Possible Settlement of Surplus Issue
What happens if Canada Life tenders an offer to settle the dispute to the class action plaintiffs?
Any settlement would have to be discussed with the CLPENS Executive, not just the class action plaintiffs. Canada Life has agreed to this concept and requested that all negotiations be confidential. Confidentiality is essential in order to have a viable negotiating process. The CLPENS Executive is committed to obtaining the best possible agreement that is acceptable to the members, failing which we will proceed with the litigation.
Can the CLPENS Executive or the class action plaintiffs settle the class action without the consent of the CLPENS members?
All eligible CLPENS members (and other pension plan members) will be notified and consulted with respect to any potential negotiated settlement. There are two primary procedural protections in place for the members as follows:
Do people who “opt out” of any settlement of a class proceeding receive nothing?
When will I know that there is a possible settlement?
Why did the CLPENS Executive sign a communication and confidentiality agreement without consulting with the members and holding a vote to assure that the members accept that negotiations be held in confidence? Why are such agreements necessary?
How do I join the group?
If you are a member of the Pension Plan and would like to keep informed about our activities, please visit the Membership page. If you know of someone who may be interested in our activities but does not have Internet or e-mail access, please pass information along to them.
I signed up for CLPENS, but I am not receiving any e-mails.
1. Did you change your e-mail address and forget to tell us? Every time we send out a group e-mail, we receive a number of 'delivery failed' messages.
2. Do you use Hotmail, or have an Anti-spam program attached to your e-mail application? If so, our group e-mails might be going directly into your Junk or AntiSpam folder. This usually happens if your initial e-mail came from a different address, such as your work address, or if someone else submitted your name. You might still be able to find our messages in your Junk/AntiSpam folder but some applications, notably Hotmail, delete the contents after a week or so.
Many anti-spam applications let you list the addresses from which you wish to receive all e-mail, even if it looks like spam to the software. Hotmail calls it the "safe" list; Norton AntiSpam calls it the "allowed list". The solution is to add our address, email@example.com, to your 'safe' or 'allowed' list.
Alternatively, if you find one of our message in your AntiSpam folder, you may be able to right-click on it and specify "this is not spam".
3. We might not have you on our distribution list. When someone first signs up, we send a confirmation that his/her name has been added to our distribution list. If you do not recall ever receiving a confirmation, please contact us again.
4. We might have made an error. Our procedures are susceptible to human error, and occasionally problems arise. If points 1 and 2 above do not apply, let us know so we can check our records.
5. In a very few cases, our outgoing e-mails get deleted by the recipient's server. If you suspect this might be the case, and it cannot be rectified by contacting your Internet Service Provider (ISP), let us know and we will try to find a workable solution.
I used to get your e-mails, but I don't seem to be getting them any more.
If you have not changed your e-mail address, this may be related to the anti-spam issue discussed in point #2 above. Our e-mail address changed in November, 2005 and it is possible that our new address is not on your safe/allowed list. If you don't think it is an anti-spam issue, it is probably our error. Please let us know.
I receive your e-mails, but I am unable to access your newsletters via the Internet.
If you have e-mail, but do not have internet access, we can send the newsletters as e-mail. They will not be formatted the same way, but the content will be the same. Let us know.
How often are meetings held?
How much money do I have in my pension?
Sorry, we do not have that information. For specific details of your personal pension situation, you need to contact the Company.
The current plan administrator is
Wallace (Wally) Robinson Assistant Vice-President, Pension Benefits, Human Resources London Life Insurance Company 255 Dufferin Ave., London, ON N6A 4K1 (519) 435-7320 FAX (519) 435-7330 firstname.lastname@example.org
How can I learn more about my rights under the Pension Benefits Act?
The Pension Benefits Act provides information regarding member’s rights. This is a lengthy document that can be difficult for the layperson to interpret. However, the Financial Services Commission of Ontario publishes the booklet Your Pension Rights.
Financial Services Commission of Ontario
Pension Plans Branch
5160 Yonge St, 4th Floor
North York, Ont. M2N 6L9
The current trustees appointed by Great West Life are J. R. Grant, D. Allen Loney, and A. P. Symons.
The company appoints the trustees at its sole discretion. Once appointed, a trustee will serve until he resigns, reaches age 75, or is dismissed for cause. The law requires that there be no fewer than three trustees and at least one of these must be independent. Independent means not an employee or a director of the company.
Can the Company control the vote by padding the board of trustees?
The Company already wins 2 to 1, but the independent trustee has considerable power, including that of protesting a majority decision in court. We understand that, in practice, the Company has not insisted on anything which independent trustees failed to support.
The trust deed contains a process for expanding the number of trustees which will restrict the Company’s ability to drown out the independent trustees.
