I.B.E.W. Local 1687 Pension Plan - November 13, 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 Orders, under sections 87 and 88 of the PBA respecting actuarial reports as at December 31, 2004 and December 31, 2005 for the I.B.E.W. Local 1687 Pension Plan, Registration Number 0579060

AND IN THE MATTER OF a Proposal of the Superintendent of Financial Services to Make Orders under sections 87 and 88 of the PBA.

TO:

International Brotherhood of Electrical Workers, Local 1687
2413 Lasalle Blvd.
Sudbury ON P3A 2A9

Attention: Bruce McNamara,
Chairman, Board of Trustees
Administrator

NOTICE OF PROPOSAL

I PROPOSE TO MAKE AN ORDER:

(i) pursuant to section 88 of the PBA, that the Administrator prepare and file a new actuarial valuation report as at December 31, 2004 in respect of the I.B.E.W. Local 1687 Pension Plan, Registration No. 0579060, (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.

(ii) pursuant to section 88 of the PBA, that the Administrator prepare and file a new actuarial valuation report as at December 31, 2005 in respect of 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.

 

(iii) in the alternative to the order proposed in paragraph (ii) (if it is determined that the actuarial valuation reports as at December 31, 2005 filed in respect of the Plan do contain 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) that:

(a) the Administrator forthwith take such action as will result in the Plan meeting the funding requirements of section 6 of the Regulation; and

(b) the Administrator, forthwith after the action in paragraph (a) has been taken, advise the Superintendent of the action taken under paragraph (a) and file all documents relevant to the action taken under paragraph (a).

 

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 a MEPP, 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:

    (a) 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

    (b) 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 requires the actuary to perform a valuation of a plan (including a MEPP) on a solvency basis.


    The 2004 Reports

  7. On or about June 30, 2005, two reports, the Actuarial Valuation as at January 1, 2005 (the “2004 Actuarial Report”) and the Solvency Actuarial Report as at December 31, 2004 (the “2004 Solvency Report”)(together, the “2004 Reports”), both dated May 2005, were filed with the Superintendent as required under section 14 of the Regulation.

  8. According to page 2 of the 2004 Actuarial Report, the Plan has a going concern excess of $3,324,872 as at December 31, 2004. The 2004 Actuarial Report states at page 14 that “the cost of providing the current level of benefits has been estimated at $2,118,400 or approximately 96.69% of contributions.”

  9. The 2004 Solvency Report states at page 10 that the Plan has a solvency deficiency of $3,382,867 as at December 31, 2004 and a transfer ratio (ratio of solvency assets to solvency liabilities) of 0.86024.

  10. Page 11 of the 2004 Solvency Report states that “[i]f special payments were required, we have determined that the minimum monthly special payment to fund the solvency deficiency over five years would be $64,835 (35.5% of the estimated future contributions), or $28,120 per month to fund the solvency deficiency over 15 years (15.4% of the estimated future contributions).”

  11. The only mention of section 6(4) of the Regulation in the 2004 Reports is on page 14 of the 2004 Actuarial Report. The 2004 Actuarial Report cites the requirement in section 6(4) that the actuary perform such tests as will demonstrate the sufficiency of the contributions to provide for benefits set out in the Plan but then simply states the “cost of providing the current level of benefits” is estimated to be 96.69 % of contributions. There is no mention of whether or not contributions would also be sufficient to cover payments necessary to amortize any solvency deficiency over a reasonable period nor do the 2004 Reports contain any proposed options which, if implemented, will have the result that the required contributions will be sufficient to provide the benefits under the Plan when the solvency position of the Plan is considered.

  12. Accordingly, the 2004 Reports fail to meet the requirements of section 6(4) of the Regulation. The actuary has not demonstrated the “sufficiency of contributions” on a solvency basis for the Plan under section 6(4)(a) because a solvency deficiency has been disclosed but there is no provision in the required contributions to amortize this deficiency over a reasonable period of time.

  13. The actuary has also failed to “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” in the 2004 Reports as required by section 6(4) of the Regulation.

  14. 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 2004 Reports do not meet the requirements of the PBA or the Regulation and the Superintendent proposes to order that a new report as at December 31, 2004 be filed which meets the requirement specified in the order proposed in this Notice.


    The 2005 Reports

  15. On or about July 10, 2006, two reports, the Actuarial Valuation as at December 31, 2005 (the “2005 Actuarial Report”) and the Solvency Actuarial Report as at December 31, 2005 as amended by correspondence dated August 3, 2006 (the “2005 Solvency Report”)(together, the “2005 Reports”), both dated June 2006, were filed with the Superintendent as required under section 14 of the Regulation.

  16. According to page 2 of the 2005 Actuarial Report, the Plan had a funding excess of $1,407,653 as at December 31, 2005. The 2005 Actuarial Report states at page 14 that “the cost of providing the current level of benefits has been estimated at $2,447,500 or approximately 101.98% of contributions”.

  17. The 2005 Solvency Report states at page 10 that the Plan has a solvency deficiency of $11,609,667 as at December 31, 2005 and a transfer ratio (ratio of solvency assets to solvency liabilities) of 0.77242.

  18. Page 11 of the 2005 Solvency Report states that “[i]f special payments were required, we have determined that the minimum monthly special payment to fund the solvency deficiency (using solvency interest rates) over five years would be $215,170 (107.58% of the estimated future contributions), or $88,550 per month (which was revised to $88,225 per month by the actuary preparing the report in his letter dated August 3, 2006) to fund the solvency deficiency over 15 years (44.11% of the estimated future contributions).”

