1. Supplemental Pension Plan Funding Relief Provisions Pension Seminar April 15, 2009 1

2. Agenda Provisions adopted by Québec Provisions adopted by Alberta Provisions adopted by Ontario Conclusion 2

3. Provisions Adopted by Québec 3

4. Background The market decline has had a significant impact on pension plans The Québec government has adopted concrete provisions to help plan sponsors get through the crisis However, not everything is yet cast in stone Much discussion remains to be done Some compromises will need to be made... 4

5. Background (cont’d) Bill 1 contains practically no provisions on: The role of the Régie des rentes du Québec (RRQ) in managing pension income Anticipated application of the new CIA Standards Authority to adopt regulations retroactively Any further provisions are to be set out in two regulations (governing provisions, and the role of the RRQ): “Extended private” consultations Pre-publication in early April 5

6. Objectives In light of the 2008 financial crisis, to relieve the burden on companies of contributions required under Québec’s Supplemental Pension Plans Act To limit the adverse effect of the proposed provisions on the security of pension plan participants’ and retirees’ benefits 6

7. Role of Régie des rentes du Québec (RRQ) Last-minute additions: Guarantee that retirees will not lose entitlement as a result of the relief provisions Five-year RRQ management delay Importance of retirees' political power Political process Considerable influence of guaranteed retiree rights on subsequent discussions 7

8. Results 1. Anticipated adoption of new CIA Standards 2. Deficit consolidation 3. Extension of consolidated deficit amortization period from five to 10 years 4. Smoothing of assets over a five-year period in order to determine solvency deficit 8 But…

9. Base level Contributions may not be less than a base level There is no intention of providing relief for more than the impact of the 2008 financial crisis Discussions on how to determine the base level are ongoing 9

10. RRQ-recommended method 1. Determination of balance contributions with no relief (with neither consolidation, smoothing, nor extension to 10 years) in accordance with the former CIA Standards 2. Determination of crisis deficit-related balance contribution: actual assets as of December 31, 2008, less accumulated assets as at December 31, 2007 (taking into account 2008 cash flows) at the solvency standard interest rate 3. Pre-crisis balance contribution = (1) – (2) 10

11. Our recommended method Value of assets as at December 31, 2007, increased by an interest rate resulting in neither a solvency deficit nor solvency surplus, taking cash flows into account Determination of actuarial liabilities using current CIA Standards Determination of amortization payments Capitalization over a 15-year period and determination of solvency over a five-year period 11

12. Who requests what? It is employers who request relief provisions: As at December 31, 2008, or As at December 31, 2009, or As at December 31, 2010 Note that there are no consultations of unions, participants or retirees 12

13. Multi-employer pension plans Same provisions as for other plans Problem if one employer does not want to adopt provisions while others do Consideration by RRQ of possibility of separate accounting If withdrawal in case of employer bankruptcy, option for “retirees” to have their pension managed by RRQ 13

14. Solvency level No change Assets at market value divided by liabilities on solvency basis (new CIA Standards) NOT using smoothed market value Used to pay amounts owing Equity among participants who leave and those who remain 14

15. Alternatives 15

16. If provisions are requested The provisions of Bill 30 apply Annual actuarial valuation Must value plan again on December 31, 2009 16

17. Whether to request provisions Done on a case-by-case basis Depends on the following factors among others: Plan financial situation as at December 31, 2008 Level of contributions with and without provisions Projected financial situation as at December 31, 2009 Estimated contributions payable in 2010 17

18. RRQ authority Authority to request actuarial valuation on a given date Based on plan financial situation Required in order to protect participants’ rights Statement by RRQ that it will not hesitate to request an actuarial valuation since relief provisions are now available 18 So be careful: these points may alter your strategy!!!

19. Additional RRQ authority Authority to adopt special provisions for any employer that requests them: In order to avoid employer bankruptcy Retroactively to December 31, 2008 Although conditions have not been discussed: Demonstration of insufficiency of general relief provisions Proposal of acceptable contribution level 19

20. The Next Steps 20

21. Pre-publication of Regulation Private consultation before pre-publication: Expert committee “Committee of actuaries and lawyers” Goal to minimize to the extent possible adjustments following pre-publication Pre-publication around April 2009 Possibility of additional time to produce actuarial valuations as at December 31, 2008 21

22. Content of Regulation Conditions of application of relief provisions Definition of crisis-related deficit Determination of new contribution minimum following relief Mechanism for determining contributions in order to amortize residual deficit following three-year period of application of relief provisions 22

23. Content of Regulation (cont’d) Rules for allocating actuarial gains observed during period of application of relief provisions Conditions of application of new funding rules applicable before January 1, 2010 to plans using relief provisions Regulations governing RRQ management of retirees’ assets 23

24. Relief for public organizations (such as cities, universities, etc.) Not subject to solvency standards Provisions requested for capitalization purposes: Asset smoothing method over a five-year period Deficit consolidation as at December 31, 2008 Triennial instead of annual valuation, even after 2010 Anticipated favourable government reaction 24

25. If 2009... 25

26. If 2009 was just as disastrous... The expert committee and the watch committee will closely monitor the situation New provisions will be considered, if appropriate Observations will be made in the fall of 2009 26

