Montreal, the 22^nd of January 2009

Dear Colleagues:

In the last e-mail that was sent to you, the FARQ stated that Law 1 adopted by the Quebec provincial government on the 15^th of January “in no way meets our expectations.  On the contrary, far from protecting our pension plans in this time of crisis as emphasised by the member Rebello, this law, in its article 1, further weakens it”.  In this respect, I’m sending you the attached special communication by the consulting firm Morneau Sobeco.  The text of this firm explains the different modifications made to our pension plans by Law 1, a little like the last message from FARQ, but with more details and precision.

Besides which, the Morneau Sobeco communication on its page 2 has the merit of calculating in the form of a table the implications of the law in using an example which changes certain parameters of a pension fund by applying or not the alleviation measures foreseen by the law.

For example by using the smoothing one artificially changes the assets (monetary value) of a plan from 70 $M to 81 $M.  By using the new norms of the Canadian Institute Of Actuaries, the liability (the plan’s debt) is artificially reduced from 100 M$ to 96 $M.  From these two methods, the solvability deficit drops artificially from 30 $M to 15 $M which results in a better degree of solvability, passing as if by magic from 70 % to 84 % which will allow an employer to pay in a contribution to cover the deficit of 1.8 $M/year instead of 6.6 $M.  What has to be understood in this example is that the true financial situation of such a pension plan on the 31^st of December 2008 is that which appears in the left hand column of the table.  Law 1 allows the distortion, that’s the least  that one can say, of this reality by using the artificial values of the centre column of the table.  It is also necessary to understand that the true values or the distorted would be those established on the 31^st of December 2008 by an actuarial evaluation.  According to our understanding, this wouldn’t take into account the new effects of the crisis if it were to persist in 2009 and 2010 which would further worsen the situation.  Without being a prophet of doom as regards the present crisis, the member Simard stated during the debate of Law 1 that it took until 1954 for the Stock Exchange to return to its level prior to 1929 from the crisis of the 30s.  Thus, can one think that if the present crisis were to continue for several years and because of the use of the new norms, that the financial situation of our pension plans could become very precarious, what do you think?

Good reading

J. Beaudoin, president FARQ

Message from the FARQ (Federation of the Associations Of Quebec Retirees)

Montreal, 17 January, 2009-01-31

Greetings:

On this 15^th of January, the government of Québec in an extraordinary session unanimously adopted  Law 1.

In its article 1 and by a simple ruling, this law authorises the government to remove a fund or a category of retirement funds from the application of the law to permit the application, on the 31^st of December 2008, new norms that the Institute of Canadian Actuaries (ICA) shall adopt in 2009 and to establish three measures that shall also de defined by ruling (this March or April) being the consolidation of solvability deficits, the lengthening of the amortisation period to a maximum of 10 years rather than 5 of this consolidated deficit and the smoothing of the assets of the fund.

In its article 2, the law foresees a new role for the Quebec Pension Board (RRQ) on the termination of a retirement fund because of the bankruptcy of the employer and its incapacity to cover the deficit.  In such a case, the RRQ:

Will offer to the retirees the possibility that it will take charge of the management of their assets and the payment of their pensions rather than proceeding with the purchase of an annuity from an insurer;

Shall manage these assets according to a “prudent” investment strategy aiming to improve the retirees’ income;

Guarantee to the retirees the income level at the time of termination;

End the management of the assets at an opportune moment.

In other words, this law accepts the recommendations of the overseeing committee made to minister Hamad last 4^th of December and which I’ve already sent you a copy by e-mail the 7^th of January.  I’m re-enclosing these recommendations.

I’m also informing you that at the last minute the government produced an amendment to article 2 of this law which reads as follows:  “The amount of the income guaranteed by an insurer shall be at least equal to that of the income which would have been provided if the assets of the fund had been increased on the date of the termination, of a sum representing the difference between the required subscriptions in applying the arrangements of this present law and those required in applying the ruling taken in virtue of the article 2 so as to attenuate the effects of the financial crisis.

According to the explanations provided by the minister, at the moment when the RRQ will effectively terminate a fund and will stop the management of its assets (max. 5 years), the government will add the sums required when purchasing an annuity from an insurer such that the retirees’ income will not be further reduced due to the fact of passing from a recovery period of 5 to 10 years.  That’s the essential of our understanding of Law 1.

