Evidence of meeting #20 for Finance in the 40th Parliament, 2nd Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was retirement.
A recording is available from Parliament.
Bloc
Jean-Yves Laforest Bloc Saint-Maurice—Champlain, QC
Further on in your prepared remarks, you state that significant losses were incurred by major defined benefit pension plans, and that those losses were the result of inadequate controls, and compensation schemes that reward speculation.
Is this what you observed at the Caisse de dépôt et placement?
Independant analyst, As an Individual
It's what I observed almost everywhere. The problem does not affect only the Caisse de dépôt et placement du Québec; it also affects the Ontario Teachers' Pension Plan and PSP Investments. However, at the Caisse de dépôt et placement du Québec, reference indicators best reflected the risk built into the assets, in my opinion. In other words, the reference indicators of each class of assets held by the Caisse de dépôt et placement du Québec better reflected the risk of investments depicted by the indicators of other major pension funds. Real estate values are one example. In my opinion, the reference indicators for the real estate class of assets account for market leveraging and beta.
Bloc
Jean-Yves Laforest Bloc Saint-Maurice—Champlain, QC
That could be observed for various types of investments, but in the case of commercial paper, can it be said that people were monumentally mistaken?
Independant analyst, As an Individual
Monumentally mistaken, indeed, but they weren't the only ones.
Bloc
Jean-Yves Laforest Bloc Saint-Maurice—Champlain, QC
The losses incurred by the Caisse are equivalent to approximately 25% of its assets. The Caisse's losses are much higher than those of other funds. What you are telling us is that in the case of certain types of investments, some people did a good job, but as for other types of investments, people performed dismally. How can you explain this?
Independant analyst, As an Individual
Some reference indicators properly reflected the risk involved, but this wasn't the case for other indicators. A perfect example of this situation is commercial paper. In the case of Treasury bonds, the associated risks were much higher than what the reference index let on.
Bloc
Jean-Yves Laforest Bloc Saint-Maurice—Champlain, QC
In 2003, people had begun purchasing commercial paper. Did you carry out any analysis on commercial paper?
Independant analyst, As an Individual
Are you asking me if I analyzed commercial paper?
Bloc
Jean-Yves Laforest Bloc Saint-Maurice—Champlain, QC
As an investment analyst, were you aware of any other analyses on investing in commercial paper?
Independant analyst, As an Individual
Honestly, no. I worked in the private sector, in hedge funds and commodities, but I had never had to write a document for a board of directors on the subject of commercial paper. If I did have to write something, of course it would not be that—
Bloc
Jean-Yves Laforest Bloc Saint-Maurice—Champlain, QC
When you were working at the Caisse, were you privy to this kind of analysis?
Bloc
Jean-Yves Laforest Bloc Saint-Maurice—Champlain, QC
Not at the time. Thank you.
Mr. Vanaselja, in your presentation, you make recommendations to strengthen the security of employee and pension benefits. You make a series of recommendations through Mr. Aitken. Ultimately, you are painting an ideal situation for us.
Why was all of this not done beforehand, so that both pensioners and employers could benefit? You are making the recommendations after the fact. We now know what should have been done. Why did firms and pension plans not carry out sufficient analyses to bring forward the solutions that are being suggested today?
Executive Vice-President and Chief Financial Officer, BCE and Bell Canada, Federally Regulated Employers - Transportation and Communications (FETCO)
If I understand your question, it is with respect to the best scenario for employees and employers regarding pension funds and, in hindsight, how it is that we weren't aware of significant negative consequences of the market turmoil that has taken place. I believe the solution for both employers and employees for meeting all of the objectives of defined benefit pension plans really begins with a strong sponsor. After all, those pension fund liabilities are spread out over many, many future years, and as long as the employer, corporation, or sponsor of the pension fund remains healthy, they'll be able to meet those obligations.
Regarding the current situation in the financial markets, we have always gone through periods of significant volatility. Market returns and interest rates go through cycles. Some cycles are longer, and some cycles are shorter. I can tell you that in the case of the Bell Canada pension plan, it has been well managed. Our asset returns have been, on average, in excess of 10% since the inception of that plan. I don't believe that a great many people in the financial markets ever contemplated the type of financial markets, the downturn, and the turmoil that we've seen over the last year, as well as the significant negative impacts that have resulted from that. I believe it is important not to panic and to recognize that returns will come back to the market, and companies will continue to adequately fund their pension plans.
Bloc
Jean-Yves Laforest Bloc Saint-Maurice—Champlain, QC
Mr. Lamoureux, as an actuary, compared to an economist, your work also consists in making certain forecasts. Do you believe that you have a responsibility for the losses suffered by some pension funds?
Special Advisor, Canadian Institute of Actuaries
I don't think one can say that actuaries are responsible for the losses incurred.
Bloc
Jean-Yves Laforest Bloc Saint-Maurice—Champlain, QC
Are they not responsible for failing to predict what was ahead?
Special Advisor, Canadian Institute of Actuaries
During the 1990s, when I was working at the Teachers' Pension Fund, we had advised the Government of Ontario, and the union, to build surpluses. We knew then, during the 1990s, that returns were higher than we were anticipating. Yet, it was very easy to say that profits would be increased by spending the surplus posted by the fund. And that is how we found ourselves with equal assets and liabilities, at the start of the most recent crisis.
It was something that we were able to predict, and that we published in our annual reports, year over year. Nobody wants to listen to that kind of message when times are good, because people think good times will last forever. Yet, that is not the case. One cannot schedule when a crisis will hit, but one can predict that it will indeed occur.
