November Dear Sisters and Brothers,

Transcription

1 November 2013 Dear Sisters and Brothers, You may have heard about the difficulties facing our pension plan. I am writing today to inform you of the problems with the plan and what our union is doing. I know this is a tough issue for all postal workers, and I want you to know we will do everything we can to protect our financial future. THE PROBLEM The Canada Post pension plan has a $6.5 billion solvency deficit, caused in part by the consistently weak interest rate. Canada Post has informed members and the union it will soon max out on the $2.5 billion letter of credit it has been using to fund this deficit. The Conservative government has informed Canada Post that it will not extend a further letter of credit. Therefore, Canada Post will have to start making special payments of $100 million per month out of its operating budget to cover the solvency deficit as of May-June Given the magnitude of the deficit and required payments, this could eventually render the corporation insolvent. Canada Post is in the process of cutting, closing and downsizing its operations. It is already undertaking a massive publicity campaign advocating further cuts to postal service. The corporation could use a pension crisis to make even more dramatic cuts to our jobs and public postal service. Moreover, we know the Conservative government is no friend of public postal service or postal workers. We know a review of the Canadian Postal Service Charter will take place in The dire pension situation could result in the Conservative government allowing any and all cuts proposed by the corporation. Furthermore, the government could act unilaterally on the pension difficulties. Given this difficult situation, CUPW s National Executive Board has decided to have discussions with Canada Post. Our ultimate objective is to protect our defined benefit pension plan. /2

2 Letter to CUPW Members.2 November 2013 CUPW S APPROACH CUPW is exploring options to protect the viability of our pension plan. We are working with actuaries and lawyers who specialize in pension plans to look at what's possible. No decisions have been made. The union and Canada Post have agreed to a working committee to address the realities of the pension plan. These discussions are important to each and every one of us. More information will be provided to you through bulletins and the CUPW website ( as it becomes available. Be sure to look over the enclosed fact sheet and questions and answers as they will provide you with an overview of this very complicated issue. If you want details on your specific pension benefits, be sure to visit the following website: Rest assured that we will continue to fight for a long-term solution that will protect our pension plan and we will keep you informed of our progress. In Solidarity, Denis Lemelin National President Att. cc. National Executive Committee Regional Executive Committees National Union Representatives Regional Union Representatives CUPW Specialists CUPW Locals /rgcope225

3 PENSION PLAN FACT SHEET All figures are taken from the Canada Post Pension Plan: 2012 Report to Members. The report was mailed to all plan members in June 2013 and is available at Defined Benefit Pension Plan: A plan where participants contributions to the plan are based on a specified level of future retirement benefits. The plan makes a promise to pay a defined amount in benefits so that the participant can plan their future based on a predictable retirement income. Defined Contribution Pension Plan: A plan where contribution amounts are known but there is no guarantee of specified benefit amounts. Pension Plan Deficit: A pension is in a deficit situation when pension obligations (what the plan owes to current and future retirees) are greater than the value of the plan s assets. Annual Valuation of the Pension Plan: Each year Canada Post files an actuarial valuation report with the federal pension regulators, the Office of the Superintendent of Financial Institutions and the Canada Revenue Agency. This report includes the results on a going concern basis and a solvency basis. Going Concern Valuation: The going-concern valuation assumes that the Plan continues in operation and is longer term in focus. It determines if there are enough assets being held in the Plan for pension benefits to be paid in the future for accumulated service to date. It also assesses whether the level of contributions made by Plan members and Canada Post is enough to cover the additional pension obligation to be created in the future. Solvency Valuation: The solvency valuation assumes the Plan is terminated on a specific date. This test exists so pension regulators can ensure that, in such an unlikely situation, Plan members are paid what would be fully owed to them to that point. The results are strongly affected by the long term interest rates in effect on the date of the valuation. Since interest rates remain extremely low many pension plans are experiencing large solvency deficits. Many large defined benefit pension plans are currently funded between 70-90%. CPC Pension Plan Results: The valuation results show that, on a going-concern basis, the Plan is at its funded target ratio of 100 per cent. This means that the Plan is estimated to have enough assets to pay future pension benefits, assuming that Canada Post is financially healthy and that the Plan continues to operate over the longer term. On a solvency basis, using the market value of assets, the Plan had a deficit of $6.5 billion, for a solvency ratio of 72 per cent effective December 31, The deficit represents the shortfall that would exist between Plan assets and the cost of future pension benefits if the Plan had been terminated on December 31, 2012.

