Bill C-228

Pension Protection Act

An Act to amend the Bankruptcy and Insolvency Act, the Companies’ Creditors Arrangement Act and the Pension Benefits Standards Act, 1985

This enactment amends the Bankruptcy and Insolvency Act and the Companies’ Creditors Arrangement Act to ensure that claims in respect of unfunded liabilities or solvency deficiencies of pension plans and claims relating to the cessation of an employer’s participation in group insurance plans are paid in priority in the event of bankruptcy proceedings.
It also amends the Pension Benefits Standards Act, 1985 to provide for the tabling of an annual report respecting the solvency of pension plans.

[The Chair, Liberal, Peter Fonseca]

I call this meeting to order.

Welcome to meeting 65 of the House of Commons Standing Committee on Finance.

Pursuant to the House order of reference adopted on Wednesday, June 22, 2022, and pursuant to the motion adopted by the committee on Wednesday, October 19, 2022, the committee is meeting to proceed with clause-by-clause consideration of Bill C-228, an act to amend the Bankruptcy and Insolvency Act, the Companies' Creditors Arrangement Act and the Pension Benefits Standards Act, 1985

Today's meeting is taking place in a hybrid format pursuant to the House order of June 23, 2022. Members are attending in person in the room and remotely using the Zoom application.

I would like to make a few comments for the benefit of witnesses and members. Please wait until I recognize you by name before speaking. For those participating by video conference, click on the microphone icon to activate your microphone, and please mute your mike when you are not speaking.

There is interpretation. For those on Zoom, you have the choice at the bottom of your screen of floor, English or French. Those in the room can use the earpiece and select the desired channel.

I remind everyone that all comments should be addressed through the chair. For members in the room, if you wish to speak, please raise your hand. For members on Zoom, please use the “raise hand” function. The clerk and I will manage the speaking order as well as we can. We appreciate your patience and understanding in this regard.

I would now like to welcome our witnesses, who will help us with the clause-by-clause consideration of Bill C-228.

I wish to inform the committee that we have four witnesses with us. We did test them all. One is not able to participate since the testing could not go through. We do have one who has been tested and who is wearing a different headset, but I guess the audio does work and the interpreters are good with it. We will continue with that individual.

With us today, from the Department of Finance, we have Neil Mackinnon, who is the senior adviser, financial sector policy branch. From the Department of Industry, we have Martin Simard, who is the acting director general, marketplace framework policy branch; and Paul Morrison, manager of corporate, insolvency and competition directorate.

Pursuant to Standing Order 75(1), consideration of clause 1, the short title, is postponed.

Members, before we move to clause 2, following the advice of the legislative clerk, it would be better to go directly to the amendments that create new clause 4.1: NDP-1 first and then amendment G-3. The rationale for doing this is that G-1 refers to new paragraph 136(1)(d.001), created by amendment G-3, and amendment G-2 refers to new paragraph 60(1.5)(a.1), created by G-1.

We would need unanimous consent to do so. If members want further explanation on that, we do have the legislative clerk, Philippe Méla, with us today to explain.

Members, I'm just seeing if we have unanimous consent.

[The Chair, Liberal, Peter Fonseca]

Thank you, members. It has been adopted.

Also, for Bill C-228 the clerk has requested that our independent member is to submit any amendments in both official languages no later than 6 p.m. on Thursday, October 27, 2022. If everyone is okay with that, we will follow the same deadline, so get any amendments in by this Thursday at 6 p.m., please.

Is everybody okay with that? Terrific.

I would now like to welcome our witnesses.

From the Canadian Centre for Policy Alternatives, we have David Macdonald, senior economist. He is coming to us via video conference.

From the Canadian Chamber of Commerce, we have Alla Drigola Birk, senior director of parliamentary affairs and small and medium enterprises policy, and Alex Gray, senior director of fiscal and financial services policy.

From the Canadian Federation of Agriculture, we have Keith Currie, first vice-president, and Scott Ross, executive director.

From the Canadian Federation of Independent Business, we have Daniel Kelly, president and chief executive officer.

From Équiterre, we have Marc-André Viau, director of government relations.

Finally, from S.U.C.C.E.S.S., we have Queenie Choo, chief executive officer, who is with us via video conference.

