Canadian Pacific Railwayís Pension Plan, with $5 billion in assets, is among the largest corporate plans in Canada.
Company pension plans have been getting a great deal of attention in the Canadian news media.† Many plans, including CPRís Pension Plan, have not been able to generate the growth they had expected in pension plan assets as a result of the downturn in the stock markets.† In addition, pension plan liabilities have increased due to record low interest rates.† This downturn in the markets has also affected thousands of Canadians who have faced similar results with their own personal retirement savings plans.
This flyer addresses the questions that may be on your mind as you read and hear reports about pension plans.† It addresses only the Defined Benefit Option under CPRís Pension Plan because of CPRís obligation to ensure the Plan is sufficiently funded to pay the promised pension to current and future retirees.
There are currently approximately 15,000 active members and 24,000 pensioners in the Defined Benefit Option.† A small number of non-union employees have chosen to join the CPR Pension Planís Defined Contribution Option, under which they manage their own pension investments through outside fund managers.†



Q.† What is the CPR Pension Planís current financial position?
A.† Companies are required to report the financial position of their registered pension plan on a standard basis.† This means they must report the financial position of their plan with respect to the benefits promised not only to current pensioners but also to all future retirees.† On this basis, the pension arrangements of CPR had a reported deficit of $864 million at the end of 2002, of which $721 million was attributable to the Canadian CPR Defined Benefit Pension Plan.† This compares with a reported surplus at the end of 2000.
The value of the Planís assets is tied to stock and bond markets, which rise and fall.† CPR uses outside professional investment management firms that manage the assets in the Pension Plan to weather these market fluctuations.† They look at economic trends worldwide to make the most prudent investment decisions.
This is not unlike the pension investment strategy used by thousands of Canadians who put their Registered Retirement Savings in the hands of investment firms. Most personal retirement savings plans have gone through good periods and bad periods, but show a positive trend when viewed over the long term.† The CPR Pension Plan has had similar ups and downs, but has done well over time.

Q.† What has caused this deficit?† Should I be worried about my pension?
A.† The deficit has been caused by a number of important factors:
First, our pension funds are invested in stocks, high-quality government and corporate bonds and, to a much smaller degree, in real estate.† The general decline in the stock markets has meant these assets have grown more slowly than in the past, or have declined in value.†
Second, low interest rates have meant low pension plan discount rates. The lower the discount rate, the higher the amount that must be in the plan to cover what is owed both current and future retirees.
Finally, there have been improvements to the Pension Plan for both unionized and non-unionized employees in recent years.†

As for the Planís security, pension plan liabilities should be viewed as long-term obligations, and CPR is in a sound financial position to manage its obligations.† In addition, some financial analysts have stated that world financial markets appear to be coming out of a cyclical period of low performance.† Any sustained improvement in the stock and bond markets should have a positive impact on the CPR Pension funds.


Q.† How is CPR managing the deficit?
A.† Pension plans, including the CPR Plan, are actively regulated and monitored by independent government agencies.† Regulations require that deficits be reduced in a reasonable fashion and within a certain timeframe.
CPR is continuously monitoring the Planís financial position and contributing to it in accordance with these regulations, as the company has in the past.† In 2002, we increased the companyís contribution to the Plan from $38 million to $54 million, an increase of almost 50% over 2001.† While our contribution in 2003 is expected to be $56 million, CPR is considering making an additional $40-million contribution to the Plan this year should the markets or interest rates not improve sufficiently.
In addition to this cash infusion, CPR is using independent experts in the asset management field to provide advice on how to prudently invest the Planís fund.† The rate at which the deficit is reduced will also depend on how the stock and bond markets perform and on movements in interest rates.

Q.† Who is responsible for monitoring the CPR Pension Plan?
A.† There are several layers of responsibility.† This provides the checks and balances needed to ensure the Plan is managed well and there is input from directors, management, unions and pensioners.† A sub-committee of CPRís Board of Directors, called the Pension Trust Fund Committee, has overall responsibility for the Pension Plan.† It sets investment policies and guidelines for the mix of assets held by the Pension Plan, decides who should manage the pension fund, and ensures CPR is meeting its pension obligations under the law.
A Management Pension Committee, consisting of senior management staff, is responsible for taking care of administrative matters on behalf of the Pension Trust Fund Committee.†
Finally, CPR has a Pension Committee comprised of four management staff, three union representatives and one pensioner representative who meet monthly.† They review certain administrative aspects of the Plan and proposed changes to the Plan, and perform other duties, as required by legislation.† The committee can also retain the services of actuaries, auditors and technical advisors, as necessary to fulfill their mandate.

As part of proper management of the Plan, an independent actuarial firm performs a regular valuation of the Planís financial position.†


Q.† Can CPR use the assets in the Pension Plan for anything other than the pension benefits?

A.† The Pension Plan assets are held in a Pension Trust Fund.† Any contributions employees and the company make to the Pension Plan are deposited into the Trust Fund, which, by law, must be kept separate from CPRís assets.† Some of the stories you may have heard in the past regarding pension funds being funneled into company operations have occurred outside of Canada, where pension plan investment laws are not as strict.