Canada: CSA Publish Guidelines on Retirement Benefits Disclosure

This article was originally published in Blakes Bulletin on Securities Law - January 2005

©2005 Blake, Cassels & Graydon LLP

• No change in requirements for retirement benefit disclosure

• Guidelines provided for issuers who wish to provide broadened disclosure

• Additional retirement benefit disclosure may be required in future

The Canadian Securities Administrators staff have issued Staff Notice 51 – 314 Retirement Benefits Disclosure providing guidelines for disclosure of retirement benefits. The Staff Notice indicates that a number of issuers are presently considering providing enhanced disclosure on retirement benefits payable to executives, which goes beyond that which is required under current securities law requirements. The purpose of the Notice is to provide guidance from CSA staff (except for British Columbia staff which has not participated in the Notice) to issuers that choose to broaden their disclosure relating to retirement benefits disclosure.

The CSA Staff Notice indicates that additional disclosure relating to retirement benefits could include, among other information: (a) the total retirement benefit liability of the issuer associated with each executive; (b) the total service costs in respect of the plan during the past year; and (c) the estimated annual benefits payable on retirement to specific executives.

While acknowledging that this additional disclosure is not required, the CSA Staff Notice indicates that, if companies choose to provide this additional disclosure, it is important that disclosure specify (a) that the amounts are estimated based on assumptions, which represent contractual entitlements that may change over time, (b) that the method used to determine any estimated amounts will not be identical to the method used by other issuers, and as a result the figures may not be directly comparable among companies, and (c) the key assumptions relating to the disclosure.

The CSA Staff Notice indicates that the key assumptions which may be disclosed in this regard include assumptions as to the length of time an officer will remain employed, the vesting of pension benefits, future pay increases granted to executives in estimating a value for retirement benefits, the use of pre-tax or after-tax interest rates, and the inclusion in any estimated figures of employee contributions. The Notice indicates that, where appropriate, the assumptions used in connection with the preparation of the financial statements should be consistent with those used for the purposes of individual executive compensation disclosure, and, where there are major differences, these should be highlighted and explained. The Notice also indicates that it may be useful to provide disclosure regarding different possible assumptions.

The Notice also indicates it may be appropriate to disclose key contractual terms of the benefit plan, particularly if they are unusual or when their impact is significant.

The CSA Staff Notice indicates that the CSA will continue to monitor developments in this area, and may determine in the future that amendments to executive compensation disclosure requirements are warranted. The full text of the CSA Staff Notice is set out in the Ontario Securities Commission Bulletin dated January 14, 2005. It may also be read on Blakes Web site at www.blakes.com, under "Publications".

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