CIA General Meeting

1. CIA General Meeting H4-PD How to Make Commuted Values Work ? Point of View of a Plan Administrator

2. Agenda • Alcan Inc. and Alcan Adminco (2000) Inc. • Impact of greater volatility of the new SoP for determining CV • Disclosure requirements - our context, philosophy and approach • Disclosure requirements - in details 2

3. Alcan Inc. • Global leader in aluminium, packaging and aluminium recycling • Pro-forma 2003 revenues of US $25.7 billion • 88,000 employees in 63 countries • 100 pension plans in 25 countries, with PBO of US $11 billion 3

4. Alcan Adminco (2000) Inc. • Wholly-owned subsidiary of Alcan Inc. • Administers Alcan’s plans in Canada and Caribbean, including 2 DB plans registered in Quebec and 1 hybrid plan in Ontario • 12,000 active members and 10,000 pensioners • Provides full spectrum of services • Actuarial and legal • Treasury • Asset management • Administration and retiree payroll • 18 employees 4

5. Impact of greater volatility On Annual Statements • Higher Probability that CV(y+1) < CV(y) • Quebec: CV must be included for the first time in annual statements as at 31 December 2004 • Administrators might consider including the CV only once every three years as allowed • but once automated, it’s easier to include the value every year • on and off might create plan members dissatisfaction • or Administrators might consider providing the CV plus a range if the applicable interest rates vary by +/- 0.5% or 1.0% • adds complexity to administration systems and to statements • Ontario: including the CV is not required • greater volatility of CV results in less incentive to include it • but less understanding (hence appreciation) of the plan by members 5

6. Impact of greater volatility On Termination Benefits • Higher Probability that CV differs significantly from one month to the other • Plan Sponsors offering the transfer of CV of deferred pensions on request at anytime (generally before age 55) might consider an amendment to limit the possibility to once every 5 years (Quebec) or less often (outside Quebec) • reduces the possibility of “timing” the transfer out, especially with the 2-month delay in the determination of interest rates • but closes the door to an option which decreases the long-term pension administration costs • for example, deferred pensions constitute only 0.5% of the C$4 Billion liabilities of Alcan plans in Canada. 6

7. Impact of greater volatility If there is no constraint on the possibility of transferring • Administrators might want to provide a range of what would be the CV if applicable interest rates vary by +/- 0.5% or 1.0% after the period for which the original CV applies • more explanation in the benefits statements will be required • likely that it will not be enough and that explanations in person will be needed • more expertise required from the benefits officers 7

8. Impact of greater volatility On Transfer Deficiencies • Everything else being equal, greater volatility will result in more plans having a degree of solvency below 100% • Transfer deficiencies will arise more often and will be larger • More administration complexities 8

9. Disclosure requirements • SoP must be followed by actuaries... • … but not necessarily by Plan administrators, who must comply with disclosure requirements of the applicable legislation when communicating with members • So when are the disclosures required and to whom should they be provided ? • To consider: • Do the Plan administrator and actuary work for same firm ? • Is a software used so that an actuary is not directly involved in every calculation ? 9

10. Disclosure requirements - our context • Adminco is the delegated administrator of the Plans • The actuary of the Plans is also an employee of Adminco • To calculate benefits, Adminco uses internally a software developed and maintained by a consulting firm • The software is maintained based on the actuary’s specifications • The actuary is not involved in the day-to-day administration 10

11. Disclosure requirements - our philosophy • We want to comfort members that their CV is computed in accordance with actuarial standards and applicable legislation • We want to provide members with quality information so as they can make an enlightened decision (ex: sensitivity analysis) • We need to be in position to explain all the information we disclose (training of administration department and benefits officers) • We believe it is a good governance practice to document the details supporting a benefit calculation • We want to provide as simple and clear information as possible • especially in at-large communications to members (ex: annual statements) 11

12. Disclosure requirements - our approach Software • the actuary will send a letter to the consulting firm with details of the actuarial basis to be programmed in the system, along with a statement that it’s in accordance with SoP Benefits Statements • a section in the complementary notes will include a statement of conformity and all disclosures related to how the CV was computed Annual Statements • for the record, the actuary will provide the administration department with a statement of conformity and all disclosures related to how CV must be computed • this info will not be included in members’ annual statements 12

13. Disclosure requirements - our approach Transfer Deficiencies: disclosed to administrator only • it is unrelated to computation of CV • disclosures to members will be provided along with the option statements => there is no transfer deficiency if member opts for a deferred pension • even if member opts for a transfer, if benefits is fully paid because of an additional contribution by sponsor, only administrator must be advised so as to ensure that proper contributions are actually paid • useless to go through all those explanations to members, since there is no impact to him • but more of interest to remaining members => we provide the information in the annual statements 13

14. Disclosure requirements - in details Description of the benefits entitlement involved • An explanation that the value of the deferred pension assumes the payments will start at the age which produces the maximum value • The actual age that produces the maximum value • An explanation that the death benefit that would have applied before commencement of a deferred pension is reflected • Any options assumed to be elected by the employee and that are reflected in the CV • Complexities: benefits entitlement may not be the same for different periods of service => more disclosure required 14

15. Disclosure requirements - in details Description of the actuarial assumptions • Mortality tables for member and spouse • Proportion married and age of spouse • Economic assumptions • Rate of interest to be credited between the valuation date and the date of payment 15

16. Disclosure requirements - in details Other disclosures • Statement of the period during which the commuted value applies before recomputation is required • Transfer deficiencies • Statement that CV has been computed in accordance with SoP • For CV that must not vary by sex for benefits earned after a particular date (ex: Ontario), a statement that the requirement has been extended, if applicable 16

17. Disclosure requirements - in details Quebec - additional termination benefit • In order to determine that benefit, another CV calculation is required • Which means that another complete set of disclosures will be needed, even if the end-result is nil 17