6 February 2009
Communique to CP Pensioners and Plan Members
You have likely seen much information and commentary in various
news media about the highly unusual and unique period of economic uncertainty we are currently in as well as the related impact on
pension plans.
More recently, you may have seen information about Canadian Pacific's pension plan and its projected solvency deficit.
Unfortunately some of this information is speculative, and occasionally it is false.
I want to take this opportunity to clarify and provide you with the facts.
Due to declining equity markets as well as long-term interest rates currently hovering at historic lows, CP's pension
plan, like many others, is currently experiencing a shortfall, on a solvency basis, of approximately $1.6B.
It should be noted that the solvency deficit, or shortfall, is calculated using extremely conservative assumptions governed by federal
legislation.
The rules for calculation look at plans as if they were to become insolvent.
The solvency funding rules, therefore, are based on a hypothetical wind-up scenario in which the plan would be
immediately terminated.
These rules require the pension plan be sufficiently funded such that existing pensioners would receive 100 percent of their benefits
and employees would receive 100 percent of the future pension benefits they earned up to the point at which the plan was terminated.
The existing legislation requires CP to fund this shortfall over a period of five years.
This is an onerous financial contribution, which diverts capital away from projects used for the purpose of helping the company grow.
Nevertheless the company always has, and will continue to, fund the required amount.
While the federal government has commenced consultation around a number of permanent changes to ensure the sustainability of Canada's
pension system, the outcomes are currently uncertain.
In the near term, the government has announced its intention to provide one-time legislative relief from the
five-year funding requirements for solvency deficits.
This directly relates to the extreme decline in equity markets last year.
The company will look to its pensioners, employees, and the unions representing them to support its efforts to get the government to
adopt a more reasonable time frame to fund solvency deficits.
Again, CP has always, and will continue to, meet all legislative requirements for funding pension solvency deficits to ensure the
security of pension plan payments for current and future retirees.
If you have any questions about this information, or the pension plan, please contact your Pensioner Association or Debbi Johnson at
CP's Pension Services at 403-319-6495.
Sincerely,
Andrew Shields - Vice President Human Resources & Industrial Relations Canadian Pacific.
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