27. Provisions Adopted by Alberta 27

28. Practical details “Schedule 0.2, Section 3 of the Regulation” Legal wording Policy Bulletin No. 41 Detailed relief provisions Policy Bulletin No. 39 Use of letters of credit “EPPA Update 09-01” Summary of changes “EPPA Update 09-02” FAQ on relief provisions 28

29. Main provisions Use of the new CIA Standards for actuarial valuations dated on or after September 1, 2008 Three-year contribution holiday Plan may not be improved during contribution holiday Extension of amortization period to 10 years for “new” deficits Valuation date between September 1, 2008 and December 31, 2009 Plan may be improved 29

30. Conditions of contribution holiday Options to be chosen by December 31, 2009 New actuarial valuation to be produced No improvement of plan Existing deficits amortized over maximum 10-year period (no deficit consolidation) New deficits amortized over maximum 10-year period In case of transfer of entitlement, supplement to be paid for 100% payment Requirement that participants be notified in statement of entitlement Any other conditions the superintendent may impose 30

31. Conditions of 10-year amortization Options to be chosen by December 31, 2009 New actuarial valuation to be produced with valuation date between September 1, 2008 and December 31, 2009 Existing deficits amortized as planned New deficits amortized over maximum 10-year period (may take into account capitalization balance contributions over the next 10 years) (unless plan is improved, in which case maximum five-year period) In case of transfer of entitlement, supplement to be paid for 100% payment Requirement that participants be notified in statement of entitlement Any other conditions the superintendent may impose 31

32. Main provisions Extension of moratorium for Defined Multi-Employer Pension Plans until December 31, 2011 Resulting possibility of three-year moratorium for all employers At end of moratorium, required actuarial valuation and amortization of solvency deficit over five-year period 32

33. Additional conditions Requirement that economic and demographic assumptions be conservative Baseline: 6.5% using UP94 Other assumptions allowed if justified Value of assets limited to 115% of market value (base capitalization) Application of CIA’s Final Standard on Independently Reasonable Assumptions, although only came into effect on March 1, 2009 33

34. Additional conditions (cont’d) Actuaries are required to disclose in their reports the planned increase in solvency liability during the first year following the report The superintendent will carefully consider actuarial reports: See Policy Bulletin No. 41 The superintendent reserves the right to refuse an actuarial valuation... …or to require an actuarial valuation 34

35. Provisions “Adopted” (1) by Ontario 35 (1) Included in March 26, 2009 Ontario budget documents

36. General These provisions were tabled as part of Ontario's March 26, 2009 budget If adopted, these legislative amendments would be retroactive to September 30, 2008 This presentation does NOT cover other amendments tabled as part of the budget but unrelated to relief provisions 36

37. 1.- Amortization from five to 10 years For “new” deficits only To determine solvency deficit, one can take into account capitalization amortization payments over the next 10 years Determined at the time of first actual actuarial valuation effective on or after than September 30, 2008 With “agreement” of participants, their unions, AND retirees “Agreement” if not more than 33.3% are opposed (comprehensive test) The union counts in proportion to the number of active participants among their members 37

38. 2.- Deficit consolidation Consolidation of balance contributions of “existing” deficits Possibility of amortizing over a five-year period the deficit balances of the first actuarial valuation effective on or after September 30, 2008 In case of consolidation, amortization of future improvements over a maximum five-year period on both capitalization basis and solvency basis (same as provision number 1) 38

39. 3.- Contribution holiday Holiday from balance contributions One-year period Determined at the time of first actuarial valuation effective on or after September 30, 2008 39

40. 4.- Use of gains This provision must be used at the time of the first actuarial valuation effective on or after September 30, 2008 Use of solvency gains must be disclosed in subsequent actuarial valuations Gains would reduce balance contributions instead of actual solvency deficits 40

41. 5.- Increased information More detailed notice to participants on assets, deferred pensions, and retirees Information on plan financial situation Information on implications of using relief provisions Specific requirements not yet known 41

42. 6.- Accelerated funding Accelerated funding of benefit improvements What improvements??? Important that these improvements be made after the date the new standards come into effect Amendments already negotiated 42

43. 7.- Temporary restrictions on contribution holidays This provision applies to fiscal years ending between 2010 to 2012 Actuaries must certify annually the existence of a surplus at the beginning of the fiscal year Certificates must be registered with the Financial Services Commission of Ontario (FSCO) The cost certificate may be based on a projection of the financial situation since the most recent full actuarial valuation 43

44. 8.- Adoption of CIA Standards Anticipated adoption of the new Standards for determining solvency For actuarial solvency valuations dated starting December 12, 2008 Idem: Québec and Alberta Only the retroactivity date varies from one province to another 44

45. Conclusion 45

46. The more things change, the more they stay the same Each province adopts “its” own provisions Each province is “different” Pay attention to details!!! Carefully assess the consequences of adopting proposed relief provisions Remember that in case of employer bankruptcy, the provisions of Québec's Supplemental Pension Plans Act apply to ALL Québec residents, regardless of where the plan is registered 46

47. Questions? 47

48. 48 Pierre Girardin pierre.girardin@pierregirardin.com Office: 450-443-1543 Cell: 514-949-6027