4 Measures to Eliminate CPC s Solvency Deficit: The federal pension legislation requires a plan sponsor to erase any solvency deficit over five years. In the absence of any special relief measures this would mean that Canada Post would have to make special payments of more than $1 billion a year. In 2011 the Government of Canada put in place measures to allow pension plan sponsors, such as Canada Post, to put off special payments. This letter of credit is valued as up to 15% of the market value of the plan assets. The Problem Facing Canada Post: Canada Post expects to exhaust its letter of credit sometime close to June At that point, Canada Post will need to start injecting large amounts of cash (close to $1billion per year) into the Plan in special payments. Canada Post says it can t afford to make special payments that large. The Performance of the CPC Pension Plan: The current solvency deficit has nothing to do with the recent investment performance of the pension plan. In 2012 the rate of return was 10.1 per cent, outperforming its benchmark rate of return of 8.5 per cent. The Plan has generated positive returns for four consecutive years since the 2008 global credit crisis. Impact of Interest Rates on the Fund for solvency calculations: Discount rates are the longterm rates used to calculate pension obligations. They have been decreasing for many years. When discount rates are low, it is more costly to fund the CPC Pension Plan. For example, a decrease of 0.5 per cent in the discount rate increases the fund s obligations by about $1.2 billion. An increase in discount rates would have the opposite effect. Retirement Age and Lifespan: the average Canada Post worker retires at age 58 and he or she can expect to live for another 27 years. Since lifespan is increasing and retirees are living longer this will put greater pressure on the financial situation of pension plans. Plan Membership: The CPC Pension Plan has 57,923 members who are active employees. This is down 8.4% since Currently there are 26,236 retirees, an increase of 77.8% since Total Plan Assets: The Plan s net investment assets at the end of 2012 were $16,712 million, an increase of $1,355 million from the end of Dn cope P age

5 PENSION PLAN QUESTIONS AND ANSWERS 1. Is there really a problem with the Canada Post pension? There is no problem with the pension on a going-concern basis, which is fully funded. The problem is the solvency deficit which is a test that assumes the plan would be wound up as of a specific date. On this basis there is a large deficit of $6.5 billion and the plan is only funded at a level of 72%. 2. What caused this problem? How did we get here? The causes for this level of funding are the recession of coupled with the persistence of extraordinarily low level long term interest rates. 3. Why can t Canada Post simply make their solvency payments as they are required to do? When the letter of credit is used up Canada Post will be required to make solvency payments of about $1 billion per year. That could start around June They say they don t have the money. 4. What is CUPW s goal regarding the pension? Isn t this CPC s problem? If CPC runs out of money that s a problem for us too. Our goal remains what it was during the last round of negotiations: to preserve the defined-benefit nature of the pension plan. 5. Can CPC make unilateral changes to the pension plan in order to reduce the solvency deficit? This is an open question. CPC may believe that they can change the plan s benefits without our agreement. If they tried to, it could become a matter for the courts, which might take years to determine. 6. Does the pension contribution holiday that CPC took in have anything to do with this? Not at all. It should be noted that CPC made special solvency payments of $716 million to make up for the solvency deficit from During the negotiations CUPW agreed to permit CPC to recover an amount equal to the special payments they had previously made provided there was a surplus in the plan. The agreement also specified that once CPC had recovered its previous special payments it could not use any future surplus without the permission of CUPW. CPC recovered $373 million during However, the fund went into negative territory and CPC stopped recovering these funds in November It only recovered 52% of the special payments it had previously made. /2

6 7. Why should the solvency test even be applicable to our plan, as we are not going to wind up Canada Post? This is a tough question. Some other public employees pension plans are not required to apply the solvency test. It could be argued that the government would be on the hook for the cost of benefits, so the test and the special payments are not really meaningful. One could also argue that testing a plan s viability assuming a wind-up of the plan doesn t make sense for a federal postal service. Regardless of these good arguments, the solvency test is currently required, and the union alone does not have the authority to change that. 8. What if nothing happens? The reality is that if nothing else changes the present regulations require CPC to make the solvency payments over five years and the letter of credit provided by the government will be used up sometime close to June CPC says it cannot afford to pay $1 billion per year into the pension. 9. Didn t the government allow Air Canada to stretch out its solvency payments for more than five years? Yes. It did so as part of a larger agreement reached between Air Canada and its unions to restructure some elements of their pension plan which resulted in reducing the costs of the pension. 10. Didn t we save the pension plan by signing the last collective agreement? One of the things we protected in our last round of bargaining was the defined-benefit pension. Canada Post was demanding changes that would have resulted in a defined-contribution plan for new hires. In our collective bargaining, we kept a defined-benefit pension for all members with pensions. But the plan s solvency problem has gotten worse and we are faced with a very difficult situation. 11. Can we solve the problem by increasing contributions? No. The solvency deficit represents more than $100,000 per active member. There is no way this can be solved by simply increasing contributions alone. 12. What is CUPW asking members to do? Inform yourselves. This is about your plans for the future, and about preserving a pension we ve bargained hard to protect. Please read materials from CUPW, and also the reports from the pension plan itself. Ask your local executive if you have any questions. We have to deal with this issue internally, while we work with the employer to keep the plan viable for all of us. Dn cope P age