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Canadian Press/Broadcast News Ltd. Submission in Response to Finance Canada's Regulatory Framework for Federally Regulated Defined Benefit Pension Plans consultation:

For Public Release

The Canadian Press/Broadcast News Ltd. Response to a Department of Finance Canada consultation paper,

Strengthening the Legislative and Regulatory Framework for Defined Benefit Pension Plans Registered under the Pension Benefits Standards Act, 1985

(May 2005)

September 2005


The Canadian Press/Broadcast News Ltd. (CP/BN) commends the Department of Finance Canada for reviewing the regulatory framework for defined benefit pension plans. We are hopeful that timely changes will result, providing relief to companies struggling to fulfil their pension promises while continuing to provide competitive services to the marketplace and secure jobs for employees.

The present solvency deficiency in our pension plans has been a financial challenge for the company, and we are seeking long-term solutions. At least part of the problem stems from outdated regulations that lack the flexibility needed for the unusual and prolonged set of financial conditions that have affected many defined benefit plans in Canada. Quebec and New Brunswick have recognized this problem in their own jurisdictions, and have introduced regulatory flexibility. We urge the federal government to move in the same direction, striking a balance between protecting pension plan members and preserving the financial health of the companies that must find the resources to fund these plans.


The Canadian Press/Broadcast News Ltd. is Canada's only national news agency, created in 1917 under a federal charter. It provides news and information services in both official languages to about 100 daily newspapers, 500 broadcast outlets (including the CBC, CTV and Global), government departments and agencies, and many corporations and investment houses. Structured as a not-for-profit co-operative, CP-BN is collectively owned by Canada's daily newspapers, senior representatives of which serve on our Board of Directors.

The company, headquartered in Toronto, has 12 offices and bureaus across the country, as well as a bureau in Washington, D.C., and employs about 350 people. Its primary mission is to report and disseminate news – international, national, regional and local – in a timely and accurate manner throughout Canada. Our news reports form the backbone of news distribution throughout the country. From Vancouver Island to St. John's, N.L., much of the news that is read on the air or published in newspapers can be traced back to the work of our journalists.

Early in our history, the company relied primarily on annual newspaper fees for operating funds; increasingly, commercial ventures have helped reduce the reliance on newspaper fees, though the company remains a not-for-profit enterprise and strives to produce a break-even budget each year.

The company has two defined benefit pension plans, one for bargaining-unit members represented by the Canadian Media Guild (The Canadian Press/Broadcast News Ltd. Pension Plan for Employees Represented by the Canadian Media Guild: OSFI Registration #56945; CRA Registration #1031848); and the other for employees excluded from the bargaining unit, most of them managers and supervisors (Pension Plan of The Canadian Press and Broadcast News Ltd.: OSFI Registration #56457; CRA Registration #0237537).

The Guild plan, with 409 members (258 active), has assets of about $37 million. The Excluded plan, with 120 members (63 active), has assets of about $16 million. The assets of each plan are invested in exactly the same pension funds in the same proportions, and members of both plans enjoy exactly the same benefits. Members pay a fixed amount of salary into the plans, while the company makes up the remaining required funding, as determined by an actuary. The plans have generous early-retirement provisions but lack any mechanism to provide inflation protection.

The Guild plan is overseen by a four-person Board of Trustees: two representatives of the Canadian Media Guild and two company representatives. The Excluded plan is overseen by the Board of Directors, which has delegated many functions to a three-person Pension Advisory Committee. The committee includes one member from the Excluded staff and two company representatives.

The level of co-operation and consultation between the company and representatives of the two plans is high. The Board of Trustees and the Pension Advisory Committee meet jointly several times a year, and have adopted common policies and procedures, not the least of which have been decisions to place the plans' assets with the same fund managers. The company and the Canadian Media Guild work closely together on pension and many other matters. Some of the points made in this submission are supported by the Guild in its own submission, and each side has shared drafts of these statements with the other. The Board of Trustees, the Pension Advisory Committee, the company and the Guild are involved in a joint process to implement plan design changes, and have worked closely with the Office of the Superintendent of Financial Institutions (OSFI) to resolve problems with the plans.

