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.

[Alex Gray, Senior Director, Fiscal and Financial Services Policy, Canadian Chamber of Commerce]

Good evening.

Thank you for having me here. I appreciate the opportunity to appear before this committee today.

Improving retirement security for pension plan members is a laudable goal, yet as Canadians continue to have concerns about their financial security in retirement, it is essential that Parliament not address this challenge in a manner that would negatively affect Canadian businesses, especially those that sponsor DB plans.

The legislative mechanisms proposed in Bill C-228 would impose material and adverse consequences on Canadian businesses of all sizes. I'll begin by discussing some of these unintended consequences. To end my remarks, I'll propose solutions that would protect retirement security without burdening the Canadian economy.

To start, Bill C-228 would increase the cost of credit for Canadian businesses that offer DB plans. Struggling companies would have greater difficulty securing loans, thereby undermining a core objective of insolvency legislation: to encourage successful restructurings that allow companies to continue employing Canadians, thereby mitigating the social and economic consequences of liquidations. Additionally, DB plan sponsors would reassess continuing to offer DB plans, thereby harming retirement security across the country.

As we prepare to enter unquestionably turbulent economic times, I must underscore that economic recovery depends on businesses' ability to access affordable credit so they can invest and grow. Bill C-228 would also force lenders to require more collateral and restrict companies' abilities to draw down credit facilities should a pension insolvency come into question. This is because financial institutions ensure systemic stability in part by accurately maintaining prudential regulatory requirements to prevent lending losses. At best, increasing the cost of doing business would impose a competitive disadvantage on Canadian companies that provide DB plans to their employees relative to their non-Canadian competitors. At worst, lenders could refuse to lend to said companies.

Additionally, Bill C-228 would increase the cost of doing business in Canada by imposing more stringent reporting requirements on companies maintaining DB plans. This is because creditors would face challenges in determining exposure to pension deficiencies. In the end, lenders would find themselves unable to make real-time credit decisions because solvency deficiencies are ultimately forecasts based on factors over which lenders have no control. I believe it would behoove the committee to hear from members of the lending community during this study.

I must also stress the consequences of imposing Bill C-228 on a timeline shorter than seven years. Minimizing the fallout for businesses would require considering the length of typical bargaining periods, generally three to five years, and pension plan valuation cycles, generally three years, as well as relevant notice periods to plan members on plan reforms, generally two years.

Those businesses that would need to move to defined contribution pension plans as a result of this legislation would incur significant costs. In such a scenario, DB plan members who are close to retirement would also need a great deal of time to settle with their employers. Additionally, any coming into force date should consider the progress of insolvency proceedings cycles, rather than the current approach of being imposed on a particular calendar date.

By way of providing constructive solutions to providing retirement income that would not burden Canadian businesses, which already operate in a time of economic precarity, the Canadian Chamber of Commerce would encourage amending the BIA and CCAA to allow for the appointment of pension insolvency trustees to wind down insolvent employers' pension plans. Said trustees would have the authority to maximize available pension dollars. This model, as has previously been mentioned, has been successfully deployed in Stelco pension plan members' receipt of full pension payments.

Another solution the government could study is paving the way for large multi-employer pension plans to subsume smaller pension plans from insolvent companies in order to leverage economies of scale. A pension insolvency trustee could also be empowered to merge insolvent company plans where deemed appropriate.

Upsetting the order of priority in insolvencies would impose adverse and unintended economic consequences across the economy, especially absent a broader consideration of Canada's insolvency legislative framework. Ultimately, the best solution for pensioners and employees of a distressed company is to encourage successful restructuring so that it can keep paying salaries and making contributions to its pension plan. If passed, Bill C-228 would discourage this universally desirable outcome, despite its merits and despite its laudable intent.

Thank you. I look forward to your questions.

[Bill VanGorder, Chief Operating Officer and Chief Policy Officer, Canadian Association of Retired Persons]

Thank you, Mr. Chairman and members of the committee, for this opportunity to speak to you today on Bill C-228.

