A reminder notice was sent in early May, 2011 to Plan members who had not yet submitted their vote on the Settlement Proposal. The full text of the letter may be viewed here.
Under the law, ownership of surplus assets in respect of those individuals whose employment terminated and are included in the Integration Partial Wind-up (Integration PWU) must be resolved. In the absence of the proposal, legal proceedings would determine whether surplus would be paid to the Company or awarded to those individuals in Ontario whose employment was terminated as a result of the integration with Great West Life. There would be no financial consideration for any other individual.
As this type of court proceeding can be lengthy and costly and might end up with a verdict saying that the surplus in its entirety must be paid to the Company, CLPENS was open to compromise and negotiating a mutually agreeable resolution. In negotiating this compromise, CLPENS was guided by the principle that all plan members and former plan members, regardless of differences in provincial legislation, should be considered in the settlement. In its negotiations with the Company, CLPENS was also guided by the strength of the legal claims of each of the various sub-groups of plan members and former plan members (that is, those whose employment terminated as a result of the partial wind-up (the Partial Wind-up Group or PWU) and those whose circumstances were not changed as a result of the partial wind-up (the Non-Partial Wind-up Group or Non-PWU).
Clearly, the PWU members have a stronger claim. Their loss of employment triggered the partial wind-up and it is the distribution of the surplus arising from their accrued benefits that, under the law, has to be resolved.
The Non-PWU, which consists of people who were already receiving their monthly pensions (referred to as “retirees”); former employees who had not transferred the value of their benefits out of the plan upon termination (referred to a “deferred vested employees”); and people who stayed on to work for Canada Life (referred to as “actives”), have no immediate rights to a distribution of surplus. Surplus related to their accrued benefits will stay in the plan. The claim on behalf of the Non-PWU members arose from an ancillary claim on the issue of plan expenses.
Prior to Great-West Life’s purchase of Canada Life, CLPENS had challenged the Company’s practice of taking money to pay plan expenses from the plan fund and the pension regulator (the Financial Services Commission of Ontario or FSCO) had launched a review of this challenge. When negotiations to find a compromise were initiated, FSCO’s review of the expense issue was put on hold on the basis that the negotiations on the Integration PWU might include an agreement on the issue of plan expenses.
Negotiations were conducted in 2007 and, in the same year, resulted in a Memorandum of Understanding (MOU) setting out the terms of an agreement to settle both the claim on behalf of the Integration PWU members to a distribution of surplus assets and the claim regarding the payment of plan expenses from plan funds. At that time, the case law was supportive of CLPENS’ position that the Company was not entitled to pay for plan expenses from the plan fund. On the basis of existing legal precedent at the time, CLPENS took the position that members of the Non-PWU were entitled to some financial consideration because plan funds had been improperly used to pay the Company’s expenses of operating the plan.
(As has been reported in earlier written communications and in the recent information meetings, the strength of this claim was severely undermined by a subsequent (2009) decision by the Supreme Court of Canada that held in favour of a pension plan sponsor’s claim that it was properly entitled, in similar circumstances, to pay plan expenses with plan funds. Be clear, however, that this paragraph is background to the history of our negotiations. At the time negotiations were underway, until and including when they were concluded in the form of the MOU, the strength of the Non-PWU claim was as described in the previous paragraph.)
Given these bargaining positions, CLPENS’ goal was to obtain the greatest financial consideration possible for all plan members and former plan members. We believe that we have achieved this goal.
As stated in the May letter, already-earned benefits (also known as “accrued benefits”) cannot be altered and are not at risk.
Also, as stated in the letter, we believe that the implementation of the Proposal:
1. Does not give the Company any rights to make plan changes that it does not already have
The Company has no obligation to offer a pension plan to its employees and, in the same vein, may make certain changes for further accruals to the current plan at its sole discretion. While we expect that any such changes that the Company may make will take the interests of existing plan members into account, there is no legal requirement that they do so, nor any obligation that they obtain employee consent to any plan amendment.
While the Company’s right to make changes to the plan is well-established by existing law and precedent, the implementation of the Proposal, through the establishment of a New Plan, formalizes certain of the Company’s entitlements. Specifically, the New Plan affirms that the Company may pay legitimate expenses of operating the plan from plan funds; may take a contribution holiday (so long as surplus funds remain); and may merge the New Plan with other plans and use surplus plan assets from the New Plan to fund benefits under the merged entity.
