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Implications of Defined Contribution Plan (DC Plan) on existing DB Plan

Memorandum

To:  Members of the Manitoba Telecom Services Inc. Participating Subsidiaries Employee Pension Plan (existing DB Plan)

CC:  Larry Trach, TEAM

From:  Louis Ellement, Actuary Consultant to TEAM

Date:  October 2, 2007 

Re:  Implications of Defined Contribution Plan (DC Plan) on existing DB Plan

I have been asked by TEAM to give my opinion on the implications of switching to a Defined Contribution Pension Plan (DC Plan) for new employees.

As employees retire or leave MTS, less and less employees will participate in the existing pension plan. With reduced numbers, employees will have diminished influence to lobby for improvements in pension benefits, should a surplus arise in the future. In this regard, there could be a negative financial impact on the ultimate benefits received from the existing pension plan.

There is also a risk that the existing plan would be completely wound-up when the number of participating employees decreases to some level. If this were to occur, employees participating in the plan are at risk of receiving frozen pensions which would be less than their projected pensions based on projected earnings to their future date of retirement.

Finally, with no new members, the decreasing member allocations to the cost of living adjustment account (COLA) would further diminish the ability for the account to support COLA adjustments beyond the guarantee.

Regarding the specific DC Plan proposed, it is my opinion that the existing plan is far superior, in particular with respect to the level of employer funding.

Louis Ellement,

Actuary

Ellement & Ellement Consulting Actuaries