The Problem

Since the beginning of 2003, our plans have experienced growing solvency deficiencies, the primary cause of which has been an unprecedented period of low long-term interest rates. It is important to note that the returns on the CP-BN pension assets – which are invested conservatively in diverse balanced funds – have met industry benchmarks. It is the continuing low interest rate environment that has caused solvency deficiencies. Thus, a regulatory regime designed to ensure financial security for employees in the long term is hurting financial security in the short term. It has become clear that well-intended pension rules are inappropriate for some firms in some economic conditions.

Indeed, the federal regulator recognizes that the current solvency deficiency funding requirements create burdens for employers generally, and in particular for those in financial difficulty. The Regulatory Impact Analysis Statement, which accompanies the publication of the Air Canada Regulations in the Canada Gazette, states as follows:

"While the regulatory change only deals with the situation at Air Canada, the Minister of Finance has asked the Department of Finance and OSFI to bring forward proposals to apply this type of funding flexibility more broadly to other companies under the protection of the CCAA of Part II of the Bankruptcy and Insolvency Act (BIA). While the implications of providing any form of funding relief need to be considered carefully, there is merit in a regulation extending the period of funding to enable such companies to manage their pension funding requirements. Similar forms of relief are available in other jurisdictions, including the United States and the United Kingdom."

The case for funding flexibility for all is as or more compelling than the case for funding flexibility for financially troubled companies. Indeed, such funding flexibility is arguably even more necessary before a corporation's financial difficulties create an insolvency situation. Such flexibility supports long-term viability and should be available at any time, subject to the appropriate criteria being met.


The Department of Finance consultation paper raises many important issues. This response will address those issues most relevant to The Canadian Press/Broadcast News Ltd. as a not-for-profit company, primarily those surrounding funding.

Letters of credit

The consultation paper asks whether letters of credit might allow for greater funding flexibility to resolve solvency deficiencies.

Our company has explored this potential option in discussions with a financial institution and with OSFI over the last two years. We concluded it has limited appeal for not-for-profit organizations. Banks considering whether to provide a letter of credit require a pledge of collateral. CP-BN has no significant physical assets it can provide for this purpose, and currently has limited cash reserves to offer as collateral. Indeed, as a not-for-profit, the organization is restricted by the Income Tax Act in the amount of retained earnings it can accumulate. Even in economically buoyant years, the company cannot set aside large amounts of cash. A letter of credit would therefore have an upper limit that might not address pension shortfalls, and might not be available at all if cash reserves happened to be low in any particular year. The company would prefer a solution available to it at all times. On the other hand, for-profit companies have retained earnings and could use them to back letters of credit. We recognize that letters of credit reduce risk for plan members.

Extending solvency funding period to 10 years

The consultation paper asks whether the five-year amortization period for making up solvency deficiencies should be extended to 10 years or more.

As noted, Quebec, New Brunswick and Nova Scotia (with respect to pre-2006 solvency deficiencies in university plans in that province) have recently allowed longer amortization periods, with certain restrictions, in recognition of the severe hardship created for some companies by the low interest-rate environment. (This regulatory relaxation – available to viable companies – goes beyond that offered specially to federally regulated Air Canada, which was in bankruptcy protection. In this regard we would also note the 15-year amortization period granted under the Ontario Pension Benefits Act to Algoma Steel when it emerged from insolvency protection in 2002. )

We believe an extended amortization would be a reasonable approach to take in the not-for-profit sector, where financial resources are constrained and letters of credit not always available. A 10-year amortization period, together with the consolidation of the existing solvency deficiencies into a single deficiency to be funded over 10 years, would make a material difference to our current circumstances, and would allow for more prudent financial planning and pension management. To protect plan members, restrictions could be imposed such as denying this option to those not-for-profits for which annual pension payments remain within an affordable historic range.

In summary, we are suggesting that there be two remedies available to companies, and that access to either remedy be subject to conditions or tests. Not-for-profits should have access to an extended amortization period, while for-profits should have access to letters of credit. There is a risk that the not-for-profit sector, which has the most difficulty meeting pension deficit amortization obligations, would be ignored and severely impacted if the only change approved was to allow letters of credit to guarantee solvency shortfalls. We strongly urge the government to allow an extended amortization for not-for-profit companies in difficult financial circumstances.

