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Jane Hahcrbusch
Vice President, Human
Resources
Tel 416 753 6246
jane haberbu sch@enbridge com
Enbridgc Gas D1stribut1on
500 CO(Isumers Road
North York, Ontarto M2J~
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August6,2015
Pension Policy Unit
Financial Services Commission of Ontario
5160 Yonge Street
Toronto ON
M2N 6L9
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Dear Sir/Madam,
On behalf of Enbridge Gas Distribution (" EGD~), please accept our submission with respect to AGN-004. This
letter comments on the draft actuarial guidance regarding the use of a replicating portfolio as an alternative
settlement method for hypothetical wind-up and solvency valuations.
In general, we are pleased that FSCO has followed the lead of the Canadian Institute of Actuaries ("CIA") and
the Office of the Superintendent of FinanciallnsUtutions ("OSFI") in considering the replicating portfolio
approach for Ontario registered pension plans. However, we have concerns about the practical impHcat~ons of
the draft guidelines. In particular, the addrtional restrictions and conditions imposed upon the plan actuary
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over and above those outlined in the CIA Education Note (or required by OSFI) restrict the abiUty of plan
sponsors like EGD to apply the approach to Ontario registered pension plans. In particular the EGD
sponsored Pension Plan for Employees of Enbridge Gas Distribution Inc. and Affilia tes ("EGD RPP'J.
We strongly encourage FSCO to remove the additional restrictions and conditions from the draft guidance
note, and allow actuaries to prepare valuations using the replicating portfolio framework set out in the CIA
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Educational Note and approved by other Canadian pension regulators, namely OSFI.
Implications for the EGO RPP
Given the size of the EGO RPP (wind-up liabilities are over $1 billion), the CPIIinked Cost of Living
Adjustments the plan provides, and current estimates of capac•ty in the Canadian annuity market we believe
that the establishment of a replicating portfolio on plan wind-up is a more realistic scenario than the
assumption that annuities will be purchased to settle benefits. Our parent company, Enbridge Inc. has
reached the same conclusion with respect to the federally regulated Retirement Plan for Enbridge Inc. and
Affiliates ("EI RPP'J. The El RPP actuarial valuations now use the replicating portfolio alternative settlement
method for hypothetical wind-up and solvency valuations based on the framework outlined in the CIA
Education Note. It is unclear why FSCO would impose additional restrictions and conditions when OSFI has
a ccepted the CIA Educational Note without these.
In its current form, FSCO's draft guidance effectively makes the replicating portfollo approach unusable a nd
will force EGO to continue to contribute toward a liability target based on the unrealistic assumption tha t
annuities will be purchased on wind-up. In consultation with our actuaries, we have determined that the
additional liability generated as a result is in the order of $25 millron - $40 million2 • Given that EGO's intention
is to maintain the pla n in perpetuity, and that on an ongoing valuation basis the plan is overfunded, the
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htto:J/www. cta·ica.ca!docs/default-source/2013/2130,82~. pJt(
Based on draft va luation results as at December 31, 2 014
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Re: AGN~004: Replicating Portfolio Settlement Method f or Wind· up and Solvency Valuations
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replicating portfolio approach as defined in the CIA Education Note would help minimize additional, onerous
fundmg requirements.
Defined benefit pension plans are a cornerstone of our compensation philosophy and the ongoing
sustainability of the EGO RPP is important to both our employees and our company. While we are
committed to ensuring the security of promised benefits through funding in accordance with regulation, w e
believe the interests of our plan members, our company and the public are better served by actuarial reports
that reflect the reality of the plan's circumstance to the best of the actuary's ability and in accordance with
published guidance from the actuarial profession.
Concluding Recommendations
W e encourage FSCO to amend the draft guidance note to remove the additional restrrctions and imposed
cond1tions for the use o f a replicating portfolio alternative settlement approach. In our opinion, the framework
set out in the CIA Educational Note is wholly suffi cient and a valuation prepared following the requirements of
the CIA Educational Note should be acceptable to regulators and other plan s takeholders.
We would be pleased to meet with FSCO to discuss our submission at your convenience.
Sincerely,
~!c~~(Atdta
e :erbusch
Vice President, Human Resources
Copy: Dave Charleson, Senior Di rector, Human Resources & Facilities Chris Heller, Senior Manager, Pensions, Benefits, & Relocations 2