The Pensioners’ Association Proposal on the Pension Surplus
And Related FAQ's

The BCPA proposal:

• A portion of the current surplus should be removed from the Pension Fund and paid out to all Members of the Pension Plan and to the Bank in proportion to their contributions into the Fund plus interest at the rate of return on the Fund. A committee of representatives of each of the stakeholder groups should be established to bring about such an equitable distribution, with the aid of a professional facilitator knowledgable in pension surplus issues. This is the formula that has allowed other organizations to successfully resolve the pension surplus issue.

How much should be paid out?

• The exact amount to be paid out should be based on an independent actuarial determination of the portion of the surplus that should be retained as a contingency reserve in the event of adverse conditions and the portion that can safely be removed because it will not be required.

How would the proposal affect deferred pensioners and other groups?

• The proposal would benefit all Members of the Pension Plan equitably, including deferred pensioners, regular pensioners, current employees, former employees who were transferred to EDS, as well as those entitled to survivors' benefits. Everyone who is currently receiving a Bank pension, or who is entitled to receive a pension in future, would receive a share of the pension surplus in direct proportion to life-time contributions into the Pension Fund plus interest.

What would happen to the portion of the surplus that is left in the Fund?

• The BCPA proposes that the remaining contingency surplus should be reviewed as part of each triennial actuarial review and any portion that is subsequently found not to be required for contingency purposes should be returned to the Members and to the Bank as proposed above.

What if the pension fund went into a deficit position in future?

• There is considerable evidence to indicate that the surplus contains an enduring structural component that will not be required to fund pension liabilities, without changes to pension benefits or funding arrangements, or extended contribution holidays. This position is supported by the fact that a large surplus remains in the Fund, despite one of the most negative periods on record in the capital markets. Care would obviously need to be taken to ensure that the contingency surplus to be left in the Fund is sufficient to offset future possible cyclical deficits.

What happens if the full surplus is left in the Fund?

• The Bank is required by the Income Tax Act to abstain from making any further contributions until the surplus is less than 10% of pension liabilities (i.e. a surplus of less than $50 million). So if there is to be no distribution of the surplus as discussed above, much of the structural surplus will eventually be used to fund the Bank’s portion of new pension liabilities for additional pensionable service of current and future staff

What is wrong with leaving the full surplus in the Fund to be reduced over time by contribution holidays?

• The surplus has arisen because the Bank’s actuaries have used an unduly conservative actuarial model that has resulted in higher than required contributions for all Members and for the Bank. Members have a right to expect that their contribution overpayments will be returned to them with interest. It is not ethically sustainable for the Bank to use Members' overpayments to fund the Bank’s future pension contributions. Nor is it ethically sustainable to use the surplus to fund active Member contributions or to improve their benefit entitlements, without an equivalent benefit for all non-active Members who contributed to the surplus in the first place. It is particularly distasteful to most Members to see their overpayments being used to benefit new Members of the Pension Plan who have not contributed to the surplus. The ethical alternative is to make proportional payments to all Members and to the Bank, as discussed above. This approach would be much more beneficial to active Members, with the exception of new Members who have received an unfair benefit, and it would be much more equitable for all Members.

Is there an argument to suggest that all of the surplus belongs to the Members?

• There is an argument that all of the surplus belongs to the Members since all of the Bank’s contributions are considered to be deferred compensation, or in other words part of the compensation package to be paid out in future. Indeed if the Pension Plan were to be wound up, legal precedents indicate that all of the surplus should all be returned to its Members. In the situation such as ours, where the Pension Plan is continuing, legal precedents are less clear, but it is inconsistent to allow the Bank to claim any ownership over the entire portion of the surplus that is not required by the Plan to meet its future liabilities. The BCPA position, however, is based on ethics and reason rather than legal precedents. Since the magnitude of the surplus indicates that both the Members and the Bank have paid too much for the pensions to which Members are entitled, BCPA believes the most reasonable position is that the overpayment should be returned to all Members and the Bank in a proportional way.

Why has the Bank so far chosen to ignore the legitimate interests of Pensioners and those entitled to a deferred or survivor pension?

• The Bank commissioned a study, which was completed in early 2000, that made very similar recommendations to those arrived at completely independently by some of the founding members of BCPA. Bank Management decided to defer the decision to the Board of Directors to avoid any appearance of conflict of interest. BCPA believes that the Board may not have had adequate time to reflect on the issues and may not have obtained the best advice at the time. The Board appears to have been heavily influenced by the Federal Government decision to reject requests to refund a part of their surplus to their members. The Board may not have fully appreciated how different the Bank’s situation was from that of the Public Service. In the federal government case, the pension plan is largely unfunded and a change in legislation would have been required to enable the government to pay out any of the "paper" surplus, something it was not prepared to do for political reasons. In our case, the governing legislation permits the payout of pension surplus under certain conditions and our pension surplus reflects an over-funded Pension Plan. Other agencies of the Crown have made payments to their members of surplus funds with the acceptance of their political masters. At this stage, BCPA proposes that the Bank have a fresh look at the pension surplus issue as outlined above.

Why does it matter that the pension surplus issue is resolved equitably?

• Many Members have said that they are much more concerned by the principles at stake in this issue than they are about the money involved. The Bank has a reputation for setting high ethical standards in its words and actions. Clearly the Bank’s position on the pension surplus falls far short of the ethical standard that one has a right to expect from the nation’s central bank. A significant number of former Bank employees have said that the Bank’s position is simply unfair and they are willing to do their part to resolve the matter. The BCPA is committed to a collaborative approach to ensure that the pension surplus issue is resolved equitably for all stakeholders.