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  2. DEFINED BENEFIT
December 14, 2016 12:00 AM

Canada Post DB plan should get solvency funding exemption — report

Rick Baert
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    Wikicommons

    Canada Post, Ottawa, should be exempt from funding on a solvency basis under recommendations for its C$22 billion ($16.7 billion) defined benefit plan made Tuesday by a Canadian House of Commons committee.

    Also among the recommendations made by the Standing Committee on Government Operations and Estimates in its report, “The Way Forward for Canada Post”:



    • Incorporating the Canada Post defined benefit plan into the C$84.7 billion Public Service Pension Plan, Ottawa, from which the postal service plan was spun out in 2000;

    • Adopting a shared-risk model between Canada Post and plan participants; and

    • Pursuing joint management between Canada Post and plan participants by creating a board comprising both employee and employer representatives, separate from direct government involvement; this would be similar to the structure of the C$171.4 billion Ontario Teachers' Pension Plan, Toronto.

    Canada Post's DB plan currently has a C$5.9 billion deficit based on solvency rules but has a C$1.2 billion surplus when liabilities are calculated on a going-concern basis, according to the House report. Solvency funding annually requires plans to be funded as if the plan were to be terminated at the start of that year, while going-concern valuations assume the plan will never be terminated. Under Canadian law, pension funds must be funded based on the higher contribution required by either of the two valuation methods.

    The Canadian Union of Postal Workers in a statement on its website said it supports the removal of the solvency funding requirement, calling it “unnecessary and counterproductive. The solvency funding rules were introduced in the 1980s in part to respond to insolvencies of private sector employers,” the union statement said. “We believe that, like many other public and broader public sector entities, there is a very low risk Canada Post will be wound up at any time soon.”

    The House committee recommendations were in line with some of those made in September by a federal government task force on the overall future of Canada's postal service. However, the House committee did not include two other recommendations the task force made: to move to a derisking investment strategy and introduce a defined contribution plan for general employees.

    Canada Post has a DC plan for administrative and technical employees hired after May 2014 and for supervisors and employees in supervisory support groups hired after February 2015. That plan had C$18.2 million in assets as of Dec. 31, according to Canada Post's 2015 participants report. Also, new rural employees hired on or after Jan. 1, 2017, will be placed in a new DC plan.

    The pension fund recommendations were part of a broader report requested by the federal government in May to look at potential changes to the overall operation of Canada Post.

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