Canadian Lawyer InHouse

Companies seek pension relief Air Canada is not alone in seeking relief from hefty catch up payments. A group of six Canadian companies — which include telcos, railways, and some former Crown corporations — have long lobbied the federal government for greater solvency relief including the way calculations are made to assess pension solvency and an extension in the amount of time companies can fund their deficits. Michel Benoit, a lawyer at Osler Hoskin & Harcourt LLP who has worked with them, says, "They didn't get what they wanted. It's a dead issue right now." Canada is at a competitive disadvantage on that front. The U.S. recently modified its rules to allow a 25-year average for calculating the discount rate, rather than confining it to the past few years, which has been artificially low and leads to higher pension obligations. Some European countries are doing the same as the U.S. Companies seem to have more luck seeking relief from provincial regulators. For example, in Ontario employers can seek to spread deficit funding out over 10 years if employees agree, so a number of companies have recently sought co-operation of their unions to take advantage of that. Some have been successful, others haven't. Plan design needs to change The second primary issue driving deficits is age. Many plans were designed three or four decades ago, when the life span of Canadians was much shorter than it is today. The only way around this is to address the structure of the plan and that could mean hiking retirement ages or looking to move to a DC plan. "Like other companies have done, we are The obligation is one that requires lawyers at the board level to be very diligent in making sure that all the steps are taken so that — especially in a deficiency or insolvency environment — if you should, God forbid, run out of money, no one can go back and say you are negligent. Yves Desjardins-Siciliano, VIA Rail going to look at changing the design of the plan," which could mean moving to some type of hybrid plan or a defined contribution plan, says VIA's Desjardins-Siciliano. "We are looking at re-designing the plan for new employees going forward in a way that not only preserves or makes it more financially viable, but reflects the reality of the new workforce." He notes that while VIA has many employees with 35 or 40 years of service, the average tenure at a Canadian company today is between four to seven years and a defined-benefit plan doesn't have the draw it did when they were set up in the 1960s and 1970s. In fact, DB plans are declining in the private sector, largely because of the risk they entail. In a November 2012 pre-budget consultation document presented to the Senate of Canada, lobby group Fair Pensions for All points out that 57 per cent of the Canadian workforce is not covered by pensions. Defined-benefit membership coverage is declining in the private sector, dropping to 1.5 million in 2011 from 2.2 million in 2001, while in the public sector it increased over the same period to 2.9 million from 2.3 million. Are DB plans dead? Kennedy, for one, believes in the DB Plan, and says there are "a number of ways of dealing with the solvency issues without throwing the baby out with the bathwater" and moving to a DC plan. She notes states like Rhode Island and provinces like New Brunswick are developing new plans that aim to provide the upside of a DB plan while limiting exposure, known as shared-risk or targeted plans. "I think that's the key. There needs to be shared risk." To address its deficit issue, Teachers' has raised contribution rates and lowered benefits and continues to look for ways to address the deficit and provide sustainable pensions. While studies show DB plans are being BENNETT J. 1/4 page Your lawyer. Your law firm. Your business advisor. BennettJones-2_IH_Apr_13.indd 1 w w w. c a n a d i a n law y er m a g . c o m / i n h o u s E april 13-02-26 10:29 AM 2013 • 25

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