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Canadian Media Guild's Submission in Response to Finance Canada's Regulatory Framework for Federally Regulated Defined Benefit Pension Plans consultation:
Submission of the Canadian Media Guild in response to the federal Finance Department's consultation paper: Strengthening the Legislative and Regulatory Framework for Defined Benefit Pension Plans Registered under the Pension Benefits Standard Act, 1985
September 13, 2005
The Canadian Media Guild is a national union local that represents employees working at the CBC, The Canadian Press/Broadcast News, Reuters Canada Ltd., TV Ontario, Aboriginal Peoples Television Network, Vision Television and Sun Television (formerly Toronto 1). The majority of CMG's members participate in federally regulated pension plans. They understand the importance of maintaining viable pension plans to ensure a secure retirement.
Although the Canadian Media Guild is involved with several pension plans, our comments in this submission are directed most specifically with respect to the plan for members represented by CMG at The Canadian Press/Broadcast News. (OSFI Registration No. 56945, Revenue Canada No. 1031848)
As have many pension plans in Canada in the last few years, this plan has faced a number of challenges caused by market conditions. The result has been a spiralling solvency deficit that has taxed the ability of the plan sponsor, The Canadian Press, to cover while maintaining spending on operations.
The Guild and its members at CP/BN have worked actively with the employer in an effort to find solutions to the problems we face. We welcome the opportunity to participate in this public consultation on defined benefit plans. And we wish to stress the importance of this review and the need to ensure that it results in concrete action to strengthen the defined benefit pension system in Canada and make certain it has the regulatory tools to continue providing predictable and adequate pensions for retirees.
The Canadian Press/Broadcast News (CP/BN) is a not-for-profit co-operative established in 1917 by federal charter and later an act of Parliament. CP/BN is a core element of the Canadian media infrastructure, owned by members of the Canadian media. As such, there are restrictions on its ability to accumulate capital.
Over the past five years, the solvency funding deficit in the pension plan for Guild employees at CP/BN has ballooned from $180,000 to $4M. It is not unique and we are well aware many other plans are in similar difficulties. However, as a non-profit co-operative, CP/BN has a very limited ability to accumulate capital (profit), nor can it leverage equity to access funds.
CP's revenue is derived from member newspapers and non-member commercial revenue. Revenue from the member/owner newspapers comes from three sources – assessment fees based on circulation, optional services such as CP Online that are purchased separately and CP's picture service. The Canadian Press has a mandate to develop commercial revenue streams to avoid increasing member assessment fees. So, CP is in the unique position of competing in the marketplace against the very newspapers that own it. And, in turn, the member/owner newspapers constantly seek greater costs savings.
While the PBSA is in place precisely to protect pension plan members, the existing requirements to fund the solvency deficit of the plan over five years are in fact threatening the viability of the pension plan by draining money from the budget of the news service. We would not describe CP/BN as financially vulnerable or even financially troubled. In fact, absent the special payments needed to fund the solvency deficit, the Canadian Press/Broadcast News would be in very good financial shape.
Employees of the Canadian Press have recognized the strain on the company caused by these unusual circumstances and this year agreed to give up one week's pay to help ease that strain. But such measures are stopgaps and cannot be relied upon to build the kind of strong foundation that we believe needs to underpin defined benefit pension plans. We believe these remain the best alternative for most working Canadians to ensure a secure and comfortable retirement. Any changes that can be made to preserve defined benefit pension plans are therefore in the interests of all Canadians.
We have only commented on those portions of the discussion paper where we believe we have an opinion to express.
A. Pension Surpluses
There has been much discussion regarding "asymmetry" and the division of risk and rewards. Plan members bear a great deal of risk, because if the plan collapses the workers are left high and dry.
At the Canadian Press/Broadcast News, the sponsor is not the only one responsible for pension deficits. As noted in our introduction, Guild members are clearly sharing in that responsibility by giving back one weeks' pay to help fund the pension solvency deficit, and they have yet to see any wage increase for 2005.
Pension benefits are deferred wages that are in many companies a direct result of contract negotiations. Union members have made choices in those negotiations to improve the pension benefit in lieu of larger pay increases or other contract improvements. If the market has enriched the plan to the point of surplus, it is unfair to allow an employer to claim it deserves the benefit of that enrichment and not the members.
In the present environment, we assume employer contributions are necessary to create a surplus in the plan or beyond the 10 per cent mark. This will not always be the case. Historically, a plan where employee and employer contributions were on par could just have easily had a surplus that exceeded the 10 per cent level.
Yes, 10 per cent is too low to permit a safety cushion that would catch plans which just went through the current turmoil. Increasing that is a good step. But allowing contribution holidays for employees or employers as a way to reduce surpluses is not the best way to reduce whatever excess surplus has been accumulated. Instead, the regulations should encourage the use of surpluses to improve plans in a way that would make them less vulnerable and less likely to require hefty payments to reduce solvency deficits. This would have the twofold benefit of improving the security of pension plan members and reducing the volatility factor for plan sponsors.