With that, witnesses will have up to five minutes for opening remarks. We will start from the top with the Canadian Centre for Policy Alternatives.

You have five minutes.

[Marilyn Gladu, Conservative, Sarnia—Lambton, ON]

Let me talk a bit about the calendar date for coming into force.

For the benefit of committee members and those who weren't here the other day, we heard there's a problem with the legislation in terms of picking a calendar day for the coming into force of Bill C-228. There was concern that, if there were companies going through bankruptcy proceedings, they would have to switch measures halfway through. I've consulted with the legislative clerk and she has verified that this is not the case. The coming into force means.... Only bankruptcy proceedings that start after the coming into force would be under the new measures. I just wanted the committee members to know that.

We also heard department officials say that federally managed pensions had five years to get solvent. Mr. Powell, you had some data that suggested they've been insolvent for more than five years. Can you comment?

[Marilyn Gladu, Conservative, Sarnia—Lambton, ON]

Thank you, Chair.

Thank you again to our witnesses.

Mr. Powell, one of the mechanisms in Bill C-228 is the ability for a company that has an insolvent fund to transfer money into it without any tax implication, so they can basically top it up and fix it. You mentioned the Stelco situation and that what actually helped there to get the pensioners their pension was a revenue flow into their funds. Can you describe what happened there?

[Michael Powell]

I'm sorry. I had a lot to go through, so I was speaking quickly.

In 2005, the Wage Earner Protection Program Act was passed, and the wage earner protection program gave superpriority to unpaid wages, unpaid expenses and some other things. The issue is that.... If you make something a superpriority, what happens? The quote I had was from the Insolvency Institute of Canada, but you can find quotes from other similar organizations. Their quote was, “there could be a significant negative impact on Canadian productivity and employment since businesses...will have a tougher time getting financing, and their costs could rise dramatically.”

We've heard that today about Bill C-228, but nobody has provided any data that anything bad happened after WEPP. If it was that draconian, if the financial armageddon was going to occur, we should have data. These are things that people monitor.

[Andrea Boctor]

Mr. Lawrence, maybe I could answer on behalf of the ACPM.

We did poll our members. Some of Canada's largest defined benefit pension plan sponsors are included in that group. We asked them this: If Bill C-228 made their access to capital more expensive, what would they do? Over 40% of them said they would wind up their defined benefit pension plan. That is based on our membership. Anecdotally, I can tell you that it is backed up with the conversations I'm having. I cannot think of a more direct way of killing defined benefit pension plans in the private sector.

[Nicolas Lapierre]

As I said, Bill C‑228 is the result of work and consensus. This was also the case last year for the one presented by Ms. Gill, but I will focus on this one. We spent three years meeting with you in Ottawa. I won't name them, but some parties were extremely concerned that we were initially going to come before the banks. The number one argument from all the members who saw this as a problem was that it would prevent business recovery and investment. We have listened to you and we agree with you. It was difficult to reach a consensus on this bill, but we have reached it and we are satisfied with the bill. The work is done, there has been ample debate and we have all the ingredients to quickly resolve the situation and show Canadians that we care about their financial health.

[Gabriel Ste-Marie, Bloc, Joliette, QC]

Thank you very much, that's very clear.

Basically, when workers negotiate their collective agreement, they either ask for a bigger hourly or annual wage, or they take a pay cut to get a better pension. If the company goes bankrupt and they have decided to take higher wages, they may not get their final paycheques; if they have made the trade-off of taking lower wages to get a better pension, the pension will be underfunded by the company, because the current law allows it. The company will tell their employees that it's legal and it's okay for them to lose 20% to 30% of their pension, as you were saying earlier.

What are your comments on the current situation, and on what Bill C‑228 does in fact solve, concretely, for pensioners?

[Michael Powell]

Yes, we actually got involved with the House of Commons committee petition that Ryan Turnbull sponsored. There were 12,332 Canadians who signed on, saying that pension protection was important to them.

