Pension Plan for Bruce G. Miller of Totten Sims Hubicki Associates (1997) Limited - November 21, 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 Register an Amendment adopted in a resolution of the Board of Directors of Totten Sims Hubicki Associates (1997) Limited dated August 30, 2005 under section 18(1)(d) of the Act in respect of the Pension Plan for Bruce G. Miller of Totten Sims Hubicki Associates (1997) Limited, Registration Number 1115500


AND IN THE MATTER OF a Proposal by the Superintendent of Financial Services to Make an Order under section 87 that the Pension Plan for Bruce G. Miller of Totten Sims Hubicki Associates (1997) Limited, Registration Number 1115500 be administered without regard to the amendment

AND IN THE MATTER OF
a Proposal of the Superintendent of Financial Services under section 70 (5) to Refuse to Approve the Wind-Up Report relating to the Pension Plan for Bruce G. Miller of Totten Sims Hubicki Associates (1997) Limited,
Registration Number 1115500

AND IN THE MATTER OF a Proposal by the Superintendent of Financial Services to Make an Order under section 88 of the Act relating the Pension Plan for Bruce G. Miller of Totten Sims Hubicki Associates (1997) Limited, Registration Number 1115500 that a new wind up report be prepared and filed

TO:

Totten Sims Hubicki Associates (1997) Limited
300 Water Street
Whitby, ON L1N 9J2

Attention: Douglas I. Allingham
Employer and Administrator

NOTICE OF PROPOSAL

I PROPOSE TO:

(a) REFUSE TO REGISTER AN AMENDMENT to the Pension Plan for Bruce G. Miller of Totten Sims Hubicki Associates (1997) Limited, Registration No. 1115500, (the “Plan”), which amendment was adopted by the Board of Directors of the Totten Sims Hubicki Associates (1997) Limited (“Totten Sims”) in a resolution dated August 30, 2005 (the “Amendment”) under section 18(1)(d) of the Act;

(b) MAKE AN ORDER under section 87 of the Act that Totten Sims administer the Plan without regard to the Amendment to the extent that the Amendment purports to reduce the amount of the cost-of-living adjustment;

(c) REFUSE TO APPROVE A WIND UP REPORT entitled the Termination Report as at June 30, 2005 with Respect to The Pension Plan for Bruce G. Miller of Totten Sims Hubicki Associates (1997) Limited (the “Report”) under section 70(5) of the Act ; and

(d) MAKE AN ORDER under section 88 of the Act that a new wind up report be prepared and filed with the Financial Services Commission of Ontario.

REASONS:

  1. The Plan is a single member, defined benefit plan made effective January 1, 2004. Totten Sims is the employer and administrator under the Plan.

  2. The Board of Totten Sims, by way of a Board Resolution dated August 30, 2005, terminated the Plan effective June 30, 2005.

  3. Article 10 of the Plan provides for cost-of-living adjustments based on the full amount of the Consumer Price Index (“CPI”). Article 10.1 of the Plan provides that:
    Any pension payable under Articles 4.1, 4.2, or 8.2 shall be adjusted effective each January 1st proportional to the increase, if any, in the Consumer Price Index during the immediately preceding twelve month period.

    However, no such adjustment shall be made, in respect of increases in the Consumer Price Index, prior to the commencement of pension payments.

  4. Article 10.3 of the Plan provides that:
    The Company shall have the power, by resolution of the Board of Directors of the Company or by a Committee, officer or officers duly authorized by the Board to act in this regard, to reduce or eliminate future cost-of-living adjustments subject to the following conditions:

    a) No reduction shall be made before a benefit has become payable or has become determined (for example a vested benefit upon termination).

    b) No reduction shall be made to any adjustment previously granted.

  5. c) Any reduction shall only be made on the advice of the Actuary that payment of the cost-of-living adjustments in accordance with Article 10.1 would impair the ability of the Plan to fulfill its future obligations under Articles 8 and 11.

  6. In the same resolution that terminated the Plan, the Board of Totten Sims also amended the Plan. The Amendment states, in part, that “under the Terms and Conditions of Article 10.3, the Company, on the advice of the Actuary, has agreed to limit increases in pensions to the Consumer Price Index (C.P.I.) - 1.923%.”

