Finance Committee on April 23rd, 2009

[Voices]

Oh, oh!

[Diane Urquhart]

Blame it on the witness who answered!

[The Chair, Conservative, James Rajotte]

We'll go to Monsieur Bernier, please.

[Maxime Bernier, Conservative, Beauce, QC]

Mr. Chairman, I will be sharing my time with my colleague, Mr. Kramp.

I would like to thank all of you for being here this morning. As you know, we are studying a matter of importance to all Canadians. I very much appreciate your taking the time to appear before us. We are only parliamentarians—not pension experts. That is why we are conducting this study. The goal is to become better informed and to develop the most effective means of helping Canadians over the long term.

My first question, which is addressed to each of you, deals with regulations, or rather, the way regulations are enforced in Canada. As you know, the federal government regulates only about 7% of private pension funds in Canada. Everything else falls within provincial jurisdiction. Therefore, 13 provinces are also involved in regulating this broad area of expertise. In Canada, our system is similar to the securities industry—in other words, deregulated, with direction being given primarily by the provinces.

First of all, do you think federal regulations are properly harmonized with those of the provinces? Second, do you believe there should be better cooperation with our provincial colleagues, if required, in terms of regulating pension funds in Canada? In your opinion, should we go so far as to create a government entity that would coordinate those regulations, or is it your view that there is no real problem with the way that the current system is currently regulated in Canada?

Ms. Miazga, would you care to answer?

[Barbara Miazga]

Yes, I can tackle that.

Just to clarify your question, it's concerning the regulatory regime and whether or not we think we would benefit from an intergovernmental body to coordinate.

Yes, I do agree. I think there are two areas where there is a problem. One, as you've mentioned, is on the pension regulation side and the other is on the securities regulation side. That affects all capital market players, because it adds to the complexity. The more administrative complexity there is, the more time-consuming it is. It just creates an extra layer of work that is not really adding any value.

So, yes, I do agree that it would be better to have better coordination for pension law and securities law. I also would submit that the federal government would be a key player and should take a lead role in achieving that. I think the biggest challenge is that everyone is not going to agree, as always.

[Maxime Bernier, Conservative, Beauce, QC]

Thank you.

Mr. Benson.

[Phil Benson]

Thank you very much, sir.

Just to clarify, even though the federal government or the federal sector may have 7% of pensions in Canada, we have the highest concentration of union membership in the private sector under the federal jurisdiction, partly because of the nature of our work. So our greatest concern is what you do here dealing with federal plans. I'm going to limit it to that.

We're never really opposed to regulation, although we will say that perhaps some of the zanier ones might not be in line. But when it comes to protecting people's income and money, that's something we certainly support. So for us the harmonization and provincial issue is not at this time as big as the fact that it is critical to a large amount of our members what you do in the federal pension world.

[Maxime Bernier, Conservative, Beauce, QC]

Thank you.

Ms. Smith, would you like to add something?

[Marie Smith]

I would like to add that we should have securities for all of Canada, because right now--as far as I understood when I was in England and in Europe--we're a laughing stock in all of those countries. I think we need something, and it comes out in this report that I gave about how seniors have lost their income and lost their capital and almost everything they have. So we need some securities here in Canada.

[Maxime Bernier, Conservative, Beauce, QC]

Thank you.

[Diane Urquhart]

I'd just like to add a comment. I'm on the investment committee of the United Church of Canada. We're a governance body for the external management of the pension plan for the ministers and staff of the United Church. I want to make a point about corporate governance. I don't think it's appropriate for governments to give prescriptive rules on exactly what to invest in and what is denied and what should be the appropriate percentages. So I agree with the prudent man concept and that they be held to account in a court of law for negligence for not following that concept.

But I do want to make an observation that the corporate governance of the major pension plans of Canada, and particularly the public plans, have been stocked by corporate executives, bank executives, consultants, and individuals who have been in the same club, who seek to have the same high compensation in their own organization. So on a reciprocal basis they've been extremely accommodating on the part of the compensation consultants to permit the pension fund managers to be paid like chief executive officers. We're got problems in both the CEO market and the pension fund market in that regard.

[The Vice-Chair, Liberal, Massimo Pacetti]

Thank you, Monsieur Bernier.

Martha Hall Findley for five minutes.

[Martha Hall Findlay, Liberal, Willowdale, ON]

Just a light-hearted comment. I keep hearing the concept of the prudent man, and I would really relish at some point having that term be the prudent person requirement. There are many prudent women.

Ms. Miazga, could you just tell me how many Canadians are beneficiaries under our defined benefit plans?

[Barbara Miazga]

I don't have the exact figure in front of me, but I'll just start by saying that the PIAC submission does specify “prudent person”.

[Voices]

Oh, oh!

[Martha Hall Findlay, Liberal, Willowdale, ON]

And we thank you for that.

[Barbara Miazga]

You're welcome.