My name is Bill VanGorder. I'm the chief operating officer of CARP, which is also known as the Canadian Association of Retired Persons. We're a national, non-partisan and not-for-profit organization that advocates for financial security, protection from ageism and improved health care for Canadians as they age. We have over 330,000 paid members in 30 chapters across Canada.

CARP seeks to play an active role in the creation of policy and legislation that impact older Canadians. CARP advocates on behalf of older Canadians at all levels of government and collaborates with other organizations on health, ageism, housing and financial issues, such as the issue we are on today.

CARP has been fighting for the protection of pensioners for over 20 years. When we created the Nova Scotia chapter of CARP, which I was involved in 20 years ago, one of the first planks in our policy platform was this issue. Our first board of directors had members of the Air Canada pensioners association, whose lives had been severely impacted by the Air Canada insolvency at that time. Pension protection continues to be one of CARP's seven advocacy priorities in 2022-23.

We have 330,000 paid members of CARP across Canada and we survey them on a regular basis. Their financial security continues to be their number one concern. They're all concerned about health, as all of us are, but certainly, their number one concern is whether or not they're going to have enough money to live on for the rest of their lives. Seniors are anxious that they're just not going to be able to do that.

Frankly, our members can't believe that after 20 years of advocacy, the current legislation allows the assets of a bankrupt or insolvent company to be divided among other secured creditors such as banks, the CRA and others, but doesn't move pensioners closer to the front of the line to improve their likelihood of receiving their full pension—a pension they've earned and planned for throughout their working careers. These aren't gifts or unearned benefits, but deferred wages that are earned by Canadians while they work and payable to them when they retire.

The changes that were made in the Bankruptcy and Insolvency Act and the Companies' Creditors Arrangement Act back in 2018 weren't enough. The current law is still unfair to older Canadians.

Inflation is anywhere from 5% to 7%. Food prices alone are up as much as 30%. The inequities across the country have to be addressed, and they have to be addressed now. These are changes that should have been made 20 years ago. Older Canadians are demanding action now. You know, if you're 80 years old and people tell you you have to wait three or four years for something to happen, that just doesn't wash.

CARP recommends actions that would protect pension investments with insurance policies that insure 100% of pension liabilities, and would ensure protection of seniors by amending the act to give pensioners priority status.

I'm not going to take your time by repeating the content of the letter that we and the other pensioners and seniors organizations sent you on September 21. I have other, more expert people in finance who are going to speak later from our group. CARP does want to emphasize that changes in Canada's laws must give underfunded pensions priority over large predators and halt the payout of executive bonuses in bankruptcy and insolvency issues.

The cases of Air Canada, Sears in 2017 and Nortel in 2009 are strikingly unfortunate examples of how tens of thousands of retirees are treated in bankruptcy and insolvency proceedings compared to secured financial lenders such as banks, bondholders and other stakeholders.

Protection of the financial security of older Canadian workers should be the absolute priority of this committee and the Parliament of Canada.

Thank you on behalf of the thousands of CARP members across the country who are looking for action today.

[Ross Dunlop, Executive Vice-President, Ellement Consulting Group, Association of Canadian Pension Management]

Thank you, Ric.

Good afternoon, everybody.

There is no other organization in Canada that has done more work promoting retirement security for plan members than ACPM, while at the same time creating an environment where plan sponsors continue to offer pension plans.

ACPM clearly understands the unfortunate situation when a plan sponsor fails and plan members might not receive 100% of their benefit entitlement. Providing secure benefits to plan members is something ACPM has been working on for decades.

ACPM believes that DB pension plans are very valuable benefits for plan members, but we need to recognize that employers choose voluntarily to create and support these plans. Pension plan coverage—particularly defined benefit—has declined in Canada fairly precipitously over the last number of years. Public sector DB plan membership in Canada—this is from StatsCan—was about 82% 20 years ago. It's 82% today. Twenty years ago, private sector DB plan membership was about 21%. Currently, it's around 9%. It's the 9% we're talking about today. That's the worry at ACPM: the deterioration of the 9%.

