2007 Annual Meeting ● Assemblée annuelle 2007 Vancouver 2007 Annual Meeting ● Assemblée annuelle 2007 Vancouver Canadian Institute of Actuaries Canadian Institute of Actuaries L’Institut canadien des actuaires L’Institut canadien des actuaires

PD-2 Current Developments in Multi-Employer Pension Plans Harry Satanove, FCIA Canadian Institute of Actuaries Vancouver, BC June 28, 2007

Satanove & Flood Consulting Ltd.2 Negotiated Cost Pension Plans The “Pension Deal” Fund Contributions Past service benefits Current service benefits Early retirement benefits Survivor’s benefits Inflation adjustments Collective agreement Trustees 2007 Annual Meeting Assemblée annuelle 2007

Satanove & Flood Consulting Ltd.3 Negotiated Cost Pension Plans The Pension Deal Target benefit plan or defined benefit plan? Does the solution to the solvency problem depend on the nature of the deal? 2007 Annual Meeting Assemblée annuelle 2007

Satanove & Flood Consulting Ltd.4 Consequences of the Solvency Rules Target Benefit Plan Current service: the price of each unit of benefit increases as interest rates go down Past service: if accumulated assets are no longer sufficient, benefits may have to be reduced 2007 Annual Meeting Assemblée annuelle 2007

Satanove & Flood Consulting Ltd.5 Consequences of the Solvency Rules – Defined Benefit Plan Increase contributions at the next collective agreement Revise existing collective agreements Strip out ancillary benefits Reduce benefits as a last resort 2007 Annual Meeting Assemblée annuelle 2007

Satanove & Flood Consulting Ltd.6 So why do the policy makers like the solvency rules? Members appear to be protected Prescribed valuation basis Minimize abuses Solves the problem of employer withdrawal 2007 Annual Meeting Assemblée annuelle 2007

Satanove & Flood Consulting Ltd.7 What are governments doing? Temporary measures –Federal –Quebec (up to the end of 2009) –Alberta Permanent measures –Quebec (from 2010) Studying the issue –B.C. –Alberta –Ontario 2007 Annual Meeting Assemblée annuelle 2007

Satanove & Flood Consulting Ltd.8 Temporary measures Quebec (2005) Rules expire in December 2009 Applicable to the first valuation after December 30, Annual Meeting Assemblée annuelle 2007

Satanove & Flood Consulting Ltd.9 Temporary measures Quebec (2005) Combine solvency deficiencies Extend the solvency deficiency payment period to 10 years from 5 years with buy-in from members Allow employers in MEPs to use letter of credit relief measures through apportioning Benefit improvements for the next 5 years must be funded on the greater of the values on a solvency and funding bases 2007 Annual Meeting Assemblée annuelle 2007

Satanove & Flood Consulting Ltd.10 Temporary measures Federal (2006) Application in respect of an actuarial valuation report filed after December 30, 2005, but not beyond 2007 Substantial information to plan members required 2007 Annual Meeting Assemblée annuelle 2007

Satanove & Flood Consulting Ltd.11 Temporary measures Federal (2006) Consolidate previously solvency payment schedules, and amortize the consolidated solvency deficiency over 5 years Extend the solvency funding period from 5 years to 10 years provided no more than 1/3 of active members and 1/3 of non-active members and beneficiaries object No plan improvements allowed in the first 5 years unless the improvements are pre- funded to avoid worsening the solvency deficiency 2007 Annual Meeting Assemblée annuelle 2007

Satanove & Flood Consulting Ltd.12 Temporary measures Alberta (2006) MEPs may apply to the Superintendent for permission to suspend the solvency deficiency payments for a period no longer than three years Maximum one application Requires a valuation report with a valuation date not earlier than December 31, Annual Meeting Assemblée annuelle 2007

Satanove & Flood Consulting Ltd.13 Temporary measures Alberta (2006) Superintendent consent subject to: –No asset smoothing –Going concern unfunded liabilities funded over no more than 10 years –No benefit improvements allowed while there is a solvency deficiency After the suspension, revert to the old rules, but the entire solvency deficiency may be funded over 5 years 2007 Annual Meeting Assemblée annuelle 2007

Satanove & Flood Consulting Ltd.14 Permanent Measures Quebec (2006) Effective January 1, 2010 Solvency focus is maintained Annual actuarial valuations required Substantial information required to be sent to the members 2007 Annual Meeting Assemblée annuelle 2007

Satanove & Flood Consulting Ltd.15 Permanent Measures Quebec (2006) Must be funded on a solvency basis plus Provision for Adverse Deviation that depends on investment policy Solvency deficiency amortization period – 5 years PfAD to be funded from experience gains Contribution holidays not allowed as long as the PfAD is not full Plan improvements must be amortized over no more than 5 years, even if solvent, until the PfAD is fully funded If a plan improvement would otherwise cause the solvency ratio to fall below 90%, the difference between 90% and the solvency ratio must be funded immediately 2007 Annual Meeting Assemblée annuelle 2007

Satanove & Flood Consulting Ltd.16 Studying the Issue B.C. –Announced a review in February 2007 –Review limited specifically to solvency –Staff to consult with “a range of experts, stakeholders and other jurisdictions over the next few months” –Working closely with Alberta Ontario –Expert Commission Alberta 2007 Annual Meeting Assemblée annuelle 2007

Satanove & Flood Consulting Ltd.17 Are there alternatives to the current solvency rules? 2007 Annual Meeting Assemblée annuelle 2007

Satanove & Flood Consulting Ltd.18 What About Risk-Based Rules? Keep the current solvency valuation –But allow the solvency deficiency amortization period to vary according to the risk of the pension plan –Will require the development of risk factors and risk scores 2007 Annual Meeting Assemblée annuelle 2007

Satanove & Flood Consulting Ltd.19 Risk Factors Going concern surplus / deficit Contribution margin Changes in hours / contributions Number of employers in plan Investment policy 2007 Annual Meeting Assemblée annuelle 2007

Satanove & Flood Consulting Ltd.20 Challenges of a Risk-Based Approach Administratively complex –Potentially subjective –Regulators already stretched for resources