition of suspensive measures

RRQ’s response to the Quebec Court of Appeal decision in the Multi-Marques case

That decision challenged one of the pillars of the SPPA

Benefits may not depend on factors which could lead to limitation or reduction of benefits

Any provision of a plan that has the effect of reducing the obligations of the employer upon plan termination or employer withdrawal is void

Prohibition of Suspensive Measures


Bill 1 funding relief

Temporary measures the Multi-Marques case

Immediate adoption of new CIA standards of practice for calculating pension commuted values

Consolidation of unfunded liabilities

Extension of amortization period (Members consent not required)

Assets smoothing

Bill 1 – Funding Relief


Bill 1 special option bankruptcy

Applies when benefits are reduced upon plan termination or employer withdrawal

Applies to events occurring between December 30, 2008 and January 1, 2012

Applies to retirees and those eligible to retire

Such members will have the option of transferring their commuted value to the RRQ who will administer their pension

The Government guarantees that benefits cannot be further reduced and pays for the administration of the measure

Will be extended to some CCAA situations

Bill 1 – Special Option (Bankruptcy)


Member funded pension plan

A response to DB plans crisis? employer withdrawal

Established by employer or union

Must be a career earnings or a flat benefit plan

Employer contribution is fixed

Employees bear the risk, i.e., benefits are reduced if there are insufficient assets

Existing plans cannot be converted into a MFPP

Plans with Quebec members only

Member-Funded Pension Plan


Case law

Beaulieu v. Abitibi-Consolidated employer withdrawal

AbitibiBowater insolvency cases

Case Law


Beaulieu v abitibi consolidated

DB plan converted to DC employer withdrawal

Several employees elected to transfer to DC component

Employer represented that the DB component would not be improved in the future

DB component was subsequently improved

The court ruled in favour of the employees

Beaulieu v. Abitibi-Consolidated


Abitibibowater insolvency cases

Confirmed that CCAA cannot set aside collective bargaining agreement obligations

Employer must proceed with implementation of agreed upon benefit improvements

Special payments can be suspended

AbitibiBowater Insolvency Cases


QUEBEC : WHAT’S NEXT? agreement obligations


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