SPECIAL GENERAL MEMBERSHIP MEETING – AUGUST 18, 2021 – 7:45 P.M.
This meeting will give members an update on the pension issue and to explain the purpose of the CAAT Info Session scheduled for August 25, 2021.
Please click on invite to join the meeting.
YOU’RE INVITED TO JOIN A MICROSOFT TEAMS MEETING
SPECIAL GENERAL MEMBERSHIP MEETING
WEDNESDAY, AUGUST 18, 2021 – 7:45 P.M.
JOIN ON YOUR COMPUTER OR MOBILE APP
INTRODUCTION TO DBplus INFORMATION SESSION – AUGUST 25, 2021 – 5:00 P.M.
The KINWU Executive met with UNIFOR 28-0 (Maitland) last month to discuss negotiations and proposed pension changes. As these changes affect both unions, we are working together with open lines of communication and support. From this we invite you to attend an “Introduction to DBplus” Information session hosted by the CAAT Pension Plan on Augut 25, 2021 at 5L00 p.m. This session will provide members with an overview of the CAAT Pension Plan, its design, features and benefits. This will be an online session which you can register for through our website.
You are invited to attend an “Introduction to DBplus Information session hosted and led by the CAAT Penson Plan.
The presentation will provide you with an overview of:
– The CAAT Pension Plan
– The DBplus pension plan design
– Additional benefits and key features
– Purchasing additional pension
This session is expected to be 90 minutes in length, including plenty of time for questions.
To join, go to Registration Link
CAAT PENSION PLAN – INTRODUCTION TO DBplus
DATE: AUGUST 25, 2021
START: 5:00 P.M.
TYPE: WEBINAR – INVISTA UNIONIZED EMPLOYEES
REGISTRATION LINK:
https://bit.ly/CAATINVISTA_25AUG5PM
April 12, 2021
As there are many questions concerning the recent announcement about pension changes in 2023 for all INVISTA Canada employees, stand by for updates.
For now, all questions should be directed to the Company.
We will be sure to inform all members of further details once we have received them.
Cory Serson
President
KINWU
August 27, 2020
I have now confirmed that this new requirement – that commuted value payments only be paid at the funded ratio – is only for target benefit plans. I am happy to provide more information about what a target benefit plan is if you like, but basically it is a pension plan that has a defined benefit, but where the administrator of the Plan (typically a Board of Trustees) can reduce previously accrued benefits if the Plan is not funded sufficiently.
For these types of Plans, the new commuted value standards will allow commuted value payments to be made at the funded level of the Plan, with no additional obligation on the Plan to later make up the difference. The underlined part here is the key distinction. In plans like the Invista Pension Plan, which is a traditional defined benefit plan that is not a target plan, benefits cannot be reduced unless the Plan is wound up in an underfunded position and the employer is insolvent and cannot pay what is owed.
However, under the Pension Benefits Act, if a Plan like Invista’s is underfunded, commuted value payment can also only be paid at the Plan’s funded level, unless one of the two conditions is satisfied:
1. the administrator is satisfied that an amount equal to transfer deficiency has been remitted to the pension fund; or
2. the aggregate of all transfer deficiencies for all transfers made since the last filed actuarial valuation report is less than five per cent (5%) of plan assets.
However, unlike with a target benefit plan, any deficiency that is not initially transferred out, must be transferred to the terminated members in no more than five years.
But this requirement is not from the new commuted value standards – it is already the rule for traditional defined benefit pension plans such as yours.
LETTER FROM KOSKIE MINSKY LLP TO KINGSTON INDEPENDENT NYLON WORKERS UNION
DATE: JULY 9, 2020
SUBJECT: UPDATE ON IMPACT OF NEW ACTUARIAL STANDARDS ON THE CALCULATION OF COMMUTED VALUES FOR MEMBERS OF THE INVISTA CANADA PENSION PLAN
This memo discusses various issues that apply with respect to the members of the Invista Canada Pension Plan (“the Pension Plan”).
It follows up on past work we have done on the impact of new standards set by the Canadian Institute of Actuaries for the calculation of commuted values (the “Commuted Value Calculation Changes”).
Since the first memo that we provided to you in April, we have had discussions with the Company and their actuaries and can provide more detail about what these changes mean for the members of the Pension Plan.
This memo covers the following three questions, which we summarize here briefly before explaining in greater detail.
1. How likely is it that the Commuted Value Calculation Changes will impact members’ Commuted Value Calculation?
Answer – It is VERY UNLIKELY that the Commuted Value Calculation Changes will impact the commuted value of the members of the Pension Plan, at least in the next few years.
2. In the unlikely event that the Commuted Value Calculation Changes do impact members’ commuted value, what kind of impact could there be?
