Union seeks court guarantee Dominion Diamond will honour millions in pension shortfall
Last official report says shortfall $9.1M but company official says true figure could be higher
Unionized employees at Dominion Diamond could face pension cuts if a multi-million dollar shortfall in the company's defined benefits pension plan is not addressed in its court-ordered creditor protection process.
According to the last official report on the company's pension, as of Jan. 1, 2019, Dominion had approximately $90 million paid into what records showed to be a $99.5 million pension liability, leaving it with a $9.1-million shortfall, though that number was subject to change as the company addressed the shortfall and the markets fluctuated.
Thursday morning, CBC News was made aware that the deficit may in fact be at least $20.3 million, according to a court affidavit by Krystal Kaye, Dominion's chief financial officer.
That unofficial figure comes from a recent draft report prepared for the company. It found that as of Dec. 31, 2019, the defined-benefit pension plan had $91.3 million paid into what had become a $111-million liability, Kaye said in her statement.
Kaye notes that these numbers have likely "changed materially" since then following the stock market collapse earlier this spring.
Dominion, one of the most significant employers in the Northwest Territories, is under court-ordered creditor protection until at least June 1 because it could not pay its bills.
It owes creditors around the world approximately $1.2 billion, including $13.2 million to businesses in the Northwest Territories. The company sought creditor protection in April because it couldn't pay a key $20-million US interest payment and another $16-million Cdn bill to its partner at the Diavik diamond mine. It says those missed payments could have led to bankruptcy if left unpaid.
Todd Parsons, the president of the Union of Northern Workers, which represents 400 workers at the company's Ekati diamond mine confirmed the pension was in a shortfall. On Wednesday, he said the shortfall was at least $9.1 million.
We're going to want our members, our employees addressed first ahead of creditors- Todd Parsons, president Union of Northern Workers
In a series of followup emails on Thursday, Parsons said through a spokeswoman that the UNW was made aware of the $9.1 million shortfall April 1, after the union requested the official information from the company.
In a second email, Parsons acknowledges the union is aware of the figures reported in Kaye's affidavit and says the union is trying to come to a better understanding of the situation. The union requested more documentation from Dominion about a week ago, but has not yet received a response, he said.
The next official actuarial report confirming the pension's financial position to Jan 1, 2020 was originally set for June 30, 2020, but that deadline has been extended 90 days.
The union has a legal team examining the situation and will argue those benefits should be guaranteed, Parsons explained.
"We're going to want our members, our employees addressed first ahead of creditors," he said. "The union is going to insist on protecting the priority of these pensions for these workers, that's a normal expectation."
Government regulators had previously identified the issue and the company was working to address it, Parsons said, but he was not certain how long that's been ongoing and whether it had been fully addressed.
"My understanding is that this was identified as an issue through normal accounting practices for defined-benefits plans," Parsons said. "That information had been reported to the union."
Uncertain way forward
Part of the creditor protection process is the restructuring and settling of debts. It's not certain the pension deficit will be met.
Ultimately, Parsons said he hopes Dominion resolves its financial issues, returns to normal operations and continues with its plan to address the shortfall over the long-term.
But like so much in this process, that's not guaranteed.
When a company goes through creditor protection or bankruptcy, the money already put into the defined benefits pension is generally safe from creditors — but the deficits are not, according to several experts canvassed by CBC News.
A defined benefit pension plan is a plan where the employer pays out benefits based on factors such as length of employment and salary history, typically for life. They've grown increasingly rare in the private sector in favour of defined contribution pensions because of the expense to employers.
Though the courts are still settling this issue, the shortfall often becomes an unsecured debt that the company owes, just like any other unsecured debt the company needs to pay. Those creditors take the least priority when determining which creditors should be paid.
Like with all other unsecured debts, there's no way to tell whether it will be honoured. Underfunded pensions have been a recurring issue in Canadian bankruptcy courts over the past decade, notably during the Sears case in 2018.
Dominion's pledge to get back to business
Since first applying for court-ordered creditor protection, Dominion has said it plans to return to business once COVID-19 has passed and has $180-million US in inventory around the world to sell. It blames ongoing commercial and travel restrictions due to COVID-19 for leaving it with a cash-flow crisis.
Read more about Dominion's situation and how the next steps are critical
CBC News had asked Dominion Diamond for an interview to discuss this issue, but the company declined. Instead it sent a statement that did not address the questions directly, attributed to CEO Pat Merrin.
"Dominion's commitments to employees and local communities remain a priority for the company," Merrin said in the statement. "We are working diligently to secure sufficient financing to continue operations and allow Dominion to emerge from the CCAA process an even stronger company."