Postmedia Network Inc. has entered an agreement to merge its pension plans with the Colleges of Applied Arts and Technology pension plan.
The merger of the Postmedia plans will be effective July 1, 2019, subject to approvals by the CAAT’s board of trustees and sponsors’ committee, as well as approval from Postmedia’s plan members and the Financial Services Commission of Ontario.
If approved, the media company will be merging six defined benefit plans, with assets over $500 million, into the large public sector fund. As well, members of Postmedia’s defined contribution plan would become members of the CAAT plan on the effective date.
“We’re very pleased that Postmedia saw value in what CAAT is bringing to the broader marketplace of helping employers de-risk their current pension arrangements while at the same time providing defined benefits for their members,” says Derek Dobson, chief executive officer and plan manager of the CAAT plan.
More specifically, if approved, the plans will begin accruing benefits under the CAAT’s DBplus provision.
“DBplus is still part of the overall CAAT plan in that it benefits from the same funding strength and benefit security,” says Dobson, noting DBplus has the same 118 per cent funded ratio, investment philosophy and staff overseeing plan design as the CAAT plan.
“The key features of DBplus are predictable lifetime income in retirement, inflation protection, both before and after retirement, survivor benefits and early retirement features,” he says. “So it really does bring all the good of DB and DC but ignores, or gets rid of, all the bad that’s associated with either DC for members or for DB for employers.”
Dobson says eventually all employers and plan members must each reach a minimum five per cent contribution rate. “But we do permit employers and members to do a gradual phase-in, so it’s still a little bit early to determine exactly what the contribution phase-in will be settled on because there’s still a few approvals that need to take place overall. But ultimately it will be at the five per cent minimum threshold that members and the employer can agree to move higher if they so choose later as a general rule.”
In terms of past liabilities, if approved, the CAAT will assume DB obligations accrued before July 1, 2019, contingent on the FSCO’s approving the transfer of Postmedia plans’ assets. Furthermore, following the transfer, there would be cash funding obligations related to the transferred Postmedia plans deficits over a term of 10 years.
Since 2016, the Royal Ontario Museum, the Youth Services Bureau of Ottawa and, most recently, Torstar Corp., have merged their pension plans with the CAAT plan.
When Torstar merged its plan with the CAAT, it was the first plan to merge with a DC component. “Some of the other mergers would have had members who were not covered by a pension plan and, after merging with CAAT, those members would have subsequently been covered. So there have been new members coming into the pension plan as a result of prior mergers, but from a DC conversion back to DB, Torstar was the first.”
DBplus does allow members with DC accounts, if it’s permitted by the Income Tax Act, to convert their account balances into DBplus, says Dobson. “Essentially, it works by each individual member being offered the ability to transfer all or part of their account balances to buy additional pension in CAAT.”
This article was originally published on Benefits Canada‘s companion site, the Canadian Investment Review. It was updated on Feb. 4.