AC Pilots Pension Funding Relief
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AC Pilots Pension Funding Relief
Just curious if anyone knows when AC will request approval for/obtain approval for pension funding relief beyond 2013 as is suggested will happen. I assume the approval will have to come from both ACPA and the federal government. Any info would be appreciated.
Re: AC Pilots Pension Funding Relief
It is not just a request in respect of the AC pilot pension plan(s). It is all of the AC employee DB pension plans.
The deadline for an approved new agreement or extension is the expiry of the current pension arrangement which is 2014.
Approval will need to come from OSFI, the plan(s) sponsor (AC), the plan(s) members (ACPA/CAW/IAM/CUPE/CALDA), and the plan(s) retirees.
This was all done in 2009 so the template for approval has been set. There is, however, always the possibility of a speed bump along the way.
The deadline for an approved new agreement or extension is the expiry of the current pension arrangement which is 2014.
Approval will need to come from OSFI, the plan(s) sponsor (AC), the plan(s) members (ACPA/CAW/IAM/CUPE/CALDA), and the plan(s) retirees.
This was all done in 2009 so the template for approval has been set. There is, however, always the possibility of a speed bump along the way.
Re: AC Pilots Pension Funding Relief
so there is no language in the AC/ACPA settlement about a pension holiday like there is in the ground handlers/maintenance settlement?
Re: AC Pilots Pension Funding Relief
1. The Company and ACPA shall vigorously support regulations under the Pension Benefits Standards Act, 1985 (the “Special Regulation”) that provide for the funding relief set out below. The Company and ACPA shall cooperate, act diligently, and take all actions required to implement this agreement and obtain enactment of the Special Regulation, including, without limitation, the making of representations to any governmental authority in support of implementation of the agreement and enactment of the Special Regulations.hithere wrote:so there is no language in the AC/ACPA settlement about a pension holiday like there is in the ground handlers/maintenance settlement?
2. In each plan year for the period from January 1, 2014 to December 31, 2023, the aggregate past service contribution in respect of solvency deficits and going concern unfunded liabilities for all Plans combined shall equal the lesser of:
(a) $150 million; and
(b) the maximum past service contribution permitted under the Income Tax Act.
Re: AC Pilots Pension Funding Relief
Deleted
Last edited by flatface on Fri May 30, 2014 11:31 am, edited 1 time in total.
Re: AC Pilots Pension Funding Relief
If there is plan solvency recovery, then the LOU becomes moot. The LOU does not solve the pension deficiency, it simply defers dealing with it on current regulatory terms in hopes that the problem will solve itself when interest rates rise. In the meantime, it is probably the only thing that will keep the doors open otherwise 2014 is 2003 all over again minus any assets to sell to attract new investors. The AC pension plans will not survive another AC CCAA filing so it leaves the members/retirees with little choice but to support the relief sought.
Re: AC Pilots Pension Funding Relief
Ottawa shrugs off pleas for pension fund relief amid massive shortfalls
Louise Egan and Susan Taylor, Reuters | Aug 6, 2012 11:59 AM ET | Last Updated: Aug 6, 2012 12:42 PM ET
More from Reuters
Reuters/Blair Gable
Reuters/Blair Gable
Finance Minister Jim Flaherty and the federal government are taking a more hands-off stance than U.S. President Barack Obama, who signed a bill last month that changes how companies calculate what they must contribute to their pension funds, effectively allowing them to pay less.
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OTTAWA/TORONTO — Canada is taking a different tack than Washington on the thorny issue of helping companies fund their widening pension gaps, shrugging off corporate pleas for relief even as the United States lets businesses slash their contributions.
A frightening prospect for workers, retirees and companies, yawning pension deficits have gone from arcane accounting entries to front page news on fears that massive shortfalls could even cause some corporations to fail.
As a growing number of employers look to roll back benefits to the alarm of unions, others are pouring cash into their pensions funds only to see the hole get deeper.
With no sign the problem is going away any time soon, six big Canadian corporations have banded together to ask the government for measures such as more time to pay down deficits in their defined-benefit pension plans.
But the federal government, which provided companies with three rounds of pension funding relief between 2006 and 2010, has no plans to do the same again.