We've also, at CFP, run some email campaigns, the most recent in support of Bill C-228. We had just under 7,000 Canadians from coast to coast to coast sign that. What I found most impressive—and if you've tried to do email campaigns, so you'll understand this—is that well over 50% of the people who used our email tool checked the box saying that they would like to be engaged further on this issue. To have a mailing list of 3,600 people who want to fight for your particular issue.... That is powerful.

[Chris Roberts]

Yes.

Again, there is just some confusion over the terms, the unspecified or undefined terms, in this portion of Bill C-228. For the purpose of clarity, and for the purposes of precision and simplicity, it is best to just eliminate those aspects, so yes, we'd agree.

[Marilyn Gladu, Conservative, Sarnia—Lambton, ON]

Thank you, Mr. Chair.

Thank you to all the witnesses who are here.

I want to assure Monsieur Lapierre that the priority that is assigned in Bill C-228 is exactly that which was put into Bill C-253 by my Bloc colleague, Marilène Gill. It is before banks, secured creditors, preferred creditors and unsecured creditors.

I only have six minutes, so I am going to ask some quick questions.

My first question is for Mr. VanGorder.

Do you agree with the priority that we've assigned to pensions in Bill C-228?

[The Chair, Liberal, Peter Fonseca]

Thank you, Mr. Lapierre.

To all the witnesses, thank you for your opening remarks.

We are going to move to our rounds of questions. In our first round, witnesses and members, it will be equal time for all the parties, which is six minutes. We are starting with the Conservatives, and we do have with us today MP Gladu, who is the author of Bill C-228.

MP Gladu, go ahead.

[Nicolas Lapierre, Area Coordinator, United Steelworkers]

Thank you very much, Mr. Chair.

Good evening to all the members of the committee, and thank you for your attention.

The United Steelworkers union represents 225,000 workers across Canada, 60,000 in the province of Quebec alone.

In 2017, 2018 and 2019, the USW met with more than 250 members of Parliament and senators to raise awareness of the need to amend the Companies' Creditors Arrangement Act and the Bankruptcy and Insolvency Act. For six weeks, more than 30 activists were on the Hill to raise awareness. They discussed the discussions and problems that arise when a company declares bankruptcy or goes into receivership.

The most striking example was Cliffs Natural Resources, a North Shore-based mining company, which placed itself under creditor protection. As a result, 1,700 retired workers and surviving spouses have seen their pension benefits reduced by 21% to 25%. As a result of various legal actions, several million dollars were recovered. Nevertheless, pensioners and surviving spouses suffered a loss of 8% to 10%. For some, this represented about $200 less per month, while for others, the loss was $600 to $700 per month. It is also important to understand that most private plans do not provide for cost-of-living adjustments. In the case of someone who retired in the 1980s, for example, because their benefits were not indexed, the impact of the reduction in 2015 was even greater.

During the six weeks of lobbying, we listened to you. I personally participated in the discussions. We were sensitive to some of the arguments, one of which was that it might prevent business recovery or prevent banks from granting loans to businesses. We were sensitive to that argument and we changed our position accordingly. Bill C‑228 proposed by MP Marilyn Gladu provides for just such a change in the order of priority of creditor claims. We would come right after the banks. So the argument that we were going to prevent companies from recovering no longer holds water. We have responded to some political parties who had a concern in this regard. Now, Bill C‑228 puts us behind the banks, but ahead of school boards and municipalities that want to collect taxes. So it's a significant leap for us and a very structuring gain for workers.

By the way, this would be a step forward not only for unionized workers, but also for non-unionized workers who have a defined benefit plan.

At the United Steelworkers, we believe that, as legislators, you have a role to protect Canadian citizens from a possible loss of income if a company seeks protection from its creditors.

I appeal to your sense of responsibility, your empathy, your concern for human beings, especially those in their 70s, 80s or 90s. These are human beings who are in distress. Canadian citizens voted for you because they had confidence in you to fulfil your role as legislator. It is now up to you to take advantage of this bill to say that enough is enough. This has been going on for decades. Several bills have been tabled. Moreover, Bill C‑228is the result of a consensus among all political parties.

In fact, I remind you that in 2021, there was consensus in the committee studying the previous bill. Unfortunately, an election was called, so we didn't get there, but we were very close. But there was a consensus and we did what you wanted. You were concerned that pensioners were coming before the banks. Now they come after the banks, but at least they are ahead of the municipalities. Bill C‑228 reflects a difficult consensus that takes your concerns into account. Banks come before us and pensioners come after.

