Employer contribution holiday, will members benefit?

Canada Post has announced it will not make regular employer contributions to the Pension Plan for the remainder of 2007. This decision was not unexpected as it is in keeping with their letter in the new collective agreement regarding pension surplus.

The letter, on pages 683 and 684  of the draft collective agreement, states the employer’s intention to opt to use pension plan surplus to take employer contribution holidays to recover an amount equal to the amount of special payments made, plus interest, since October 1, 2000. Further, the Corporation may be required to take additional contribution holidays to keep the plan within the requirements of the Income Tax Act, i.e. the surplus cannot be permitted to exceed 10% of the value of a fully funded plan.

 

Deficits, special payments and surpluses

When Canada Post took over responsibility for our pension plan on October 1st, 2000 Treasury Board provided just over $7 billion.  This represented the value of the pension benefits due the current employees. This actuarial value included a small surplus of $70 million on a “going concern” basis.

The Canada Post Pension Plan has always been in a surplus position on a “going concern” basis. Under the provincial regulations in Ontario and Québec (governing plans with total assets estimated at $420 billion) the Corporation would not have been required to make special payments related to the plan’s “solvency valuation” deficit.

 

Two actuarial valuations Going concern valuation Determines the financial health of the plan with a long term view assuming that the plan will continue to receive contributions, accrue interest and make benefit payments. Unfunded liabilities are amortised over 15 years. Solvency valuation Determines the amount of money required to meet the current pension obligations assuming the plan terminates with no future benefits accrual or income to the plan.

 

Under the federal regulations however, beginning in 2003 Canada Post was required, , to make special payments to retire a “solvency valuation” deficit within 5 years and file an actuarial valuation with the Office of Superintendent of Financial Institution (OSFI) on a yearly basis, as opposed to every 2 years for plans not showing a deficit.

The following chart shows the contributions made to the plan since its inception by the members and the employer, including special contribution and transfer of surpluses from the Supplementary Retirement Arrangement (SRA). The information is taken from the annual reports of the Pension Plan

 

Contributions to Pension Plan

	2001 (incl. 3 months of 2000)	2002	2003	2004	2005	2006
Sponsor	$300 million	$254 million	$266 million	$281 million	$269 million	$270 million
Solvency Payments			$109 million	$51 million	$270 million	$239 million
SRA Transfer				$78 million	$32 million	$49 million
Members	$124 million	$97 million	$102 million	$122 million	$138 million	$153 million
Past Service Contributions		$17 million	$10 million	$17 million	$6 million	$6 million

 

In addition to the contributions, investment income has increased the assets of the plan such that it has grown from $7 billion in 2000 to $14.4 billion as of December 31, 2006.

The plan is healthy and continues to grow with assets generating over 14% return on investments. The employer’s decision to take a contribution holiday will mean that Canada Post will realize savings of over $112 million this year.

The four members of the National Executive Board appointed as representatives on the Pension Advisory Council as well as the member elected from the ranks of CUPW to represent all active members of the plan,  keep a close watch on the plan on your behalf.

We disagree with some of the investment decisions made by Canada Post, and have a few administrative issues.  However,  our consensus is that the pension plan is well governed for the benefit of its members. The employer contribution holiday will not adversely affect the financial health of the plan.

What remains to be seen is what Canada Post will do with the additional millions of dollars now available to it. Moya Greene has stated that the funds will be reinvested in the Corporation to replace aging plants, mail sorting equipment and IT infrastructure.

We hope the expansion and improvement of services and ensuring our workplace are safe all fall within her ideas of reinvestment.