What effect will the indexing changes made in 2001 have on our pension benefits?
Refer to the Indexation section for a more detailed analysis of this topic.
What is the main concern?
Our main concern is that Great West will attempt to claim ownership of the surplus and remove it from the plan.
Who owns the Pension Surplus?
Good question! Nobody actually knows. What is known is that the original trust deed specified that in the event of a plan wind-up, the surplus would be distributed amongst the members. This was changed sometime in the 1980s to say that upon wind-up, after all the benefits were provided for, any remaining surplus would be returned to the Company. It is the Company’s position that it owns the surplus, but we believe that the surplus belongs to the beneficiaries of the trust, i.e. the members of the Plan.
This is one of the main issues in the current suit against the Company. The surplus issue must be resolved before the partial wind up can be completed. For details, see the Class Action page.
How much is the surplus?
We do not know exactly because the only information released by the company is out of date. Our best guess is that it is around $250-$300 million and about 40% to 50% of the fund.
How did such a large surplus in the Pension Plan arise?
The main reason is that the the benefits were based on the rate of interest earned by CLA, but the fund earned substantially more than the CLA rate, especially during the high interest rate era of the 1980s. Once the surplus reached critical mass (probably around 1986) the excess interest became greater than the Company pension cost. Unless there is a major change to one of the underlying factors, the surplus will continue to grow. Changes to underlying factors could include things such as a big drop in the plan membership or a negative return on the pension fund, such as occurred in 2002.
Because of this large surplus, the company has not contributed to the pension fund since the 1980’s, and is not permitted to make further contributions. The employees are still required to contribute, because that is a condition of their membership in the plan.
Can Great West remove surplus from the Pension Plan?
Not without the co-operation of the trustees, who are, by law, required to protect the interests of the members ahead of the interests of the Company, irrespective of who appointed them. In order to remove surplus on full or partial wind-up of the Plan, the Company must follow the prescribed steps in the Pension Benefits Act, which includes establishing ownership of the surplus.
Since 1992, surplus has been removed to pay plan administration expenses, but this process is currently in dispute, and is another issue in the Class Action.
The contribution holiday enjoyed by the company over the past 2 decades is effectively a withdrawal of surplus as well.
What happens if Great West cannot establish ownership of the surplus?
This, of course, is the position which we believe applies. In this case, when any part of the plan is wound up, the surplus attributed to those members in the wind up group must be distributed to them.
Because of the partial plan wind up which has been declared, anyone in the wind up group will not be permitted to remove their commuted value from the plan until such time as the partial wind up report has been filed and approved. Those in the wind up group who reach retirement age (55 or over) are permitted to start their pension.
Q1 I have just been terminated and need to make a decision about my pension. What do I need to know?
A1 First, don’t be panicked into making a quick decision. There is plenty of time. The Company will give you a written explanation of your rights and your options as well as a quotation of your entitlement including a cash value quote. This is required by law in Ontario and there are similar requirements in other jurisdictions (except PEI). The Company used to operate to a higher standard (as did many other employers) and would offer to help the former employee by offering advice and helpful suggestions. We have no information on how this might be handled now but, considering the very large number of terminations, it is unlikely that you should be able to rely on such assistance being available. In short, ask for what you need, use what you can get but do not rely upon the Company providing any more than the statutory minimum.
You should remember that the decisions to start the pension or to take the cash are irreversible. The decision to take the paid up pension is a temporizing one as you will almost certainly be permitted to take cash later if you so wish (but you should seek an assurance from the Company on this point). Above all, if you are angry with Canada Life and just want to take the money and be done with the Company then there is a very real possibility that you are acting in haste. Take the time to cool down and think about it.
Q2 After I have been given the written explanation and the quote, is there anything else I should ask for?
A2 You are entitled to look at certain plan documents (the plan itself, the financial statements and the most recent actuarial valuation). You may view these by appointment at the Canada Life office or you may go to the office of the Financial Services Commission of Ontario. You are also entitled to ask for a photocopy but you must be prepared to pay for that. Generally the financial documents are not that useful to you (the plan is in good financial health) but the plan text is important. If you intend to hire a professional consultant it would be foolish not to provide that consultant with the plan text.
It used to be the Company practice to give a copy of the plan text to any eligible person on request. Setting up an appointment, getting out only the documents required to be viewed, supervising the viewing and then making up an invoice was just too much trouble. We cannot say what the current practice might be but again considering the large numbers involved we would expect that the Company has some streamlined process available.
Q3 The option form I have been given says that I have 90 days to choose the commutation and after that I am locked in. Is this correct?
A3 The simple answer is no, this is not correct. Our reading of the plan tells us that there is no time limit on asking to surrender the pension provided that you do so before the pension starts and, probably, before the normal retirement date if earlier.
