Evidence of meeting #46 for Industry, Science and Technology in the 40th Parliament, 3rd Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was c-501.
A recording is available from Parliament.
12:50 p.m.
Partner, Mercer (Canada) Limited
I'm afraid that would be far too complicated to meet the objectives that employers often have in offering a DB plan.
12:50 p.m.
NDP
John Rafferty NDP Thunder Bay—Rainy River, ON
One last question to Towers Watson.
Your work estimates that this bill would increase the corporate bond market. I know you didn't want to talk about basis points, but you say 12 to 29 points. What you say is certainly in line with other testimony that we've heard. Philips, Hager & North, which I guess you're familiar with, and Monsieur Carte, whom you're also familiar with, both estimated a quarter-point hit in the corporate bond market, about $3 billion to $4 billion in investment-grade bonds. And these are the ones that are preferred. These are the secured ones.
So when we speak of Bill C-501 and we talk about investment-grade corporate bonds being approximately $300 billion—I think that was the estimate in this report—we're really talking about a 1% hit on investment-grade bonds, $3 billion to $4 billion.
12:50 p.m.
Conservative
The Chair Conservative David Sweet
If you want that question to be answered, you'll have to leave it there.
12:50 p.m.
NDP
John Rafferty NDP Thunder Bay—Rainy River, ON
Okay, I'll ask it very quickly.
During the last recession, Canadian banks and others created the subprime mortgage business, and we were talking about 250 basis points that they took a hit on. Is this bill not proposing, in terms of total moneys—I hate to use the term—small potatoes, compared with what has gone on before?
12:50 p.m.
Member, Towers Watson
The answer is that we really don't know, and I think that was discussed at the previous session. What we're concerned about is the unintended consequences. The reality is that it's during an economic crisis that the cost is going to be the highest, and that's the time when the employers who are sponsoring DB plans or simply employing employees will have the most difficulty obtaining the financing.
The real issue is that it may be an average, just as the average temperature in Ottawa is 10 degrees, but it's at the time when it's coldest that you need the most help, when you may not be able to afford it. Our concern with this bill is that some of the organizations that otherwise could restructure successfully may not have the opportunity to do so.
12:50 p.m.
Conservative
The Chair Conservative David Sweet
Thank you very much.
Now we go on to Mr. Garneau, for five minutes, please.
12:50 p.m.
Liberal
Marc Garneau Liberal Westmount—Ville-Marie, QC
Thank you, Mr. Chair.
I'd like to ask my question to Madame Bastien.
I know you were here in the previous session, so you may have heard me asking a question of Mr. Breton. It was concerning the issue of arrears and special payments. That seemed to be what Bill C-501 was addressing. I was asking how much effect that would have, really, on the markets. He brought in the fact that it wasn't just Bill C-501; it was also Bill C-9.
I heard you mention that you're familiar with Bill C-9, so I was wondering if you might shine some light on the linkage, to show why it's a bigger thing than perhaps I've appreciated.
12:50 p.m.
Partner, Mercer (Canada) Limited
I can make a couple of observations, first about Bill C-501.
The stated intention for Bill C-501 is that the entire deficit become one held by a super-secured creditor. The words in Bill C-501 are less definite. I would say that when you're doing your clause-by-clause, it's very important to be sure that the words match what you think they ought to mean.
Bill C-501 refers to regulations made under the Pension Benefits Standards Act. It defines the liability that it's targeting by way of a regulation. Under Bill C-9 that regulation has yet to be rewritten; it's going to be rewritten.
So you have a moving landscape. That's my first observation.
Secondly, what we see in Bill C-9—in the statute itself, prior to seeing the regulation—is that there are special payments that are due up until the date of a plan termination. I think I heard a reference to this earlier today. Some think this is the intended scope of Bill C-501. But Bill C-9 introduced a new element to pension plan funding. That's an obligation to fully fund the deficit after a plan is terminated and to fully fund it over five years.