Answer – Because of the nature of the Pension Plan, even if events arise which mean that the Commuted Value Calculation Changes do have an impact, that IMPACT WIL LIKELY BE VERY SMALL
(i.e. members might end up with commuted values that are a few percentage points smaller).
3. If a member decides not to take their commuted value and instead elects a monthly pension, how secure is that monthly pension?
Answer – It is important that members know that THEY DO NOT HAVE TO TAKE THEIR COMMUTED VAUE AND CAN ALWAYS ELECT A MONTHLY PENSION. If a member either resigns or is terminated, they
always have the option to simply take their monthly pension (immediately if they qualify, or a some future date if they are not yet eligible to retire). Further, although there is
always Some risk that the Company may close the business or go bankrupt, the Pension Plan has assets that are held independently from the Company and the monthly pension that members are
entitled to remains fairly secure, regardless of what happens to the Company. While it is possible that reductions might occur if the Pension Plan was wound up in an underfunded state,
the fact that the Pension Plan has assets that are held outside the Company, and the fact that the Pension Plan is covered by Ontario’s Pension Plan Benefits Guarantee Fund, means that
the option to take a monthly pension provides more security than some members may currently believe.
Introduction
As we explained in the April memo, pension plans in Ontario make two types of payments to members. Usually pension plans pay retired members a regular pension in monthly instalments for the pensioner’s life. But, if a member terminates employment prior to commencing their pension, in certain circumstances the member may choose to withdraw a lump sum payment equal to the “commuted value” of the member’s benefits.
Ontario’s pension legislation requires that this “commuted value” option be available to a terminated member unless the plan member “is entitled to immediate payment of a pension”. (see Section 42(3) of the Pension Benefits Act.) However, the legislation also allows plans to provide lump sum commuted value payment options in other situations if the plan provides for it. In the case of the Invista Canada Pension Plan, the Plan was amended in 2017 to allow all retirement eligible members to receive their commuted values, except for those who are entitled to an unreduced disability retirement pension. More background on the Commuted Value Calculation Changes is set out in our April memo and we will not repeat it here. We instead focus on certain questions that we understand are arising for the members of the Plan.
1. How likely is it that the Commuted Value Calculation Changes will impact members’ Commuted Value Calculation?
Answer – We have had both conversations and written correspondence with the Company and with the actuarial firm that works for it (Aon). Based on these discussions, and on various
documents that we have been provided, we can confirm that is is VERY UNLIKELY that the Commuted Value Calculation Changes will impact the commuted values of the members of the Pension
Plan, at least in the next few years.
We have also been provided with the email from Christine Blais what was sent to all members of the Plan on June 15, 2020. The calculations done by the Company and its actuaries show
that if current interest rates remain the same, THERE SHOULD BE NO IMPACT ON THE COMMUTED VALUE CALCULATIONS OF MEMBERS AS A RESULT OF THE COMMUTED VALUE CALCULATION CHANGES. Given
current economic conditions, we believe that it is highly unlikely that interest rates will rise significantly in the next few years.
2. In the unlikely event that the Commuted Value Calculation Changes do impact members’ commuted value, what kind of impact could there be?
Answer – Because of the nature of the Pension Plan, even if events arise which mean that the Commuted Value Calculation Changes do have an impact, that IMPACt WILL LIKELY BE VERY SMALL
(i.e. members might end up with commuted values that are a few percentage points smaller). Even if interest rates were to go up, which is very unlikely in the short term, the impact of
the Commuted Value Calculation Changes is expected to be very small. For example, if interest rates rose from 2.25% to 3.25% (which is very unlikely in the short term), the calculations
from the Company and its actuaries show that the worse reduction in value that could be expected is 0.3%. This means that even if one was impacted, the most a member could reasonably be
expected to lose because of the Commuted Value Calculation Changes is 0.3% of that member’s commuted value (i.e. a $100,000 commuted value would instead be worth $99,700). If interest
rates were to increase by 2% to 4.25% (which is even more unlikely in the short term), the biggest impact that could be expected is a decrease of 1.2% (i.e. a $100,000 commuted value
would instead be worth $98,800.
However, if interest rates do go up significantly, the commuted value of all of the members would go down for reasons that have nothing to do with the Commuted Value Calculation Changes.
This is because a commuted value is meant to replicate the “present value” of a stream of pension payments. This “present value” calculation reflects the time-value of money. This
sounds complicated but it really is not. If one is entitled to $1,000 every month for a year, and one can choose to take the monthly payment of $12,000 on January 1st, there is a value
in taking it all right away because one can make the $12,000 grow over the course of that year. What this means is that when an actuary values a stream of pension payments, there is a
“discount factor” applied to the calculation which reflects the fact that one is getting all the money up front rather than over many years. This “discount factor” reflects prevailing
interest rates, so if interest rates go up, the amount of money needed to satisfy the present value of a stream of payments goes down. This can lead to significant drops in the dollar
value of a commuted value payment, but this would be the case regardless of whether the Commuted Value Calculation Changes occur or not.
