Funding Increase for Pension Fund Deficit

We understand the importance of communicating the Plan’s funding to you, even if the information is not necessarily positive. It will not come as a surprise to you that the current global economy is in a state of disorder. Although the Labourers’ Pension Fund is not experiencing financial difficulty, we do need to make some adjustments to keep us in good standing and ensure that we are able to continue paying your pension benefits for years to come. As with all periods of economic downturn, this too will eventually come to an end. In the mean time, with the help of sound financial and actuarial advice, we ask for your continued support and patience as we weather this storm together.

Pension plan funding is very complex, and a Plan’s funding status can change from year to year because it is affected by many factors, sometimes beyond anyone’s control. We are not alone in this situation. The sudden and drastic decline in the economy, has unexpectedly disrupted many pension plans, regardless of how well they are managed.

These are challenging and difficult times, and as a result, many pension plans have suffered significant investment losses. Although we have not experienced losses to quite the same degree, our Plan has not been immune to these unstable times.

Our investment losses for 2008 had a negative effect on the Plan’s overall funding. What is further troubling at this time is that the markets do not appear to be improving in the short-term, although the long-term outlook does indicate an eventual upswing.

The Plan’s actuarial valuation as at December 31, 2007, indicated assets of over $2 billion and showed that the unfunded liability (or deficit) had decreased to $383 million, an indication that we had clearly weathered the financial storm of the early years of this century. However, the economic downturn that began in the 3rd quarter of 2008 has significantly changed the short-term outlook, and after monitoring and assessing the situation, the Trustees have decided that in the best interest of the members, measures must be taken to stabilize the Fund’s Liabilities and enhance the funding of benefits under the Plan.

The Trustees have passed a resolution to recommend to all Local Unions that contributions to the Fund be increased by additional 50¢ cents per hour in each of the next 3 years, without any corresponding increase in the pension benefit, until the deficit has been adequately funded. The additional $1.50 will not only help fund pension benefits, but will also protect the interests of the Plan’s members and their families, and eliminate the pension fund deficit.

For Agreements that have their normal wage increase or modifications effective each May 1st, the recommended contribution increase would be as follows:

For Agreements that have their normal wage increase or modifications effective on a date other than May 1st, the above increases should begin on the first renewal date after May 1, 2009. The recommended $1.50 contribution does not apply to any brand new collective agreement signed with newly organized employers after May 1, 2009.

This gradual increase of $1.50 over three years does not apply to those Agreements in the Industrial Sector. Also, for those Agreements with current pension contribution rates at or less than $2.00 per hour, the increased contributions should be pro-rated such that the total amount of additional contributions will be equal to 50% of the current contribution rate. Onethird of the additional contributions should begin in each of the years 2009, 2010 and 2011. For all other agreements which is the vast majority, the full 50/50/50 i.e. gradual increase to $1.50 is recommended over the next three years. It is expected that all applicable Agreements will be amended to reflect the recommended increases outlined above, no later than December 31, 2009. To be fair and equitable to all Plan members, for those Plan members covered by Agreements that do not provide the recommended increases by April 30, 2012, their benefits will be reduced on an appropriate basis. The Trustees will amend the Plan to implement this reduction. Although not an ideal situation, we are confident that this funding increase will enable us to continue providing you with the pension benefits you are entitled to, and ensure the Plan’s success moving forward.

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