    (a) REFUSAL TO REGISTER AMENDMENT

  7. The reduction contained in the Amendment reduces the commuted value of the member’s pension in violation of section 14 of the Act. Section 14 of the Act provides that
    14(1) An amendment to a pension plan is void if the amendment purports to reduce,

    (a) the amount or the commuted value of a pension benefit accrued under the pension plan with respect to employment before the effective date of the amendment;

    (b) the amount or the commuted value of a pension or a deferred pension accrued under the pension plan; or

    (c) the amount or the commuted value of an ancillary benefit for which a member or former member has met all eligibility requirements under the pension plan necessary to exercise the right to receive payment of the benefit.


  8. The reduction in the indexing formula is a decrease in the commuted value of the pension. Therefore, the Amendment as it relates to the reduction of the cost-of-living adjustment is void under section 14(1)(a) and (b) of the Act.

  9. Moreover, article 10.3 does not authorize a reduction in the indexing amounts as they relate to service prior to the date of the reduction. The reference to the reduction on elimination of “future cost-of-living adjustments” must be limited to reductions as they relate to future service that is accrued after the date of reduction. Such a reading would be consistent with the general scheme of the Act and section 14 in particular. Accordingly, section 10.3 should be read in such a way as to not permit the indexing reduction because it relates only to periods of past service.

  10. In addition, if article 10.3 of the Plan permits Totten Sims to introduce the indexing reductions such as those set out in the Amendment, the computation of the pension benefit under the Plan would then be variable at the discretion of the employer because article 10.3 of the Plan permits the elimination and reduction of indexing at the discretion of Totten Sims. This would contravene section 11(2) of the Act which provides that:

    11(2) A pension plan is not eligible for registration if the formula for computation of the employer’s contribution of the pension benefit provided under the pension plan is variable at the discretion of the employer.

  11. Section 18(1)(d) of the Act states that the Superintendent “may refuse to register an amendment to a pension plan if the amendment is void or if the pension plan with the amendment would cease to comply” with the Act and Regulation 909, R.R.O. 1990 (the “Regulation”). The Superintendent therefore proposes to refuse to register the Amendment pursuant to section 18(1)(d) of the Act because the Amendment is void under section 14 and, alternatively, the Plan with the Amendment would cease to comply with the Act because the benefit in the Plan would be variable at the discretion of the employer in violation of section 11(2) of the Act.


    (b) ORDER TO ADMINISTER THE PLAN IN A ACCORDANCE WITH THE ACT
  12. 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 the pension plan is not being administered in accordance with this Act, the regulations or the pension plan.”

  13. For the reasons set out above, the Amendment, to the extent that it reduces the cost-of-living adjustment, and the commuted value of the member’s pension, is void and unenforceable. The Plan is not being administered in accordance with the valid and enforceable terms of the Plan to the extent that the administrator is administering the Plan in accordance with the Amendment contrary to section 19(3) of the Act which requires that the Plan be administered in accordance with the Plan documents filed with FSCO. The Superintendent therefore proposes to order under section 87 of the Act that Totten Sims refrain from administering the Plan in accordance with the Amendment to the extent that the Amendment reduces the cost-of-living adjustment.

    (c) REFUSAL TO APPROVE THE REPORT

  14. 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 members of the pension plan.”

  15. The actuary for the Plan, on page 3 of the Report, calculated the CIA Minimum Transfer Value based on post-retirement indexing of CPI - 1.923% as $287,735 as at June 30, 2005. As the Amendment allowing the reduction in the indexing formula is invalid, the Report does not contain a calculation of the commuted value of the member’s pension in accordance with the requirements of the Act and Regulations.

  16. The Superintendent, therefore, proposes to refuse to approve the Report pursuant to section 70(5) of the Act.

    (d) ORDER TO PREPARE AND FILE A REVISED REPORT

  17. Section 88 of the Act grants the Superintendent the authority to order 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 Act, the regulations or the pension plan.

  18. Under section 88 of the Act, the Superintendent may, by order, 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.”

  19. For the reasons set out above, 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 Totten Sims prepare and file a new wind up report which calculates the commuted value of the member’s pension with indexing based on the full CPI without any reduction.

  20. 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 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 PROPOSALS AS DESCRIBED IN THIS NOTICE.

DATED at Toronto, Ontario, this 21st day of November, 2006.


K. David Gordon
Deputy Superintendent, Pensions

copy:

TO: Gordon B. Lang & Associated Inc.
Actuaries & Financial Consultants
1209 59th Avenue S.E., Suite 260
Calgary, AB T2H 2P6

Attention: Gordon B. Lang, FFA FCIA FCA ASA
President and Chief Executive Officer
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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