All of these actions are established practices in today’s pension environment. Accordingly, CLPENS does not feel that it is giving up anything of substance in allowing the new plan to confirm the Company’s rights to make such changes.
One area where CLPENS did not concede was on the question of surplus ownership. In the event of a future plan wind-up, participants in the new plan retain all of their current rights in any challenge regarding the ownership of surplus assets.
Plan members can also take comfort in the ongoing role of The Financial Services Commission of Ontario (FSCO) as the watchdog of employees’ rights under the plan. As is currently the case, employees retain the right to ask FSCO to look into any aspect of the operation of the plan or new plan which they feel has been improperly conducted.
In particular, regarding any potential merger of other plans with a Canada Life plan, “no transfer of assets may be made without the prior consent of the Superintendent” and “the Superintendent shall refuse to consent to a transfer of assets that does not protect the pension benefits and any other benefits of the members and former members”. In terms of notification, “the administrator should transmit individual written notice” to “each member, former member and any other person entitled to payment from the plan”. (All of the above quotes are from FSCO Policy A700-251.)
2. Does nothing to accelerate the timing of any plan changes
Under normal circumstances, the Company would be free to determine the timing of any action in accordance with what it believes to be in its best interest.
Rather than accelerate the timing of any plan changes, the implementation of the Proposal guarantees that there will be no changes to the existing Defined Benefit accrual formula for at least two years after implementation of the Proposal, for those active members who consent to it. No such guarantee is attached to the current plan. As stated in the letter, the current expected timeframe for implementation of the Proposal is late 2012, so if the Proposal is accepted, the DB plan will be maintained at its current benefit levels until at least late 2014.
There is concern, too, that implementation of the proposal will accelerate the Company’s use of surplus. The uses to which surplus in a registered Pension Plan can be put are limited by tax law and provincial regulation as well as by contract law. The proposal doesn’t grant the Company any additional freedom to utilize the surplus.
3. Extends the accrual of benefits under the current formula for at least two more years
Active plan members have accrued benefits under the existing Defined Benefit accrual formula for the (almost) eight years since the sale of Canada Life was consummated (i.e. throughout the Proposal negotiations). Under the Proposal, active members will be guaranteed to be able to accrue benefits under this formula for a further two-year period following implementation (likely, two and a half years from now). CLPENS believes this is of significant benefit to Active members.
Active plan members will receive a contribution holiday (that is, they will not have to make the normally required contributions to the new plan) for a two-year period. In dollar terms, this means that the total financial benefit of the proposal (before taxes) is as follows:
|
Annual Earnings Level |
Financial Benefit of Proposal |
|
$30,000 |
$1,500 |
|
$40,000 |
$2,000 |
|
$50,000 |
$2,500 |
|
$60,000 |
$3,000 |
|
$70,000 |
$3,500 |
|
$80,000 |
$4,000 |
|
$90,000 |
$4,500 |
|
$100,000 and higher |
$5,000 |
Note that the financial benefits shown in this table are for the two-year period of the contribution holiday. Also, these amounts will be taxable, resulting in higher tax being paid unless offsetting contributions to an RRSP are made.
In summary, implementation of the SSA provides a financial benefit of up to $5,000 to active plan members together with a guarantee that the existing DB plan formula cannot be changed for a period of two years. The alternative (if the proposal does not proceed) is zero financial benefit to all non partial wind-up members (retirees, deferred vested members and active plan members) and, for active plan members, no guarantees with respect to their ongoing DB plan formula.
Under the law, surplus assets attributable to members of the Integration Partial Wind-up (Integration PWU) group must be resolved. Under the proposal, the surplus attributable to the Integration PWU group will be shared between the Company and all plan members. If the proposal is not implemented, legal proceedings will determine the ownership of surplus and it will either be paid to the Company or awarded to those individuals in Ontario who are included in the Integration PWU. To be clear, the surplus assets attributable to the Integration PWU group’s benefits will be paid out of the plan.
However, it is important to remember that surplus assets associated with all other plan members, i.e. those who are not part of the Integration PWU group (that is, retirees, deferred vested members and active members) will remain in the new plan (for those plan members who vote “yes” to the proposal) or the current plan (for those plan members who vote “no” to the proposal) to support the benefits of these individuals.
The most recent available valuation report was as at December 31, 2008. At that date, the surplus in the plan excluding the value attributable to the Integration PWU was $149 million (calculated on an on-going basis).
Pensioners and deferred vested members
Avis aux retraités et participants avec droits acquis différés
Page Last Revised
18 Aug 2011