I.B.E.W. Local 353 - August 10, 2006

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

AND IN THE MATTER OF a Proposal of the Superintendent of Financial Services to Make an Order under section 88 of the PBA that new actuarial reports as at December 31, 2002, December 31, 2003 and December 31, 2004 be prepared and filed in respect of the I.B.E.W. Local 353 Pension Plan, Registration Number 0598235

AND IN THE MATTER OF a Proposal of the Superintendent of Financial Services to Make and Order under section 88 of the PBA.

TO:

I.B.E.W. 353 Trust Fund
c/o T.E.I.B.A.S. Ltd.
7626 Yonge Street
Thornhill ON L4J 1V9

Attention:

Roberto Tomassini
Interim Executive Administrator
Administrator

NOTICE OF PROPOSAL

I PROPOSE TO MAKE AN ORDER pursuant to section 88 of the PBA, that the Administrator prepare and file new actuarial valuation reports as at December 31, 2002, December 31, 2003, and December 31, 2004 in respect of the I.B.E.W. Local 353 Pension Plan, Registration No. 0598235, (the “Plan”), that complies with sections 6, 14, 16, and 17 of Regulation 909, R.R.O. 1990, as amended (the “Regulation”), and which specifically includes either,

(1) the results of such tests performed on both a going concern and solvency basis as will demonstrate the sufficiency of the contributions required by the collective agreement or agreements to provide for benefits set out in the Plan without consideration of any provision for reduction of benefits set out in the Plan; or

(2) where the contributions are not sufficient to provide the benefits under the Plan as determined on both a going concern and solvency basis, a proposal by the actuary of options available to the administrator of the Plan that will have the result that the required contributions will be sufficient to provide the benefits under the Plan on both a going concern and solvency basis.

REASONS:

  1. The Plan is a multi-employer pension plan (“MEPP”) that provides defined benefits. It was established pursuant to a collective agreement or trust agreement.

  2. Section 14 of the Regulation requires the administrator of a pension plan, including MEPPs, to file with the Superintendent of Financial Services, a report prepared by an actuary containing an actuarial valuation of the pension plan. Section 14(8) of the Regulation requires that such a report set out “on the basis of a solvency valuation” whether there is a solvency deficiency and, if there is a solvency deficiency, the amount of the solvency deficiency and the special payments required to liquidate it, whether the transfer ratio is less than one and if the transfer ratio is less than one, the transfer ratio.

  3. Section 17(1) of the Regulation states that to determine the existence of a solvency deficiency for the purposes of a report under section 14, “a valuation shall be performed by the person preparing the report to determine the solvency liabilities of the plan and the solvency assets of the plan.” Section 17(2) of the Regulation states that “[i]n determining the solvency liabilities for a multi-employer pension plan established pursuant to one or more collective agreements or a trust agreement...the solvency liabilities shall be determined on the basis of the benefits structure set out in the plan at the date of the valuation without consideration of any provision for the possible reduction of such benefits.”

  4. Section 16 of the Regulation states that an actuary preparing the report under section 14 “shall use methods and actuarial assumptions that are consistent with accepted actuarial practice and with the requirements of” the PBA and Regulation.

  5. Section 6(4) of the Regulation requires the actuary, as a part of the report required under section 14 prepared in respect of a MEPP established pursuant to a collective agreement or a trust agreement, to do the following:

    1. perform such tests as will demonstrate the sufficiency of the contributions required by the collective agreement or agreements to provide for the benefits set out in the plan without consideration of any provision for reduction of benefits set out in the plan; or

    2. where the contributions are not sufficient to provide the benefits under the plan, propose options available to the administrator of the plan that will have the result that the required contributions will be sufficient to provide the benefits under the plan.

  6. The PBA and Regulation require that an actuary consider the solvency position of the Plan in performing the tests referred to in section 6(4)(a) of the Regulation because the Regulation clearly requires the actuary to perform a valuation of a plan (including a MEPP) on a solvency basis.