Despite opposition members, in particular members S. Simard and F. Rebello of the Parti Québecois, invoking the dangers to retirees and the limits of this law for our pension funds, it was none the less unanimously adopted and sanctioned the same day, the 15^th of January 2009.  Our legal adviser is presently analysing the implications of this law in regards to our joint letter (FARQ, FADOQ and AQDR network) sent to minister Hamad on the 6^th of January.  I am re-enclosing this letter.

However, I allow myself to recall the conclusion of the attached letter “We believe, Mister Minister, that the intervention of your government should rather be applied to the means of protecting the retirement payments to avoid any factor that might weaken them....  In this sense, the measures proposed by the committee would only be sensible if the government guaranteed, on the other hand, the integral payment of the benefits for the applicable period of the proposed measures”.

It is possible that many retirees, who’ve been following the debates surrounding this law in the media or on the internet, have had the impression that it constituted a victory for them, particularly because of the amendment.

At the risk of upsetting them, it seems to us that this law instead authorises the top RRQ bureaucrats and the actuaries of the employers to get the funds away from the application of the RCR law and this by ruling (without public debate) which risks to submit retirees to decisions foreign to their interests.

Furthermore, this law in no way meets our expectations.  On the contrary, far from protecting our funds in a time of crisis, as emphasised by the member Rebello, this law in its article 1 further weakens them.  Worse yet, it appears that contrary to the federal, Quebec employers who spread over 10 years rather than 5 years the paying back of the pension fund solvability deficits won’t have to get a letter of credit or by default the consent of the participants (active and retired).  Thus, this article only aims to help the employers.  In this regard, I’m sending you attached the intervention of the member Francois Rebello during the debating of this law.

While the above cited amendment could on first view dampen the gravity, due to the spreading out, of pension reductions due to bankruptcy, nothing is settled.  In effect, it is necessary to await the publication of the pertinent rulings and their application in reality to appreciate the impact.  This amendment wasn’t requested by the FARQ, but it is probably the fruit of our interventions and activities with several politicians and bureaucrats.

At Québec, during two days, the representatives of the FARQ tried in vain to convince several parliamentarians that the recommendations of the overseeing committee would only be acceptable if the government guaranteed on the other hand the integral payment of our benefits.  Unfortunately, the members seemed to be more interested in defending the position of their party than in satisfying the claims of the retirees.

In closing, let us say that contrary to what one hears, the FARQ did not participate in the consultation process or in the overseeing committee, nor in law 1.  We were simply informed after the fact.  This law is not neutral, it is the fruit of a consensus among certain social actors with the purpose of helping employers who have removed several billions from the surplus of our retirement funds in the last few years in the form of subscription holidays and who today in this time of crisis want to be released from their obligations to the detriment of our retirement funds and our pensions.  That’s basically our opinion of this law 1.

Good reading and thank you for your attention

Jacques Beaudouin, president of the FARQ

RADIO-CANADA Friday the 12^th of December, 2008

Retirement Funds, Quebec Will Get Involved

It appears that it is not just the Quebec Government retirement fund which is in difficulty in this period of economic uncertainty.

With negative returns on investment of 15 to 20 %, managers of private retirement funds are also very nervous, and their clients even more so. According to José Legault, an actuary at Mercer, clients "are not happy with the results, but I think that they expected something, some bad news".

There are 3 200 pension funds in Quebec, and most of them are in deficit. For these funds to return to equilibrium, as is required by law, some employers will have to subscribe large sums of money.

Thierry Chamberland, vice-president at Aon Conseil, believes that "there are employers who will have to subscribe 40 % of their mass of salary in 2009, just to cover the temporary deficits in their pension funds".

Some flexibility will thus be necessary, especially for defined benefit schemes, in other words those with a guaranteed revenue. That’s why a union federation-management committee, the Quebec Pension fund, the Federation of Chambers of Commerce and provincial bureaucrats have drawn up recommendations, of which Radio-Canada has become aware.

Allow the recognition of fund losses over a longer period, a method of improving the financial balance sheet.

Force businesses to keep their subscriptions at the same level as those prior to the crisis.

The period to cover a deficit in a pension fund would increase from five to ten years.

If an enterprise becomes bankrupt, the Quebec Pension Fund would become the manager of the fund.

It is believed that this flexibility is necessary, because the consequences could be serious. "It’s going to prevent investments which could be job creators and, at the limit that could translate into additional job losses" believes Thierry Chamberland, vice-president of Aon Conseil.

In a few days, the Charest government will announce the measures that it will put in place.