Currently, we are picking up the breadcrumbs, picking up what is left, and that is not acceptable. If pensioners were to make a significant jump in the order of creditors, it would be a giant step for all workers, for all Canadians. Please, for the sake of our seniors, be diligent and put some water in your wine. Bill C‑228 is not perfect, but it is a very acceptable consensus as well as a giant step forward for workers.

I could name several situations, among them Cliffs Natural Resources, Sears in 2018, Mabe Canada, White Birch or Atlas Stainless Steel. How many similar situations will it take before we act?

I appeal to your sense of responsibility to citizens and your duty of care, and I ask you to endorse Bill C‑228 quickly, so that we can say once and for all that we have helped the middle class.

Thank you very much.

[Siobhan Vipond, Executive Vice-President, Canadian Labour Congress]

Thank you, Mr. Chair. Hello to you and all the committee members. Thank you for this opportunity to appear in front of you.

My name is Siobhán Vipond, and I'm the executive vice-president of the Canadian Labour Congress, Canada's largest central labour body. We, as Canada's unions, advocate on national issues on behalf of all workers from coast to coast to coast.

Pensions are essential to the financial security and well-being of working people. Canadian research shows that income from an employer pension plan can make the difference between financial security in retirement and a decline in living standards, compared to pre-retirement levels. Next to their homes, pension savings are one of the most important pools of assets that workers accumulate over their lifetimes.

It’s important to remember that workplace pensions are not gifts from employers. Pension benefits are deferred wages. Pensions are earned and paid for by workers, and workers depend on that money being there for them when they retire. Employers are legally obligated to provide those pensions when a worker retires. It is frustrating and unjust that this legal obligation can be torn up when a company enters insolvency.

When a company enters insolvency proceedings, workers and pensioners go to the back of the line. They are essentially treated like involuntary unsecured creditors of the firm, behind the banks and the secured creditors. No one asked workers and plan members if they would lend the value of their pension benefits to their employer. It's quite the opposite. Plan members trust that their employer will live up to the terms of the pension bargain.

Unlike commercial creditors, employees and pensioners are generally unable to protect themselves against the risk of their employer’s insolvency. If their previous employer enters bankruptcy, pensioners cannot easily return to work and find new and additional sources of income.

In 2018, Sears Canada pensioners outside Ontario learned that their pension benefits would be reduced by 30%. One Sears retiree in Calgary—which happens to be my hometown—who had worked for 44 years took a monthly pension cut of $800 a month. After a lifetime of work and a lifetime of pension contributions, his pension was slashed in retirement.

Another retiree, who had worked for 35 years, saw his pension drop by $450. In anticipation of benefit reductions, this 72-year-old pensioner took a job at Home Depot as a greeter. For many others, taking a minimum-wage job to make up for pension reductions is not a realistic option, nor should it be an expectation.

The way pensions and benefits are treated in insolvency is outrageous and unfair. Despite this, the government has not taken steps to extend protections to pensioners and plan members.

The government’s legislated changes in response to the Sears Canada debacle were woefully inadequate. In 2019, Bill C-97 made minor changes around the edges of the problem. None of these legislated changes would have prevented another Sears Canada, or the pain and suffering it caused for Sears pensioners.

This is especially frustrating since the evidence shows that many companies with underfunded pension plans could eliminate the solvency deficiencies of their plans by allocating just a portion of their shareholders' payouts to the pension plan. Studies show that many firms consciously choose to reward shareholders and senior executives, boosting the stock prices, rather than fully funding their pension plans. This leaves pensioners and plan members at risk if the company becomes insolvent.

Over the years, we at the CLC have supported numerous NDP and Bloc members' bills. None of these bills have been allowed to proceed. For years, we have urged governments to put in place national mandatory pension insurance akin to the Ontario pension benefits guarantee fund. We have been unable to get traction on this idea.

The CLC supports the passage of the revised Bill C-228, and we support the bill’s proposed changes to the CCAA and BIA. The proposed amendments to the Pension Benefits Standards Act are not well conceived and should be deleted from Bill C-228 in their entirety.