“We’re not looking at any changes,” Finance Minister Jim Flaherty told Reuters in a recent interview in California.
“At the end of the day, these are pension funds that need to be worked out between the employers and their employees. It’s a private matter, except that there’s a legislative vehicle in place, if they want to follow the distressed pension plan model. There’s a way of proceeding,” he said.
Flaherty was referring to 2010 reforms that relaxed funding rules for stricken plans but which some say don’t go far enough to address the fundamental problems companies face.
Related
Canadian pensions’ performance hit by EU debt ‘domino effect’: RBC
Bankers’ group pushes premiers to roll out pooled pensions
Canada is not unique, and as in the United States, generous public sector pensions are a hot-button issue. But the federal government is taking a more hands-off stance than U.S. President Barack Obama, who signed a bill last month that changes how companies calculate what they must contribute to their pension funds, effectively allowing them to pay less.
“I have heard of some very large sponsors here who are saying: ’What the heck, look at what they’re doing down there. Don’t our finance ministers understand that the world has changed? That long bond yields are very low?,” said Ian Markham, senior consulting actuary at Towers Watson Canada.
“The U.S. gets it, Denmark gets it, the UK are thinking about it, so we need to do something here,” he said, repeating company arguments.
Even some of Canada’s provincial governments, which regulate pensions within their jurisdictions, have various forms of funding relief in place.
Softening the rules implies letting plans stay underfunded for longer, a risk financially prudent Ottawa may be reluctant to accept. After all, the country’s conservative banking culture helped it survive the global financial crisis better than most.
As in other countries, the scope of the Canadian problem is huge. 90% of the roughly 400 defined-benefit pension plans overseen by Canada’s federal regulator are underfunded, meaning they cannot meet their liabilities should their plans be wound up today, as is required by law.
Air Canada’s is perhaps the most extreme example, with its eye-popping $4.4-billion pension shortfall raising “grave existential questions” about the future of the company itself, according to Michel Picher, an arbitrator who settled a labor dispute there in June.
LOW YIELDS
The problem for most companies arises from historically low yields on investments, and that is expected to last for some time yet.
Long-term Canadian government bond yields hit record lows last month, with some forecasters predicting they could sink further as major central banks ease monetary policy to battle the global economic slowdown.
Advertisement
These lower returns mean companies must put aside more money for their pension funds to cover what they owe in the future.
The federal Conservative government may make an exception for Air Canada, which could be in serious trouble unless Flaherty extends a cap on special pension payments that is set to expire early in 2014.
But that is a standalone agreement with one company. Others want in the game too.
The six companies — branding themselves the “G6” — have joined forces off and on since 2004, and this year again lobbied for temporary relief, said Canadian National Railway Co spokesman Mark Hallman. That was denied in the federal budget in March.
“The G6 was looking for measures similar to what had been approved in other Canadian provinces such as the 10-year amortization period (as opposed to five) for solvency special payments,” Hallman said.
The other companies in the G6 are Canadian Pacific Railway , telecom providers Bell Canada and MTS Allstream, Canada Post and NAV Canada.
DISCOUNT RATE
Historically, Canada has preferred relief measures such as lengthening amortization periods. Permanent rule changes in 2010 let companies average their solvency ratios over a three-year period instead of one, so that a sudden bad year doesn’t force them to make big cash infusions.
But some critics say it is dancing around the real problem – the very low “discount rate” used to assess a plan’s solvency, which is the focus of the recent measures in the U.S., Denmark and Sweden. This rate, based on long-term government bonds, helps actuaries judge how much assets will earn over time.
Companies complain the rate has never been lower and artificially inflates a plan’s deficit. The lower the discount rate, the bigger the deficit.
Air Canada’s chief financial officer, Michael Rousseau, told analysts on a recent conference call that a 1.5 or 2 percentage point rise in the rate would eliminate more than $3-billion from the airline’s deficit.
That wishful thinking effectively became reality last month, not for Canadian companies but for their U.S. competitors. The new law there lets companies use a 25-year average of the discount rate rather than two years.
In Europe, Denmark and Sweden have tinkered with how the discount rate is used and the United Kingdom is thinking of following in their footsteps.
