February 27, 2009
The Honourable Dwight Duncan
Minister of Finance
Attention: Comments on Report of the Expert Commissions on Pensions
5th Floor, Frost Building South
7 Queen's Park Crescent
Toronto, ON M7A 1Y7
Dear Minister Duncan:
Hydro One Inc. would like to express its appreciation to the Members and staff of the Expert Commission on Pensions on the completion and release of the Commission's Report. We are grateful for the opportunity to make this submission in response to the Report's recommendations. In preparing this response we have carefully considered the Terms of Reference of the Commission as well as the unique roles played by Hydro One as an employer and pension plan sponsor and as the owner and operator of a vital public enterprise — the provincial high voltage transmission grid and its related power distribution network.
As the sponsor of a defined benefit pension plan which has approximately 12,000 members, Hydro One shares the Commission's interest in promoting the security, viability and sustainability of the pension system in Ontario. Our work force is among the most highly skilled and specialized in the Province. We remain wholly committed to the prudent financial management and safeguarding of their pension assets.
We are also the stewards of a key economic resource and are responsible to manage the-business affairs of the company in a manner which achieves an appropriate balance of economic and efficient corporate management and the broader interests of the stakeholders as represented by the ownership interest of the provincial government. We have kept that balance in mind in the preparation of this submission.
We have identified three key areas of the Report which have the most significant potential impact on Hydro One:
1. Solvency Valuation Measures and Funding Issues
We do not agree with or support a number of the recommendations in the Report in regard to solvency funding, namely:
We cite the following in support of our position on these points:
In the same way that solvency deficits can arise quickly in adverse market conditions, solvency surpluses can also arise quickly when market conditions change. The requirement to fund large solvency deficits over a short period of time could result in large solvency surpluses if economic conditions change. As surplus ownership is not tied to the party bearing the funding risk (see below), ratepayers could end up paying high electricity rates to over-fund the plan.
2. Grow-In Benefits
The Report proposes that grow-in benefits should be extended to employees that are involuntarily terminated, provided that a minimum combination of age and years of service (55 points) has been achieved. Hydro One is opposed to this measure. It would in effect grant enhanced grow-in rights to individual employees, even those who might be terminated for cause. It is our view that grow-in benefits were intended to protect older or longer service employees who are involuntarily terminated as a result of a material restructuring or reorganization. We also note that grow-in benefits exist in only two provinces.
3. Surplus Ownership
We find that the Report fails to add needed clarity to the issue of ownership of surplus for single employer pension plans. In our view, lack of certainty on this issue acts as a continuing dis-incentive to the creation of new defined benefit plans in Ontario, and thus serves as an obstacle to the goal of broadening the scope of pension coverage. Employers are clearly responsible for funding deficits in single employer plans. We believe that it would act as a greater catalyst to the formation of new defined benefits plans, increased funding and security under current defined benefit plans and promote fairness among the various stakeholders if the regulations were amended to provide that, absent express clear language to the contrary as set out in the plan documents, that surplus in the Plan is also owned by the employer.
We wish to thank you once again for allowing us this opportunity to submit our comments.
Original signed by
President & CEO
Hydro One Inc.