Surpluses - Deficits

The consultation paper raises issues surrounding surpluses.

The company believes that uncertainty over control of funding surpluses, which has been aggravated by the 2004 Monsanto court decision, does indeed create disincentives to building robust financial cushions in pension plans. An increase in the current surplus limit of 10 per cent, in conjunction with clearer rules on surplus control, would go a long way to encouraging the build-up of pension plan reserves to help weather the next set of adverse economic conditions. To this end, companies should be encouraged or even required to negotiate clear risk-reward mechanisms that spell out how surpluses and deficits are to be shared among all parties. The Canadian Press/Broadcast News is currently engaged in a process intended to negotiate such a mechanism with representatives of plan members, and believes such bargaining should not be constrained by "classic trust" principles that have been endorsed by some courts reviewing pension surplus cases.

Void Amendments

The consultation paper asks whether plan sponsors should be permitted to make benefit improvements even if the plans are underfunded.

We believe that no improvements should be permitted in any plan that is less than 100 per cent funded, whether on a going-concern or solvency basis.

Disclosure of funding information

The consultation paper asks about better disclosure of financial information to plan members.

The Canadian Press/Broadcast News is engaged in competitive businesses, notwithstanding its status as a not-for-profit organization. We compete in the marketplace with other news agencies, such as Reuters, and with other information providers as we seek to provide services to websites, television networks, cell phone operators and others. Most of the company's financial information is therefore considered commercially sensitive, and is consistently kept confidential. At the same time, we believe in the fullest possible disclosure to the Canadian Media Guild, which has been our close partner in company operations, and to managers and supervisors. Management of pension plans should, of course, be as transparent as possible to plan members and we continually strive to improve communications. On the other hand, sensitive commercial information must be protected and so we have developed a protocol in which such information is shared in confidence with officers of the Canadian Media Guild, including with their delegates to the Board of Trustees for the bargaining unit pension plan; and with the representative of plan members on the Pension Advisory Committee for the excluded employees plan. This approach balances the need to share information with the need to protect the company's position in the marketplace. Notwithstanding commercial confidentiality, the company supports the fullest reasonable disclosure of relevant financial information to pension plan members and to their representatives, and has been proactively disseminating such information on a continuing basis.

Pension Benefit Guarantee Fund

The consultation paper asks whether the federal government should establish a fund to guarantee benefits to pension plan members.

We believe that this proposal requires far more study, and should not be part of any short-or mid-term measures to reform the federal regulatory system.

Equitable tax treatment

We would like to raise a pension issue not discussed in the consultation paper that has a direct impact on employees preparing for their retirement. While this is outside the specific request for submissions and relates to the Income Tax Act rather than the Pension Benefits Standards Act, we believe it would increase fairness within the pension system.

As stated above, our two plans currently have no mechanisms to match increases in the cost of living. They are career-average rather than final-average plans, so that pension entitlements are based on salary amounts that can easily be eroded by inflation. In addition, there is no plan provision to protect benefits of existing retirees from cost-of-living increases. Rather, the Board of Trustees and Pension Advisory Committee attempt to provide limited inflation protection through ad hoc adjustments whenever the plans are in surplus. Needless to say, there have been no such ad hoc adjustments for several years as the plans experienced solvency deficiencies.

We have recently been advised by our pension consultants, Mercer Human Resource Consulting, that our plans are not tax efficient. The current tax regime calculates employees' pension adjustment amounts, or PAs, as if their company pension entitlement was fully indexed to protect against inflation. As a result, most of our employees have little RRSP room each year, just $600 in the vast majority of cases. Mercer advises that if the PA amount were recalculated based on the reality of our non-indexed plans, most employees would gain several thousand dollars in RRSP room. Thus, existing tax rules provide the same RRSP room to employees with no pension indexation benefits as it does to employees with full indexation (including most of those in the public sector). This is patently unfair, and discourages our employees from building personal savings that could help mitigate the lack of inflation protection in their company pensions. We believe the regulations should be changed.

The Canadian Press/Broadcast News appreciates this opportunity to participate in discussions about the future of the federal pension regulatory system, and will be happy to provide further comment as required.