But Jacques Lafrance, president-elect of the Canadian Institute of Actuaries, says the idea would be seen as too risky in Canada.
“I know that some companies are looking for that. My reading of the situation is the federal government doesn’t seem to be interested,” he said.
“At the end of the day it’s a political decision. If you’re a politician and you do allow more funding relief … you increase the risk of the company going bankrupt and you will have retirees knocking at your door complaining that they will have pension cuts.”
LESSONS FROM NORTEL
Politicians haven’t forgotten the case of one-time high-tech titan Nortel Networks, whose messy 2009 bankruptcy led to angry protests by retirees who felt they’d been shafted.
Bob Farmer, who represents 250,000 pensioners as president of the Canadian Federation of Pensioners, says softer rules for companies mean bigger risks for workers. Tough luck about the low yields, he says. “That happens to be the world we’re living in.”
Companies certainly aren’t waiting around for answers from Ottawa, resorting to various ways of shrinking deficits with mixed results.
CN and CP have made voluntary contributions to their pension funds, on top of special deficit payments that are required by law, and Bell Canada switched to a defined-contribution plan for new employees in 2004.
Still, the problem is not solved and there is no quick fix for policymakers.
“The biggest social issue in the next 10 years is going to be pensions,” said Rick Robertson, associate professor at the Richard Ivey School of Business, part of the University of Western Ontario.
“What do I tell the 64-year-old person who may not have a chance to rebound if the company doesn’t succeed. Who’s my duty to? There’s no easy answer.”
Louise Egan and Susan Taylor, Reuters | Aug 6, 2012 11:59 AM ET | Last Updated: Aug 6, 2012 12:42 PM ET
More from Reuters
Reuters/Blair Gable
Reuters/Blair Gable
Finance Minister Jim Flaherty and the federal government are taking a more hands-off stance than U.S. President Barack Obama, who signed a bill last month that changes how companies calculate what they must contribute to their pension funds, effectively allowing them to pay less.
Google+
Comments
More
OTTAWA/TORONTO — Canada is taking a different tack than Washington on the thorny issue of helping companies fund their widening pension gaps, shrugging off corporate pleas for relief even as the United States lets businesses slash their contributions.
A frightening prospect for workers, retirees and companies, yawning pension deficits have gone from arcane accounting entries to front page news on fears that massive shortfalls could even cause some corporations to fail.
As a growing number of employers look to roll back benefits to the alarm of unions, others are pouring cash into their pensions funds only to see the hole get deeper.
With no sign the problem is going away any time soon, six big Canadian corporations have banded together to ask the government for measures such as more time to pay down deficits in their defined-benefit pension plans.
But the federal government, which provided companies with three rounds of pension funding relief between 2006 and 2010, has no plans to do the same again.
“We’re not looking at any changes,” Finance Minister Jim Flaherty told Reuters in a recent interview in California.
“At the end of the day, these are pension funds that need to be worked out between the employers and their employees. It’s a private matter, except that there’s a legislative vehicle in place, if they want to follow the distressed pension plan model. There’s a way of proceeding,” he said.
Flaherty was referring to 2010 reforms that relaxed funding rules for stricken plans but which some say don’t go far enough to address the fundamental problems companies face.
Related
Canadian pensions’ performance hit by EU debt ‘domino effect’: RBC
Bankers’ group pushes premiers to roll out pooled pensions
Canada is not unique, and as in the United States, generous public sector pensions are a hot-button issue. But the federal government is taking a more hands-off stance than U.S. President Barack Obama, who signed a bill last month that changes how companies calculate what they must contribute to their pension funds, effectively allowing them to pay less.
“I have heard of some very large sponsors here who are saying: ’What the heck, look at what they’re doing down there. Don’t our finance ministers understand that the world has changed? That long bond yields are very low?,” said Ian Markham, senior consulting actuary at Towers Watson Canada.
“The U.S. gets it, Denmark gets it, the UK are thinking about it, so we need to do something here,” he said, repeating company arguments.
Even some of Canada’s provincial governments, which regulate pensions within their jurisdictions, have various forms of funding relief in place.
Softening the rules implies letting plans stay underfunded for longer, a risk financially prudent Ottawa may be reluctant to accept. After all, the country’s conservative banking culture helped it survive the global financial crisis better than most.
