Grain Services Union ILWU Canada

October 17, 2006 11:48 ET

Saskatchewan Wheat Pool’s pension offer rejected by union

At a meeting with Saskatchewan Wheat Pool (TSX: SWP), members of the Grain Services Union’s pension bargaining team turned down the company’s latest offer to settle their 27-month-old pension

Attention: Agriculture Editor, Assignment Editor, Business/Financial Editor, News Editor, Government/Political Affairs Editor REGINA, SASK. MEDIA ADVISORY--(CCNMatthews - Oct. 17, 2006) - Saskatchewan Wheat Pool's pension offer rejected by union

REGINA - At a meeting with Saskatchewan Wheat Pool (TSX: SWP), members of the Grain Services Union's pension bargaining team turned down the company's latest offer to settle their 27-month-old pension dispute.

On Sept. 20, the Pool's pension negotiators proposed to wind up the SWP/GSU defined benefit pension plan, which reported a solvency deficiency of $38.8 million as of Dec. 1, 2005, "as soon as legally possible." In return, Pool offered to pay a one-time lump sum to the pension plan equal to 50 percent of the deficiency up to a maximum of $20 million. The proposal would leave 600 employees and approximately 1,400 retired employees and other members of the pension plan responsible for the rest of the losses.

"GSU's executive board weighed the interests of all plan members and came to the inescapable conclusion that the Pool's final offer would severely affect the pension benefits of too many members," said GSU general secretary Hugh Wagner. "The lack of clarity or assurance as to what the 'final offer' actually ends up meaning for plan members - other than a loss of retirement income - ultimately led the board to unanimously to reject SWP's final offer and decided not to take it to the plan members for a vote."

The plan's actuarial report made last December recommended the pension deficiency be resolved by a series of solvency payments. However, Saskatchewan Wheat Pool has not made any solvency payments and insists the $20 million lump sum payment and plan termination is as far as it is willing to go.

The apparent deadlock may end up court unless it can be broken by the Office of the Superintendent of Financial Institutions Canada (OSFI), the regulatory body responsible for pension plans in Canada. In March, the manager of OSFI's private pension plans division wrote to SWP/GSU pension trustees regarding the financial obligations of the SWP/GSU plan:

"Section 9 of the PBSA, 1985 requires that all pension plans must provide for funding in accordance with the prescribed tests and standards for solvency, that is adequate to provide for payment of all pension benefits and other benefits required to be paid under the terms of the plan. In respect of a defined benefit pension plan, in general, the funding regulations require that payments be made to cover the normal cost of the plan and that special payments be made to fund a solvency deficiency based on a five year amortization schedule and a going concern unfunded liability based on a fifteen year amortization schedule.
The scheme of the PBSA (Pension Benefits Standards Act), 1985, including section 9, the definition of "pension plan" and section 8 of the PBSA, 1985, is consistent with the interpretation that it is the employer who is responsible for making payments covering the normal cost and all special payments.
The PBSA, 1985 does not provide different funding requirements for a negotiated contribution defined benefit pension plan. In respect of such plans, the employer is responsible for making special and normal cost payments to the pension fund. The amount of such payments may be reduced where the solvency deficiency or going concern unfunded liability is reduced due to an amendment to the plan that reduces future or accrued pension benefits, the latter being void unless authorized by the Superintendent.
However, in the absence of such an amendment being made to the plan, the employer must make the required special and normal cost payments to the plan.
It is OSFI's mandate to administer the PBSA, 1985, in particular the funding requirements under the PBSA, 1985. In doing so, OSFI strives to protect the interests of the members and other beneficiaries of the plan."
- Philippe Morisset, Manager of OSFI's Private Pension Plans Division

Despite the OSFI finding, Saskatchewan Wheat Pool continues to fight against accepting full responsibility for the pension deficit.

"Pool employees gave up $7.1 in pension surpluses to the Pool when the company was facing financial challenges," said GSU president Michael Raine. "The company was happy to claim pension surpluses, but denies responsibility for deficits."

"SWP boasts a healthy balance sheet and GSU members have sacrificed mightily to bring this company to its present good state. The company's final offer does not do justice to the current work force nor to the retirees and other plan members who preceded them," said Wagner.

The union hopes to return to the bargaining table to hammer out an agreement that would see the current plan suspended and a new defined contribution pension plan put in place for current employees. The union's proposal would require the company to fully fund the solvency deficiency and agree to keep the plan intact in the future before the plan could be suspended.

"We will take this fight as far as we need to in order to preserve the pensions of our members," said Wagner.

Saskatchewan Wheat Pool was rated fifth for the past two years on Saskatchewan Business Magazine's list of top-grossing Saskatchewan companies. In its fourth quarter report, the Pool reported consolidated EBITDA of $48.6 million versus $44.2 million for 2005, an improvement of 10 percent. Sales and other revenues for the year ending July 31, 2006 were $1.58 billion compared to $1.39 billion at fiscal year end 2005.

