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January 14, 2005, CSA Staff Notice 51-314 – Retirement Benefits
Disclosure (the Notice)1
was issued to provide guidance to those
issuers who choose to provide enhanced disclosure of retirement
benefits payable to executives that goes beyond the strict
securities law requirements specified in Form 51-102F6 Statement
of Executive Compensation of National Instrument 51-102 Continuous
Disclosure Obligations (the Form). The release of the Notice
follows increased recent public attention to the pension portion
of corporate executives’ remuneration packages.
Additional disclosure considered by
some issuers might include information about the value of certain
retirement benefit plans, for example, supplementary executive
retirement plans (SERPs). According to the Form, an issuer is
required to provide general information regarding estimated annual
benefits payable under defined benefit plans. An issuer must also
disclose certain other information, including the relationship
between the amount of compensation covered under the plan and the
compensation reported elsewhere in the proxy circular, as well as
the estimated credited years of service for each named executive
officer.
The Notice includes three different
types of additional disclosure that issuers may consider. The
examples are not designed to be exhaustive and the guidance
contained in the Notice would also apply to any other type of
additional disclosure regarding retirement benefits. The
additional disclosure can be provided in either narrative or
tabular form, and can be included with an issuer’s executive
compensation disclosure. Examples of additional disclosure could
include, among other information:
-
the
total retirement benefit liability of the issuer associated
with each executive,
-
the
total service costs in respect of the plan during the past
year, and
-
the
estimated annual benefits payable on retirement to specific
executives.
Although this additional disclosure
is not mandatory, the Notice indicates that when issuers choose to
provide such information, it is important that the disclosure
includes specific information that will assist an investor in
understanding it. For example, the disclosure should specify: (a)
that the amounts are estimates based on assumptions that represent
contractual entitlements which may change over time (and to
disclose key contractual terms of benefit plans if they are
unusual or their impact is significant), (b) that the methods used
to determine any estimated amounts will not be identical to the
methods used by other issuers and that, as a result, the figures
may not be directly comparable across companies, and (c) the key
assumptions made.
These key assumptions should be
consistent with those used by the issuer for financial statement
purposes, and any major differences in the assumptions used should
be explained. The Notice indicates that, where appropriate, it may
be helpful to investors if information is disclosed using
different assumptions, such as different vesting dates or
different retirement ages of executives. Examples of key
assumptions in determining the value of benefit plans include:
-
Retirement:
Issuers will need to make assumptions about the length of
time an officer will remain employed.
-
Vesting:
Some pension benefits will not vest until a future date and
their current value will need to be estimated for disclosure
purposes.
-
Increases
in compensation: Issuers must take into account future
pay increases granted to executives when estimating a value
for retirement benefits since benefits are typically based
on the executive’s income in the years immediately before
retirement. Issuers must also consider how to reflect any
changes to the disclosure when actual amounts differ from
what was originally estimated and disclosed.
-
Interest
rates: Issuers must determine whether to use pre-tax or
after-tax interest rates when determining the value of
benefits granted to executives.
-
Employee
contributions: When the pension plan includes employee
contributions, issuers may wish to disclose whether such
contributions are included in estimated figures for benefits
or liabilities and how they are taken into account.
The
Notice is only a guideline for optional additional disclosure and
does not purport to be exhaustive. It does, however, provide some
insight into how the securities regulators (excluding in BC) may
review the sufficiency of information disclosed by an issuer. FOOTNOTE
1]
Staff in BC did not
participate in the Notice. BACK |
