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Benefits and Pensions MonitorSRY Pension Plan: Is It DB Or DC?The Southern Railway of British Columbia (SRY) offers its unionized members a Defined Contribution pension plan where the company allocates all the funding and has a set objective of 100 per cent indexing. The plan, which was implemented in 1990, has roughly 145 active members and 25 retirees. It was created as a result of the privatization of segments of BC Rail in the late ’80s. SRY was purchased by an American firm, at which time the company went into negotiations with the union to develop the new pension plan. The plan currently has approximately $11 million in assets.
The company developed a quasi-Defined Benefit pension plan/ RSP for management in 1989, and a Defined Contribution pension plan for union members in 1990. Then, in 1992, the company was sold to American industrialist and entrepreneur Dennis Washington. “A profit sharing plan for management was introduced and, in turn, the DB plan was wound up and rolled into a RSP,” says Carrey. The plans are self-directed by members, who can choose from five funds and make up to four changes per year. Funds from the original DB were rolled into a locked RSP. Employees now contribute a minimum of five per cent of their salary to a personal RSP that can top up to whatever their personal limits are. The company contributes five per cent of salary to the DPSP. The DC plan for union members remained the same. SRY has two unions, CUPE and COPE (Canadian Office and Professional Workers). “Plan trustees consist of two primary trustees from the company and primary and secondary trustees for each union. Each union has one vote and the company has two. In case of a dispute, an independent person is brought in to resolve the impasse."
The allocation for funding for the union pension plan is supervised by the board of trustees. Under the trust agreement, the investment manager is measured against the performance of the appropriate benchmarks. These are monitored at each quarterly meeting. The trustees then decide whether or not to make changes. DC Or DB? “At every evaluation, the actuaries will let us know if we are funded well enough to offer 100 per cent CPI indexing or whether we are underfunded and need to cut back the amount of indexing. “When we first introduced the plan, we were down to about 60 per cent of indexing. For the last six years, we raised it to 100 per cent of the CPI. That is the first thing affected if there are not enough funds. The two per cent benefit determines the member’s annual pension. It is two per cent of accredited service times plan earnings (60 consecutive months of an employee’s best earnings). Defining the benefit as such may sound more like a DB plan than DC, but there is no liability to the company. “It is a DB plan because it has a defined benefit, but the benefit can be affected if the funding isn’t there.” This set-up was negotiated with the union. “Our mandate was to negotiate a fair plan that would not put any liability on the company.” Best Or Worst Of Both Worlds As far as plan governance is concerned, the board looks at the plan as more of a DB plan. “We treat it that way because our objective is to index the benefit at 100 per cent of the CPI. That’s what we aim and strive for and we’ve been doing that successfully for the last six years. But, when we all hit this bad weather, there is a strong possibility the 100 per cent might get reduced until the next evaluation which is three years from now.” If this is the case, the trustees will have to examine the investment portfolios and see if they should make some changes. Currently, the plan is invested mostly in conservative allocations such as balanced funds. However, whether or not the funding statistics come back negative, the board of trustees is taking a look into some different investment allocations, such as alternatives. They review investment strategies at least twice a year. |
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In the late 1980s, when the British Columbia government decided to allow the privatization of segments of BC Hydro Rail, Southern Railway of British Columbia (SRY) was sold off to U.S.-based Itel. At the time, SRY employees, both management and union, were all members of the BC Hydro Rail pension plan. “When they sold us off, we no longer could belong to the plan or continue membership,” says Butch Carrey, executive director, human resources and administration at SRY and trustee for the union pension plan. 
