More than 1,000 employee and retiree members of Co-op Atlantic’s defined benefit pension plan are to share $7.25 million following a New Brunswick judge’s approval of a plan that signals the final steps of the creditor protection process.
The outcome is the “best of a bad situation,” says Ron Pink, a labour and employment lawyer at Pink Larkin in Fredericton, N.B., who represented unionized employees at the company. “The negotiated deal was more favourable than the thought of litigation on a variety of issues which had no certain outcome. There was a risk attached to it, and the risk was mitigated in some part by additional monies. If we had litigated, then the cost . . . would have been substantial and we might have been fighting over nothing in the end.”
As Benefits Canada reported in February, 1,200 employees and retirees of the Moncton, N.B.-based co-operative were facing a 30 per cent reduction in their pensions based on the plan’s funding level as estimated at June 20, 2015, according to pension administrator Eckler Ltd. The figure for the pension reduction later rose to 32 per cent.
Last year, the organization had filed for creditor protection and the New Brunswick superintendent of pensions ordered a full windup of the plan at Dec. 31, 2015. The windup includes all members, former members and any others entitled to benefits under the plan.
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That amount is in addition to an earlier settlement of $5.75 million. Stakeholder groups consulted by Eckler were supportive of the April 2016 settlement. However, a new stakeholder group emerged that was unhappy with the settlement and the resulting 32 per cent interim cut to pensions, according to Eckler.
Co-op Atlantic’s employees and retirees will split the amounts paid to the plan, expected to be more than $7.25 million out of the nearly $33 million in total proceeds available to creditors under the Companies’ Creditors Arrangement Act proceedings, on a pro-rata basis, says Pink.
The final figure for the pension reduction won’t be final until the windup is complete, which could take months or even years, says Andrea Boctor, a partner and head of the national pensions and benefits group at Stikeman Elliott LLP. “Until the last dollar leaves the fund and we know exactly how much annuities cost and everything else, all reductions are interim,” says Boctor, whose firm is counsel to Eckler. “Plan windups can often take many months and even many years in the context of an insolvency where we’ve got to be mindful of the CCAA process and trying to maximize every dollar in the plan for beneficiaries.”
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“It is the best result we could have achieved in the circumstances,” says Boctor. “It amounts to about a quarter of the pot that was available. In a context where we are in Canada, where insolvency laws don’t favour pension plans — they favour lenders — we think we did as well as we could do in the circumstances.”
The focus now will be a shift towards maximizing the value of the assets in the plan, says Boctor, who notes the challenge in doing so because annuities are very expensive right now. The pension legislation in each jurisdiction in which the plan operated — which includes all Atlantic provinces and Manitoba — requires the purchase of annuities for retirees. Eckler is seeking stakeholder input on alternatives to traditional annuities.
“We’re actively exploring alternatives to that, some of which might require a change in legislation,” says Boctor. “As we move on in this process, there could be a lot of value there for pensioners and that’s where we’re focusing now.”
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