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For more information, contact:
Hugh Wagner, General Secretary Grain Services Union 306-522-6686
Michael Raine, President, Grain Services Union 306-341-4213

Visit the website: www.gsu.ca

Background: How the SWP/GSU defined-benefit pension plan got into trouble

* The SWP/GSU defined-benefit pension plan was established Jan. 1, 1981. Registered under the Pension Benefit Standards Act of Canada (PBSA 1985), it is regulated by the Office of the Superintendent of Financial Institutions Canada (OSFI).

* These numbers are from solvency valuations compiled by the plan's actuary as of Dec. 31 of each year.

1999:
Plan assets: $282 million.
Plan liabilities: $233.4 million.
Solvency surplus: $48.6 million.
1,772 active, 240 inactive, 851 retired.

2000:
Plan assets: $288 million.
Plan liabilities: $258 million.
Solvency surplus: $30 million.
1,612 active, 296 inactive, 877 retired.

2001:
Plan assets: $259.5 million.
Plan liabilities: $261.3 million.
Solvency deficiency: $1.8 million.
973 active, 659 inactive, 914 retired.

2002:
Plan assets: $244.7 million.
Plan liabilities: $235.4 million.
Solvency surplus*: $2.4 million.
820 active, 643 inactive, 933 retired.

*In April 2004, pension trustees were advised of an error in the 2002 valuation which reduced the December 31, 2002, solvency surplus by $6.9 million to $2.4 million.

2003
Plan assets: $234.1 million.
Plan liabilities: $248 million.
Solvency deficiency: $13.9 million.
652 active, 511 inactive, 948 retired.

* By the end of 2004, the solvency deficiency had climbed to $20.5 million and by Dec. 31, 2005, the deficiency reached $38.8 million.
The Titanic hits the iceberg

* From the end of 1999 to the beginning of 2006, the plan lost 1,172 contributing members, largely due to restructuring and assets sales by SWP. The number of inactive (non-contributing) members grew to 400 and the number of pensioners climbed to 948. Additionally, more than 900 members quit the plan, transferring out more than $45 million with them.

* Effective May 1, 2001, the SWP/GSU plan was closed to new members, cementing its long-term instability.

* Low and declining long-term bond rates have steadily pushed up the cost of defined benefit pension plans' actuarial liabilities. A 100-basis-point decline in bond rates (1%) increases a defined benefit pension plan's liabilities by 12%.

Taking on water

* In early 2003, the solvency deficiency was brought to the attention of the plan's trustees. On the advice of the actuary, the trustees adopted a "smoothing adjustment," eliminating an $8.9 million solvency deficiency in favour of a $9.3 million solvency surplus. Equity markets recovered in 2003 and the plan generated excellent returns.

* Long-term interest rates continued to slide and push plan liabilities higher. Additionally, the actuary reported a 'computer error' which caused an understatement of the plan's liabilities in 2002 by more than $10 million. The net result was a $13.9 million solvency deficiency by Dec. 31, 2003.

Bargaining begins

* Since the solvency issues were identified, GSU has been trying to bargain a solution with Pool that equitably respects the interests of all members. At the same time, the union has opposed any further measures to reduce pension benefits.

* On Jan. 25, 2006, the plan's actuary estimated the solvency deficiency to be $43.6 million as of Dec. 31, 2005.

* On Jan. 31, 2006, SWP sent plan members a letter telling them the outcome of this problem is in the hands of the trustees and/or the Federal Pension regulator, OSFI.

* SWP/GSU Plan trustees notified the company and the union that they had until April 30, 2006, to bargain a solution to the solvency deficiency. OSFI advised the trustees that an 'action plan' was expected by April 30.

* During bargaining, SWP offered $7.3 million toward funding the deficiency. If accepted, the remaining shortfall would come from plan members through reduced benefits, reduced early retirement options, pension reductions for retirees, and a wind-up of the plan.

* GSU proposed to suspend the plan (as opposed to winding it up) and to remove some liabilities by transferring them from the plan to collective agreement protections for active employees in a 'smoothing exercise.' GSU also offered to join with the Pool in petitioning for relaxation of the PBSA solvency rules to make it easier for the company to backstop the SWP/GSU Plan. SWP rebuffed all of GSU's proposals.

Canadian pension law

* This is what the Pension Benefit Standards Act says about insolvency on wind-up (Section 29(6)):

"On the termination of the whole of a pension plan, the employer shall pay into the plan all amounts that would otherwise have been required to be paid to meet the prescribed tests and standards for solvency referred to in subsection 9(1) and, without limiting the generality of the foregoing, the employer shall pay into the plan
(a) an amount equal to the aggregate of
(i) the normal actuarial costs, and
(ii) any prescribed special payments that have accrued to the date of termination; and
(b) all
(i) amounts deducted by the employer from members' remuneration, and
(ii) other amounts due to the pension fund from the employer that have not been remitted to the pension fund at the date of termination."
* In addition, Section 9(4) of the Pension Benefits Standards Regulations, 1985, SOR/87-19 states:
"A solvency deficiency of a plan emerging after December 31, 1986 shall be funded by special payments sufficient to liquidate the solvency deficiency by equal annual payments over a period not exceeding five years from the date on which the solvency deficiency emerged."