As in other countries, the scope of the Canadian problem is huge. 90% of the roughly 400 defined-benefit pension plans overseen by Canada’s federal regulator are underfunded, meaning they cannot meet their liabilities should their plans be wound up today, as is required by law.
Air Canada’s is perhaps the most extreme example, with its eye-popping $4.4-billion pension shortfall raising “grave existential questions” about the future of the company itself, according to Michel Picher, an arbitrator who settled a labor dispute there in June.
LOW YIELDS
The problem for most companies arises from historically low yields on investments, and that is expected to last for some time yet.
Long-term Canadian government bond yields hit record lows last month, with some forecasters predicting they could sink further as major central banks ease monetary policy to battle the global economic slowdown.
Advertisement
These lower returns mean companies must put aside more money for their pension funds to cover what they owe in the future.
The federal Conservative government may make an exception for Air Canada, which could be in serious trouble unless Flaherty extends a cap on special pension payments that is set to expire early in 2014.
But that is a standalone agreement with one company. Others want in the game too.
The six companies — branding themselves the “G6” — have joined forces off and on since 2004, and this year again lobbied for temporary relief, said Canadian National Railway Co spokesman Mark Hallman. That was denied in the federal budget in March.
“The G6 was looking for measures similar to what had been approved in other Canadian provinces such as the 10-year amortization period (as opposed to five) for solvency special payments,” Hallman said.
The other companies in the G6 are Canadian Pacific Railway , telecom providers Bell Canada and MTS Allstream, Canada Post and NAV Canada.
DISCOUNT RATE
Historically, Canada has preferred relief measures such as lengthening amortization periods. Permanent rule changes in 2010 let companies average their solvency ratios over a three-year period instead of one, so that a sudden bad year doesn’t force them to make big cash infusions.
But some critics say it is dancing around the real problem – the very low “discount rate” used to assess a plan’s solvency, which is the focus of the recent measures in the U.S., Denmark and Sweden. This rate, based on long-term government bonds, helps actuaries judge how much assets will earn over time.
Companies complain the rate has never been lower and artificially inflates a plan’s deficit. The lower the discount rate, the bigger the deficit.
Air Canada’s chief financial officer, Michael Rousseau, told analysts on a recent conference call that a 1.5 or 2 percentage point rise in the rate would eliminate more than $3-billion from the airline’s deficit.
That wishful thinking effectively became reality last month, not for Canadian companies but for their U.S. competitors. The new law there lets companies use a 25-year average of the discount rate rather than two years.
In Europe, Denmark and Sweden have tinkered with how the discount rate is used and the United Kingdom is thinking of following in their footsteps.
But Jacques Lafrance, president-elect of the Canadian Institute of Actuaries, says the idea would be seen as too risky in Canada.
“I know that some companies are looking for that. My reading of the situation is the federal government doesn’t seem to be interested,” he said.
“At the end of the day it’s a political decision. If you’re a politician and you do allow more funding relief … you increase the risk of the company going bankrupt and you will have retirees knocking at your door complaining that they will have pension cuts.”
LESSONS FROM NORTEL
Politicians haven’t forgotten the case of one-time high-tech titan Nortel Networks, whose messy 2009 bankruptcy led to angry protests by retirees who felt they’d been shafted.
Bob Farmer, who represents 250,000 pensioners as president of the Canadian Federation of Pensioners, says softer rules for companies mean bigger risks for workers. Tough luck about the low yields, he says. “That happens to be the world we’re living in.”
Companies certainly aren’t waiting around for answers from Ottawa, resorting to various ways of shrinking deficits with mixed results.
CN and CP have made voluntary contributions to their pension funds, on top of special deficit payments that are required by law, and Bell Canada switched to a defined-contribution plan for new employees in 2004.
Still, the problem is not solved and there is no quick fix for policymakers.
“The biggest social issue in the next 10 years is going to be pensions,” said Rick Robertson, associate professor at the Richard Ivey School of Business, part of the University of Western Ontario.
“What do I tell the 64-year-old person who may not have a chance to rebound if the company doesn’t succeed. Who’s my duty to? There’s no easy answer.”