Conservative
Ted Menzies Conservative Macleod, AB
Thank you, Mr. Chair, and thank you to our esteemed guests here today. As you can tell by Mr. Lamoureux's passion for this, it has garnered a lot of interest across the country, and certainly it should. I've spoken to Mr. Lamoureux on different occasions and understand his knowledge of this.
Just to frame it, we do need to remind everyone at this table that the federally regulated private pension plans account for only 7% across this country. It's quite easy--and I've found it in my consultations--for people to get into a broader perspective, but we're trying to deal with the federally regulated, which actually have 12% of the assets.
A couple of presenters today talked about balance, and that's going to be our challenge, to try to bring a balance. As members of Parliament we represent ordinary Canadians, and our concern here is that there have been promises made to Canadians who have worked for 35 and 40 years that there would be a pension there for them when they retired. Those people who have been coming to the microphones and to our meetings are, frankly, very concerned. That's a concern we're hearing from our constituents, so that's why we've asked you to come here.
We need to also remember, in talking about the pension sponsors, that in 1992 we were actually looking at virtually the same solvency issue as we are looking at today. In the early 2000s we were actually looking at bouncing off the ceiling of that 110% surplus, and now we're back into a solvency issue, if you will.
Mr. Lamoureux, you referred to the potential of a side fund. Would it be better to look at that as a solution to allow the sponsors to be able to prepare for what is inevitable? We're facing solvency now, and I guarantee you we'll be facing a surplus again in a few years--I'm not going to project when that may be. Or are we better to look at our tax laws and allow a larger tax-deductible surplus so that they can actually provide for what we know is going to be a downturn?
Special Advisor, Canadian Institute of Actuaries
Clearly, it would be ideal to increase the maximum surplus that can be accumulated in a pension plan, and even to have, like in the U.S., no limit. I know there are certain pension plans--and I was part of an effort to do that--that have been exempted from the 10% limit. I think it's more like 25% for those plans. But in 25%, the volatility is such--and we could predict that even 20 years ago--that you have good years and you have bad years.
You've stated it clearly: the federal government has limited jurisdiction. But in many jurisdictions, if an employer wants to remove surplus from a pension plan when such a surplus exists, or if they sell a portion of their company, they have to share in the deficit. So if you're an employer, the incentive is certainly not to put more money into a plan than you have to, because essentially when there's a deficit you'll have to put more, but if there's a surplus you won't be able to benefit from it. So the idea of a side fund would be to make it clear that this would be to back the pension fund, but this money could be withdrawn more or less.... Rules could be written that maybe when you have a surplus of 10% or 20%, you could withdraw a piece of it. Or if an employer is in difficulty, maybe they could ask to withdraw part of that money without having to share it with the employees and without having to ask their permission.
The current situation is that a lot of employers in the 1990s.... I'm very familiar with the pension plan. We essentially ran it with zero surplus, because we were doing a lot of transactions. The danger is that if every time you do a transaction and there's a surplus, you have to share it, the incentive for the employer is not to have a surplus. So you need to find ways to make that attractive to the employer.
Conservative
Ted Menzies Conservative Macleod, AB
The challenge has always been to determine who owns the surplus, and no one has given me the exact answer yet. That debate continues, but I share your concerns about that.
The solvency or the strength and security of these pensions is directly dependent on the solvency and strength of the plan sponsor.
I note, Mr. Vanaselja, you talk about member consent, letter of credit, annual evaluations, and requiring each plan to provide greater financial disclosure to all plan members. In the consultations we heard many plan members ask what happens if you can't get comments back from your plan members. Do we need that as a requirement? Part of it is communication so the plan members understand it, but how do we contact all of them? Is that too onerous for a sponsor to be required to do?
Executive Vice-President and Chief Financial Officer, BCE and Bell Canada, Federally Regulated Employers - Transportation and Communications (FETCO)
It would be very impractical in situations to ask for plan member consent over matters pertaining to the management of the pension fund. There should be transparency and full disclosure, a requirement for annual filing, and requirements to disclosure regularly the funding position of the plan, the investment policy, and the funding policy. Those are all appropriate measures that should be implemented to give employees much more visibility and transparency in how their pensions are being managed and how they're faring.
But once you introduce a requirement for employees or employee groups to have a right over the ability to fund on a ten-year basis as opposed to a five-year basis, for example, that's a valuable right. Our fear is that it will inevitably be used in a broader collective labour bargaining session between the company and its workforce.
I think it's really a management issue as to how to best govern government pension plans to ensure the security of pension benefits within the rules that are laid out by the government. If you bring employees into it--and you look at a company like Bell Canada with 40,000 employees--it would be very impractical on an issue like pensions, which is so complex. The education alone would be a very difficult challenge for us.
Conservative
NDP
Thomas Mulcair NDP Outremont, QC
Thank you very much, Mr. Chair.
Firstly, I wish to tell Mr. Lamoureux how happy I am to hear him say that retirees need to be given priority in bankruptcy proceedings. This is a pet subject for many unions, among others the Steelworkers, who have come out with official positions on this matter. Some have claimed that this could skew subsequent analysis. I am very happy to hear the representative from the Canadian Institute of Actuaries make the same recommendation, and I'm very pleased to see that those statements are founded on solid analysis. I thank you for that.
Madam Eng, has there been any movement on your proposal for a pension summit. Have you had any reactions to it?