3. If a member decides not to take their commuted value and instead elects a monthly pension, how secure is that monthly pension?
Answer – Members should know that THEY DO NOT HAVE TO TAKE THEIR COMMUTED VALUE AND CAN ALWAYS ELECT A MONTHLY PENSION. If a member either resigns or is terminated, they always have the
option to simply take their monthly pension (immediately if they qualify, or at some future date if they are not yet eligible to retire).
Some employees think it may make sense to terminate employment and receive their commuted value transfer so they are no longer subject to the fate of the Company. The decision of whether to continue employment and whether to elect a commuted value payment is highly personal and should be made in consultation with one’s family and financial advisors.
However, it is important in making that decision that one knows that the Pension Plan has assets that are held independently from the Company and the monthly pension that members are entitled to remains fairly secure, regardless of what happens to the Company. Ontario pension legislation requires that, at any given time, the Pension Plan have sufficient assets to satisfy the Plan’s liabilities – not just in terms of monthly pensions that are being paid, but also in terms of the monthly pensions that it will owe to people in the future who have not yet retired.
If the Pension Plan does not have enough money in it to pay those liabilities, then there is a requirement that the Company make special payments into the Plan to satisfy those liabilities. It is entitled to this over a period of a few years. Further, if the Company decided to wind up the Pension Plan, it is required to fully fund the Pension Plan such that annuities can be purchased from an insurance company for all Plan members who are entitled to a pension, whether presently or in the future. According to the Pension Plan Statement that was mailed to members in June, the Plan was 93% funded as of January 1, 2018. The “funded ratio” may have decreased somewhat since then, but it is likely still over 80% funded.
While it is possible that reductions might occur if the Pension Plan was wound up in an underfunded state, the fact that the Pension Fund has assets that are held outside the Company, and the fact the the Pension Plan is covered by Ontario’s Pension Benefits Guarantee Fund, means that the option to take a monthly pension provides more security that some members may currently believe. Ontario’s Pensions Benefits Guarantee Fund provides protection for the first $1,500 per month of each plan member’s pension payments. This means that if one has a pension of $1,500 or less per month, that pension payment is guaranteed by the Pension Benefits Guarantee Fund and should not drop below that amount.
To further understand the current security that members have in their monthly pension benefits, it is useful to examine a hypothetical situation. If we assume that the Plan is currently funded at 85%, and the Company went bankrupt and there was no money available to pay into the Pension Plan, individual plan members could expect to receive 100% of the first $1,500 of their monthly pensions, and 85% of the remaining amount.
For example, if a person was entitled to a pension of $2,500 per month ($30,000 per year) and the Plan was wound up with an 85% funding ratio, an individual could expect to receive a pension of $2,350 per month. This would reflect 100% of the first $1,500 and 85% of the next $1,000 per month.
If the Pension Plan was wound up with a 50% funded ratio (which is very unlikely), the monthly pension that the same person from the example above could expect would be $2,000 per month, reflecting 100% of the first $1,500 and 50% of the next $1,000.
It may be that the commuted value transfer is the best option for some members, and that decision should be made in consultation with one’s family and financial advisors, but it is important to understand the fact that a monthly pension is not simply subject to the success and continued existence of the Company.
LETTER FROM KOSKIE MINSKY LLP TO INVISTA CANADA
DATE: APRIL 14, 2020
TO: CHRISTINE BLAIS
HUMAN RESOURCES MANAGER
INVISTA CANADA
SUBJECT: FOLLOW UP ON CHANGES TO REGULATORY CALCULATION OF COMMUTED VALUE – INVISTA CANADA PENSION PLAN (THE “PENSION PLAN:)
Dear Ms. Blais:
We are counsel to the Kingston Independent Nylon Workers Union. We have had discussions with the Union with respect to the introduction of new standards for the calculation of commuted values by the Canadian Institute of Actuaries (“CIA”).
The Union has now provided us with correspondence from your office that provides answers to some questions that have arisen with respect to how these changes will impact the Pension Plan.
It is important that the Union understand these changes to help ensure that any impact on its members is minimized. In that respect, our office was encouraged by the fact that Aon does not believe that the change to the pension commencement assumptions would have a material impact on the calculation of commuted values. Although we are pension lawyers and not actuaries, we did have some concern that the Pension Plan’s subsidized early retirement provisions would mean that some people who terminated membership early might be impacted.
In order to ensure that we understand the basis of Aon’s opinion, we are writing to request an opportunity to speak with Aon about their analysis of how the Pension Plan will be impacted. We would like to ask some questions, and ensure that we understand the basis of the view that the changes will not impact commuted value calculations for the Union’s members. We would expect that someone from the Union and someone from Invista would also be on the call.
