2009 general meeting ● assemblée générale 2009 ottawa, ontario ● ottawa (ontario)

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

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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. - PowerPoint PPT Presentation

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Page 1: 2009 General Meeting  ● Assemblée générale 2009 Ottawa, Ontario ● Ottawa (Ontario)

2009 General Meeting ● Assemblée générale 2009Ottawa, Ontario ● Ottawa (Ontario)

Canadian Institute

of Actuaries

L’Institut canadien desactuaires

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

Page 2: 2009 General Meeting  ● Assemblée générale 2009 Ottawa, Ontario ● Ottawa (Ontario)

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

Page 3: 2009 General Meeting  ● Assemblée générale 2009 Ottawa, Ontario ● Ottawa (Ontario)

• 2009 developments in the Ontario and Federal Jurisdictions• The Kerry case• The Slater Steel case• The Burke v. Hudson’s Bay case• Ontario pension reform• Federal pension reform

2009

Gen

eral

Mee

ting

Ass

embl

ée g

énér

ale

2009

Page 4: 2009 General Meeting  ● Assemblée générale 2009 Ottawa, Ontario ● Ottawa (Ontario)

Nolan v. Kerry (Canada) Inc.

• “Soft” DB to DC conversion• 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 for costs award from plan trust fund

Page 5: 2009 General Meeting  ● Assemblée générale 2009 Ottawa, Ontario ● Ottawa (Ontario)

Nolan v. Kerry (Canada) Inc. (cont’d)

• Case is important for several reasons• 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

Page 6: 2009 General Meeting  ● Assemblée générale 2009 Ottawa, Ontario ● Ottawa (Ontario)

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

Page 7: 2009 General Meeting  ● Assemblée générale 2009 Ottawa, Ontario ● Ottawa (Ontario)

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

Page 8: 2009 General Meeting  ● Assemblée générale 2009 Ottawa, Ontario ● Ottawa (Ontario)

Slater Steel Inc. (cont’d)

• 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

Page 9: 2009 General Meeting  ● Assemblée générale 2009 Ottawa, Ontario ● Ottawa (Ontario)

Slater Steel Inc. (cont’d)

• 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

Page 10: 2009 General Meeting  ● Assemblée générale 2009 Ottawa, Ontario ● Ottawa (Ontario)

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

Page 11: 2009 General Meeting  ● Assemblée générale 2009 Ottawa, Ontario ● Ottawa (Ontario)

Burke v. Hudson’s Bay Co. (cont’d)

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

Page 12: 2009 General Meeting  ● Assemblée générale 2009 Ottawa, Ontario ● Ottawa (Ontario)

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

Page 13: 2009 General Meeting  ● Assemblée générale 2009 Ottawa, Ontario ● Ottawa (Ontario)

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

Page 14: 2009 General Meeting  ● Assemblée générale 2009 Ottawa, Ontario ● Ottawa (Ontario)

Ontario pension reform (cont’d)

• Speculation on some expected reforms?• PBGF reform• Increase Superintendent’s powers to

address pension issues in corporate insolvency

Page 15: 2009 General Meeting  ● Assemblée générale 2009 Ottawa, Ontario ● Ottawa (Ontario)

Ontario pension reform (cont’d)

• Surplus distribution on partial wind-ups (Monsanto)

• Surplus sharing Regulation (1991 temporary amendment)

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

Page 16: 2009 General Meeting  ● Assemblée générale 2009 Ottawa, Ontario ● Ottawa (Ontario)

Ontario pension reform (cont’d)

• 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

Page 17: 2009 General Meeting  ● Assemblée générale 2009 Ottawa, Ontario ● Ottawa (Ontario)

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

Page 18: 2009 General Meeting  ● Assemblée générale 2009 Ottawa, Ontario ● Ottawa (Ontario)

Federal Pension Reform (cont’d)

Some of the housekeeping changes• 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

Page 19: 2009 General Meeting  ● Assemblée générale 2009 Ottawa, Ontario ● Ottawa (Ontario)

Federal Pension Reform (cont’d)

Surprises• “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

Page 20: 2009 General Meeting  ● Assemblée générale 2009 Ottawa, Ontario ● Ottawa (Ontario)

Federal Pension Reform (cont’d)

Surprises• 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

Page 21: 2009 General Meeting  ● Assemblée générale 2009 Ottawa, Ontario ● Ottawa (Ontario)

Federal Pension Reform (cont’d)

The Canadian Press deal• 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

Page 22: 2009 General Meeting  ● Assemblée générale 2009 Ottawa, Ontario ● Ottawa (Ontario)

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

Page 23: 2009 General Meeting  ● Assemblée générale 2009 Ottawa, Ontario ● Ottawa (Ontario)

New Measures for Plan Funding

• Provision for adverse deviation– 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)

Page 24: 2009 General Meeting  ● Assemblée générale 2009 Ottawa, Ontario ● Ottawa (Ontario)

BILL 68

• Phased retirement benefit

• Prohibition of suspensive conditions

• Recognition of retiree associations

• Housekeeping changes affecting funding

measures

Page 25: 2009 General Meeting  ● Assemblée générale 2009 Ottawa, Ontario ● Ottawa (Ontario)

Phased Retirement Benefit

• Different from early benefit

• 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

Page 26: 2009 General Meeting  ● Assemblée générale 2009 Ottawa, Ontario ● Ottawa (Ontario)

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

Page 27: 2009 General Meeting  ● Assemblée générale 2009 Ottawa, Ontario ● Ottawa (Ontario)

Bill 1 – Funding Relief

• Temporary measures

• 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

Page 28: 2009 General Meeting  ● Assemblée générale 2009 Ottawa, Ontario ● Ottawa (Ontario)

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

Page 29: 2009 General Meeting  ● Assemblée générale 2009 Ottawa, Ontario ● Ottawa (Ontario)

Member-Funded Pension Plan

• A response to DB plans crisis?

• 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

Page 30: 2009 General Meeting  ● Assemblée générale 2009 Ottawa, Ontario ● Ottawa (Ontario)

Case Law

• Beaulieu v. Abitibi-Consolidated

• AbitibiBowater insolvency cases

Page 31: 2009 General Meeting  ● Assemblée générale 2009 Ottawa, Ontario ● Ottawa (Ontario)

Beaulieu v. Abitibi-Consolidated

• DB plan converted to DC

• 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

Page 32: 2009 General Meeting  ● Assemblée générale 2009 Ottawa, Ontario ● Ottawa (Ontario)

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

Page 33: 2009 General Meeting  ● Assemblée générale 2009 Ottawa, Ontario ● Ottawa (Ontario)

QUEBEC : WHAT’S NEXT?