Plan Funding

Pension Plan Valuation Completed
As anticipated, in the recently completed pension plan valuation report (an assessment of the plan’s funding as at August 31, 2004), our actuaries concluded that the CSI pension plan indeed has a shortfall of just over $10 million in a fund with assets of about $114 million. This means the current assets (invested contributions) are less than the current liabilities (today’s value of the pensions earned by plan members, based on their service to date) and that the plan is about 92% funded. This is the first time in the plan’s history that the plan has been in deficit. (For help interpreting these numbers, see More About Valuation Below.)

Many pension plans in Canada are currently in a similar situation, due to the significant downturn in the stock markets since 2000 and ongoing low interest rates. Because the CSI trustees had anticipated this, they explored a number of options last year and had agreed on the order in which various actions would be taken to minimize the effect on plan members.

Change in Costing of Early Retirement Subsidies
Last March, we outlined the various action steps that could be considered to deal with a plan shortfall. From the available options, CSI has decided to adopt an amendment to the plan that changes how the cost of some plan benefits is determined, but will not affect the actual benefits paid to participants.

The amendment - called a “consent amendment” - changes how the cost of early retirement subsidies is determined when a valuation is conducted. Currently, the “cost” of early retirement subsidies under the plan is taken into account even before a plan member is eligible to retire. Shifting the assumptions so that this cost is realized only at the time a plan member is eligible to retire allows the valuation to recognize these costs later - changing the outcome of the valuation. The use of consent amendments such as this is quite common.

The March newsletter outlined a number of other options, including temporary benefit reductions, but the current financial position of the pension plan, along with anticipated future contributions, is such that only the consent amendment will be required. The CSI trustees expect that the current deficit will be eliminated over the next few years.

Full Issue: No. 156 - April 27, 2005

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