The 2002 Report

  1. On February 20, 2004, an Actuarial Report to the Board of Trustees on the I.B.E.W. Local 353 Pension Plan as at December 31, 2002 (the “2002 Report”) was filed with the Superintendent as required under section 14 of the Regulation.

  2. Page 5 of the 2002 Report shows that the Plan had an unfunded actuarial liability of $24,307,000 as at December 31, 2002. Current service costs plus expenses for the year commencing January 1, 2003 were estimated to be 82.1% of the projected employer contributions of $35,542,000 for 2003, i.e. $29,196,000. According to the actuary, “[t]he unfunded liability can be amortized over a period not exceeding 15 years...[through] special payments of $2,542,000 per annum” (Page 5 of the 2002 Report). In the actuary’s opinion, the “annual Plan contributions will be sufficient to meet the estimated cost of all benefits and the going concern special payment” (Page 9 of the 2002 Report). On page 10 of the 2002 Report, the actuary states that “[t]he contribution requirements outlined in the previous section [of the 2002 Report] do not make provision to liquidate the solvency deficiency.”

  3. The 2002 Report states at page 8 that the Plan has a solvency deficiency of $ 83,546,000 as of the valuation date and a transfer ratio of 84.3%.

  4. The Report to the Board of Trustees of the I.B.E.W. Local 353 Pension Plan on the Projection of the Pension Plan’s Assets and Liabilities (the “Supplemental Report”) was attached as a supplementary report to be considered as part of the 2002 Report. The purpose of the Supplemental Report as stated on page 1 was to satisfy the regulatory requirements “to certify to the sufficiency of the contributions into the Plan to support the Plan’s liabilities”...based on long term testing.

  5. The 2002 Report and Supplemental Report do not comply with section 6(4) of the Regulation. The 2002 Report and the long range test results contained in the Supplementary Report do not demonstrate that contributions to the Plan are sufficient to amortize the solvency deficiency over a reasonable period. Nor does the actuary in the 2002 Report and Supplemental Report “propose options available to the administrator of the plan that will have the result that the required contributions will be sufficient to provide the benefits under the plan.”

The 2003 Report

  1. 12. An Actuarial Report to the Board of Trustees on the I.B.E.W. Local 353 Pension Plan as at December 31, 2003 (the “2003 Report”) was filed with the Superintendent as required under section 14 of the Regulation on November 19, 2004.

  2. According to page 5 of the 2003 Report, the Plan had an unfunded actuarial liability of $46,399,000 as at December 31, 2003. The estimated current service cost plus expenses of $31,166,000 represent 82.0% of the projected employer contributions of $38,008,000 for 2004. The total amount required to fund the unfunded liability as at December 31, 2003 is $4,955,000. As indicated on page 9 of the 2003 Report, there are sufficient excess contributions to cover this amount.

  3. Page 7 and 8 of the 2003 Report indicate that the Plan had a solvency deficiency of $74,292,000 and a transfer ratio of 86.1% as at December 31, 2003. The 2003 Report expressly indicates on page 9 that the analysis in the 2003 Report relating to the sufficiency of the contributions “makes no provision to fund the solvency deficit.”

  4. Page 10 of the 2003 Report states that the Trustees of the Plan have advised that the probability of the Plan terminating within the next 15 years is less than 1%. Based on this assumption, the actuary states that the “expected wind-up deficit is less than $1,641,000 (i.e. 1% of $164,017,000), which could be funded by excess contributions of $164,000 per year for 15 years. The projected excess contributions are $1,609,000 per year.” Based on this analysis, the actuary expresses the opinion that the contributions meet the sufficiency test in section 6(4) of the Regulation.

