The report, prepared by Mercer Human Resource Consulting, was submitted to FSCO on March 30, 2006. It provides the calculations required in respect of the partial wind up of the pension plan, but excludes the treatment of the estimated partial wind up surplus. The letter to FSCO refers to the confidential discussions going on with the plan members who have commenced class proceedings and says that the treatment of surplus will depend on the outcome of these negotiations.

The report refers to an Appendix that sets out the benefit entitlements for each of the members covered by the partial wind up, but this Appendix does not form a part of the public document for privacy reasons.

The partial wind up group covers all the employees whose services were terminated during the integration period from July 10, 2003 to June 30, 2005 (other than those employed in the Province of Quebec). It also includes some employees who were advised during the integration period of their termination of service but whose service was terminated after June 30, 2005.

On September 4, 2003 FSCO had approved commencement of pension payments to those (from the partial wind up group) who had opted for immediate pension. For others, the Transfer of funds has to wait until after the approval of the partial wind up report. Once the partial wind up is approved by FSCO, the individual members will be advised of their benefit entitlements and the various options available to them for receiving benefits.

 

The purposes of the report were

to assess the financial position of the plan as at June 30, 2005,
 

to establish a methodology for distribution of plan assets to satisfy entitlement of members affected by the partial wind up, and
 

to determine the treatment of partial wind up surplus (deferred to a later report).

 

The calculations require the determination of the wind up benefits for all members of the plan – whether or not covered by the partial wind up. These benefits were based on the Standards of Practice of the Canadian Institute of Actuaries (CIA) and the provisions of the Pension Benefits Act of Ontario. It may be noted that the CIA had put in place new calculation Standards with effect from February 1, 2005. As a result, the Standards employed in calculation of the wind up benefits would have been dictated by the date of termination of employment.

The calculations consist of the following steps:

For members covered by the partial wind up, the termination benefit was established as at the date of termination of employment using the CIA Standards for commuted values in effect on that date. This value was then accumulated to the wind up date of June 30, 2005. For a few members of this group whose service was to be terminated after June 30, 2005, the termination was deemed to have taken place on June 30, 2005.
 

For members not covered by the partial wind up, the terminations were deemed to have taken place on June 30, 2005. The wind up benefits were based on the CIA Standards in effect on that date.
 

The wind up valuation makes an assumption of purchasing of annuities for present retirees and all the non-retired members who were entitled to receive an immediate pension at the termination date. For these calculations, the estimated market conditions in effect on June 30, 2005 were used.
 

The above calculations provided a wind up liability for the group covered by the partial wind up and for the residual group. The total plan assets were then apportioned between the two groups in proportion to the wind up liabilities.

 

The wind up valuation assumes that all affected members are entitled to their accrued benefits in full as if they were fully vested.

The affected members are entitled to the following options:

Receive accrued pension at the permissible retirement ages.
 

Transfer the commuted value to other pension fund, to an insurance company (to purchase an annuity) or to a locked in retirement account.
 

Those who had opted to commence a pension can choose instead to receive commuted values of pensions less the pension payments made to-date.
 

Small pensions (less than 2% of YMPE, or $822 per annum) can be commuted. (YMPE is the Year’s Maximum Pensionable Earnings used for CPP.)
 

Members will receive option forms once the report is approved by FSCO.

 

The financial position in respect of the partial wind up group was established using the following steps:

The total assets of the pension plan (valued at market) were allocated to the partial wind up group in the ratio of (wind up liability for the partial wind up group) divided by (the wind up liability for the total membership).
 

Total assets as at June 30, 2005 were $752,990,000. The estimated wind up liability was $175,130,000 for the partial wind up group and $307,696,000 for the remaining members for total wind up liabilities of $482,826,000.
 

The assets allocated to the partial wind up group were $273,124,000 (36.27% of the total). An amount of $5,000,000 was deducted to cover wind up expenses.
 

The estimated surplus in respect to the partial wind up group was $92,994,000 being the difference of the assets allocated to the partial wind up group minus wind up expenses and minus the liabilities allocated to the partial wind up group (= $273,124,000 – $5,000,000 – $175,130,000).
 

The financial position could change significantly with changes in market conditions.

 

Valuation of Assets

Assets were valued at market value. The total assets were allocated in proportion to the wind up liability for the partial wind up group to the wind up liability for the total membership (as described above).

• Members below the earliest permissible retirement age were assumed to be eligible for a deferred pension from the normal retirement age or from an earlier retirement age as permitted by the eligibility conditions under the plan regulations. Members over the earliest retirement age were considered to be entitled to an immediate pension of an appropriately reduced amount.
   
• For Ontario and Nova Scotia members whose age plus years of service was equal to at least 55 at the date of termination, their entitlement to a deferred pension payable from the age that provided the greatest value (with "grow in" benefits) was used.
   
• Value of benefits for those who had not commenced their pensions was determined using the CIA standards for commuted values applicable to the termination date (or the assumed termination date of June 30, 2005).
   
• For the members who were eligible for an immediate pension, an additional liability was set up to cover the additional costs if these members elected to receive an immediate or deferred pension instead of receiving a lump sum. This additional liability was based on an estimated cost of settlement of these benefits through purchase of annuities.
   
• Value of benefits for deferred vested and retired members not included in the partial wind up group was determined based on an estimate of the cost of settlement through purchase of annuities.

Valuation Bases

• For calculation of the commuted values, the CIA standards applicable at the date of termination were used.
   
• For annuity purchases:

o Interest: 4.65%

o Inflation: 2.50%

It was assumed that the life insurance company would price annuities as if they were fully indexed to inflation.

 

For the partial wind up group, the actual data at June 30, 2005 was used. For others, the data as at January 1, 2005 was extrapolated to June 30, 2005.

	Partial Wind Up Group	Other Active	Deferred Pensioners	Pensioners
Number Average Annual Pension Average Age (years)	2,149 $8,311 41.9	1,663 $5,883 41.8	696 $5,413 46.7	848 $16,886 75.2

April 24, 2006