Participating Co-operatives of Ontario Trusteed Revised Pension Plan - April 12, 2006

IN THE MATTER OF the Pension Benefits Act, R.S.O. 1990, c.P.8, as amended (the “Act”);

AND IN THE MATTER OF the Wind-Up Actuarial Valuation Report as at March 31, 2003 dated February 28, 2004 filed in respect of the Participating Co-operatives of Ontario Trusteed Revised Pension Plan, Registration Number 0345736, an Amendment to the Plan dated February 27, 2004 and effective March 31, 2003 and a Notice of Wind Up dated April 1, 2003 and effective March 31, 2003.

TO:

The Board of Trustees of the Participating Co-operatives of Ontario Trusteed Revised Pension Plan
6790 Century Avenue, Suite 201
Mississauga, ON L5N 2V8

Attention:

Michael Barrett
Chair, The Board of Trustees of the Participating Co-operatives of Ontario Trusteed Revised Pension Plan

Applicant and Administrator


AND TO:

See Schedule “A” for list

Employers


NOTICE OF PROPOSAL TO REFUSE TO REGISTER AN AMENDMENT,
NOTICE OF PROPOSAL TO MAKE THREE ORDERS
NOTICE OF PROPOSAL TO REFUSE TO APPROVE A WIND UP REPORT
NOTICE OF PROPOSAL TO ORDER A NEW WIND UP REPORT

I PROPOSE TO:

  1. REFUSE TO REGISTER AN AMENDMENT to the Participating Co-operatives of Ontario Trusteed Revised Pension Plan, Registration Number 0345736 (the “Plan”) dated February 27, 2004 and effective March 31, 2003 (the “Amendment”) to the extent that the Amendment reduces benefits accumulated prior to March 31, 2003, pursuant to section 18(1)(d) of the Act;

  2. ORDER that the Board of Trustees of the Participating Co-operatives of Ontario Trusteed Revised Pension Plan (the “Trustees”) refrain from administering the Plan in accordance with the Amendment to the extent that the Amendment reduces benefits accumulated prior to March 31, 2003;

  3. ORDER, pursuant to sections 75 and 87 of the Act that the employers participating in the Plan (the “Employers”) pay, in the prescribed manner and at the prescribed times, into the fund for the Plan (the “Fund”), such amounts so that the total of the amounts contributed by all Employers on a joint and several basis equals the sum of:

    1. the total of all payments that under the Act, Regulations and the Plan are due or that have accrued and that have not been paid into the Fund; AND

    2. the amount by which:

      1. the value of the pension benefits accrued and vested under the Plan, and
      2. the value of benefits accrued resulting from the application of section 39 (3) (50 per cent rule) and section 74 of the Act,

        exceed the value of the assets of the Fund;
  4. ORDER, under section 87 of the Act, that, consequent upon a finding that the Employers are required to contribute to the Plan under section 75 of the Act, the Trustees refrain from reducing pension payments to retired members (or their surviving spouses, if applicable) due on and after April 1, 2003, and refrain from reducing pension payments to new retired members due on and after April 1, 2003 and that such reductions implemented thus far be reversed by refunding the difference between the full benefit entitlement under the Plan and the reduced amounts actually paid with interest;

  5. REFUSE TO APPROVE A WIND UP REPORT filed by the Trustees and dated February 28, 2004 with respect to a full wind up of the Plan effective March 31, 2003, pursuant to section 70(5) of the Act; and

  6. ORDER, under section 88 of the Act, that the Trustees prepare and file a new wind up report that addresses the defects set out in this proposal and, specifically, contains:

    1. a statement of benefits to be provided under the pension plan to members, former members and other persons without regard to the reductions contemplated in the Amendment and Notice;

    2. a distribution scheme for the assets of the Plan without regard to the benefit reductions set out in the Amendment and Notice; and

    3. provision for the fact that the Employers are required to make additional contributions under the Act.


I PROPOSE TO MAKE THESE REFUSALS AND ORDERS FOR THE FOLLOWING REASONS:

  1. The Plan is a multi-employer pension plan (“MEPP”) registered under the Act, which is administered by the Trustees and provides benefits with respect to employment in Ontario.