We will be very happy to answer any questions you may have. At the centre of this issue are the workers and pensioners across this country.

Thank you for your attention.

[Michael Powell, President, Canadian Federation of Pensioners]

Thank you.

We've submitted the specific changes we believe need to be made to Bill C-228, so I won't discuss those here.

I will be talking about some of the points included in the submission that we made supported by CFP and five other leading Canadians seniors' advocacy organizations.

The fundamental challenge for this committee is to choose between the status quo and extending superpriority in insolvency to the unfunded pension liability. We know the status quo, the intended consequences. We've heard of the personal stories and tragedies of those impacted. CFP estimates that since 1982, 250,000 vulnerable Canadian seniors have had their income reduced for the rest of their lives.

We've all heard the unintended consequences. Here is a quote that I have: “there could be a significant negative impact on Canadian productivity and employment since businesses...will have a tougher time getting financing, and their costs could rise dramatically.” If true, those consequences would have a significant impact on the Canadian economy, a measurable impact. That's why I don't understand why we're having this discussion. That quote is from the 2005 committee review of Bill C-55, the Wage Earner Protection Program Act.

WEPP extended superpriority to unpaid wages and other items in insolvency and was passed in 2005. Note that WEPP impacts every insolvency; extending superpriority to the unfunded pension liability would only impact the relatively small and declining number of companies with defined benefit pensions. Where are the binders of evidence of Canada's poor economic performance versus competitors since 2005? If these charges were true, we should be towards the bottom in GDP growth, at the top in unemployment, at the top in companies filing for insolvency, and at the top in liquidations. Where is the data?

The reality is that superpriority would simply put a price on abandoning pensions in insolvency. Today, the minute a company files, the pension deficit disappears like a puff of smoke.

Be honest: Knowing there's no penalty for underfunding a pension and no obligation that survives insolvency, what CEO is going to fully fund their pension? Allocating funds to the pension instead of, for example, dividends, when not legally required, would get you fired. As Mr. Schaan said on Monday, companies only do what is required. Another comment from Monday said that federally regulated pensions are not required to be 100% solvency funded, at least not as I understand the term “required”.

Statistics support this. From 2012 to 2020, on average, 73% of federally regulated plans were under 100% solvency; that's not required. As mentioned on Monday, the 2021 median funding was 109%, which means today is the time to act, because when that gap is small to get to full funding and many plans are fully funded, then companies can de-risk their pension and pose no threat to lenders going in the future.

We also know that companies are going to regulators and looking for contribution holidays, looking to reduce those solvency levels. Now is the time to step in and stop that. If you change the rules, corporate behaviour will change.

This was the case with Air Canada. At the time of its insolvency in 2003, Air Canada had a $1.3-billion pension deficit. Under ministry monitoring, by 2013 that deficit ballooned to $4.2 billion. In 2013, the finance minister at the time, Jim Flaherty, agreed to further relief, subject to restrictions until the pension was fully funded. Executive compensation increases, special bonuses, and other incentive plans were curtailed. The airline was prevented from paying dividends and buying back stock. With those restrictions in place, that pension was fully funded by May 2015. Monitor, and companies do what is required; change the rules, and behaviour will change.

In Canada, we have two levels of legislation, and pensions get whipsawed between them. We have insolvency legislation, and underneath it 11 different pension benefit acts.

ACPM—they're not unique, but they're here so I'm going to use them as an example—argue that pensions shouldn't be protected in insolvency, that insolvency is not the place, yet they advocate for the removal of solvency requirements in pension regulations. The most recent one I know of was in Saskatchewan a couple of years ago. It's online and you can find it. We know that anything less than 100% solvency funding increases the risk to pensioners. It leaves pensioners as acceptable collateral damage in insolvency.

Since 2005, proposed solutions from governments and the greater pension industry have all been based on shifting risk from the companies that willingly accepted the obligation to the pensioners without obtaining the pensioners' informed consent. This is the very definition of elder financial abuse.

Superpriority would at least partly address the power imbalance in insolvency.

This committee will determine whether to continue the status quo or to protect vulnerable Canadian seniors.

Thank you.