CIA Annual Meeting Assemblée annuelle de l’ICA

1. CIA Annual MeetingAssemblée annuelle de l’ICA June 29 & 30, 2006 Ÿ Les 29 et 30 juin 2006 Ottawa, Ontario PEN-4 Monsanto Status Report

2. CIA Annual MeetingAssemblée annuelle de l’ICA Hrvoje Lakota Mercer Human Resource Consulting PEN-4 Monsanto Status Report

3. CIA Annual Meeting ŸAssemblée annuelle de l’ICA • Monsanto – Two years later • In July of 2004 the Supreme Court of Canada dismissed the appeal in the Monsanto case. This: • Brought (some) closure to the longstanding Monsanto pension dispute, at least for Monsanto • Confirmed the requirement under Ontario law to distribute surplus on the partial wind-up of a pension plan. • What has happened since then? PEN-4 Monsanto Status Report

4. CIA Annual Meeting ŸAssemblée annuelle de l’ICA • Surplus distributions for many small, and simple, partial wind-ups have been settled • Complicated situations with significant amounts of surplus are still largely unresolved • Numerous questions remain unanswered, with the resulting litigation risk for plan sponsors PEN-4 Monsanto Status Report

5. CIA Annual Meeting ŸAssemblée annuelle de l’ICA • What the Supreme Court said: • Members affected by a partial wind-up are entitled to same benefits as on a full wind-up • Surplus assets related to the partial wind-up group have to be distributed from the plan PEN-4 Monsanto Status Report

6. CIA Annual Meeting ŸAssemblée annuelle de l’ICA • What the Supreme Court did not say: • How should the assets attributable to the partial wind-up group be determined? • If the surplus is distributed to employees, how should it be divided among individuals? • What happens in provinces other than Ontario or with multi-jurisdictional plans? • How should old partial wind-ups (some from 10-15 years ago) or newly declared historical partial wind-ups be dealt with? • … PEN-4 Monsanto Status Report

7. CIA Annual Meeting ŸAssemblée annuelle de l’ICA • What does this mean for plan sponsors? • Potentially unlimited liability with limited ways of mitigating risk • Definition of a “partial wind-up” under the PBA not clear • No statute of limitations for Superintendent forcing a declaration of a partial wind-up (potentially back to 1960s) PEN-4 Monsanto Status Report

8. CIA Annual Meeting ŸAssemblée annuelle de l’ICA • What are plan sponsors doing? • Some companies are trying to mitigate the risk of having their decisions challenged in the future by seeking negotiated settlements and/or guidance from courts • Companies are also reconsidering: • Ad-hoc benefit improvements • DB promise • Funding policy and targets (i.e. geared to be <100% funded on solvency basis) • Segregation of assets for PWU group PEN-4 Monsanto Status Report

9. Unresolved Issues / Questions PEN-4 Monsanto Status Report

10. CIA Annual Meeting ŸAssemblée annuelle de l’ICA • To which jurisdictions does the Monsanto decision apply? • Ontario  • Federal ? • Other provinces ? PEN-4 Monsanto Status Report

11. CIA Annual Meeting ŸAssemblée annuelle de l’ICA • How should the surplus at the partial wind-up date be determined? and Should past partial wind-up balance sheets be re-determined? • The purpose is no longer simply to show that the plan has sufficient assets for payment of basic benefits • Difficult (in some cases impossible) to accurately estimate the cost of purchasing annuities, especially for large indexed pension plans PEN-4 Monsanto Status Report

12. CIA Annual Meeting ŸAssemblée annuelle de l’ICA • What happens if the partial wind-up covers a lengthy period of time (e.g. 2 years) • What date should be used as the “partial wind-up date”? • What date should the surplus be determined at? • What if the surplus level changes (materially) during the partial wind-up period? PEN-4 Monsanto Status Report

13. CIA Annual Meeting ŸAssemblée annuelle de l’ICA • How should the plan assets be divided for partial wind-up purposes in a multi-jurisdiction plan? • Pro-rata on: • Going concern liabilities? • Solvency liabilities without grow-in? • Solvency liabilities with grow-in? • Other approaches? PEN-4 Monsanto Status Report

14. CIA Annual Meeting ŸAssemblée annuelle de l’ICA • If there was surplus at the time of the partial wind-up, how much surplus exists today? • Interest method • Balance sheet method • What if there was no surplus at the time of the partial wind-up but there is surplus today? PEN-4 Monsanto Status Report

15. CIA Annual Meeting ŸAssemblée annuelle de l’ICA • How should surplus be allocated among the affected members? • FSCO has indicated a preference for distribution in proportion to liabilities • Other methods may be possible, especially if all affected members have accepted the method PEN-4 Monsanto Status Report

16. CIA Annual Meeting ŸAssemblée annuelle de l’ICA • How should plan improvements be treated? • Should improvements made coincidental with a past partial wind-up be considered a distribution of surplus? Are they considered use of surplus? • What about subsequent improvements, such as ad hoc pension increases? PEN-4 Monsanto Status Report

17. CIA Annual Meeting ŸAssemblée annuelle de l’ICA • Do annuities have to be purchased or can the benefits remain in the plan? PEN-4 Monsanto Status Report

18. CIA Annual Meeting ŸAssemblée annuelle de l’ICA • Other legal issues / questions: • Who does the surplus belong to? • What if the surplus belongs to the employer? • Risk of undeclared partial wind-ups? • How far back do the companies have to go? • How to mitigate the risks that the plan sponsors / administrators are facing? • … PEN-4 Monsanto Status Report