Pension Plans and Enterprise Risk Management CIA Pension Seminar Colloque sur les régimes de retraite April 16, 2007  Le 16 avril 2007 Toronto, Ontario

Pension Plans and Enterprise Risk Management Corporate Pensions — An Accounting Perspective Concerns with current defined benefit plan accounting model Income statement smoothed Income statement smoothed Long term perspective Long term perspective Does not represent what happened in year Does not represent what happened in year Can show positive income in a loss year Can show positive income in a loss year Balance sheet does not show true asset/liability Balance sheet does not show true asset/liability Often understates true liability Often understates true liability Information is in notes Information is in notes

Pension Plans and Enterprise Risk Management Corporate Pensions — An Accounting PerspectiveAlternatives Full reconsideration of accounting model Full reconsideration of accounting model Include expense recognition, measurement etc Include expense recognition, measurement etc Display in financial statements Display in financial statements Major project – several years Major project – several years Quick fix to balance sheet Quick fix to balance sheet Do not address other issues Do not address other issues No change to income No change to income

Pension Plans and Enterprise Risk Management Corporate Pensions — An Accounting Perspective Agenda plans US Financial Accounting Standards Board (FASB) US Financial Accounting Standards Board (FASB) Phase 1 complete — FAS 158 effective 2006 Phase 1 complete — FAS 158 effective 2006 Phase 2 underway Phase 2 underway Broad project Broad project Plan to be discussed Q1 or early Q Plan to be discussed Q1 or early Q Evaluating alternative approaches Evaluating alternative approaches

Pension Plans and Enterprise Risk Management Corporate Pensions — An Accounting Perspective US FASB – Alternative approaches Comprehensive reconsideration of model; or Comprehensive reconsideration of model; or Targeted phase with focus on issues such as: Targeted phase with focus on issues such as: Delayed recognition Delayed recognition Combining service costs, asset returns & financing costs Combining service costs, asset returns & financing costs Insufficient info about cash flows Insufficient info about cash flows Measurement of the liability Measurement of the liability Assumptions provide too much latitude Assumptions provide too much latitude Insufficient & overly complex disclosures Insufficient & overly complex disclosures

Pension Plans and Enterprise Risk Management Corporate Pensions — An Accounting Perspective International Accounting Standards Board (IASB) Working group formed with Canadian member Working group formed with Canadian member Phase year project - discussion paper Q4 Phase year project - discussion paper Q4 Presentation & disclosure Definition of DB and DC arrangements & accounting for intermediate-risk plans Smoothing & deferral mechanisms Treatment of settlements & curtailments FASB & IASB committed to common approach

Pension Plans and Enterprise Risk Management Corporate Pensions — An Accounting Perspective Canadian Accounting Standards Board (AcSB) Harmonize with FAS 158 effective 2007 Harmonize with FAS 158 effective 2007 (measurement date effective 2008) (measurement date effective 2008) Actively monitor IASB developments Actively monitor IASB developments Support Canadian WG member Support Canadian WG member Adopt International standards in 2011 as part of Strategic Plan Adopt International standards in 2011 as part of Strategic Plan

Pension Plans and Enterprise Risk Management Corporate Pensions — An Accounting Perspective AcSB released its Exposure Draft in March 2007 (available at 90-day comment period ending June 30, day comment period ending June 30, 2007 Includes highlights, key substantive changes, and then less significant changes Includes highlights, key substantive changes, and then less significant changes Basis document to follow shortly Basis document to follow shortly Issue final amendments to Section 3461 in last half of 2007 Issue final amendments to Section 3461 in last half of 2007

Pension Plans and Enterprise Risk Management Corporate Pensions — An Accounting Perspective Canadian ED Temporary hybrid solution Temporary hybrid solution Fix Balance Sheet – Income Statement later Fix Balance Sheet – Income Statement later Balance Sheet Balance Sheet Recognize plan assets less obligation as EFB asset/liability using PBO Recognize plan assets less obligation as EFB asset/liability using PBO No change in measurement No change in measurement Valuation allowance for asset (US-CDN GAAP difference) Valuation allowance for asset (US-CDN GAAP difference) Potentially significant impact on financial ratios, debt covenants Potentially significant impact on financial ratios, debt covenants

Pension Plans and Enterprise Risk Management Corporate Pensions — An Accounting Perspective Canadian ED Income Statement Income Statement Benefit cost and net income unchanged from current Section 3461 Benefit cost and net income unchanged from current Section 3461 Smoothing aspects remain unchanged (amortization of actuarial gains/losses, corridor etc) Smoothing aspects remain unchanged (amortization of actuarial gains/losses, corridor etc) Not consistent with balance sheet asset/liability, which does not include smoothing Not consistent with balance sheet asset/liability, which does not include smoothing

Pension Plans and Enterprise Risk Management Corporate Pensions — An Accounting Perspective Canadian ED Other Comprehensive Income (OCI) Other Comprehensive Income (OCI) Holding tank to balance the debits and credits Holding tank to balance the debits and credits Current year actuarial gains/losses, past service costs included in OCI Current year actuarial gains/losses, past service costs included in OCI Amounts in accumulated OCI are amortized to net income (identical to current amortization of unrecognized amounts) Amounts in accumulated OCI are amortized to net income (identical to current amortization of unrecognized amounts) Accumulated OCI includes actuarial gains/losses, past service costs, transition balance not yet amortized to net income Accumulated OCI includes actuarial gains/losses, past service costs, transition balance not yet amortized to net income

Pension Plans and Enterprise Risk Management Corporate Pensions — An Accounting Perspective Canadian ED Measurement date Measurement date Currently can measure plan assets and obligation up to 3 months prior to year end Currently can measure plan assets and obligation up to 3 months prior to year end New requirement – measure at year end New requirement – measure at year end Tightens timeline for annual reporting Tightens timeline for annual reporting

Pension Plans and Enterprise Risk Management Corporate Pensions — An Accounting Perspective Canadian ED Presentation Presentation Asset (overfunded plans) and Liability (underfunded plans) separate Asset (overfunded plans) and Liability (underfunded plans) separate Current liability – payments in next 12 months exceed assets (by plan) Current liability – payments in next 12 months exceed assets (by plan) Disclosure Disclosure Amounts in OCI and accumulated OCI Amounts in OCI and accumulated OCI Effects of recognition and measurement date provisions on the f/s in year of adoption Effects of recognition and measurement date provisions on the f/s in year of adoption

Pension Plans and Enterprise Risk Management Corporate Pensions — An Accounting Perspective Canadian ED Effective date Effective date Recognition 2007 (FASB 2006) Recognition 2007 (FASB 2006) Measurement date 2008 Measurement date 2008 Private company deferral Private company deferral Transition Transition Not retrospective Not retrospective Recognition: Adjust current year accumulated OCI Recognition: Adjust current year accumulated OCI Measurement date: stub period to retained earnings Measurement date: stub period to retained earnings