Special advisor to the government on the steel industry James Arnett has told Stelco that when it emerges from protection under the Companies’ Creditors Arrangement Act, the holiday will no longer apply, and pension payments will have to be made at higher levels than are currently seen, according to the Canadian Broadcasting Corporation.
Stelco was granted the holiday in 1996, and was allowed to stop funding its pension plan on a solvency basis and instead fund it on a going-concern basis, as well as pay into the province’s Pension Benefits Guarantee Fund. The cost between the two systems saves Stelco millions of dollars; last year, pension contributions were $64 million for the company, well below the $353 million that it would have been without the holiday.
If the government revokes the legislation that allowed the pension holiday to take effect, the solvency deficiency – which now stands at $1.3 billion – would have to be paid back over five years. However, Arnett indicated that the government was willing to be flexible in order for the deficiency to be righted.
The move, according to many, is a signal to Stelco and the companies bidding to take it over that the government wants the pension problem solved now.
Canadian governments have in the past been willing to work with companies enduring financial hardship to create a workable solution to pension issues. Recently, Air Canada agreed with regulators to fund its $1.2 billion pension deficit over a 10 year time-frame, which doubled the legal maximum under normal circumstances.