  5. The actuary suggests that such a demonstration has been accepted by the Financial Services Commission of Ontario (“FSCO”) in the past to establish compliance with section 6(4). FSCO has not, in the past, accepted such a test as meeting the requirements of section 6(4) of the Regulation. This test based on the probability of the wind up of the Plan, in fact only demonstrates the sufficiency of the contributions to fund 1% of the wind up deficit or 2.2% of the solvency deficiency and, therefore, the actuary has failed to demonstrate the sufficiency of contributions on a solvency basis. Also, the actuary has not proposed “options available to the administrator of the plan that will have the result that the required contributions will be sufficient to provide the benefits under the plan.” The Plan has failed to meet the requirements of Section 6(4) of the Regulation.

The 2004 Report

  1. On October 12, 2005, an Actuarial Report to the Board of Trustees on the IBEW Local 353 Pension Plan as at December 31, 2004 (the “2004 Report”) was filed with the Superintendent as required under section 14 of the Regulation.

  2. The Plan had an unfunded actuarial liability of $55,808,000 as at the valuation date. At pages 10 and 11, the 2004 Report states the contributions are sufficient to cover the “estimated cost of benefits, plus the provision for administrative and investment related expenses” and to eliminate the unfunded actuarial liability in about 11 years.

  3. Page 8 of the 2004 Report states that the Plan had a solvency deficiency of $129,168,000 as of the valuation date.

  4. Page 11 of the 2004 Report states that the Trustees of the Plan have advised that the probability of the Plan being terminated within the next 15 years is less than 1%. Based on this assumption the actuary states on page 12 that the “expected wind-up deficit is less than $2,058,200 (i.e. 1 % of $205,820,000). The excess contributions are sufficient to fund a shortfall of $73,200,000 over a period of 15 years.” Based on this analysis, the actuary is of the opinion that the contributions are sufficient to meet the test in section 6(4) of the Regulation.

  5. The actuary suggests that these statements on pages 11 and 12 of the 2004 Report demonstrate the sufficiency of contributions as required under section 6 of the Regulation. FSCO does not accept this proposed test of contribution sufficiency. This test demonstrated only that the contributions are sufficient to fund “the expected wind-up deficit, where the expected wind-up deficit is determined as the wind-up deficit on the valuation date multiplied by the probability of Plan termination” and therefore, the actuary has failed to demonstrate the sufficiency of contributions on a solvency basis. In addition, FSCO does not accept the reasonableness of the assumption relating to the probability of wind-up used in the test. Also, the actuary has not proposed “options available to the administrator of the plan that will have the result that the required contributions will be sufficient to provide the benefits under the plan. The Plan has failed to meet the requirements of section 6(4) of the Regulation.

  6. Under section 88 of the PBA, the Superintendent may make an order requiring the preparation of a new report and specifying the assumptions or methods or both that shall be used in the preparation of a new report where the Superintendent is of the opinion that a report submitted in respect of a pension plan does not meet the requirements and qualifications of the PBA, Regulation or pension plan. For the reasons set out above, the 2002 Report and Supplemental Report, the 2003 Report and the 2004 Report do not meet the requirements of the PBA or the Regulation.

  7. 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 section 89(6) of the PBA. 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 on a Form for the written notice, please see the Tribunal website at www.fstontario.ca or contact the Registrar of the Tribunal by phone at 416- 590-7294, toll free at 1-800-668-0128, ext. 7294, or by fax at 416-226-7750.

IF YOU FAIL TO REQUEST A HEARING WITHIN THIRTY (30) DAYS, I MAY CARRY OUT THE PROPOSAL AS DESCRIBED IN THIS NOTICE.

DATED at Toronto, Ontario, this 10th day of August , 2006.

K. David Gordon
Deputy Superintendent, Pensions

Copy:

TO:

Eckler Partners Ltd
110 Sheppard Avenue East, Suite 900
Toronto, ON M2N 7A3

Attention: D. Cameron Hunter, F.S.A., F.C.I.A., C.I.M.A.
                 Actuary

*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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