Letter to Bank from Koskie Minsky

September 22, 2003
Ari N. Kaplan
Direct Dial: 416.595.2087
Direct Fax: 416.204.2875
akaplan@koskieminsky.com

Delivered

WITHOUT PREJUDICE

Bank of Canada
234 Wellington Street
Ottawa, Ontario
K1A OG9

Attention: Marcus L. Jewett, QC
General Counsel and Corporate Secretary

Dear Sirs:

Re: Bank of Canada Pension Plan
OSFI Reg. No. 55116
Our File No. 02/0578
Further to our correspondence to your attention dated October 3, 2002, we are counsel to the Bank of Canada Pensioners’ Association (the "Association") and have been retained to protect and advance the pension rights of Association members and other beneficiaries with interests under the Bank of Canada Pension Plan (the "Plan"). The Association was formed two years ago to represent and advocate on behalf of former members of the Plan. It currently enjoys the express support of over 475 persons entitled to payments from the Plan.

We have been instructed to advise you of our clients' serious concerns regarding the administration of the Plan and the lawfulness of certain amendments to the Plan. We write to invite you to resolve these outstanding issues with our clients.
The Association is concerned that the Bank is using part of the considerable surplus in the Plan for improper purposes.

Specifically, the Association is concerned with the Bank's payment of administrative expenses out of the pension fund. This has resulted in the diversion of surplus assets away from the exclusive benefit of Plan members, contrary to the pension trust. Article 12.3.2(b) of the Plan and related provisions, introduced in 1990, ostensibly permit payment of such administrative expenses out of the pension fund. However, these amendments solely benefit the Bank and have thereby resulted in a partial revocation of the trust, which the Bank has not reserved for itself the authority to do. This is especially so in light of Article 10.5 of the 1988 Bylaw, which expressly confirms the Bank could not charge to the pension fund "any expenses incurred for the administration thereof." Accordingly, the 1990 amendments are void and of no effect.

The Association is also concerned with the Bank's unwillingness to use more than a modest amount of the Plan's considerable $100 million-plus surplus for Plan improvements and instead, the Bank has taken annual contribution holidays exceeding $8 million. The Bank has an obligation under the Income Tax Act to reduce the surplus. In light of the ITA excess funding rules, the Bank would seem to be prohibited from returning to the pension fund the unlawful payments made to the Bank in connection with Plan administrative expenses, without the risk of the Plan being deregistered by CCRA. In view of the pension trust, the amounts corresponding to historical Plan administrative expenses must now be distributed amongst the Plan's beneficiaries.

These concerns and others affecting the Plan surplus are not unique to the Association but are shared by many other Plan members as well. Accordingly, please be advised the Association has a specific mandate from its membership to pursue litigation against the Bank. The Association believes it has a strong case to seek and obtain from a Court a declaration that all surplus under the Plan belongs exclusively to Plan members and former members and all Plan administrative expenses paid out of the Plan instead of by the Bank were done improperly and in breach of the pension trust. The Association is confident a Court will order Plan surplus to be distributed among the members.

Notwithstanding the foregoing, the Association is of the view that it is desirable to attempt to engage in a constructive and meaningful dialogue with the Bank toward the objective of concluding an agreeable process to clarify the respective rights of the Bank and Plan members on all issues relating to entitlement to and use of Plan surplus. The Association believes a mutually agreeable resolution of these issues is not only preferable given the alternative, but also attainable where the will is present. The Association has a workable and formal organizational framework and communications infrastructure, which it believes would facilitate a smooth and constructive resolution of these issues among the Plan membership.

We urge you to give our clients' invitation serious consideration. We kindly ask that you advise us no later than October 31, 2003 of the Bank's intentions, failing which the Association must reserve the right to initiate a class proceeding against the Bank to protect the rights of its members, without further notice to you.

We look forward to hearing from you.

Yours truly,

KOSKIE MINSKY




Ari N. Kaplan
ANK*sa

cc. Bank of Canada Pensioners’ Association
cc. Mark Zigler, Koskie Minsky
cc. David Dodge, Governor, Bank of Canada
cc. Paul Jenkins, Senior Deputy Governor, Bank of Canada