Our specific concerns relate to the fact that employers need credit and loans to operate, and that banks and bond holders will not lend, or charge significantly higher interest rates, if they are subordinate to pension plans. This will incent board CEOs and CFOs to terminate pension plans that are subject to this legislation. Even those employers who would never find themselves in a bankruptcy situation will be incented to terminate these plans and wind them up.

Although Bill C-228 has the admirable goal of giving priority to plan members in the event of a bankruptcy, we believe what will happen is that plans will be terminated. Bill C-228 would apply to very few plans, because those plans will have been wound up.

At this point, I'm going to hand things over to my colleague Andrea Boctor.

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

The clerk has just emailed you the motion I want to make. If you need time to study it and discuss it, just let me know, but I don't think it's a problem. The motion reads as follows:

That, for its study of Bill C‑228, in the interest of concision and efficiency, the committee consider all the evidence and documents gathered by the Standing Committee on Industry, Science and Technology during the 2nd Session of the 43rd Parliament as part of its study of Bill C‑253.

You may recall that a bill similar to Bill C‑228 had been tabled and that the Standing Committee on Industry, Science and Technology had studied this issue thoroughly. Our committee should consider everything that was done by the previous committee on Bill C‑253.

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

Mr. Chair, I would like to make the following motion regarding the committee's work on Bill C‑228...

[Daniel Blaikie, NDP, Elmwood—Transcona, MB]

Thank you very much for that, on both counts, Mr. Chair.

You may recall that, at that time, I moved a motion with respect to how to dispense with Bill C-228. It's a little bit stale, given that we're hearing from witnesses today—which is wonderful, and I'm very glad to have them here—but I wonder if I might have unanimous consent from the committee to replace that motion that was on the table with the following, and perhaps we could pass it swiftly: that the committee dedicate the meetings of October 24 and 26 to pre-budget consultation hearings and dispense with clause-by-clause consideration of Bill C-228 on Monday, October 31.

I'm happy to motivate that, if you'd like, Mr. Chair. I think it speaks for itself in the context of the last day's discussion. If there are any questions, I'm happy to answer them, but if folks around the table are comfortable with that, then we could perhaps proceed to the decision.

[The Chair, Liberal, Peter Fonseca]

I call this meeting to order.

Welcome to meeting number 62 of the House of Commons Standing Committee on Finance.

Pursuant to the House order of reference adopted on Wednesday, June 22, 2022, the committee is meeting to discuss 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 the 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 mike, and please mute yourself when you are not speaking. With regard to 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 will remind you that all comments should be addressed through the chair. Members in the room, if you wish to speak, please raise your hand. 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.

Members, before we move on to the election of the vice-chair, on the collective behalf of the finance committee, we would like to thank and take this opportunity to pay our respects and tribute to our friend and former colleague, the late Honourable Bill Blaikie, our friend MP Daniel Blaikie's father. The speeches in the House today were truly moving. We're with you, Daniel, in honouring and celebrating your father today.

Also, members, I do recognize that during our last meeting we had to end abruptly, cutting short MP Blaikie's time, owing to House resource constraints. As a mutual moment of courtesy on our behalf, I'd like to allow MP Blaikie the two-plus minutes of his remaining time.

MP Blaikie, the floor is yours.

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

Thank you, Mr. Chair.

Of course we want to see Mr. Chambers' motion passed at the end of this meeting. In this round, I requested exactly the same thing as Mr. Morantz, that we be told how many pension funds are currently underfunded.

Perhaps Ms. Wrye or Mr. Schaan could answer my last question. If Bill C‑228 passes, possibly with minor amendments, do you believe that businesses will continue to fund their pension plans?

