Dipac

Recent much appreciated feedback via This e-mail address is being protected from spambots. You need JavaScript enabled to view it suggests the 'pension agenda' is sufficiently complex that it warrants a re-visit and a re-explanation. So here goes.....

Provincially

Ours is a province of Ontario private sector registered Defined Benefit pension plan formerly sponsored by DuPont Canada Inc. and currently sponsored by INVISTA (Canada) Company. The plan, registered as #0242727, is governed under the Ontario Pension Benefits Act (PBA). The PBA, unrevised to any major extent since 1985, has been under recent review with an extensive report on needed reform published by a government sponsored study, the Ontario Expert Commission on Pensions (OECP). At an input seeking session in late 2008 in Kingston, DIPAC made a well received presentation supported by approximately 200 retirees in attendance (not that we staged this  J).

The OECP report, and continuing dialogue on the part of interested stakeholders, has been the catalyst for government legislation reform. Bill 236, enacted early in 2010, represented the first stage of the advocated reform.  This past December, the government passed Bill 120 which dealt with the second package of PBA  reform.  In the case of Bill 120, it was drafted as a legislative framework and accompanied by a Technical Bulletin issued by Dwight Duncan, the Ontario Minister of Finance. While the Technical Bulletin indicates the planned scope for the regulations, specific detail was not provided. This is likely very appropriate since in the opinion of DIPAC, this second stage of needed reform involves the more complex issues. The soliciting of stakeholder input is currently underway.

Currently both bills are awaiting publication of draft regulations such that stakeholders may comment on whether or not a particular desired reform will be delivered, or whether further wording change is needed. To date representatives of DIPAC have made 2-3 presentations to various government levels. There is a common saying....."the devil is in the details"....., and until actual draft regulations are publicized, the real extent of expected change is somewhat unknown.

As you no doubt recognize, with respect to both Bill 236 and Bill 120, different parts of the possible reform specifics are strongly supported or opposed depending on the priorities of each particular stakeholder. Plan sponsors, actuarial experts, plan administrators, pension beneficiaries, etc. do not see eye to eye on all of the potential changes. In this regard where a stakeholder has strong views and an adequate bankroll, and senses strong opposition, professional lobbyists and elaborate argument is frequently tabled in support of that view.  Such instances are the typical occasions when DIPAC calls on your support and participation, via contact with your provincial MPP. A visit, a formal letter, or an email can have some impact especially when they occur as part of an organized campaign and there is a high volume of participation.

Federally

Meanwhile despite the fact that for the most part private sector pension plans such as ours are governed by the Ontario PBA, there are some areas where these Pension Plans "bump up against" federal legislation. A good example of this situation is where a pension plan interfaces with the federal Income Tax Act. In this regard, as an example, the taxation laws define limits governing the extent to which a plan's "assets" may exceed its "liabilities". As a result plans are prohibited from becoming "over-funded" to any large extent. In cases where an excessive surplus has developed (ie unexpectedly strong investment performance), a mandatory suspension of otherwise routine contributions to the fund may be prohibited and a "contribution holiday" imposed. Another area where federal law interfaces with pension plan situations arises when a sponsor/company invokes "bankruptcy protection" as a route to re-structuring its affairs or as a step in the direction of an "insolvency wrap-up" of the company.

Usually when a sponsor/company triggers bankruptcy protection, it is facing serious credit issues with the banks, its suppliers, etc. etc. These issues are sometimes so large that they are insurmountable, and the company goes out of business under the management of a firm that specializes and is an expert in the legalities of managing such events. Most of the legislation applicable to these situations is found under the Company Creditors Arrangement Act (CCAA) and the Bankruptcy and Insolvency Act (BIA).

Frequently the company's employees and pensioners get caught up in the financial turmoil, since companies in trouble with "creditors" are frequently in arrears on the payment of wages, miscellaneous other employee benefits, and especially with respect to any pension plan that may exist. While retirees have been routinely receiving their pension payments while this scenario has been unfolding, their pension fund has very probably acquired a serious deficit status due to the company's failure to make appropriate payments into the fund, as well any adverse investment performance on the part of the fund. Under the current bankruptcy laws,   pension fund deficits are not recognized in the priority of claims.  While they may be allowed, the Trustee has some discretion and the Nortel case is an example where the pension plan deficit was not allowed to be tabled.

Presently a Private Member's Bill, C-501, has passed first reading in the House of Commons and is in Committee for review. It would allow for pension plan deficits to be recognized as preferred creditors behind secured creditors.  Typically a Private Member's Bill has modest to low probability of being enacted into legislation. While this current Bill appears to have made some progress, in fact it has just begun to encounter resistance lobbying by the financial sector, and those other creditors who would have pension plans remain in their current state.  The big banks and big business argue that a change of this nature would result in the "cost of capital" increasing substantially due to the added risks involved, and this would be much to the detriment of the economy of the country as a whole. As might be expected this argument impresses the politicians.

However, notwithstanding the modest chance that this legislation will be enacted, we have encouraged DIPAC members to participate in an email campaign directed at the four Liberal "review committee" members who expressed opposition to the Bill. The proposed legislation has acquired a profile as the salvation for pension plans and funds that are caught up in a circumstance comparable to that of Nortel. Bankruptcy proceedings in this Nortel instance are taking place at a point where the pension fund is 35% under-funded hence individual pensions will probably be reduced by something approaching 35%.

Unfortunately most of the politicians appear to be listening to the financial and other institutions, and seem willing to ignore the fact that most of these enterprises seem to make healthy profits even under the worst of times. The argument that other arrangements are available to these institutions, to mitigate the possibility that profits might be lessened due to added risk and lessened proceeds from insolvency actions, appears to fall on deaf ears when it comes to the politicians. And the argument that retirees have no alternative whatsoever is likewise ignored.

Despite the strong opposition and somewhat unreceptive stance on the part of many politicians, we believe C-501 and the issue that it addresses are extremely important pensioner concerns. Thus we are proactive in our support for correcting this injustice. While the probability is that Nortel pensioners will not realize any relief from the treatment they will be receiving, their situation represents an excellent "rallying point" for all of us. It also is something to remember when next we vote, or if we have an opportunity to confront our MP.

Conclusion

While lengthy, we hope that this review has been helpful. Those of us deeply involved in this agenda are prone to thinking that everyone is equally up-to-date and intimately aware of all the various twists and turns that exist. As a result we sometimes overlook the need to revisit the bigger picture, and refresh our overall perspective.