We have had a discussion with an official at the Company and our interpretation of the plan was confirmed. It appears that the Company made the statement on the option form so as to hurry people along as they do not want the bulk termination process to hang on too long. The Company also feels that it is OK to give false information because their pension consulting firm has approved the form.
For our part, we cannot understand why a respected Company would rely upon giving its employees and former employees false information to achieve a short term objective. This may work in your favour. It is possible that if your investments don’t work out, you might have a claim upon Great West for restitution. The claim would be based upon your assertion that you were stampeded into taking your cash before you were ready to do so by false statements made to you. We just cannot understand why Great West would put itself at this risk.
Q4 How do I decide whether to take cash or leave my money in the plan?
A4 If you are young (say under 45) and/or if you have short service (say 10 years or less) you probably don’t have much at stake. If so this may be a no brainer, take the money and transfer it to your RRSP and get on with the rest of your life. Keep the documents because you may still be able to transfer the money into the plan of your new employer if that plan offers preferential treatment to pension transfers. If the amount is large, if you are age 50 and up and if you have 25 or more years service then additional factors come into play and you will need to explore the options further.
The essential point to remember is that the discount rate in the cash value calculation is 6% at the time of writing. If you take the cash you have to earn that rate all the way to your retirement date plus you have to cover the investment expenses in your RRSP, say .75%, for a total of about 7% just to stay level with what you are giving up. In addition the main reason for taking the cash is that your paid up pension has no inflation protection until you retire, so you will want to earn another 2.5%, or so, to preserve its earning power. If you think you can earn 9- 10% from now until retirement then transferring the cash is a good idea. In a way, now is an excellent time to surrender because the discount rate is fairly low. If you wait and the discount rate rises then your cash value will reduce and you will have to earn at an even higher rate.
The above is a simplified version, but the calculation of the commuted value is quite complex, especially when you consider the post retirement component. For someone under, say, age 45 this is not that much of a concern. If you are close to 65, then it is a big issue as are concerns about your health and that of your spouse, your retirement plans etc.
Q5 The rep from Investors’ Group wrote to me saying that “the people you are consulting are currently CL pensioners and are clearly making sure that their pensions are not jeopardized by the many people who may choose to take out their commuted values”.
A5 He could not have it more wrong. The reserve that the Company holds in the plan to cover your pension is greater than the commuted value. If you take the cash then that extra amount is transferred to the already huge general surplus. By this process, the general surplus becomes that much larger and there is one less person to share in it. So if we were looking only to our own interests we would advise you all to take the cash. But if you will read on, you will see that it is not so.
As a general principle, any salesperson who relies upon impugning the principles, morals or motive of someone who holds a contrary view is a salesperson who should be avoided. Particularly so in this instance as he demonstrates a lack of knowledge of the subject.
Q6 I am 57, what do I need to consider?
A6 You have at least 3 choices. One is to just do nothing and this is probably the best choice until you know what you are going to be doing for the next few years. Another choice is to start the pension immediately and you can do this whether or not you intend to get another job. The third choice is to take the money and transfer it to an RRSP. This third choice is possibly the worst and by taking it you may lose retiree health benefits. (Depending upon the Company position, you may have to start your pension at once to get retiree health benefits and you need to ask for a ruling on this point.}
The important thing you need to consider carefully is that you have no inflation protection unless you start the pension immediately. If you do so and really don’t need the income, you will have to pay the tax and invest the remainder. This should still leave most people in a better position than just leaving it as a paid-up pension until you actually retire. The indexing feature is one of those benefits where you either use it or you lose it.
The cash value will seem very large in relation to the monthly pension amount. This is because the indexing feature is a very expensive one and, since no insurer offers such a product for sale, it cannot be exactly replaced.
A last point to consider is your health and that of your spouse. If you are both in good health then you should probably start the pension as soon as reasonable so that you get the most out of it. If either you or your spouse is in very poor health and likely to die before age 65, then in the one case the pre-retirement death benefit may be of more value to your spouse or in the other case the single life pension might be more valuable to you.
Q7 If I start my pension immediately I will lose 4.8% for each year to age 65. Is this not a bad deal?
A7 This is a complicated question and one which requires careful answer. First, if you have more than 25 years in the plan, you will be forgiven 0.4% of the reduction for each month over the 25 years to a maximum of 60 months. Second, remember that the reduction is calculated on a simple interest basis but the indexing is compound. Third, the plan early retirement factors are generally better than the true actuarial reduction. In other words, there is a subsidy there and it is another one of those benefits that if you don’t use, you lose.
So while all the other factors have to be taken into account (family income, tax situation, job prospects, family health etc) the simple answer is that if you want the inflation protection, you have to start the pension.
