September 29, 2000

L.O. Schillaci General Chairperson Canadian Council of Railway Operating Unions (UTU)
Suite 306, 8989 Macleod Trail S.
Calgary, Alberta T2H 0M2 Dear Sir:

I am writing in regards to your letter of August 10, 2000 concerning early retirement separation allowances. Please note that I am copying Mr. Curtis on this response as he has raised the same issue in previous correspondence to this department.

At issue is the impact of the increased pension calculation formula on the estimated separation allowance. As you are aware, the lump sum is based on a calculation of the difference between an employee's pension and a specified entitlement as indicated in the table outlined in Article 9(a).
As the pension rises, the difference between the pension and the specified entitlement shrinks, thus the lump sum is necessarily smaller.

You have requested that the Company consider giving those individuals currently on bridging an option to forego the increase in the pension formula and maintain their original separation allowance. We have discussed this issue at length internally and we cannot agree to extend this option for a number of reasons.

First, providing this option to employees currently on bridging would be administratively costly. Second, allowing employees the option to elect taking the old formula would be a disservice as, over the long run, they would actually lose money. Finally, although employees may have received figures from the pension department at time of bridging outlining the monthly allowance or lump sum at the time of early retirement, these were clearly marked as estimates.

Recognizing, however, that you must address your members concerns, I have attached an example, which demonstrates that employees are better off under the new formula. Additionally, as is past practice, we are willing to allow those employees who have yet to go on early retirement, but who have already selected the lump sum option, to change their selection to receive the monthly allowance under the new formula if they so desire upon early retirement.

I hope this addresses your concerns.

Sincerely, Mike Degirolamo Assistant Vice President Industrial Relations
cc: Dennis Curtis

Early Retirement Separation Allowances - Example DESCRIPTION
- Name: J. Jones
- Service: 27 years & 02 months
- Age: 57 years & 11 months
- Average Monthly Income: $5,986.91 (best 5 years)


- J.Jones was on a bridge and in 2001 he is eligible to retire just under age 58.

- In Scenario A, he elects to receive a monthly separation allowance as opposed to a lump sum. Under the old formula (1.3%), he would receive a pension of $2,713 and a Separation Allowance of $1,118 for a total of $3,831 per month. Under the new formula (1.6%) he would receive a pension of $2,944 and Separation Allowance of $887, also totaling $3,831 per month.

During the period of early retirement, there would be no impact on the amount of money that Mr. Jones would receive. However, once Normal Retirement begins at age 65, Mr. Jones would only receive a monthly pension of $2,713 under to the old formula but he would receive an additional $231 for a total of $2,944 under the new formula. This additional benefit would continue for the rest of Mr. Jones life and would also impact the survivor's benefit as well.

- In Scenario B, Mr. Jones, instead elects to receive the Separation Allowance portion of his benefit as a lump sum. This is calculated by multiplying the monthly separation allowance by the lump sum factor (60.731). In this case, the lump sum that Mr. Jones would receive under the old formula ($67,897) is $14,029 greater than that under the new formula ($53,868). However, the total amount of pension that Mr. Jones would receive during early retirement (Monthly pension over 85 months) is $19,635 greater under the new formula ($250,240) than he would receive under the old formula ($230,605.) Again, there is no net impact on what is received in Early Retirement because $19,635 spread over 85 months is equal to $14,029 paid out immediately, when actuarially reduced. However, as previously stated, under the new formula, Mr. Jones has an added benefit of $231 per month during Normal Retirement.

- Under Scenario A, from a monthly standpoint over time, what Mr. Jones would receive under the two formulas is as follows:

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