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North Shore
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Re: AC Pilots Pension Funding Relief
a risk financially prudent Ottawa may be reluctant to accept. After all, the country’s conservative banking culture helped it survive the global financial crisis better than most.
Fiscally prudent? With a $50bn deficit? Doesn't that make the assumption that 'past performance will reflect future gains'? The very warning that is written in the small print at the bottom of all mutual fund prospectuses.The new law there lets companies use a 25-year average of the discount rate rather than two years.
Why not just re-jig the whole scheme of contributions and benefits, increasing one and decreasing the other, so that everyone (Company, pensioners, and employees) shares the pain equally?
Re: AC Pilots Pension Funding Relief
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Last edited by flatface on Fri May 30, 2014 11:30 am, edited 1 time in total.
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sportingrifle
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Re: AC Pilots Pension Funding Relief
Pension funding relief for 10 years is really just another way for the company to end the defined benefit pension plan by neglect. In 2009 our DB plan was 92% funded. At the roadshow, I asked Craig B how four years of pension relief was going to help secure our pension with the 29 000 retirees drawing on it and the company not putting anything in. His answer shocked me - the issue was primarily an actuarial one and interest rates would rise and cure all. No economist or banker in world had at that point expressed an opinion that interest rates and bond rates would rise significantly and they haven't. Four years later, despite the pension funds investments returning stratospheric returns on investment, (and I don't want to even think about the risks they had to take to make 13% ROI) the fund is now only 82% funded. A drop of 2.5% per year. If we grant the company another ten years of funding relief, it would be reasonable to assume that the fund would be 57% funded.
The choice really comes down to restructuring the pension now, or funding relief. Restructuring the pension would require a combination of increased employee contributions, increased company contributions, increasing the age of retirement, and decreasing benefits. It could be restructured in such a way that if economic conditions improved, the sacrifices made during the restructuring could be reversed. For illustrative purposes, if this were accomplished with solely benefit reductions (and it wouldn't be) then all the pension recipients would currently see an 18% reduction in their monthly cheque.
The pension funding relief that the company wants is merely delaying the inevitable. Flying contact to a destination on the other side of the world, with a hurricane over the airport, and hoping that the weather will clear against all the forecasters predictions. It hasn't worked during the last 4 years and there is no reasonable expectation that it will work over the next 10. If it doesn't, then we will be restructuring the pension when it is 57% funded and that will be ugly - there is at that point the likelyhood is that it would be deemed non-viable on a going forward basis and we would all see a 47% reduction in our monthly cheques. Hence my point about the company ending the defined benefit plan by neglect. It is even cheaper for them than starting a DC plan!
Much as i despise CR and the management team, he did make a very salient point. Our underfunded plan has 26000 employees contributing, a company that can't/won't, contribute, and 29000 retirees drawing on it. There is no way the plan is sustainable unless the solution involves all 3 groups. Let's restructure it properly now while there is still the majority of the plan to restructure. I'll take 82% of a sure thing over a promise from the company and a "Hail Mary" from the union.
Interesting times ahead,
Sportingrifle
"True stupidity is continuing to do what hasn't worked in the past and expecting a different outcome in the future."
Albert Einstein
The choice really comes down to restructuring the pension now, or funding relief. Restructuring the pension would require a combination of increased employee contributions, increased company contributions, increasing the age of retirement, and decreasing benefits. It could be restructured in such a way that if economic conditions improved, the sacrifices made during the restructuring could be reversed. For illustrative purposes, if this were accomplished with solely benefit reductions (and it wouldn't be) then all the pension recipients would currently see an 18% reduction in their monthly cheque.
The pension funding relief that the company wants is merely delaying the inevitable. Flying contact to a destination on the other side of the world, with a hurricane over the airport, and hoping that the weather will clear against all the forecasters predictions. It hasn't worked during the last 4 years and there is no reasonable expectation that it will work over the next 10. If it doesn't, then we will be restructuring the pension when it is 57% funded and that will be ugly - there is at that point the likelyhood is that it would be deemed non-viable on a going forward basis and we would all see a 47% reduction in our monthly cheques. Hence my point about the company ending the defined benefit plan by neglect. It is even cheaper for them than starting a DC plan!
