JACK LAKEY

March 30, 1997

The Canadian pension fund of the Laborers International Union has an unfunded liability of nearly $400 million and needs a massive cash infusion to remain solvent, a Star investigation has found.

An actuarial report filed by the fund with the Ontario Pension Commission shows it should have had assets of $959,245,300 as of Jan. 1, 1996, the last time it filed detailed information with the commission.

But the report, which must be filed annually under the Pension Benefits Act, shows its assets actually totalled $565,849,200, leaving an unfunded liability of $393,396,100.

The unfunded liability means that if the fund had to meet all existing obligations out of assets listed in the most recent actuarial report, it would only be able to cover 53 cents on each dollar owed.

Since the last report was filed 15 months ago, union sources say the situation has worsened and the fund's ability to meet all obligations from existing assets has slipped below 50 cents on each dollar owed.

Enrico (Henry) Mancinelli, vice-chair of the pension fund, concedes it has serious financial problems, but denied the difficulties stem from bad management and investments.

"We know that we are not in good shape," said Mancinelli, Canadian vice-president for the international union based in Washington, D.C., and the man who started the pension fund in 1972.

"But we are still (paying) all the benefits because the local unions said they don't want cuts. They want more money. You see, this is a Cadillac plan."

Mancinelli blamed the unfunded liability partly on declining pension premiums paid into the plan on behalf of working members.

In the late 1980s, employers paid premiums on behalf of 35,000 members, he said, but only 19,500 are working now, while benefits paid out have been increasing.

He conceded that the pension fund has made one bad investment, on a 9.7-hectare parcel of land on Lake Ontario in Stoney Creek, bought in 1990 to develop a waterfront condominium community.

Sources say the fund invested about $30 million in land and related costs. Mancinelli concedes the fund would be lucky if it could sell the land for $5 million.

"If we had sold (the development), we could have recouped the money. Now we don't even get to one-tenth" of the pension fund's investment, Mancinelli said.

"You cannot hide the truth. Who will buy the land now and give us more than $5 million? I don't know."

Anthony Gullone, a spokesperson for the provincial pension commission, said the Laborers pension fund "is in bad shape."

But he refused to say just how bad compared to the 7,000 other pension funds it regulates in Ontario.

In fact, the pension commission says it cannot provide such information because it has no system to measure the performance of a pension fund in relation to others.

The commission also says it has no warning system in place to grade the ability of a fund to meet its obligations, or to put it under increasingly close scrutiny as an unfunded liability grows.

"It's not common for us to see a situation like the one faced by the Laborers," said Gullone.

"It is cause for concern when you see a liability of this size."

The Laborers Pension Fund of Central and Eastern Canada pays benefits to about 10,000 members and collects contributions from employers on behalf of 19,500 more members who are still working.

But the pension commission says the Laborers fund did not file an annual financial statement with the commission for 1991 through 1995, as required by the Pensions Benefit Act.

The annual financial statement provides details on investments, real estate deals and loans made by a fund and helps the commission assess and confirm the value of assets. It is also used as a starting point for investigations, if necessary.

The commission had no clue that the Laborers pension fund ignored its filing obligations for five consecutive years, Gullone admitted, until it audited the fund's file in the fall of 1995.

Asked why the commission did not know for five years that the fund failed to file key financial information, Gullone replied: "I wish we had the resources to go through (each pension plan) with a fine-tooth comb. They are required filings."

The financial statements have since been filed with the commission.

Early in 1996, the commission began asking the Laborers pension fund to file a strategic plan within a time limit to show how it intended to eliminate the unfunded liability, a requirement of the Pensions Benefit Act.

After several delays and extensions, the commission has given the fund a June 30 deadline to file the strategic plan. Sources say it plans to seek a further extension.

If the commission becomes convinced that the plan has dug such a deep hole that it can't ever get out, it has the authority to dissolve the pension fund and order the remaining assets to be paid out to members.

When asked if the pension commission had any idea how the Laborers fund got into so much trouble, Gullone cited "poor investment returns, a rise in the number of early retirements, a decline in number of active members (and) an unexpected rise in disability claims."

The Laborers operate a "multi-employer" pension fund, meaning that each of the many companies that employ its members contribute a certain amount per worker for each hour worked.

COLLECTIVE AGREEMENTS

While the contribution level is determined by collective agreements between individual employers and union locals, it is usually 80 cents per hour worked.

Malcolm Hamilton, a pension actuary with William M. Mercer Ltd., said multi-employer pension funds can develop an unfunded liability when premiums plummet due to high unemployment.

But if a multi-employer fund is prudently managed, Hamilton said, its unfunded liability should remain manageable. He noted that, as a group, pension funds have enjoyed unprecedented prosperity in the past few years.

"Compared to all the pension funds, that's atrocious," Hamilton said of the problems of the Laborers fund, noting that multi-employer funds are "the bottom of the bin" and more volatile than other funds.

"In the universe of pension plans, of which most are not multi-employer, it's right at the bottom."

Onorio D'Agostini, administrator of the Laborers fund, called business managers from all the union locals to a meeting at the fund's Yonge St. offices in January to lay out the situation.

The business managers - the top executives at the locals were told that another 90 cents hourly was immediately needed from employers to keep the fund solvent, despite the contribution levels outlined in the collective agreements.

One source said the fund needs as much as an additional $2.20 hourly from employers to satisfy the pension commission that it can raise enough cash to eliminate the unfunded liability over a period of many years.

The chairperson of the Laborers Canadian pension fund is Arthur Coia, the union's international president, based in Washington, D.C. Coia is well-known as a strong supporter of and fundraiser for U.S. President Bill Clinton.

The fund also has three trustees, all of whom are business managers of local unions. They are Carmen Principato, Nello Scipioni and Tony Dionisio, business manager of Local 183 in Toronto, the largest Laborers local in North America.

D'Agostini, who has run the day-to-day operations of the fund for 15 years, said it got into trouble due to high unemployment among its members in the early 1990s, which greatly reduced the pension premiums paid by employers.

BENEFITS 'TOO RICH'

Its problems were compounded, D'Agostini said, because the benefits paid to pensioners were "too rich" and excessive, when compared with premiums paid into the fund by employers.

"You've got 20-some local unions putting pressure on the trustees, we want more benefit, more benefit," D'Agostini explained. "And when things were good we gave them a lot of benefits.

"Now it's time (that) either they are going to pay for what they get or we have to cut down" on benefits, he said, denying that the fund has made any bad investments.

"The investments are doing very well, matter of fact. We've got nothing to hide, the cards are on the table."

The pension fund paid $23.3 million for the Stoney Creek land and formed a company called Marchena with two Toronto real estate developers who were brought in as joint venture partners.

The fund put up all the money for the land, but development costs for the condominiums were to be shared equally among the partners. But the condo market turned sour when the economy went into a tailspin and not enough units were sold to begin construction.

The land has since been vacant, but the pension fund has had to pay the annual property taxes and has bought out the two Toronto developers from the deal for a reported $1 million.

The pension was not as forthcoming with members about its situation in a "financial update" sent to them last December.

The letter states that the net assets of the fund "are expected to exceed $600 million" in 1997. "This is an extraordinary achievement (their italics), a credit to the dedication of the past and current trustees."

No mention was made of bad real estate deals or unfunded liabilities.