  2. The Trustees were of the view that the Plan was no longer financially viable and therefore adopted the Amendment on February 27, 2004 terminating the Plan effective March 31, 2003.

  3. The Amendment also contains certain decreases to benefits accumulated prior to the effective date of the Amendment.

  4. There are insufficient assets in the Plan to pay the pension benefits and other benefits set out in the Plan both before and after the benefit decreases set out in the Amendment. No Employer is currently making payments in accordance with section 75 of the Act in order to reduce or eliminate the unfunded liability as at March 31, 2003.

  5. On or about February 28, 2004, the Trustees filed a Wind-Up Actuarial Valuation as at March 31, 2003 (the “Report”) which reflects, in part, the decreases to benefits accumulated prior to the effective date of the Amendment and the fact that the Trustees anticipate that no payments will be made under section 75 of the Act.

(a) REFUSAL TO REGISTER AMENDMENT

  1. However, from the inception of the Plan, the Plan text prohibited amendments to the Plan that reduced benefits accumulated prior to the date of the amendment. In the current Plan text, section 17(a) states that “[s]ubject to subsection (e) no amendment or discontinuance of the Plan shall reduce the benefits accumulated prior to such amendment or discontinuance ...”.

  2. Section 17(e) of the Plan text does permit the reduction of benefits previously accumulated but only in the situation where there is a cessation of the participation of a single Employer and the reductions are to benefits of the members employed by the departing Employer. Section 17(e) does not relate to the discontinuance of the whole Plan which is expressly covered by the prohibition against the reduction of accumulated benefits set out in section 17(a). The current situation is a full wind up of the Plan and is
    a discontinuance within the meaning of section 17(a) rather than the departure of a single Employer that would be covered by section 17(e).

  3. The Amendment reduces benefits accumulated prior to the effective date of the Amendment. Therefore, the Amendment, to the extent that it reduces accumulated benefits, is invalid and of no force because it does not fall within the scope of the amendment power in the Plan text.

  4. Section 14(2) of the Act exempts MEPPs established pursuant to a collective agreement or a trust agreement from the prohibition against the reductions in accrued benefits set out in section 14(1) of the Act. Section 19(3) of the Act requires that the administrator administer the Plan in accordance with the filed Plan documents. Section 5 of the Act states that the Act “shall not be construed to prevent the registration or administration of a pension plan and related pension fund that might provide pension benefits or ancillary benefits more advantageous to members than those required by” the Act and regulations. Accordingly, section 14(2) of the Act does not have application to the current circumstances because the Plan documents provide a more advantageous regime respecting Plan amendments than the Act.

  5. Section 18(1)(d) of the Act states that the Superintendent may refuse to register an amendment to a pension plan “if the pension plan with the amendment would cease to comply with” the Act and Regulation 909, R.R.O. 1990 (the “Regulation”). The Plan with the Amendment, to the extent that the Amendment reduces benefits accumulated prior to the effective date of the Amendment, contravenes the terms of the Plan and is, therefore, contrary to the Act and Regulation by virtue of section 19(3) of the Act. The Superintendent therefore proposes to refuse to register the Amendment to the extent that the Amendment reduces benefits accumulated prior to its effective date (March 31, 2003).

(b) ORDER TO REFRAIN FROM ADMINISTERING THE PLAN IN ACCORDANCE WITH AMENDMENT

  1. Section 87 of the Act authorizes the Superintendent by order to require that an administrator “take or refrain from taking any action in respect of a pension plan or a pension fund” if the Superintendent is of the opinion, upon reasonable and probable grounds, that a pension plan is not being administered in accordance with the Act, the Regulation or the pension plan.

  2. For the reasons set out above, the Amendment, to the extent that it reduces accumulated benefits, is invalid and unenforceable. Therefore, the Plan is not being administered in accordance with the valid and enforceable terms of the Plan text (as required by section 19(3) of the Act) to the extent that the Trustees have implemented the accumulated benefit reductions contained in the Amendment. The Superintendent, therefore, proposes to order under section 87 of the Act that the Trustees refrain from administering the Plan in accordance with the Amendment to the extent that the Amendment reduces benefits accumulated prior to March 31, 2003.