  19. The only mention of section 6(4) of the Regulation in the 2005 Reports is on page 14 of the 2005 Actuarial Report. The 2005 Actuarial Report cites the requirement in section 6(4) that the actuary perform such tests as will demonstrate the adequacy of the contributions to provide for benefits set out in the Plan but then simply states the “cost of providing the current level of benefits has been estimated at $2,447,500 or approximately 101.98% of contributions”. The costs referred on page 14 of the 2005 Actuarial Report only relate to the normal costs of the benefits set out in the Plan and not the solvency position of the Plan.

  20. The actuary does propose two options for covering the funding shortfall disclosed on page 14 of the 2005 Actuarial Report, however, the tests reported and the options proposed in the 2005 Actuarial Report relate solely to normal costs and do not address the solvency position of the Plan.

  21. Pages 11 and 12 of the of the 2005 Solvency Report do discuss the solvency position of the Plan. The 2005 Solvency Report states that the Plan “has a solvency deficiency of $11,609,667 as of the valuation date.”

  22. However, the 2005 Solvency Report states that because the Plan is exempted from the requirement to make special payments to eliminate a solvency deficiency and that section 6 of the Regulation (in the opinion of the actuary for the Plan) “does not require special payments to fund a solvency deficiency” no special payments are required for the Plan.

  23. The 2005 Solvency Report also references an option that, if implemented, will (in the opinion of the actuary for the Plan) have the result that the required contributions will be sufficient to provide the benefits under the Plan when the solvency position of the Plan is taken into account. However, the option is formulated in such a manner as to communicate to the Administrator that the implementation of such an option is not required under the PBA and/or Regulation. Specifically, the 2005 Solvency Report states:

    If special payments were required, at least one option is available to the Plan’s Trustees to provide for required contributions to be sufficient to fund the solvency deficiency under the [P]lan, as follows:

    (a) Reduce the future service monthly pension from 2.0% to 1.00% of employee contributions, assuming an expected average remaining service life (EARSL) of 13.4349 years. [emphasis added]

  24. Moreover, in correspondence to FSCO staff dated August 3, 2006, the actuary states that the Administrator is not prepared to make any changes to the plan provisions to address the solvency deficiency in the Plan because the Administrator is “of the opinion that funding solvency deficiencies is not a requirement under the legislation for this type of pension plan.”

  25. Accordingly, the 2005 Reports fail to meet the requirements of section 6(4) of the Regulation. The actuary has not performed such tests as would demonstrate the “sufficiency of contributions” on a solvency basis for the Plan under section 6(4)(a) because a solvency deficiency has been disclosed but there is no provision in the required contributions to amortize this deficiency over a reasonable period of time.

  26. The actuary has also failed to “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” because the options proposed in the 2005 Solvency Report are framed in the such a manner as to communicate to the Administrator that the implementation of such options is not a requirement under the PBA.

  27. 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 2005 Reports do not meet the requirements of the PBA or the Regulation and the Superintendent proposes to order that a new report as at December 31, 2005 be filed which meets the requirements specified in the Order proposed in this Notice.



    Proposed Order under Section 87

  28. In the alternative, if it is determined that the contents of the 2005 Reports do meet the requirements of the PBA and Regulation because the 2005 Reports set out an option for the reduction of benefits so that section 6(4)(b) of the Regulation is complied with, then the Superintendent proposes to order that the Administrator take steps to implement the proposed option or take other action so as to ensure that the Plan meets the funding requirements of section 6 of the Regulation.

  29. Section 6(5)(c) of the Regulation states that “[w]here an actuary proposes options in accordance with clause (4)(b)” the administrator of the pension plan shall, after receiving a copy of the report containing the proposed options, “take such action as will result in the plan meeting the funding requirements of [section 6 of the Regulation] within ninety days after the date on which the actuary submitted the report to the administrator”. Further, section 6(5)(d) of the Regulation requires that the administrator shall “advise the Superintendent of the action taken in order for the plan to meet the funding requirements of [section 6 of the Regulation] within 120 days after the date the actuary submitted the report to the administrator and shall file all documents relevant to the action taken.”

  30. As set out above the Administrator has not taken steps to implement the option set out in the 2005 Solvency Report nor has the administrator taken any other action that will result in the Plan meeting the funding requirements of section 6 of the Regulation. In fact, the actuary has indicated that the Administrator does not intend to make any changes to the Plan provisions to ensure the funding requirements of section 6 are met.

  31. Section 87 of the PBA 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 or if the administrator of the pension plan, the employer or other person is contravening a requirement of the PBA or the Regulation.

  32. For the reasons set out above, the Administrator has contravened section 6(5) of the Regulation and has failed to administer the Plan in accordance with section 6(5) of the Regulation. Assuming that the 2005 Solvency Report complies with section 6(4)(b) of the Regulation, the Superintendent, therefore, proposes to order that:

    1. the Administrator forthwith take such action as will result in the Plan meeting the funding requirements of section 6 of the Regulation; and

  33. 2. the Administrator, forthwith after the action in paragraph (a) has been taken, advise the Superintendent under paragraph (a) and file all documents relevant to the action taken under paragraph (a).

  34. 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 13 day of November, 2006.



K. David Gordon
Deputy Superintendent, Pensions

copy:

TO: Belyea & Associates Inc.
208 - 39 Kimbercroft Court
Scarborough ON M1S 5B5

Attention: Bryan N. Belyea, F.C.I.A.
President
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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