Boilermakers Pension Plan

Boilermakers Pension Plan

Common Sense Legislation

Gone Wrong

“Solvency Funding”

Boilermakers Pension Plan

Pension Plans are Regulated by Either Provincial or Federal Government Bodies

Lodge 359’s Pension Plan is Regulated by the Province of British Columbia Under

the Pension Benefits Standards Act (PBSA)

Boilermakers Pension Plan

The Boilermakers Pension Plan is a “Specified Multi Employer Pension Plan”

(SMEPP)

Sudden “Wind Up” of a SMEPP is Very Unlikely Compared to a “Single

Employer” Sponsored Defined Benefit Pension Plan

Boilermakers Pension Plan

Because of the Low Probability of a “SMEPP” Winding Up, the Regulators

Requirement for Solvency Funding for a Hypothetical Situation at a Past Point in Time are Being Questioned by Many in

the Pension Industry

Boilermakers Pension Plan

Pension Plan Actuarial Valuations Must be Performed at Least Once Every 3 Years

and Filed With the Regulatory Body (FICOM)

Regulations Require Actuarial Valuations to be Performed on Both a “Going Concern”

and “Solvency” Basis for all Types of Registered Pension Plans

Boilermakers Pension Plan

The “Going Concern” Valuation is Performed Assuming the Plan Will

Continue Indefinitely

The “Solvency” Valuation is Performed Assuming the Plan Will Wind Up at the

Valuation Date

Boilermakers Pension Plan

Government Regulations Allow Some Latitude for “Going Concern” Assumption

Rates

Government Regulations Prescribe that Assumption Rates Used for Solvency Valuations are as per the Canadian

Institute of Actuaries Standards

“Long Term Bonds”

Boilermakers Pension Plan

Interest Rate Assumptions for the December 31, 2005 Valuation

“Going Concern” – 7.0%

“Solvency” – 4.5% for 10 Years5.0% Thereafter

Boilermakers Pension Plan

Actuarial Valuation Comparison ChartYear 1999 2002 2005

Going Concern Unfunded Liability

0 $31,840,558 $3,108,058

SolvencyLiability

0 $44,983,322 $48,625,190

CurrentService Cost

$5.16 $5.40 $5.23

Long TermBond Rates

6.23% 5.42% 4.02%

Boilermakers Pension Plan

Solvency Liability vs. Going Concern Liability

$45,517,132.00“Hypothetical Money”

Extra Money Necessary to Maintain Current Benefits at “Long Term Bond Rates”

This “Hypothetical Money” Must not be Used for Benefit Improvements

Boilermakers Pension Plan

30 Year Historical Investment Returns

-10

-5

0

5

10

15

20

25

1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004

Year

Per

cen

tag

e

Boilermakers Pension Plan

30 Year Long Bond Rates

-10

-5

0

5

10

15

20

25

1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004

Year

Per

cen

tag

e

Boilermakers Pension Plan

30 Year Historical Rates Comparison ChartInvestment Returns Long Bonds

-10

-5

0

5

10

15

20

25

1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004

Year

Per

cen

tag

e

Boilermakers Pension Plan

Comparing Average Annual Rates of Return

Period of Years Plan’s Interest Rate

Long Term Bonds

3 Years 2003 - 2005 12.10% 4.71%

5 Years 2001 - 2005 5.72% 5.05%

10 Years 1996 - 2005 8.28% 5.53%

15 Years 1991 - 2005 8.89% 6.44%

20 Years 1986 - 2005 9.27% 7.28%

25 Years 1981 - 2005 10.33% 7.67%

30 Years 1976 - 2005 10.15% 8.37%

Boilermakers Pension Plan

Trustee’s Options to Address the Going Concern Funding Deficiency of the

Plan’s December 31, 2005 Actuarial Valuation

Were;

1. Change the “85” Rule to a “90” Rule2. Go Forward Benefit Reduction3. Hourly Contribution Increase

Boilermakers Pension Plan

For the December 31, 2005 Actuarial Valuation the Trustee’s Have Asked the FIC to Grant “Solvency Funding Relief”