Much as i despise CR and the management team, he did make a very salient point. Our underfunded plan has 26000 employees contributing, a company that can't/won't, contribute, and 29000 retirees drawing on it. There is no way the plan is sustainable unless the solution involves all 3 groups. Let's restructure it properly now while there is still the majority of the plan to restructure. I'll take 82% of a sure thing over a promise from the company and a "Hail Mary" from the union.
Interesting times ahead,
Sportingrifle
"True stupidity is continuing to do what hasn't worked in the past and expecting a different outcome in the future."
Albert Einstein
Re: AC Pilots Pension Funding Relief
I tend to agree, sporting.
The problem is that the "hail Mary" is unfortunately going to be what I think the union is going to be pushing. Sometimes I get the feeling rather than realistic options and goals. More more more is what the unions"
"success" is determined upon.
The problem is that the "hail Mary" is unfortunately going to be what I think the union is going to be pushing. Sometimes I get the feeling rather than realistic options and goals. More more more is what the unions"
"success" is determined upon.
Re: AC Pilots Pension Funding Relief
This is NOT "Pension Funding Relief". This is "Corporate Obligation Relief". If this provision made any sense, the Government would first have curtailed executive salaries until corporate obligations were satisfied. Ten more years of neglect or more room to maneuver the part of Air Canada that has employees on DB into bankruptcy. THEN the "Corporate Obligation Relief" plan will be complete.
Is being "flamboozled" an appropriate term?
Is being "flamboozled" an appropriate term?
Re: AC Pilots Pension Funding Relief
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Last edited by flatface on Fri May 30, 2014 11:29 am, edited 1 time in total.
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sportingrifle
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Re: AC Pilots Pension Funding Relief
Flatface...
My intention is not to turn this into a workers vs retirees thing, merely pointing out some financial issues.
In the last 4 years, more money has been withdrawn from the fund than put into it or been accumulayed from investment income , hence the decrease in funding levels. It is not a pomzi scheme for many reasons, one of which is that going forward new hires are not part of it.
What I am pointing out is that there is not enough money in the pot, and that the pot is shrinking at 2 1/2% per year. This should be a concern to both retirees and workers alike.
While it is not a ponzi scheme, if the company gets its desired funding relief, and if the plan continues to whither, and if it gets restructured down the road, then it will have resulted in a massive transfer of wealth from the workers to the retirees. This was acknowledged in the pension wacon put out by the union. In the last 4 years, I have seen the secured portion (ie backed by cash in the bank) of my pension get reduced by 10 %. Where did it go?
Cheers sportingrifle
My intention is not to turn this into a workers vs retirees thing, merely pointing out some financial issues.
In the last 4 years, more money has been withdrawn from the fund than put into it or been accumulayed from investment income , hence the decrease in funding levels. It is not a pomzi scheme for many reasons, one of which is that going forward new hires are not part of it.
What I am pointing out is that there is not enough money in the pot, and that the pot is shrinking at 2 1/2% per year. This should be a concern to both retirees and workers alike.
While it is not a ponzi scheme, if the company gets its desired funding relief, and if the plan continues to whither, and if it gets restructured down the road, then it will have resulted in a massive transfer of wealth from the workers to the retirees. This was acknowledged in the pension wacon put out by the union. In the last 4 years, I have seen the secured portion (ie backed by cash in the bank) of my pension get reduced by 10 %. Where did it go?
Cheers sportingrifle
Re: AC Pilots Pension Funding Relief
Not quite right. This is a massive transfer of wealth to the corporation as they re-neg on their commitment to the employees who supported them all those decades. This never was workers vs retirees. This has ALWAYS been employees vs corporation (and now federal government as well). Retired employees have few options available to shore up their income. Those who are currently working for AC on the traditional DB program and are moving to retirement shortly have a little more wriggle room. The younger employee on the DB program should be carefully considering alternatives as a promise is no longer a promise in the eyes of the AC executives.sportingrifle wrote:Flatface...
My intention is not to turn this into a workers vs retirees thing, merely pointing out some financial issues.
While it is not a ponzi scheme, if the company gets its desired funding relief, and if the plan continues to whither, and if it gets restructured down the road, then it will have resulted in a massive transfer of wealth from the workers to the retirees.
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sportingrifle
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