O. Reg. 327/13: ALGOMA STEEL INC. PENSION PLANS

ONTARIO REGULATION 327/13

made under the

PENSION BENEFITS ACT

Made: December 11, 2013
Filed: December 13, 2013
Published on e-Laws: December 13, 2013
Printed in The Ontario Gazette: December 28, 2013

Amending O. Reg. 202/02

(ALGOMA STEEL INC. PENSION PLANS)

1. The title to Ontario Regulation 202/02 is amended by striking out “Algoma Steel Inc.” and substituting “Essar Steel Algoma Inc.”.

2. (1) The definition of “Guaranteed Benefit liability” in subsection 3 (6) of the Regulation is amended by striking out “subsection 34 (4)” and substituting “subsection 34 (5)”.

(2) The definition of “modified Ontario wind up liability” in subsection 3 (6) of the Regulation is amended by striking out “subsection 34 (3)” and substituting “subsection 34 (6)”.

3. Section 5 of the Regulation is amended by adding the following subsection:

(5) The filing of an election under section 14 of this Regulation does not affect the operation of this section.

4. The heading immediately before section 11 and section 11 of the Regulation are revoked.

5. The Regulation is amended by adding the following section:

Special payments for special early retirement window benefit deficiency, benefit offered on or after April 1, 2017

12.1 (1) This section applies if, under a temporary program, an early retirement window benefit is offered to members of the new Hourly Employees Plan or the new Salaried Employees Plan for a period that begins on or after April 1, 2017.

(2) For the purposes of subsection 5 (1) of the General Regulation, special payments required to liquidate any special early retirement window benefit deficiency arising from the temporary program referred to in subsection (1), with interest at the rates used in the report under section 14 of the General Regulation in which the deficiency is determined, shall be made in equal monthly instalments over a period of five years beginning on the valuation date of the report in which the deficiency is determined.

6. Sections 14, 14.1, 15, 16 and 17 of the Regulation are revoked and the following substituted:

Election re Solvency Funding Relief from December 1, 2013 to March 31, 2024

Opting out of solvency funding relief measures

14. (1) The administrators of the new pension plans may jointly file an election with the Superintendent to permit all of the new pension plans to be governed by the General Regulation and by subsection (4), instead of being governed by sections 15 to 23 of this Regulation.

(2) The election must be filed before April 1, 2018 and it cannot be withdrawn.

(3) An election filed on or before March 31 in any year takes effect on March 31 of that year, and an election filed after March 31 in any year takes effect on March 31 of the following year.

(4) If an election is filed, the following rules apply to each of the new pension plans:

1. For the period of three months after the effective date of the election, Essar Steel Algoma Inc. shall make the contributions required under sections 15, 18, 19, 22 and 23.

2. Essar Steel Algoma Inc. shall pay the amount of excess net cash owing under section 16 to the new pension plans as of the effective date of the election. The amount must be paid in accordance with section 16.

3. Within three months after the effective date of the election, the administrator of each new pension plan shall file a valuation report, as of that effective date, determining the consolidated prior solvency deficiency of the plan as described in subsection (5).

4. The consolidated prior solvency deficiency of each of the new pension plans must be liquidated by equal monthly instalments over the period that begins on the valuation date of the report and ends on March 31, 2024.

5. The new pension plans are not entitled to the deferral authorized by subsection 5 (1.0.1) of the General Regulation in respect of special payments to liquidate the consolidated prior solvency deficiency.

(5) The consolidated prior solvency deficiency of a new pension plan, for the purposes of this section, is the present value, as of the effective date of the election, of all special payments that are required before the effective date and are scheduled to be paid on or after the effective date with respect to the following deficiencies:

1. Any solvency deficiency determined in a valuation report filed under section 3, 13 or 14 of the General Regulation on or after December 1, 2013 and before the effective date.

2. Any special early retirement window benefit deficiency determined in a valuation report filed under section 3, 13 or 14 of the General Regulation on or after December 1, 2013 and before the effective date.

(6) The consolidated prior solvency deficiency of a new pension plan must be determined without the use of an averaging method that stabilizes short-term fluctuations in the market value of the plan assets in the calculation of a “solvency asset adjustment” as defined in subsection 1 (2) of the General Regulation.

