annual report 2011/12 - Manitoba Agricultural Services Corporation

The Operating Credit Guarantee for Rural Small Business Program was introduced in June 2009. Participating lendinginstitutions are provided a guarantee of 25% of the maximum authorized amount of each individual loan made underthe program. To be eligible for the program, annual sales have to be less than $2.0 million. The maximum allowableloan is $200,000.The Manitoba Livestock Associations Loan Guarantee Program was introduced in 1991. For each livestock association,MASC provides a 25% guarantee to the association’s lending institution, based on a maximum loan of $5,000,000 perassociation.The Diversification Loan Guarantee Program was introduced in 1995 to provide guarantees on loans made byparticipating lenders for diversification or farm value-added activities. Under this program, 25% of the lender’s totalassociated loan portfolio was guaranteed. The maximum allowable individual loan was $3.0 million.The Enhanced Diversification Loan Guarantee Program replaced the Diversification Loan Guarantee Program in 2001.Under the new program, guarantees are based on 25% of the original principal amount of each individual loan, with nomaximum loan amount.The Rural Entrepreneur Assistance (REA) Program provides a guarantee of up to 80% on loans made by participatinglenders to small rural non-agricultural businesses. REA guarantees loans up to a maximum of $200,000. Theadministration of this program was transferred to MASC from the Province of Manitoba in 2005 but the Provincemaintained the associated contingent liability until March 31, 2011. As of April 1, 2011, MASC assumed fullresponsibility for the REA Program including the contingent liability of $11,489,000 and the associated provision of$2,048,000. Upon the transfer to MASC, the provision was expensed to MASC’s provision for guaranteed loan losses.(B)Various legal actions for additional indemnity payments have been commenced by insured producers againstMASC. The outcome of these claims cannot be determined at this time.17. FUTURE EMPLOYEE BENEFITSSeverance LiabilityMASC’s employees are eligible for severance based on their years of service. Commencing March 31, 1999, MASCbegan recording the accumulated severance pay benefits. The amount of recorded severance pay obligation is based onactuarial calculations, which are carried out every three years.An actuarial valuation of the severance obligations as of March 31, 2011 was conducted by Ellement & Ellement. Thekey actuarial assumptions include an interest rate credited to obligations of return of 6.5% (2009 - 7.0%), severancerate of 0.72% of average salary of $59,978 for administration staff and 0.39% of average salary of $38,454 for adjustingstaff (2009 - 0.69% of average salary of $54,020 for administration staff and 0.43% of average salary of $36,294 foradjusting staff), and salary inflation rate increases of 2.75% (2009 - 3.25%). The accrued benefit cost method withsalary projection was used and the liabilities have been extrapolated to March 31, 2012 using the formula providedby the actuary. The following table provides the calculation of the liability for severance benefits of $2,273,000 (2011 -$2,226,000):2012 2011Accrued severance liability – beginning of year $ 2,226 $ 2,228Experience loss (gain) - (165)Benefits accrued 84 87Interest on obligation 134 156Benefits paid (171) (80)Accrued severance liability – end of year $ 2,273 $ 2,22648Manitoba Agricultural SeRVICes Corporation – 2011/12 Annual Report