It is in the order of millions. I don't have the statistics in front of me. I believe the statistics are in the submission that we sent on March 13. If you would like that detail, we can certainly provide it after the meeting as a follow-up.

[Martha Hall Findlay, Liberal, Willowdale, ON]

Yes, just as a curiosity, that would be great.

I have a larger comment, and that is, ultimately, money doesn't grow on trees. We have pension plans in order to provide pensioners with income after they stop working. I understand the desire to make sure there is more money available for that than there might otherwise be, and I understand the desire to have the cost of the money going into the pension plans being as small as possible, because whether they're contributory or non-contributory, no one wants to pay more than they have to pay into these plans. So there's clearly an incentive, once there is money in a plan, to make the most use of that money in terms of generating revenue. Of course, what we now see is that there was perhaps too great of an incentive to maximize the return and too great of an incentive to engage in greater risk.

I think there's an understanding that we would all like to see a greater balance, but recognizing that the balance includes a desire to not have too much going into the plan in the first place. That's just a general comment.

I have a question for Monsieur Malo. My colleague had asked a question about how, in the ideal world, the net contributions we receive would be invested in the Canadian government inflation-linked bonds. I think you said there were two answers. The first one was that there just isn't enough of a market out there. I don't know that we got to the second one. Could you provide the second part of that answer, please?

[Pierre Malo]

Thank you for coming back with the second portion. The second problem with the real return bonds is their yield, and again I go back to the original basic equation of a pension plan; the net contributions plus investment returns have to equal the present value of the future benefits paid to the employees.

The rate on the real return bonds...we're talking Canadian government bonds, obviously, so we don't have any company risk or whatever, of names and stuff like that, so it's really risk-less, inflation-linked bonds. Those yields now for a 25- to 30-year maturity are about 2%.

If you invest 100% of your assets into a 2% return, I can tell you right away that the contributions rate will have to go up in order to pay the future benefits. There is no magic in this equation, quite frankly. It's a give and take. So if you start from that point, that you cannot be invested because the costs to the contributors would be too much, it means you have to move into other asset classes that you hope will bring more returns and therefore maintain the contributions levels to where the sponsors and the employees want it to be.

[Martha Hall Findlay, Liberal, Willowdale, ON]

Thank you very much. That's exactly to my earlier point that the money doesn't grow on trees, and if you don't have enough revenue based on the assets in the fund, your contribution rate is going to have to go up.

My final part of this question is to Mr. Benson. We have heard a number of criticisms from you, and I think we're all trying to come to a solution, so it's a very important discussion to balance the need to keep contribution levels as low as we can with the risk. I would suggest that if you're looking for other assets that have greater revenue, you're probably looking at other assets that may have greater risks.

Mr. Benson, my question to you is this. If the answer is greater contributions, I've heard criticism, but I haven't heard real concrete solutions from you, or concrete suggestions, and if you can provide some, that would be great.

[Phil Benson]

When we're talking about 100% bonds, it's going to be appropriate for some, depending on the demographics of the unit who depend upon investments. Obviously, if it's an older unit, you're going to be in more bonds than cash; if you have a bunch of younger people, you might be a little bit invested in other things.

When they were talking about trying to make a quarter point more, or one and a quarter points more, to quote Mr. Malo, on the hope--the hope--that we will make more, yes, if it means more contributions, it may mean more contributions. If it means we have to pay a bit more, we may, but the one company I did mention, and it's a real example, could have paid $35 million to $40 million a year over 15 years of boom to have a perfectly safe plan; it chose not to, and it has put itself in a situation of $150 million over 10 years or $300 million over 5. It makes good, prudent business sense as well to not play games with these pension plans, so we don't end up with a GM facing these huge potential crises.

We're arguing it's not just about the worker guaranteeing the retirees. Companies need help. This is sound management for companies to put them on really good footings so that they can go and create work and create jobs. We'll leave the asset management to the experts.

[The Chair, Conservative, James Rajotte]

Thank you.

We'll go to Mr. Kramp, please.

[Daryl Kramp, Conservative, Prince Edward—Hastings, ON]

Thank you, Chair, and welcome to our guests.

If I could, Ms. Urquhart, I'd like to discuss this approach of prosecuting the securities fraud. You're telling us that it's almost like asking a criminal if he wants to be investigated, in other words, going to the different securities and getting their permission before they can be investigated. That bothers me. To what extent is that actually happening?

[Diane Urquhart]

I have a letter from Dean Buzza from approximately December 13, 2008. It was in response to our request on behalf of a number of ABCP victims that the RCMP conduct a criminal investigation of the asset-backed commercial paper on the basis of our allegations of fraud with respect to the contracting of the ABCP. In that letter he defines what are the procedures of the RCMP, and it's very clearly stated--and I can table it with the committee--that no commander unit of the RCMP will conduct an investigation of a securities crime complaint until it has been referred, by requirement of the federal government, whoever that is...it must go to the joint consultation unit.

[Daryl Kramp, Conservative, Prince Edward—Hastings, ON]

And you will table that with the committee.