In my view, the language in Bill C-501 is not clear enough to tell me with any certainty that this liability has been excluded. In fact, I think you can even read it to say that the entire deficit is captured, even though Bill C-9 doesn't require a full deficit funding in one moment but requires it over five years.
12:55 p.m.
Liberal
12:55 p.m.
Senior Consulting Actuary, Towers Watson
I just wanted to add that the earlier conversation was talking about the other countries, 30 countries and so on. You have to be very careful in looking at those studies to decide whether what's covered is what is in arrears—in other words, the special payments that should have been made in accordance with the Pension Benefits Standards Act by the time the company went under—or the full deficit. I think, if you look through the entire list of countries, there are precious few that actually put the whole deficit ahead of the bond-holders, rather than just the special payments in arrears.
You also have to look at the maturity of the pension system in those countries. You need to look at ones where the pension assets are a very large proportion of total corporate assets, and we come down to there being virtually no other examples.
12:55 p.m.
Liberal
Marc Garneau Liberal Westmount—Ville-Marie, QC
What you're saying is that if one is looking at the 30 other countries, most of them are only really dealing with a very limited.... They're looking, as in Bill C-501, at special payment in arrears, and really at just that.
12:55 p.m.
Senior Consulting Actuary, Towers Watson
I need to clarify that we personally haven't done all this research; we're reading others' reports. I think it's imperative that to answer this question you make sure you pick out what really is covered by all of these other countries, because it's too easy to say that they cover the full deficit. Just make sure you know which ones do and which ones don't.
12:55 p.m.
Liberal
Marc Garneau Liberal Westmount—Ville-Marie, QC
But you seem confident enough to say that you doubt whether it's the full deficit in those 30 other countries.
12:55 p.m.
Senior Consulting Actuary, Towers Watson
Certainly from what I've seen, I doubt it very much.
12:55 p.m.
Partner, Mercer (Canada) Limited
Are you asking what the case is if that regulation I referred to is not redrafted? No, my comments don't change, because Bill C-501 is worded in such a way that it can do more than Bill C-9 does by itself.
12:55 p.m.
Conservative
The Chair Conservative David Sweet
Thank you very much.
On that suggestion from the last witness, I've instructed the researchers to distribute the OECD report to all members prior to clause-by-clause.
Before I go on to Mr. Braid for five minutes, I also want to remind you, because I think members are going to leave pretty quickly afterwards, that we are doing clause-by-clause on Thursday. If you have any amendments, please get them in by noon tomorrow. Even then, it's a short period of time to process them, but get them in by noon tomorrow so that we can deal with them.
Mr. Braid, you have five minutes.
12:55 p.m.
Conservative
Peter Braid Conservative Kitchener—Waterloo, ON
Thank you very much, Mr. Chair.
If possible, I'll see whether I can bring us to less than five minutes. My questions will be primarily for the representatives from Towers Watson and Mercer, starting with you, Mr. Markham.
It's a high-level question about the approximate percentage of Canadians who are covered by pensions or who have pension plans.
12:55 p.m.
Senior Consulting Actuary, Towers Watson
In the private sector, I think it's 28% who are covered by defined benefit and defined contribution or hybrids. For the public sector I've forgotten what the number is; it's probably 85% or something like that.
12:55 p.m.
Conservative
Peter Braid Conservative Kitchener—Waterloo, ON
Okay. Focusing on the private sector, then, it's 28%, and that's for both defined benefit and defined contribution plans.
12:55 p.m.
Senior Consulting Actuary, Towers Watson
Yes. Of the 28%, my recollection is that something like 16% was defined benefit, 9% is defined contribution, and 3% is hybrid. I may have the numbers a little bit wrong.
12:55 p.m.
Conservative
Peter Braid Conservative Kitchener—Waterloo, ON
Okay, so 16% have a defined benefit. Is that percentage increasing or decreasing, and why?