(c) ORDER TO MAKE PAYMENTS UNDER SECTION 75

  1. Section 75 of the Act states:

75. (1) Where a pension plan is wound up in whole or in part, the employer shall pay into the pension fund,

  1. an amount equal to the total of all payments that, under this Act, the regulations and the pension plan, are due or that have accrued and that have not been paid into the pension fund; and

  2. an amount equal to the amount by which,
    1. the value of the pension benefits under the pension plan that would be guaranteed by the Guarantee Fund under this Act and the regulations if the Superintendent declares that the Guarantee Fund applies to the pension plan,

    2. the value of the pension benefits accrued with respect to employment in Ontario vested under the pension plan, and

    3. the value of benefits accrued with respect to employment in Ontario resulting from the application of subsection 39 (3) (50 per cent rule) and section 74, exceed the value of the assets of the pension fund allocated as prescribed for payment of pension benefits accrued with respect to employment in Ontario.
  1. Thus employers participating in a pension plan, which is a MEPP, are required under section 75 of the Act to pay into a pension plan that is to be wound up amounts that are due or have accrued and that have not been paid into the pension plan in addition to those amounts by which the liabilities for vested accrued benefits under the plan and under sections 39(3) and 74 of the Act exceed the assets in the pension plan.

  2. While section 5 of the Act states that the Act “shall not be construed to prevent the registration or administration of a pension plan and related pension fund that might provide pension benefits or ancillary benefits more advantageous to members than those required by” the Act and Regulation, section 19 makes it clear that where the terms of the Plan do not meet the minimum standards in the Act or Regulation the terms of the Act and Regulation govern. Consequently, the requirements of section 75 override any provisions to the contrary contained in the Plan text or the trust agreement for the Plan which may purport to limit the contribution obligations of the Employers.

  3. In this case, owing to the fact that the Plan (for the reasons set out above) does not permit the reduction of accrued benefits, there is a liability that the Employers are required under section 75 of the Act to jointly make contributions to eliminate. Such payments are required to be made “in the prescribed manner and at the prescribed times” under section 75(2) of the Act. The Superintendent, therefore, proposes to order that the Employers make payments on a joint and several basis so that the amounts contributed by all the Employers add up to the amounts required under section 75 of the Act, in the prescribed manner and at the prescribed times.

(d) ORDER TO ADMINISTER THE PLAN WITHOUT REDUCING PENSION PAYMENTS TO RETIRED MEMBERS OR THEIR SURVIVING SPOUSES

  1. On or about April 1, 2003, the Trustees gave Notice of Wind Up (the “Notice”) to the members and former members of the Plan effective March 31, 2003. The Notice provided that “pension payments to retired members (or their surviving spouses, if applicable) due on and after April 1, 2003 will be reduced in accordance with the above estimated wind up funded ratio of 50%”. The Notice also provided that “new retirements after the wind up date will also be reduced to reflect the estimated wind up funded ratio of 50%”.

  2. The reductions referred to in the Notice are in addition to the reductions set out in the Amendment, are not the subject of a separate amendment to the Plan and, even if they were, such a separate amendment would be invalid for the reasons set out above in section (a) of this Notice of Proposal.

  3. Neither the Act nor Regulation permit the reductions contemplated in the Notice. Section 77 of the Act states that “where money in the pension fund is not sufficient to pay all the pension benefits and other benefits on the wind up of the pension plan in whole or in part, the pension benefits and other benefits shall be reduced in the prescribed manner.”

  4. Section 29(9) of the Regulation prescribes the manner in which benefits are to be reduced where the assets in a pension plan are not sufficient to pay the benefits in the pension plan. Where payments are being made in accordance with section 75 of the Act, section 29(9)(a) states that pension benefits may only be reduced in respect of persons who had not vested under the terms of the pension plan. The ability to reduce benefits of vested
    members and former members under section 29(9)(b) only applies if payments in accordance with section 75 are not being made.

