Finance Committee on April 28th, 2009

[The Chair, Conservative, James Rajotte]

Thank you, Mr. Mulcair.

[Thomas Mulcair, NDP, Outremont, QC]

Thank you.

[The Chair, Conservative, James Rajotte]

I wanted to get some clarification myself, Ms. Warmbold, with respect to the release of your final report.

Can you indicate to me, as chair, what process you go through in terms of releasing that information, just so I'm clear on that?

[Benita Warmbold]

Sure.

We follow public disclosure timelines. Our report will be available to all Canadians at the end of May.

What we do, first thing, is give it to our auditors to sign off on the results. Secondly, our board of directors signs off on the results. Then we provide the results, being our entire annual report, to our stewards. Once they have it in receipt, then we disclose it to any Canadian. It's completely public.

[Donald Raymond]

It's tabled in Parliament as well.

[Benita Warmbold]

Yes, it's tabled in Parliament.

[The Chair, Conservative, James Rajotte]

Approximately what date will it be tabled in Parliament?

[Benita Warmbold]

May 28.

[The Chair, Conservative, James Rajotte]

Thank you for that clarification.

We'll go to Mr. McKay, please.

[John McKay, Liberal, Scarborough—Guildwood, ON]

Listening to the last exchange, I was reminded of a certain former minister who famously said, while being grilled by a previous Parliament, “I'm entitled to my entitlements.” That didn't go down too well with the Canadian public.

I want to pick up on an exchange between Mr. Menzies and Mr. Ambachtsheer with respect to the provincial plans, many of which are close to being under water now, if not under water. Mr. Menzies' position was to question why the federal government should be bailing out provinces or provincially run plans; that's their jurisdiction, so let them sink or swim on their own.

What wasn't clear to me was the relationship between Mr. Menzies' comment and your proposal. If you could just amplify that, I'd appreciate it.

[Keith Ambachtsheer]

The proposal, with respect to the Canada supplementary pension plan, has a long horizon. It's a vision. Once we press the start button, it will take many years for it to mature over time. So we need to distinguish between that proposal and where we are today. And where we are today is that many of these defined benefit plans, when you measure their assets and their liabilities, typically have 60¢ or 70¢ on the dollar on a fair-value basis.

The question is how that resolves itself over time, and ideally, how these DB plans move to something that's more sustainable.

For the good credits.... And remember, there's a public sector dimension to this and a private sector dimension. We can have an interesting discussion about all the public sector plans in terms of whether in fact those pensions are going to be paid. There's a very broad assumption that, yes, they are going to be paid, even though there might not be, on a fair-value basis, the exact amount of money required. It will be made up over time.

We're really talking about private sector DB plans. They range all the way from being very good credits, which means that even though the pension plan may have 60¢ on the dollar of liabilities, there will be a work-out. On the other hand, we have Nortel as a classic example. It's already in reorganization. The pensioners of Nortel are already standing in line with other creditors, saying, “Hello?” They will get their 60¢ on the dollar that's in the pension plan, but they're trying to see what else they may be able to pick up out of the reorganization. I don't know how that will play out. That's the distinction.

[John McKay, Liberal, Scarborough—Guildwood, ON]

Help me here. If I'm a Nortel employee, and your plan is already up and running, do I option into your plan and restore myself to Nortel standards, or do I option into your plan and restore myself for the shortfall to Nortel standards? How does that work?

[Keith Ambachtsheer]

There are no magic bullets here. My plan is for young people and the future. It does nothing for the pensioners of Nortel.

[John McKay, Liberal, Scarborough—Guildwood, ON]

Thank you.

[The Chair, Conservative, James Rajotte]

Thank you, Mr. McKay.

We'll go now to Monsieur Laforest.

[Jean-Yves Laforest, Bloc, Saint-Maurice—Champlain, QC]

Thank you, Mr. Chair.

I would like to express my support for what Mr. Mulcair said about the performance bonuses paid to executives. I am in full agreement with what he said, and I want to say so. It is absolutely scandalous, regardless of whether the performance is evaluated over one, two, three or four years. That must be stated very clearly.

I have a question for Mr. Ménard about the Office of the Superintendent of Financial Institutions of Canada. Does this office provide information or investment advice to financial institutions in Quebec and Canada? We asked Mr. Duguay, the Deputy Governor of the Bank of Canada, whether the bank had made any recommendations regarding the extreme volatility of commercial paper, and he said it had. Does your office also provide advice? I am not referring to the work done by rating firms, but rather an analysis of various investments.

[Jean Claude Ménard]

Unfortunately, I am not qualified to answer that question. Some advice is definitely provided. In my actuarial reports, I speak very clearly about the future performance assumptions for the assets of the Canada Pension Plan, for example, and the way in which we come up with those assumptions. At the moment, the Canada Pension Plan has a benchmark portfolio made up of 65% in shares and 35% in bonds. Of course, we stated very clearly in the actuarial report that investing in shares involved volatility. There is a whole section devoted to the volatility of the financial markets.

Why do we have a 65-35 split? We also said that if all of the money were invested in long-term federal bonds, a 9.9% contribution rate would not do; it would have to be increased to 10.6%.

[Jean-Yves Laforest, Bloc, Saint-Maurice—Champlain, QC]

As we all know, the Caisse de dépôt et placement du Québec invested significantly more in commercial paper than other pension plans in Quebec and Canada, and this resulted in a loss of $40 billion. Why did the other plans not do this? If I knew that, perhaps I would understand why the Caisse did this. In any case, we will try to find out in another way.

[Jean Claude Ménard]

All I can say is that I do not go into this type of detail regarding specific investment decisions. The people at the Canada Pension Plan are in a better position than I am to talk about this and to comment on their own investment decisions. Their objective is to follow the assumption set by the chief actuary, that being me.

[Jean-Yves Laforest, Bloc, Saint-Maurice—Champlain, QC]

Ms. Warmbold, I would like to know whether the Canada Pension Plan investment Board invested in commercial paper in 2005, 2006 and 2007. Did you suffer any losses, and if so, how big were they?

[Donald Raymond]

As I said earlier, we did invest in asset-backed commercial paper, but the bank-sponsored variety, and it was only after the non-bank-sponsored market froze. So we incurred no losses, and in fact we enjoyed relatively healthy returns as a result of that.

I would say this is a function of having, quite frankly, a management compensation policy that allows us to attract some of the best investment professionals and to be able to make those risk-return trade-offs.

If you look through the non-bank-sponsored asset-backed commercial paper, what was actually inside the products were levered, opaque financial instruments. So there was a lot more risk than you would ever see just by looking at a history of the prices, because it wasn't until the actual liquidity crunch that the real risk materialized.

[The Chair, Conservative, James Rajotte]

You have 30 seconds left.

[Jean-Yves Laforest, Bloc, Saint-Maurice—Champlain, QC]

Mr. Gagné, do you know whether the pension plans of AbitibiBowater or Smurfit-Stone, for example, made this type of investment, and whether this resulted in significant losses?

[Renaud Gagné]

I am not on the retirement committee as such. Germain might be able to answer that question.

[Germain Auclair]

Smurfit-Stone suffered a $7,000 loss because of ABCPs, which is insignificant given the size of the plan.