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
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
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
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
"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
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
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
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 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
"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
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
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
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.