TORONTO, Feb. 19, 2003 (PRIMEZONE) -- Members of a pension plan have filed a class proceeding regarding serious investment losses suffered by about 2,300 current and former employees of 26 Ontario farm co-operatives.
According to the Financial Services Commission of Ontario, or FSCO, only $64 million was available last September to meet $120 million in pension promises under the Participating Co-operatives of Ontario Trusteed Pension Plan.
Among the larger groups affected are the retirees and former employees of the defunct United Co-operatives of Ontario. The class action names as defendants the pension plan board of trustees, its former investment manager and consultant, and the custodian of the pension fund. The action alleges that the defendants were negligent and breached their fiduciary duties owed to plan members.
"With wind-up costs, lawyers and administrative fees and potential actuarial costs it is realistic to expect payouts of less than 50 per cent," pension trustees warned plan members in a recent letter.
FSCO has given the trustees until the end of February to propose measures to comply with the funding requirements of Ontario pension legislation. But members have expressed concern that the plan may have to be wound up in a deficit position.
An internal report by FSCO raises serious questions about how well the plan's board of trustees supervised the investment manager, who used derivative investment contracts to avoid substantial losses on equity investments.
Plan members may not be eligible for partial compensation from the Ontario Pension Benefits Guarantee Fund.
The guarantee fund does not cover multi-employer pension plans, which the farm co-operatives' plan has been since 1994.
Until 1994, the pension plan was sponsored and administered by the United Co-operatives of Ontario, which went through a restructuring and sale of assets due to a fall in its business.
Lawyer Ari Kaplan of the firm Koskie Minsky said some members who retired early have already received notice stating that their pensions were calculated improperly and have been asked to repay money.
"I have heard that one retiree has had his pension already reduced by 70 per cent and has been asked to repay money to the pension plan," said Kaplan.
He said his firm is still investigating what other claims plan members might have and whom such claims might be made against. "Members are being told that they must increase their own contributions or take a cut in benefits as a result of the drop in assets, or risk having their plan wound up in a deficit", he said.
According to the FSCO report, an independent fund manager succeeded in losing fund money between 1997 and 2000. However, during these years, stocks and bonds were providing strong returns to other pension plans. Things went from bad to worse when stock prices fell in 2001 and 2002.
Individual members have been given only a sketchy explanation that losses prior to 2001 resulted, among other things, from the use of derivative investments.
A FSCO report sent to Nancy Fletcher, director of pension administration at the Co-operatives pension plan, refers to the use of "protection contracts" based on derivatives.
"There were no written policies or procedures established by the pension committee in respect of these investments," the report alleges. "Investments in derivatives call for a high level of sophistication," the FSCO report says.
"One of the areas stressed in the policies (of the Pension Commission of Ontario and FSCO) is the need for documented policies and procedures on the practice of using derivatives as an investment strategy" the FSCO report states.
The FSCO report also questions if certain assets were registered in the name of the pension fund or the name of an investment adviser, contrary to the Pension Benefits Act and the pension plan's guidelines.
Michael Mazzuca, Kirk Baert and Ari Kaplan of the Toronto law firm Koskie Minsky are representing the class.
Koskie Minsky is a leading employee benefits firm and is experienced in handling complex class actions involving pension and employee benefits matters. Lexpert recognizes lawyers at the firm as leading practitioners in the class action and pension fields and related areas of law.