CFP was created largely by pensioner organizations dealing with distressed pension plans. Some organizations have disbanded and are no longer CFP members because their pension plans have been wound up or have been frozen (with no new active members) for a long time.
We tell their stories below to illustrate the issues that CFP is pledged to correct, and to honour their contributions to our advocacy.
Rio Algom Salaried Retirees
In 2000, a company now known as BHP Billiton took over Rio Algom. They showed an inordinate interest in the pension plan for salaried employees (that had been closed to new members in 1997). This triggered an employee investigation of the plan’s status that showed that Rio Algom had made changes over the years that were not to the benefit of plan members, and thus contrary to plan rules. As a result, and in the face of BHP intransigence, legal action was begun in 2003.
On advice of counsel, one of the remedies requested (beyond restitution for retirees) was a court order for the company to apply to the regulator to wind up the plan. In 2006, the company moved to have this provision removed from the suit application; they lost, but won on appeal in 2010. The only recourse for plan members for plan rule violations is to petition the regulator (FSCO). The retirees did this in 2011, but failed by choosing a hypothetical situation as a test issue.
BHP was willing to negotiate a deal, but their proposal was a wind up on terms unfavourable to the retirees (and which ignored plan rules). The retirees returned to the regulator. However, the cost of pursuing the matter (because of the significant age of the alleged plan rule violations), together with the advancing age and reducing number of plan beneficiaries, led the retiree group to disband and withdraw from CFP membership as of March, 2015.
Active and retired plan members should be vigilant for issues with their pension plan, and contest them in a timely fashion. Ownership changes seriously complicate dealing with such matters after the fact. The regulator is clearly the entity to assist in dealing with issues. The courts cannot order pension plan wind ups. Legal action can be lengthy and thus costly.
Note: The representative plan retiree used to define the court case described above was Al Lomas, a long-time CFP Director.
Slater Steel (Slater Stainless Corporation) declared bankruptcy in 2003. The pension plan administrator in bankruptcy assessed the state of the pension plan and found the plan to be 40% in deficit, whereas an actuary had given a stamp of approval to two of the pension funds in 2002. The pension plan deficit was larger than the company’s shareholder equity and debt combined.
The actuary was sued by the administrator and FSCO for falsely deferring or smoothing investment losses over a number of years. The actuary then proceeded against individual former Slater directors and officers as those who instructed him. By 2008, after much legal wrangling, the directors and officers were found liable, but they then sued FSCO in 2010. The original action against the actuary was eventually dismissed, but he was disciplined by the Canadian Institute of Actuaries.
Pension payments to Slater retirees were reduced preliminarily after two years’ of bankruptcy protection based on available assets and some support from the provincial pension guarantee fund, but a final determination awaits completion of the long process to wind up a pension plan, i.e. final approval by FSCO. A reduction of 73% may be possible, because pension regulations allow grow-in rights for senior workers to attain preferred pension entitlements that increase plan liabilities.
Slater pensioners were shocked by the bankruptcy because they were unaware of the underfunded status of their pensions (they’d been told they were “guaranteed for life”), did not understand the consequences of the sale of part of the business (purchaser did not assume any pension plan liabilities), and were horrified that some of the pensioner were determined to have been overpaid requiring repayment as well as pension reductions.
No one communicated with the pensioners during the bankruptcy proceedings; they were given no chance to adjust their financial affairs before the pension reductions went into effect. They also lost their life insurance and medical benefits, and only found out this reality when they tried to get their drug prescriptions filled.
(US co-workers and pensioners had most of their pension shortfall covered by the federal Pension Benefit Guaranty Corp.)
The “legal wrangling” mentioned above clarified the intrinsic conflict that company directors and officers have between properly funding a pension plan and maintaining the company’s operations. When they act as the pension plan sponsor, the company’s best interests rule. But if they also act as the pension plan administrator, they owe the plan beneficiaries a fiduciary duty. They need to understand for whom they are acting to limit their legal liability.
Pensioners need to be involved as early as possible, and properly represented, when companies become insolvent. Real financial hardship can result, often after a long period of uncertainty.
Note: Bob Hilton, a leader of the Slater Steel pensioners’ group, served as CFP President from March 2010 until May 2012.
(This is one in a series of posts that will discuss the current and past members of the CFP.)