  5. In this case, for the reasons set out above, the Employers are required to make contributions under section 75 of the Act. Thus, there is no authority under the section 29(9)(b) of the Regulation or otherwise in the Act or Regulation to reduce pensions in pay as contemplated in the Notice.

  6. For the reasons set out above, the reductions contemplated in the Notice do not comply with the Act, Regulation or the terms of the Plan.

  7. Therefore, the Superintendent proposes to order under section 87 of the Act, that, consequent upon a finding that the Employers are required to contribute to the Plan under section 75 of the Act, the Trustees refrain from reducing pension payments to retired members (or their surviving spouses, if applicable) due on and after April 1, 2003, and refrain from reducing pension payments to new retired members due on and after April 1, 2003 which reductions are contemplated in the Notice and that such reductions already implemented be reversed by refunding the difference between the full benefit entitlement under the Plan and the reduced amounts actually paid with interest.

(e) REFUSAL TO APPROVE WIND UP REPORT

  1. Section 70(5) of the Act states that the Superintendent may “refuse to approve a wind up report that does not meet the requirements of this Act and the regulations or that does not protect the interests of the members and former member of the pension plan.” The Report does not meet the requirements of the Act and Regulation for the following reasons:

    1. The Report does not comply with section 19(3) of the Act because administering the Plan, including the distribution of assets on wind up, in accordance with the invalid benefit reductions in the Amendment and Notice constitutes a contravention of the requirement to administer the Plan in accordance with the valid and enforceable filed Plan documents, contrary to section 19(3) of the Act; and

    2. The Report does not comply with the Act because it is premised on the fact that the Employers on the effective date of the wind up are not required to make further contributions to the Plan under the Act. The Report, therefore, does not make provision for the distribution of the assets of the Plan as required by section 70(1) of the Act because it does not provide for the distribution of the contributions owing under section 75 of the Act.

  2. The Report does not protect the interests of the members and former members because the distribution of assets in the Plan is based on the benefit reductions contained in the Amendment and the Notice which are not valid and does not reflect the fact that additional employer contributions are required under section 75 of the Act.

(f) ORDER TO FILE NEW REPORT

  1. Under section 88 of the Act, the Superintendent by order may require an administrator to prepare a new report using “assumptions or methods or both” as the Superintendent specifies if the “assumptions or methods used in the preparation of a report required under this Act or the regulations in respect of a pension plan are inappropriate for a pension plan” or where the report “does not meet the requirements and qualifications of this Act, the regulations or the pension plan.”

  2. For the reasons set out herein, the Report does not meet the requirements and qualifications of the Act, the Regulation and the Plan and the assumptions and methods used in the preparation of the Report are inappropriate for the Plan. The Superintendent, therefore, proposes to order that the Trustees prepare and file a new wind up report which contains:

    1. a statement of benefits to be provided under the pension plan to members, former members and other persons without regard to the reductions contemplated in the Amendment and Notice;

    2. a distribution scheme for the assets of the Plan without regard to the benefit reductions set out in the Amendment and Notice; and

    3. provision for the fact that the Employers are required to make additional contributions under the Act.

  3. The Superintendent has previously raised additional issues in correspondence with the actuary for the Plan and the Trustees concerning the contents of the Report which issues only arise if the Plan is not fully funded. Those issues relate to the:
  1. computation of the refund of excess contributions made on or after January 1, 1987 owing under section 39(4) of the Act; and

  2. computation of the balance of commuted value transfers for members who terminated employment after the point when the transfer ratio for the Plan fell below one and elected commuted value transfers under section 42(1) of the Act.
  1. The Superintendent reserves the right to pursue these issues and seek consequent additional changes to the Report should this matter be the subject of a hearing before the Financial Service Tribunal (the “Tribunal”) and should the Tribunal decide that the position regarding the requirement for the Employers to make additional contributions as set out in this Notice of Proposal is incorrect and, for this reason or any other reason, the Plan is not fully funded.

  2. Such further and other reasons as may come to my attention.

YOU ARE ENTITLED TO A HEARING by the Financial Services Tribunal (the “Tribunal”) pursuant to s. 89(6) of the Act. To request a hearing, you must deliver, to the Tribunal, a written notice that you require a hearing, within thirty (30) days after this Notice of Proposal is served on you.