However, given the pension landscape in Canada – contributory, non-contributory, multi-employer pension plans – it seems most logical for each plan to work out its own policies and rules with respect to reward sharing. In the absence of any formal sharing agreement the employer should bear the onus of proof to claim its share of any surplus.
i) Dispute Settlement Mechanism For Surplus Distribution
The Guild does not support making changes to the dispute resolution mechanism currently in place.
ii) Distribution of Surplus on Partial Termination
The Canadian Media Guild is more concerned with when and why partial plan termination is allowed. While we believe the current OSFI practice must be upheld, the regulations on termination appear more concerned with the how than the why. It should be an economic necessity forced on the plan and not merely at the direction of the employer.
We believe the maintenance of a pension plan should be the guiding principle and varied only in extreme circumstances. It is in the interests of the plan members and the Canadian taxpayer, who otherwise must support individuals who have not secured their own retirement income, that pension plans continue.
The Canadian Media Guild endorses the call by the ACPM in their paper, Back From the Brink; Securing the Future of Defined Benefit Pension Plans, for every DB plan to have a written funding policy. This policy would be mandated as opposed to regulated, made available to plan members and other interested parties and would be the responsibility of the plan sponsor and trustees. It would set out the funding objectives, contribution strategy and policies for managing funding risks.
i) Letters of Credit
CMG is very cautious about this proposal. Letters of credit could become permanent and may also be used to paper over deeper problems. A letter of credit is not a plan asset and does not strengthen the plan in any way. However, we do not rule out the concept entirely. The Guild would support the use of this vehicle only with restrictions, for example - time limits and for solvency deficit funding only, not going-concern funding. Also, we believe while such vehicles may be appropriate for companies with significant assets and the ability to generate profits, they appear totally inappropriate for non-profit operations such as CP. Clearly, other remedies are needed which are more suited to the special needs of non-profits.
We believe the proposal contained in the ACPM brief (Attachment 1) is an excellent starting point for discussion of changes to the current system.
ii) Extending Solvency Funding Period to 10 Years
This measure in particular seems more suited to the needs of a non-profit co-operative such as The Canadian Press. The Canadian Media Guild supports an extension to the amortization of solvency funding for ten years under certain conditions. Plan sponsors should be required to apply to OSFI for extensions, the solvency funding period should not simply be automatically extended. Applications should be granted to companies who have shown that sincere, good faith efforts to meet their obligations have failed. We do not believe this should be limited to companies in dire financial circumstances. In fact, plan members would appear to be better served if their employer was not required to be on the brink of failure before such measures are employed. But clear protections for plan members must be included in any application for extended solvency funding – downside and upside protection. And, if the plan sponsor's circumstances change for the better and money becomes available to pay down the deficit more quickly, it should be done. Unions, if they are party to the pension plan, must be involved throughout the process.
iv) Disclosing of Funding Information
More information, provided in plain language that can, to the degree possible with such a complex issue, be easily understood by plan members should be encouraged. Plan members must also know if their plan is underfunded and when the Plan sponsor's financial situation is such that its ability to fund or maintain the plan is impaired. This should not be conveyed simply to the Trustees and the union.
C) Void Amendments
CMG believes an 85 per cent solvency ratio is an appropriate threshold. Plans with solvency ratios below 85 per cent should not be permitted to make improvements, since we can see no way to guarantee that offsetting funding can or will be provided when the benefit comes into effect. In these circumstances, plan sponsors and Trustees should be focusing on how to achieve long term stability and security, not improving the plan. We do not believe it is necessary to raise the threshold to 100 per cent, as this could be used as a tool to avoid making improvements that might be affordable and in the interests of all plan members
Establishing a priority scheme on plan termination would likely give comfort to plan members, but CMG believes that if there is to be any reduction in benefit it should be solely as a result of discussions between plan sponsors and plan members, through their union representatives if it is a jointly trusteed plan. An arbitrary system of last goes first does not seem to guarantee that the interests of both current plan members and retirees will necessarily be protected.
D) Full Funding on Plan Termination
We anticipate that employers' submissions will call for no change to funding requirement on plan termination.
CMG strongly supports the position set out in the ACPM paper Back From the Brink. Since the public consultations were held in 2001, we have seen too many cases of employees left with no pension or a mere shadow of what they expected because their plan was underfunded when the employer closed the plant, sold the company or failed entirely. Pension plans must be higher on the list than creditors. And there should be no ability whatsoever for a plan sponsor with sufficient assets to leave a pension plan underfunded upon windup.
If the Government of Canada is serious about this exercise and moves to allow for the use of letters of credit and extending the amortization period for solvency deficit repayments, then the funding requirements for plan terminations must be strengthened. Otherwise workers will continue to be found at the end of the queue, with less than they bargained for.
E) Pension Benefit Guarantee Fund
CMG starts from the premise that it is in the interest of all taxpayers that pension plans be stable and that more be established, so the retirement of Canadians need not become a publicly funded expense to a greater degree than it currently is. Pension benefit guarantee funds are no substitute.
In CMG's view, establishing a fund should be the final piece in the puzzle of defined benefit plans. Such funds are no substitute for stable, well funded pension plans. How such a fund might be created and where the money would come from are of great concern to us. As noted in this consultation paper, only 10% of pension plans in Canada are federally registered – and ten plans hold 63% of the assets. If such a fund were to be created, we believe the money to do so, would, at least initially, have to come from general government revenues.