To all the delegates of our member associations and partners

Last Thursday, the 11^th of December, 2008, the directors of FARQ met at Quebec at the request of the president of the Quebec Pension Fund (RRQ), Mr. André Trudeau. He was accompanied by Mr. André Villeneuve, assistant to the president, by Mr. Pierre Plamondon and Mario Marchand, actuaries at the RRQ. A representative of minister Hamad was also present at this meeting.

Fearing that several pension funds will have large deficits in the near future because of the economic crisis, the president of the RRQ informed us that the government was preparing to intervene rapidly in the next few days with the purpose of bringing in certain modifications concerning the management of our pension funds. It wished, via this meeting, to inform us of these modifications. The president was not able to tell us whether these modifications would be covered by legislation, by ministerial decree or by an RRQ ruling.

According to the president, these modifications are necessary to help businesses to continue on and maintain employment in the context of the foreseen economic crisis.

Here’s a brief summary of the modifications that were presented:

During the crisis, if a pension fund is in deficit due to the bankruptcy of an employer, an actuarial study will be requested by the RRQ to establish the amount of the assets available for the pensions. The pensions will then be reduced by the equivalent of the deficit. Instead of purchasing a life annuity from an insurer with the remaining assets as is usually the case, the RRQ would become the trustee of the fund for an undetermined period and the remaining assets would instead be invested in the RRQ Deposit and Investment Fund for the purpose of increasing it. The eventual returns, should that be the case, would be returned to the retirees concerned.

To help those employers who would be obliged to reimburse the increased deficits due to the crisis, the amount of the reimbursement of the deficit caused by the crisis will be established on the basis of 10 rather than 5 years. The amount of the reduced reimbursement would be payable only during the period of crisis. It is apparent to us that the RRQ will not demand a letter of credit from the employer to guarantee the debt owing the fund nor will it demand the consent of retirees contrary to the published policy of the Harper government. It is clear that the Quebec pension funds will be even weaker than those of the federal.. By and large this is the information coming from the meeting with the president of the RRQ.

It was apparent to us that the president of the RRQ wanted to know our reaction when faced with this new orientation which in no way protects our pensions. On the contrary, given the facts, it weakens our pension funds even more in a time of crisis rather than reinforcing them to insure the full amounts of our pensions. We told Mr. Trudeau of the letter that we sent last week to prime minister Harper and we gave him a copy. We emphasised that this letter stated the position of the FARQ, of the FADOQ, and the ADQR, that’s to say any flexibility in the management of our pension funds would be unacceptable to retirees unless there was a guarantee of the full amount of our pensions during the crisis. We asked the president of the RRQ, Mr. Trudeau, to provide the details of these modifications in writing. The meeting took about one hour and ended with the possibility of continuing the discussion at a later date.

Strangely, the next day, Radio-Canada announced that flexibility had been agreed to by a committee set up by minister Hamad and composed of representatives of the union federations, employers, bureaucrats, Chambers of Commerce and of the RRQ in order to save jobs. You’ll find attached the press release issued by Radio-Canada. As the old saying goes "divide and conquer", it is obvious that the strategy used in this context is to oppose the participants of retirement funds against themselves, that’s to say active members against retirees.

Mr. Maurice Boucher and Claude Alarie of the FARQ were invited during an interview to comment on this new flexibility proposed by the government committee in the news bulletin issued by RDI last 12 of December. Their testimony was eloquent, clearly explaining the undesirable consequences for retirees of these changes.

Minister Hamad didn’t wish to comment on the position taken by the retirees after this news report, preferring to keep to the presentation of the modifications that he’ll announce next Wednesday.

Here’s the comment of Claude Alarie, pension fund spokesperson for FARQ and FADOQ, in a follow-up to this report:

"They want to extend to 10 years the time that employers will have to cover the deficits and if the employer goes bankrupt while the fund is in deficit, the pensions will be reduced and the Quebec Pension Fund will manage the pension fund in the place of the employer.

We protest against this measure that will take away the guarantee of our pensions under the false pretext of saving jobs. This opposes our pensions, for which we’ve already paid, against the salaries of the workers, this we cannot accept.

The system, the RRQ, the employers and the directors of the union federations are in agreement to use our pension funds to the detriment of retirees. They are attacking the weakest and those who can’t fight back after having paid for their pensions all their lives.

We ask the elected Liberal government and the strong PQ opposition not to accept to put our pensions in peril by taking greater risks that will weaken our pension funds."

We’ll inform you of all future developments to this effect. Even if the fight will be long and difficult, the FARQ will continue to intervene to the maximum to defend the retirees pensions despite the crisis and the strategies used to discourage us.

Jacques Beaudoin, president of FARQ.