Contributions and Other Payments — December 1, 2013 to October 1, 2017

Aggregate contributions to the new pension plans

15. (1) Essar Steel Algoma Inc. shall make the following contributions to the new pension plans for the period indicated, despite subsection 5 (1) of the General Regulation:

1. For the month of December 2013, $4.6 million.

2. For the year 2014, $55 million, payable in 12 equal monthly instalments.

3. For the year 2015, $55 million, payable in 12 equal monthly instalments.

4. For the year 2016, $60 million payable in 12 equal monthly instalments.

5. For each month in 2017 ending with the month in which the April 1, 2017 valuation report is filed for the new Hourly Employees Plan and for the new Salaried Employees Plan, $5 million.

(2) Payment of the contributions for a month is due on the last business day of the month.

(3) The contributions for a month shall be paid to the new pension plans in accordance with the following rules:

1. First, the normal costs that are payable in the month to the new Hourly Employees Plan and to the new Salaried Employees Plan must be paid in full.

2. Second, the amount that is the greater of “A” and “B” must be paid in full to the new Wrap Plan, where,

“A” is the amount of the special payments that are payable in the month to the new Wrap Plan, and

“B” is the total of all pension benefits and ancillary benefits that were payable for the preceding month to retired members and other persons entitled to benefits under the new Wrap Plan.

3. Third, the balance of the contributions for the month must be allocated between and paid to the new Hourly Employees Plan and the new Salaried Employees Plan using the formula,

C × D/E

in which,

“C” is the balance of the contributions for the month,

“D” is the solvency deficiency of the new Hourly Employees Plan or the new Salaried Employees Plan, as applicable, as determined in the most recently filed report under section 14 of the General Regulation, and

“E” is the sum of the solvency deficiencies of the new Hourly Employees Plan and the new Salaried Employees Plan as determined in the most recently filed report under section 14 of the General Regulation for each pension plan.

Payments to the new pension plans from excess net cash

16. (1) This section applies if Essar Steel Algoma Inc. has excess net cash, as determined under subsection (6), for any fiscal year ending after December 1, 2013 and on or before March 31, 2017.

(2) However, this section does not apply for a fiscal year if the ratio of the solvency assets to the solvency liabilities at the end of the year for each of the new pension plans is 1.0 or higher.

(3) For each fiscal year in which Essar Steel Algoma Inc. has excess net cash, a payment equal to the lesser of the following amounts shall be made to the new pension plans within 90 days after the end of the fiscal year:

1. Twenty per cent of the excess net cash.

2. The sum of the solvency deficiencies and special early retirement window deficiencies in all of the new pension plans as determined in the most recently filed report under section 14 of the General Regulation for each plan, as adjusted under subsection (5).

(4) The payment for a fiscal year shall be allocated among the new pension plans, and the share of each new pension plan is calculated using the formula,

F × G/H

in which,

“F” is the payment to be made to all of the new pension plans under subsection (3),

“G” is the solvency deficiency of the new pension plan as determined in the most recently filed report under section 14 of the General Regulation for the pension plan, as adjusted under subsection (5), and

“H” is the sum of the solvency deficiencies of the new pension plans as determined in the most recently filed report under section 14 of the General Regulation for each pension plan, as adjusted under subsection (5).

(5) Each solvency deficiency referred to in the definitions of “G” and “H” in subsection (4) must be adjusted by including the liabilities referred to in clauses (a) to (h) of the definition of “solvency liabilities” in subsection 1 (2) of the General Regulation.

(6) Essar Steel Algoma Inc.’s excess net cash for a fiscal year, for the purposes of this section, is the amount of its consolidated earnings in excess of $100 million for the year after taking into account any deductions for capital investment, depreciation, working capital, interest, financing fees and taxes, but excluding the following amounts:

1. Any loans made or obtained.

2. The contributions payable to the new pension plans in the following fiscal year.

(7) The excess net cash for a fiscal year is determined using information in Essar Steel Algoma Inc.’s most recent audited financial statements and in the most recently filed reports under section 14 of the General Regulation for each of the new pension plans.

(8) At the Superintendent’s request, the administrator of any of the new pension plans shall give the Superintendent such information and documents as the Superintendent may specify to enable the Superintendent to verify the amount of Essar Steel Algoma Inc.’s excess net cash for a fiscal year, as determined for the purposes of this section.