Q8 I do have more than 25 years service but I am nowhere near retirement yet.
A8 First, you should read the general answer above which deals with what you have to earn on your investments. Second, you will not lose the value of the improvement in the actuarial reduction that you have earned because it is factored into the commuted value calculation. Lastly, you may have earned retiree health benefits and you must check with the Company to determine if you will lose them by cashing out.
When you have considered all the above, you have to assess your tolerance for investment risk. We cannot advise you but if you are comfortable after considering all the above then cashing out is a viable option for you.
Q9 If I take the money, where should I place it?
A9 Sorry, we cannot answer that question except to say that one of the places you should look into is the Staff RRSP.
Q10 I am considering starting the pension. What should I look into?
A10 If you are a single person you should consider whether or not you need the guarantee period. If you have no dependents and plenty of life insurance for your children then you can increase your monthly pension by electing a “no guarantee” option. If you are under age 65 and in poor health you may be advised to consider a deferral of the pension and live off some other income if you have any. Alternatively, opt for a 15 year guarantee perhaps. Generally speaking, changes in the guarantee period for ages 60 and under will have little effect on the amount of pension payable.
If you have a spouse the choices are more complicated. If either of you is in poor health the right to elect an optional form of pension without the need to submit evidence of health may be important. The normal form of pension is a joint life and last survivor reducing by 40% on the member’s death. If your spouse also has a work related pension, it will also have a joint life normal form. The only way to sort this out is on a family income/expense basis. So you now have to do what we jokingly refer to as family planning for seniors.
First you determine what your income will be when you are both retired and then you determine what it will drop to if one of you dies and then again what it will drop to if the other one dies first. You also have to consider what your expenses will be if either of you is single, e.g. will the house be sold etc. Then you decide what kind of drop you need to request when one of you dies and you apply for a quote on that option. In my case, for example, my wife’s pension is the standard 40% reduction on member’s death. I took a 25% reduction on first death. Because my wife is a little older than me, we actually got a small increase in my pension by taking that option.
Q11 How long will the wind-up take to finalize?
A11 This depends a lot upon what Great West do but at the very least we would guess that it will take nearly three years. First, Great West have to decide that their integration process is complete and there will be no further terminations in the integration. In the notice Great West indicated this would be in July 2005. Following this a wind-up report must be submitted to the Superintendent of Pensions and this will probably take about 6 months. After that any one who objects to the wind up report may make representations to the Superintendent and any such objections will further delay the process and possibly force the matter into court. When the Superintendent has approved the report (as amended if appropriate) Great West will send a notice to each affected member giving all the necessary info for the making of his or her choice. You will have 60 days to make your election.
Q12 Does this mean that I can’t get any money for several years?
A12 Yes, it does mean that you cannot get your commuted value to transfer into an RRSP so that you can start directing your investments. However, if you are eligible to do so under the terms of the plan, you can elect to start your pension. If the commuted value eventually approved includes an enhancement, we understand that all those covered by the partial wind-up and who have started their pension will receive the benefit of that enhancement. If you have any doubts on this point you should request a commitment from Great West.
Q13 What do you mean by enhancement?
A13 Under the wind-up process the ownership of the surplus must be established and this is likely to be the cause of any delay in the process. Depending upon how this plays out, the commuted value calculation may have to be modified to give members a credit for some part (or all) of the surplus. If you see this as being unfair to the members not included in the partial wind-up, that is one of the problems.
Q14 Is my pension safe?
A14 It is as safe as ever it was and fully protected by law. Any commuted value calculation will give credit for the time elapsed and in that sense there will be no loss to you. On the other hand, since interest rates are at a low point and likely to rise, it is possible that the commuted value calculation will utilize a higher rate of interest and therefore produce a lower amount. Great West, of course, have no control over this aspect.
Q15 When we are given our options information will I be able to leave my money in the plan under the same terms as at present and still get any enhancement?
A15 Likely not. The current plan gives members the maximum flexibility and this carries administrative costs. It is unlikely that Great West will continue that burden and so you should expect that you will have 2 months to decide to take the cash. If you don’t act in time or if you decide to leave your money in the plan, you will be locked in. You can expect to be able to start your pension at any time permitted under the plan but you won’t be able to elect a cash settlement.
Q16 How do I get my PAR from Great West so that I can start putting more money in my RRSP?
A16 Unfortunately this is another one of the casualties of the wind-up process. The PAR is the method by which you get credit in your RRSP contribution room for the difference between the value of the pension when the PA was determined and the amount of the commuted value. So, until the commuted value is determined it is not possible to fix the PAR. Sorry, you will just have to wait.
Page Last Revised
07 May 2011