[Mark Schaan]

If that company enters into either a restructuring or an insolvency policy, regardless of whether it's federally or provincially regulated, it will be subject to the rules of Bill C-228. It all comes from insolvency.

[Marty Morantz, Conservative, Charleswood—St. James—Assiniboia—Headingley, MB]

I appreciate your providing that information.

I want to get something else clear in my mind. Let's say, for example, that a bank has an existing loan with a federally regulated business that has a federally regulated pension fund. If this act were to come into force, would that loan—which was advanced before the act came into force—and that company be under the rules that would have then come into force under Bill C-228?

[Marilène Gill, Bloc, Manicouagan, QC]

Thank you, Mr. Chair.

I would like to thank the witnesses for sharing their experience and knowledge with us. Obviously, it will help us make informed decisions.

Mr. Schaan, you mentioned the fear businesses have with respect to the risks that would result from passing Bill C‑228. You also talked about the bill's complexity.

I would hope that committee members won't let this uncertainty keep them from taking action.

As my colleague Mr. Ste-Marie and several others have said, we've been talking about this for decades. I don't believe businesses would be caught by surprise if a bill like this were to be passed.

I'd like to talk about one more thing.

The risks, complexities and fears of businesses have come up a lot. When it comes down to it, I was elected by the people, and it's them who want to take this risk. They understand the complexity, but they're willing to play the game and see what happens. I, for one, don't believe they are protected right now, but I also feel the bill would protect them.

I hope that we can pass a bill that's to everyone's liking fairly quickly.

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

Thank you, Mr. Chair. I'd ask that you please interrupt me after five minutes. I will be giving my last minute to my colleague Mrs. Gill.

I'd like to thank Ms. Wrye, Mr. Schaan, Mr. Morrison and Mr. Mackinnon for being with us and answering our questions. I also thank them for their opening remarks.

I will start by making a few comments for my colleagues on the committee.

First, I fully agree with Mr. Chambers' conclusion. He reminded us that this has been a topic of discussion for 10 years in the House and that the current Bill C‑228 was introduced last spring. I'm therefore anxiously waiting for the government party to put forward the required concordance amendments in terms of the existing framework, so that we can discuss them as soon as possible and improve the bill. Improvement is always the purpose of studying bills in committee.

Next, I would also like to thank the Library of Parliament research services. Our analysts do an outstanding job, and that's particularly the case for the briefing notes on Bill C‑228. Mr. Lambert‑Racine and Ms. Yong produced these notes. I congratulate them, they did a fine job.

In fact, I'm going to draw on one of the questions suggested in the briefing notes. I believe my question is for Department of Industry officials, but they will correct me if it isn't.

Could you provide some details on pension plan members? What's the situation right now? In the last 10 or 20 years, how many retirees have lost their pension due to their current or former employer's insolvency?

How much of the unfunded liability within pension plans have they recovered as unsecured creditors in insolvency proceedings under the current regime? In other words, how much of their pension have they lost?

[Kathleen Wrye]

Thank you, Mr. Chair.

Good evening. My name is Kathleen Wrye. I'm the director of the pensions policy team at Finance Canada. I'm here today to answer your questions about this private member's bill, Bill C‑228. I would also like to take this opportunity to provide a bit of context on the funding requirements in federal pension legislation, which is the Pension Benefits Standards Act, or PBSA for short, and how the legislation works to protect the pension benefits of defined benefit plan members and retirees.

I will also provide a few of the key comments we have on the proposed amendments to the PBSA in Bill C‑228 and how they interact with existing provisions in the act.

Under the PBSA, the federal government regulates the pension plans of Crown corporations and private sector plans covering areas of employment under federal jurisdiction, such as telecommunications, banking and interprovincial transportation, as well as private pension plans in the three territories.