(9) A reference in this section to a fiscal year means a fiscal year of Essar Steel Algoma Inc.

Wrap Plan: December 1, 2013 to December 31, 2024

Annual reports, new Wrap Plan

17. (1) The administrator of the new Wrap Plan shall prepare a report under section 14 of the General Regulation with a valuation date of December 1, 2013, and shall file the report within six months after the valuation date.

(2) The administrator shall prepare a report under section 14 of the General Regulation for each subsequent year from 2014 to 2024, covering a period not greater than 12 months, and shall file the report within six months after the applicable valuation date.

(3) The report under section 14 of the General Regulation with a valuation date of December 1, 2013 must also contain the following information:

1. Whether there is a consolidated prior solvency deficiency as described in subsection 18 (1) of this Regulation.

2. If there is a consolidated prior solvency deficiency, the amount of the deficiency, the special payments that would be required to liquidate it in accordance with section 5 of the General Regulation and the special payments that are required to liquidate it in accordance with subsection 18 (2) of this Regulation.

(4) The following requirements apply for the preparation of the report under section 14 of the General Regulation:

1. In determining the solvency deficiency in the report with a valuation date of December 1, 2013, it is not permitted to use an averaging method that stabilizes short-term fluctuations in the market value of the plan assets in the calculation of a “solvency asset adjustment” as defined in subsection 1 (2) of the General Regulation.

2. Subsection 5 (17) of the General Regulation does not apply to the valuation of the consolidated prior solvency deficiency.

3. For the purposes of the definition of “solvency asset adjustment” in subsection 1 (2) of the General Regulation, the solvency asset adjustment also includes the present value of the special payments described in paragraph 1 of subsection 18 (2) and section 19 of this Regulation.

Special payments for consolidated prior solvency deficiency, new Wrap Plan

18. (1) For the purposes of this section, the consolidated prior solvency deficiency of the new Wrap Plan is the present value, as of the December 1, 2013 valuation date, of all special payments that are required with respect to any solvency deficiency determined in a report under section 3, 13 or 14 of the General Regulation with a valuation date earlier than December 1, 2013 and that are scheduled to be paid after December 1, 2013.

(2) For the period beginning on December 1, 2013 and ending on March 31, 2024, a payment shall be made each month to the new Wrap Plan in the greater of the amounts determined under the following paragraphs:

1. The special payment for the month that, under subsection 5 (1) of the General Regulation, is required to liquidate the consolidated prior solvency deficiency of the pension plan, with interest at the rates described in subsection 5 (2) of the General Regulation, by equal monthly instalments over the period beginning on December 1, 2013 and ending on March 31, 2024.

2. The total of all pension benefits and ancillary benefits payable to retired members and other persons entitled to benefits under the pension plan for the month preceding the month in which the payment under this subsection is due.

(3) The consolidated prior solvency deficiency of the new Wrap Plan is excluded, for the purposes of subsection 5 (1) of the General Regulation, from the solvency deficiency described in clause 5 (1) (e) of the General Regulation.

(4) Subsection 5 (1.0.1) of the General Regulation does not apply to the new Wrap Plan in respect of a special payment described in paragraph 1 of subsection (2) of this section.

Other special payments

19. The special payments that, under subsection 5 (1) of the General Regulation, are required to be made to the new Wrap Plan include special payments in respect of a solvency deficiency disclosed in a report filed under subsection 17 (2) of this Regulation on or after December 1, 2013 and on or before March 31, 2017, with interest at the rates described in subsection 5 (2) of the General Regulation, payable by equal monthly instalments over the period beginning on April 1, 2017 and ending on March 31, 2024.

New Hourly Employees and Salaried Employees Plans: December 1, 2013 to March 31, 2024

Annual reports, December 1, 2013 to March 31, 2017

20. (1) A report required under section 14 of the General Regulation for the new Hourly Employees Plan and the new Salaried Employees Plan with a valuation date on or after December 1, 2013 and before April 1, 2017 shall also set out the following information:

1. Whether there is a special early retirement window benefit deficiency described in section 12 of this Regulation.

2. If there is such a deficiency, the amount of the deficiency and the special payments required to liquidate it in accordance with section 5 of the General Regulation.