YOUR WRITTEN NOTICE must be delivered to:

Financial Services Tribunal
5160 Yonge Street
14th Floor
Toronto, Ontario
M2N 6L9

Attention: The Registrar

FOR FURTHER INFORMATION, contact the Registrar of the Tribunal by phone at 416- 226-7752, toll free at 1-800-668-0128, ext. 7752, or by fax at 416-226-7750.

IF YOU FAIL TO REQUEST A HEARING WITHIN THIRTY (30) DAYS, I MAY CARRY OUT THE REFUSALS AND MAKE THE ORDERS AS PROPOSED IN THIS NOTICE.

DATED
at Toronto, Ontario, this 12th day of April, 2006.

K. David Gordon
Deputy Superintendent, Pensions


c.c. Mr. Joseph F. Nunes, Actuarial Solutions Inc.
Mr. Peter Gorham, Morneau Sobeco
Ms. Nancy Fletcher, Participating Co-operatives of Ontario
Mr. Kem Majid, Watson Wyatt
Mr. Michael Penny, Torys LLP
Mr. Michael Mazzuca, Koskie Minsky LLP
Mr. Andrew Lokan, Palaire Roland Rosenberg Rothstein LLP
Ms. Peggy A. McCallum, Fasken Martineau DuMoulin LLP
Ms. Dale Leake & Email Group
Mr. Lorne Reid
Mr. Eric Taylor
Mr. Tom Perkes
Mr. Roch Lalonde
Mr. Graham Lightfoot
Ms. Gertie Blake
Mr. Michel Bourgon
Mr. Brian Hancock
Ms. Miriam A. Preszler
Ms. Doreen Amos
Mr. Jon Lazarus

SCHEDULE “A”


1. Cochrane Farmers Co-op, att’n: Mr. Alphonse Genier, Mr. Paolo Belzile
2. Glencoe Country Depot, att’n: Mr. Darin Kulich
3. Gay Lea Foods Co-operative Limited, att’n: Mr. Stu Steckle, Mr. Andrew MacGillivray
4. Manitoulin Livestock Co-op, att’n: Mr. John McNaughton, Mr. Donald O’Connor
5. Madoc Co-operative/Warkworth Co-op, att’n: Mr. Murray Lobb, Mr. Harry Scanlan
6. Orford Co-operative Ltd., att’n: Ms. Linda Glassford, Mr. Kim Fysh, Mr. Jim Campbell
7. Pelee Island Co-op, att’n: Mr. Wilfred Botham, Mr. Ford Crawford,
8. Huron Bay Co-op, att’n: Mr. Jeff Hurst, Mr. Murray Vincent
9. Waterloo-Oxford Co-op, att’n: Mr. Murray Schnarr, Mr. Colin Smith
10. Sunderland District Co-op, att’n: Mr. Ted Smith, Mr. Clare Hayes
11. Ontario Federation of Agriculture, att’n: Mr. Ron Bonnett, Mr. Neil Currie
12. Warkworth District Co-op, att’n: Mr. David Glover13. Kingston Farm & Garden,
       att’n: Mr. Bill Havekes
14. Green Lea Ag Centre Inc., att’n: Mr. Scott McLean, Mr. Al McLean,
15. Simcoe District Co-op, att’n: Mr. Glen Vanderhaeghe, Mr. Ken O’Brien
16. Country Depot, att’n: Mr. Harvi Wallace, Ms. Angie Small
17. North Wellington Co-op, att’n: Mr. Kelly Boyle, Mr. Nelson South
18. Inland Co-operative Inc., att’n: Mr. Bill Arthur, Mr. Jaye Atkins
19. Lucknow District Co-op, att’n: Mr. Al Scott, Mr. Doug Miller

 

*NOTE—PURSUANT to section 112 of the Act any notice, order or other document is sufficiently given, served, or delivered if delivered personally or sent by first class mail and any document sent by first class mail shall be deemed to be given, served, or delivered on the seventh day after mailing.

 
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