The Office of the Superintendent of Financial Institutions is responsible for supervising federally regulated plans with the mandate to protect the rights and interests of plan beneficiaries. At this time, there are over 1,200 federally regulated pension plans. Over 400 of those plans are defined benefit or a combination of defined benefit and defined contribution. Approximately 7% of pension plans are federally regulated, with the remainder being regulated by the provinces.

The PBSA sets forth a number of requirements in respect to the funding and administration of plans that are designed to protect and promote pension benefit security for plan members while acknowledging that the financial health of plan sponsors is important for the continued operation of these plans.

Under the PBSA, there is a specific requirement for plan assets to be held separate from those of the employer. This protects plan assets from being seized by creditors in the event of bankruptcy proceedings.

Further, federally regulated defined benefit plans are generally required to be 100% funded on a solvency basis, which means that they must have enough assets to purchase annuities from a life insurance company to provide the promised pensions in the event of an employer insolvency. The employer is required to fund any funding shortfalls within a period of five years. As of December 31, 2021, the average estimated solvency ratio of federally regulated defined benefit plans was at 109%, meaning that the assets of these plans were, on average, 9% higher than their solvency liabilities.

To address solvency deficits and ensure benefit protection, plan sponsors are able to obtain a letter of credit in lieu of making any solvency special payments up to a limit of 15% of the plan solvency liabilities. The letter of credit amounts would be paid into the plan in the event of an employer insolvency, similar to insurance. Plan sponsors are also able to obtain life annuities from regulated life insurance companies either by purchasing them as a planned investment or by having insurance companies make pension payments directly to retirees. Transferring the obligation to make these payments to a life insurance company helps to secure pension benefits for plan members and retirees.

The use of insurance to meet funding requirements as proposed by the amendments in Bill C-228 would not be very different from the existing tools available to plan sponsors under the PBSA. However, I would note that the existing PBSA provisions are accompanied by a number of safeguards to ensure that pension benefits are protected, such as details regarding which institutions can provide letters of credit to plan sponsors. The current bill does not include any such safeguards to ensure that the insurance to be used would be appropriate for protecting retirement benefits.

I would also like to take this opportunity to raise the consideration related to the amendments regarding transparency requirements in the bill. Bill C-228 contains amendments that would require the superintendent to consult with the Office of the Chief Actuary on its annual report prior to its being tabled in Parliament, and to send this report to provincial ministers of finance and provincial security commissions. I would note for the committee's consideration that neither the Office of the Chief Actuary nor provincial ministries of finance or security commissions have any roles or responsibilities with respect to federally regulated private sector pension plans. As such, it is not clear what these amendments are intended to achieve, in particular as this report is already made available on OSFI's website.

To close, I would like to thank the committee for allowing me to provide some additional context and raise these considerations as part of its work to study the bill.

I look forward to answering any questions you may have or discussing other considerations with respect to the amendments to the PBSA proposed in Bill C-228.

Thank you.

[Mark Schaan, Senior Assistant Deputy Minister, Strategy and Innovation Policy Sector, Department of Industry]

Thank you, Mr. Chair, for the opportunity to speak to this committee about Bill C‑228.

I will confine my remarks only to the insolvency law aspects of the bill. My colleagues from Finance Canada we speak to the provisions of the bill affecting federal pension legislation.

Let me start by describing what the bill would do.

Canada's insolvency laws provide two sets of options to financially distressed companies—liquidation, or bankruptcy; and restructuring. The superpriority in Bill C‑228 would affect both options. Liquidation occurs when the company can no longer continue as a going concern. It must be wound up and its assets sold to pay the company's creditors. In bankruptcy, pension claims would change from unsecured status to superpriority status, meaning that they would be paid ahead of most other creditors.

The second impact of the bill would be on restructurings. Our insolvency laws are designed to encourage companies that are financially distressed but fundamentally viable to try to avoid liquidation through court-supervised restructuring plans with creditors. Bill C‑228 would change the current balance by requiring that a restructuring plan provide for payment in full of unfunded pension liabilities to receive court approval.