(2) In determining the solvency deficiency in a report referred to in subsection (1), it is not permitted to use an averaging method that stabilizes short term fluctuations in the market value of the plan assets in the calculation of a “solvency asset adjustment” as defined in subsection 1 (2) of the General Regulation.

Annual reports, April 1, 2017 to March 31, 2024

21. (1) The administrator of the new Hourly Employees Plan and the new Salaried Employees Plan shall prepare a report under section 14 of the General Regulation with a valuation date of April 1, 2017, and shall file the report within six months after the valuation date.

(2) The administrator shall prepare a report under section 14 of the General Regulation with a valuation date of April 1 of each subsequent year, from 2018 to 2024, and shall file the report within six months after the applicable valuation date.

(3) The report under section 14 of the General Regulation must also contain the following information:

1. For a report with a valuation date of April 1, 2017, whether there is a consolidated prior solvency deficiency as described in subsection 22 (1) of this Regulation.

2. For a report with a valuation date of April 1, 2017, if there is a consolidated prior solvency deficiency, the amount of the deficiency, the special payments that would be required to liquidate it in accordance with section 5 of the General Regulation and the special payments that are required to liquidate it in accordance with subsection 22 (2) of this Regulation.

3. Whether there is a special early retirement window benefit deficiency described in section 12 of this Regulation.

4. If there is a special early retirement window benefit deficiency, the amount of the deficiency and the special payments required to liquidate it in accordance with section 5 of the General Regulation.

(4) The following requirements apply for the preparation of the report under section 14 of the General Regulation:

1. Subsection 5 (17) of the General Regulation does not apply to the valuation of the consolidated prior solvency deficiency.

2. For the purposes of the definition of “solvency asset adjustment” in subsection 1 (2) of the General Regulation, the solvency asset adjustment also includes the present value of the special payments described in subsections 22 (2) and 23 (1) of this Regulation.

Special payments for consolidated prior solvency deficiency

22. (1) For the purposes of this section, the consolidated prior solvency deficiency of the new Hourly Employees Plan and the new Salaried Employees Plan, respectively, is the present value, as of the April 1, 2017 valuation date, of all special payments that are required with respect to any solvency deficiency and special early retirement window benefit deficiency determined in a report under section 3, 13 or 14 of the General Regulation filed before the April 1, 2017 report and that are scheduled to be paid after April 1, 2017, with interest at the rates described in subsection 5 (2) of the General Regulation.

(2) For the purposes of subsection 5 (1) of the General Regulation, special payments to liquidate the consolidated prior solvency deficiency of the new Hourly Employees Plan and the new Salaried Employees Plan, respectively, with interest at the rates described in subsection 5 (2) of the General Regulation, shall be made in equal monthly instalments over the period beginning on April 1, 2017 and ending on March 31, 2024.

(3) The consolidated prior solvency deficiency of the new Hourly Employees Plan and the new Salaried Employees Plan, respectively, is excluded, for the purposes of subsection 5 (1) of the General Regulation, from the solvency deficiency described in clause 5 (1) (e) of the General Regulation.

(4) Subsection 5 (1.0.1) of the General Regulation does not apply to the new Hourly Employees Plan or the new Salaried Employees Plan, as the case may be, in respect of the special payments described in subsection (2) of this section.

Adjustment re special payments

23. (1) On or before October 31, 2017, Essar Steel Algoma Inc. shall make a payment to the new Hourly Employees Plan and the new Salaried Employees Plan, respectively, in the amount by which “J” exceeds “K” — including interest on that amount at the rates described in subsection 5 (2) of the General Regulation — where,

“J” is the sum of the monthly special payments required to be paid, under a valuation report with a valuation date of April 1, 2017, for the period commencing on April 1, 2017 and ending on the earlier of October 31, 2017 and the date on which the valuation report referred to in subsection 21 (1) of this Regulation for the pension plan is filed, and

“K” is the amount of the contribution made under paragraph 5 of subsection 15 (1) of this Regulation to the pension plan less the sum of the normal costs paid to the pension plan on or after April 1, 2017 and on or before October 31, 2017.

(2) Subsection (1) does not apply if an election with an effective date of March 31, 2017 or earlier is filed under section 14 of this Regulation.

Commencement

7. This Regulation is deemed to have come into force on December 1, 2013.