Please let us know if this would be acceptable to you and how we should go about setting up a call.
Yours truly,
James Harnum
Koskie Minsky LLP
MEMORANDUM FROM KOSKIE MINSKY LLP
DATE: APRIL 3, 2020
SUBJECT: IMPACT OF NEW ACTUARIAL STANDARDS ON THE CALCULATION OF COMMUTED VALUES FOR MEMBERS OF THE INVISTA CANADA PENSION PLAN
____________________________________________________________________________________________________________________________________________
This memo summarizes the impact of new standards set by the Canadian Institute of Actuaries for the calculation of commuted values on members of the Invista Canada Pension Plan.
Introduction
Generally speaking, pension plans in Ontario make two types of payments to members. Usually pension plans pay retired members a regular pension in monthly instalments for the pensioner’s life. But, if a member terminates employment prior to commencing their pension, in certain circumstances the member may choose to withdraw a lump sum payment equal to the “commuted value” of the member’s benefits. Ontario’s pension legislation requires that this “commuted value” option be available to a terminated member unless the plan member “is entitled to immediate payment of a pension”.
However, the legislation also allows plans to provide lump sum commuted value payment options in other situations if the plan provides for it. In the case of the Invista Canada Pension Plan, section 8.05 allows any member whose employment is terminated to elect a lump sum commuted value transfer if that member is not entitled to an unreduced pension on that date. The commuted values for each terminated member differ based on what conditions the member has satisfied under the Pension Plan. Commuted value calculations are highly personalized, and are based on legislative requirements, plan provisions and a variety of assumptions that must be made about things like mortality rates, prevailing economic conditions, and personal factors such as age and marital status. Legislation across Canada requires that the calculation of a commuted value requires a Plan to comply with the Standards of Practice of the Canadian Institute of Actuaries.
The definition of “Commuted Value” in the Pension Plan text reflects these requirements:
2.10 – “Commuted Value” of a benefit means the present lump sum value of the benefit determined on an actuarial basis which does not distinguish on the basis of sex, unless required by the Act, using the methods and assumptions adopted by the Company, subject to the Act, the Income Tax Rules and the standards of practice specified by the Canadian Institute of Actuaries.
For the purpose of this memo, we are focusing on changes that have been announced to “the standards of practice specified by the Canadian Institute of Actuaries”.
Change to Method of Calculating Commuted Values
As discussed above, when calculating the commuted value of a pension, there are various assumptions that must be made by an actuary. One key assumption is what date should be assumed that an individual will commence his or her pension. Under the old standard, actuaries would assume that a member who was terminated and had the right to elect a commuted value lump sum transfer would choose to retire on the date that maximized the commuted value of his or her pension. This date would then be used to determine what the commuted value for an individual would be.
Under the new standards, which are set to take effect on August 1, 2020, commuted values are to be calculated assuming there is a 50 percent probability that a former member will commence their pension at the age which produces the highest commuted value and a 50 percent probability that a former member will commence their pension at their earliest unreduced retirement age. The idea behind this new approach is that it will better reflect when individuals actually take their pensions, as not everyone retires on the date that maximizes their pension value. This will have the effect of reducing commuted value payments in many circumstances.
The new standards also change the manner in which actuaries determine what the relevant interest rate to use will be. This is highly technical and could mean higher or lower commuted value entitlements, depending on prevailing economic conditions. The change to the retirement date assumption, on the other hand, will only lead to reduced or identical commuted values and never larger commuted values.
Although the Canadian Institute had originally given August 1, 2020 as the date these new standards will take effect, they have recently released an update saying that they are considering delaying the effective date. We do not yet know whether they will or how long such a delay might last.
Impact of New Standards
As the calculation of a commuted value is highly personalized, it is impossible to provide a description of how the changes will impact all the members in the Invista Canada Pension Plan. However, there are several general statements that can be made about the impact.
1. The change will have no impact on individuals who choose to commence or defer their pensions rather than transfer them. The commuted value transfer is an option – it is not mandatory. Terminated employees that are not yet able to retire can choose to leave their money in the Plan and commence their pensions at a later date.
2. The new standards have no impact on amounts that Plan members have in their optional money purchase accounts.
3. The impact on member commuted values can be significant in plans that have subsidized early retirement provisions (i.e. plans where the penalty for early retirement is less than the full actuarial reduction). The Invista Canada Pension Plan has subsidized early retirement options, and this means that this change could have a material impact on the commuted values that individuals might be entitled to if they are terminated. This is because, in a plan with subsidized early retirement options, the date that a member’s pension is most valuable might actually be several years earlier that the date at which their pension is fully unreduced.