2005: OSFI, Harper weigh in

* According to PBSA 1985, steps must be taken to eliminate a solvency deficiency over a period of no more than five years.

* On Sept. 22, 2005, OSFI ordered transfers out of the plan restricted to 80 per cent of the member's entitlement to prevent further impairment of the plan's solvency.

* On September 30, 2005, the plan's actuary provided a solvency estimate showing a deficiency of $49.6 million. The $29.1 million jump in the solvency deficiency over a period of nine months was caused by the introduction of new commuted value standards effective Feb. 1, 2005, and a 75-basis-point decline in long-term interest rates.

* GSU conducted letter writing and postcard campaigns throughout 2005 seeking the support of federal political leaders. On Aug. 26, 2005, GSU received this letter from the Office of the Leader of the Opposition, Hon. Stephen Harper.

"Dear Mr. Wagner:
On behalf of Stephen Harper, thank you for your letter and enclosures. Rest assured that your comments and concerns regarding your Saskatchewan Wheat Pool/Grain Services Union Pension Plan have been noted and brought to Mr. Harper's attention.
As you know, defined benefit plans typically guarantee a specific level of pension benefits, based on a predetermined formula and reflecting the number of years of service, a percentage of earnings, or both. In defined benefit plans, the employer, not the employee, bears most of the risk since a fixed benefit is guaranteed. Contributions must be made as determined by an actuary and set out in an actuarial report.
As we understand it, the Saskatchewan Wheat Pool/Grain Services Union Pension Plan will undergo an actuarial review in December 2005. At this point, should the actuarial review indicate that the pension plan is insufficiently funded, then the employer will be required to make contributions to the pension fund until the deficiency is eliminated.
I wish you and your Union the best of luck in resolving this issue.
Sincerely,
Salpie Stepanian
Assistant to the Leader"

2006: OSFI renders a decision

* In March, 2006, the manager of OSFI's private pension plans division wrote to SWP/GSU pension trustees regarding the financial obligations of the SWP/GSU plan:
"The PBSA, 1985 does not provide different funding requirements for a negotiated contribution defined benefit pension plan. In respect of such plans, the employer is responsible for making special and normal cost payments to the pension fund." - Philippe Morisset, Manager of OSFI's Private Pension Plans Division
SWP presents a 'final offer'

* On Sept. 20, 2006 the Pool proposed to wind up the plan, which by Dec. 31, 2005, reported a solvency deficiency of $38.8 million "as soon as legally possible." In return, Pool offered a one-time lump sum pament to the pension plan equal to 50 percent of the deficiency to a maximum of $20 million. The proposal would leave 600 employees and approximately 1,400 retired employees and other members of the pension plan responsible for the rest of the losses.

What happens next?
* GSU will continue to press OSFI and the federal government to honor the interpretation of the Pension Benefits Standards Act. With the assistance of legal counsel, GSU is considering additional measures.

Snapshots of Saskatchewan Wheat Pool and its defined-benefit pension plan

Saskatchewan Wheat Pool's employee base peaked in 1997 when the company, with then-CEO Don Loewen at the helm, embarked on "Project Horizon," an ambitious expansion plan that soon saw the company grappling with spiraling debts and capital shortages. The company began selling off assets and cutting staff to try to stem its financial losses. In 1999, the pension plan held a surplus of $48.6 million, triggering the federal requirement to dispose of the surplus either by improving pension benefits or through giving the company a pension contribution holiday. The union agreed to the holiday, worth $7.1 million, in an effort to help the company boost its bottom line. On May 1, 2001, the company closed its defined-benefit contribution pension plan to new members, leaving only current working members in a position to contribute to the plan while more and more staff were cut or retired from the plan.

By 2003, the pension plan no longer had the assets on hand to meet the federal solvency test: to be able to pay out the pensions of all members of the plan at any given time. The deficit was pegged at $28 million in April, 2004. The company claimed it had no legal obligation to pay any of the deficit. The Pool's bleak financial situation began to turn around in 2005 when share prices started to climb and sales and revenues rebounded.

Saskatchewan Wheat Pool has moved its position somewhat and now has offered to pay half of the current deficiency (pegged at nearly $39 million) up to a maximum of $20 million. This may be in part to increased sales and revenues since 2003. Pool reported sales and revenues of $1.58 billion in 2006 and share value seems to be holding strong.

Grain Services Union and Saskatchewan Wheat Pool began negotiating to resolve the pension dispute in April, 2004. The two sides have also met with the Office of the Superintendent of Financial Institutions Canada (OSFI), the regulatory body governing all pension plans in Canada.

The two sides remain deadlocked.
/For further information: For more information, contact:
Hugh Wagner, General Secretary Grain Services Union 306-522-6686
Michael Raine, President Grain Services Union 306-341-4213

website: www.gsu.ca/ IN: AGRICULTURE, ECONOMY, FINANCE, LABOUR, POLITICS

Contact Information

  • Mike Raine, President, GSU ILWU Canada
    Primary Phone: 306-341-4213
    Secondary Phone: 306-522-6686
    E-mail: mike.raine@sasktel.net