“Solvency Relief” is Sought in Order to Give the Trustees and the Membership Time to Lobby for Solvency Regulation Changes

to Avoid Further Benefit Reductions

Boilermakers Pension Plan

Lobbying Efforts to Change Solvency Valuation Requirements for “SMEPP’s” are Currently Under Way in Ontario by

MEBCO

“MEBCO” Multi-Employer Benefit Plan Council of

Canada

Boilermakers Pension Plan

The Alberta Government Currently has a 3 Year Moratorium on Solvency

Requirements for Multi Employer Pension Plans

This Time Period is Supposedly Going to be Used to Study the Effect on Possible

Policy Change

Boilermakers Pension Plan

Types of Lobbying to Change British Columbia Solvency Funding Regulations

Members to Lobby the Minister of FinanceMembers to Lobby Their Local MLA’s

Members Mailing of Form LettersMembers Signing Petitions

The Honourable Carole TaylorMinister of FinancePO Box 9048 Stn Prov GovtVictoria, B.C. V8W 9E2

Dear Minister Taylor,

Pension Plan Solvency Rules Must be Changed

There is a glaring defect in British Columbia’s pension funding rules that is jeopardizing the pensions of thousands of British Columbians. The undersigned are the Chairs of the boards of trustees of pension plans which collectively provide pensions to British Columbians, and are writing to urge you to take urgent action on this issue.

The problem is the “solvency rules” applicable to multi-employer pension plans (MEPPs). The sponsor of every British Columbia pension plan is required by the Pension Benefits Standards Act (PBSA) to regularly demonstrate to the Superintendent of Pensions that over the long term the contributions to that plan are sufficient to pay the promised pensions. No one questions the appropriateness of these “going concern” funding rules.

The problem is with “solvency” funding rules, which are designed for single employer plans, and are intended to protect members of those plans from the insolvency of the sponsoring employer. The solvency rules require that a plan sponsor show that if their pension plan was wound up, there would be enough money available to buy annuities that would replace all of the pensions payable under the plan.

When the financial health of a pension plan is linked to the financial health of a single employer, the solvency rules make sense. However, a MEPP and its financial health is not tied to the financial health of a single employer. Therefore, applying the solvency rules to a MEPP protects it from a risk it does not face.

Because “solvency” liabilities must be calculated using long term bond rates, solvency liabilities are usually much larger than “going concern” liabilities, which are calculated using the rates of return that would be realized on a diversified portfolio. To make matters worse, solvency deficiencies in a plan must be made up in 5 years, whereas going concern deficiencies can be amortized over 15 years

In British Columbia, many MEPPs are considered fully funded on a going concern basis, but are considered to have a deficit on a solvency basis. Most MEPPs are established under a collective agreement, and the board of trustees of a MEPP can only recommend to the bargaining parties an increase to the contributions to address a solvency deficiency. Rather, in many cases the trustees have been forced to cut benefits to eliminate a solvency deficiency even though the plan is fully funded on a going concern basis, and there is no risk that the plan will have to be wound up because of an employer’s insolvency. In other words, pensioners and working members are being penalized so that their pension plan can comply with a funding rule that has only theoretical application to their plan.

These concerns are well known to the Superintendent of Pensions and his colleagues at the Financial Institutions Commission (FICOM). However, the Superintendent must administer the PBSA in its current form.

Legislators in other Canadian jurisdictions (Quebec, Nova Scotia, New Brunswick and the Federal jurisdiction) have recognized the inappropriateness of applying the solvency rules to MEPPs, and have introduced changes to them. The most decisive action to date has been taken by the Government of Alberta, which recently declared a three year moratorium on forcing MEPPs to comply with the solvency rules, subject to certain conditions.

We urge you to take the step taken in Alberta. We also strongly urge you to go one step further and amend the PBSA so that trustees of MEPPs no longer have to cut benefits if a MEPP is fully funded on a going concern basis.

Representatives of the undersigned would be pleased to meet with you and your advisors to discuss our concerns and proposals more fully.We urge you to act quickly to address this urgent matter.

Yours truly,

_______________________

Carl Ellsworth, ChairBoard of Trustees of the Boilermakers Pension PlanBurnaby, British Columbia

Boilermakers Pension Plan

The Ultimate Solution to Funding