Dow Chemical Canada Inc. Sarnia Division - August 10, 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 a Proposal of the Superintendent of Financial Services to Refuse to Consent to a Transfer of Assets under section 80 of the Act relating to the transfer from the Dow Chemical Canada Inc. Sarnia Division Hourly Employees’ Pension Plan, Registration Number 366609, to the TransAlta Corporation Pension Plan, Alberta Registration Number 276209

TO:

Dow Chemical Canada Inc.
1425 South Vidal Street
Box 3030
Sarnia, Ontario
N7T 8C6

Attention: Employer and Administrator

NOTICE OF PROPOSAL TO REFUSE TO CONSENT

I PROPOSE TO REFUSE TO CONSENT to a transfer of assets effective March 29, 2002, from the Dow Chemical Canada Inc. Sarnia Division Hourly Employees’ Pension Plan, Registration Number 366609 (the “Plan”), to the TransAlta Corporation Pension Plan, Alberta Registration Number 276209, under section 80 of the Act.

REASONS:

  1. The Applicant is the Employer and Administrator of the Plan.

  2. In September 2003, the Applicant filed with the Superintendent of Financial Services (the “Superintendent”) a Report on the Asset Transfer on the Dow Chemical Canada Inc. Sarnia Division Hourly Employees’ Pension Plan to the Trans Alta Corporation Pension Plan at March 29, 2002 (the “Report”). The Report is dated August 28, 2003.

  3. The Report is with respect to one member of the Plan and the amount to be transferred is $224,337.00, which represents the liabilities related to this one member. The Report states that excess assets are to remain in the Plan.

  4. The Plan is a defined benefit plan that is subject to a trust.

  5. On March 5, 2004, the Superintendent’s staff wrote to Watson Wyatt Worldwide (“Wyatt”), the Applicant’s agent, stating that the application would be placed in abeyance until the Applicant had demonstrated that the Court of Appeal’s decision in Aegeon (sic) Canada Inc. and Transamerica Life Canada v. ING Canada Inc. (“Transamerica”) did not apply to this application.

  6. On May 10, 2005, the Superintendent’s staff wrote to Wyatt requesting submissions on whether Transamerica applied to this application by July 9, 2005.

  7. On July 12, 2005, Wyatt requested an extension of the time to make submissions on Transamerica from July 9, 2005 to July 29, 2005.

  8. On July 14, 2005, an extension was granted to Wyatt to July 29, 2005.

  9. On August 4, 2005, Wyatt filed certain documentation but did not respond to the
    Transamerica issue.

  10. On August 17, 2005, the Superintendent’s representative wrote a letter to Wyatt
    requesting submissions on the Transamerica issue by September 16, 2005.

  11. On October 3, 2005, the Superintendent received submissions on the Transamerica issue from Towers Perrin, the agent for the purchaser in the transaction, TransAlta Energy Corporation. The submissions were essentially that Transamerica should not apply to transfers of assets that do not involve large amounts and that involve small numbers of pension plan members.

  12. On October 17, 2005, the Deputy Superintendent, Pensions, wrote to Towers Perrin, stating that the submissions in the October 3, 2005 letter did not meet the Superintendent’s criteria for distinguishing the application from Transamerica, and that the Superintendent was not satisfied that Transamerica did not apply to this application.

  13. On October 28, 2005, Wyatt sent a letter to the Superintendent’s staff, stating that no additional information would be filed, and requesting that the application be reviewed based on the information provided to date.

  14. On November 3, 2005, the Superintendent’s staff wrote to Wyatt to inform Wyatt of the correspondence between Towers Perrin and the Deputy Superintendent, Pensions. The letter suggested that Wyatt discuss with Towers Perrin whether additional submissions would be made, and requested that staff be advised by December 2, 2005 as to how the Applicant wished to proceed.

  15. On January 4, 2006, the Superintendent’s staff wrote to Wyatt, noting that there had been no response to staff’s November 3, 2005 letter. The January 4 letter requested that the Applicant satisfy the Superintendent that there were no trust-related issues by February 4, 2006, and enclosed a checklist which had recently been posted on the web site of the Financial Services Commission of Ontario to assist applicants in identifying and dealing with trust-related issues arising from Transamerica.

  16. On February 21, 2006, Wyatt sent a letter to the Superintendent’s staff, advising that the Applicant did not intend to make further submissions and requesting that the application be reviewed based on the information provided by the Applicant to date.

  17. Nothing further has been received from the Applicant or on its behalf since Wyatt’s
    letter dated February 21, 2006.

  18. Transamerica is about an asset transfer or merger from a pension plan that was subject to a trust and in a surplus position, to a pension plan that was not subject to a trust and in a deficit position. After the transfer, the actuarial surplus that derived from the trust plan was used to fund the employer’s obligations to the non-trust plan. The Court of Appeal for Ontario held that this was “cross-subsidization” that was not permitted by the terms of the trust, stating:

    In my view, the clear terms of the Halifax Trust (the exporting plan) precluded any part of the capital or income of the fund from being diverted to any purpose other than the exclusive benefit of the beneficiaries of the Halifax Trust, namely the former Halifax employees. The terms of (the) Halifax Trust were not altered by the transfer of assets to the NN Life Plan (the importing plan) in 1989. I do not accept the submission that NN Life’s rights and obligations in relation to Halifax Trust assets were somehow affected by the “merger” of the two pension plans. NN Life was obliged by the terms of the Halifax Trust and by the terms of the undertakings it gave to the P.C.O. (the Pension Commission of Ontario) to maintain the assets of the Halifax Trust separate and apart from the other assets and liabilities of the NN Life Plan. There as no amendment to the Halifax Trust. Nor is there anything “authorized or permitted by law” to allow NN Life to use the assets of the Halifax Trust for any purpose other than the benefit of its beneficiaries. . .

Simply put, as NN Life cannot call upon the assets of the Halifax Trust to
satisfy liabilities owed to the non-Halifax employees, it follows that there
was no basis for NN Life to refer to the Halifax Trust’s surplus in determining its service costs to account for actuarial liabilities in relation to the non-Halifax employees. The Halifax Trust obligation prevents the assets of that trust from ever being used to pay the benefits of non-Halifax employees.

(Court of Appeal for Ontario, December 8, 2003, Docket C39652)

  1. The Applicant has not satisfied the Superintendent that the terms of the trust for the Plan authorize or permit the transfer of assets to the TransAlta Corporation Pension Plan, as required by the Court of Appeal in Transamerica.

  2. Aside from the trust-related issues arising from Transamerica, this application does not contravene the PBA or any policies of the Superintendent relating to transfers of assets under section 80 of the PBA.

  3. 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 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 PROPOSAL AS DESCRIBED IN THIS NOTICE.

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

K. David Gordon
Deputy Superintendent, Pensions

C.C.

Watson Wyatt Worldwide
One Queen Street East, Suite 1100
Toronto, Ontario M5C 2Y4

Attention: Trevor Cartlidge, Actuary

 

C.C.

Towers Perrin
175 Bloor Street East, South Tower, Suite 1501
Toronto, Ontario M4W 3T6

Attention: Philip A. Morse, Principal

 

*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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