This quick presentation completed, I should note a few general contextual elements for the committee. Given our years of practice in analyzing and working with the domestic and international insolvency and bankruptcy systems, it is worth stating at the outset that the Canadian Bankruptcy and Insolvency Act and the Companies’ Creditors Arrangement Act are carefully considered and calibrated regimes. Our fundamental aim in the system is to avoid liquidations and allow restructurings where possible, to ensure an orderly and fair system that prevents gaming or a race to the courthouse, and to incentivize behaviours that maximize the value of the corporation and its returns for all workers and creditors.

Large corporations, such as those most likely to have defined benefit pension plans or to avail themselves of the Companies' Creditors Arrangement Act, are complicated entities with a number of competing interests. Shifts in one aspect of the regime will have implications and considerations for other aspects.

I will seek to highlight some of these areas of consideration for the committee, given the shifts that this bill would introduce.

It is also worth noting that this is an area to which we have dedicated considerable time and effort. In particular, I would note for the committee the important work proposed and implemented in the retirement security project, which saw changes to insolvency, corporate governance and federal pension laws with an eye towards the protection of pensioners and workers.

With that, I would begin by bringing some potential drafting issues to the committee's attention.

First, the committee should be aware that the bill uses terminology from federal pension law that may or may not be relevant to the various provincial pensions laws. The bill also does not distinguish between different types of pension plans with different employer funding obligations. My Finance colleagues would be happy to answer questions on these issues.

Second, I wanted to note that the five-year transition period, as drafted, is tied to a calendar date, to five years after coming into force. Insolvency law transition clauses are typically drafted to only affect proceedings that start after they come into force, to ensure that the rules do not change in the middle of an ongoing insolvency proceeding. Under Bill C‑228, a restructuring proceeding could start four years after coming into force, but the new superpriority could come into force a year later, changing the rules midstream and potentially reducing the chances of a successful restructuring.

I will now turn to a number of more substantive considerations the committee may want to investigate during its study of Bill C‑228.

First, the committee may want to look at the differential impact the bill could have on pensioners under different scenarios.

When the bankrupt assets are sufficient to cover unfunded pension liabilities, for instance, the bill may increase the amount that pensions could receive in a liquidation because they would be placed ahead of other creditors. When the bankrupt employer's assets are insufficient to cover the liability, which can be very large, it may be that losses could be locked in for pensioners without any prospect for further recovery given the impacts that the bill may have on restructurings or other possible futures of the plan.

Second, the committee may want to look into how the bill would change restructuring dynamics when a defined benefit pension plan is involved. We are all familiar with examples of insolvencies that resulted in pensioners not receiving their full benefits. On the other hand, there are also many examples of restructurings under current law where the pension plan was successfully preserved, along with the employer and ongoing jobs, such as Air Canada, Stelco and AbitibiBowater.

New superpriorities could, for example, shift the behaviour of players in the insolvency systems. With a new possibility that a secured creditor may be at risk of not receiving full payment given a pension deficit, that creditor may have a strong incentive to choose to race to the bank to call their loan, or similarly take steps to maximize their return in advance of an insolvency. It is possible that a change in the incentives in restructuring could trigger more insolvencies and even minimize the outcomes for pensioners when insolvency is triggered. The committee may want to speak to the creditor community to assess their views about the impact of this bill.

Similarly, the committee may want to consider the impact the bill could have on the availability of interim financing—that is, the special insolvency loans that insolvent companies must acquire to cover the restructuring costs.

[The Chair, Liberal, Peter Fonseca]

Oh, you're right on. You have three seconds, so you're right on time, MP Dzerowicz. You have a good internal clock.

Thank you very much, MP Gladu, for answering all those questions and for your private member's bill, Bill C-228. Thank you for your testimony.

We are going to suspend at this time as we bring in our second panel.

We just want to thank MP Gladu for all of her hard work.

Thank you.