Evidence of meeting #11 for Finance in the 40th Parliament, 3rd Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was benefits.
A recording is available from Parliament.
National President, Canadian Office and Professional Employees Union
I am trying to answer you by explaining that one of the solutions--
Liberal
Massimo Pacetti Liberal Saint-Léonard—Saint-Michel, QC
Our time is limited; that is why I interrupted you.
National President, Canadian Office and Professional Employees Union
One of the solutions we are putting forward is a contribution by members. The plan members are the employer and employees who contribute to the plan. There are also pension committees which have certain obligations.
The employer is required to deposit his contribution each month. The problem arises when a stock market and financial crisis occurs, such as the one we experienced recently; when the actuarial evaluation arrives, you realize that the plan is only 70% capitalized. When a company goes bankrupt, I do not think the government should just leave people to fend for themselves.
So, insurance is needed. There have been experiences with it elsewhere in the world, such as in the United States and even Ontario, but the fund is not adequately capitalized. I think there should be restrictions placed on that. Let us go back to the example I gave earlier: how long did it take to run down the surpluses? It is not right for a pension fund to be capitalized at only 110%. A lot of employers and companies took premium holidays when times were good, saying that this would never happen. But it has happened twice since 2001 and a lot of pension plans have been suffering since.
Liberal
Massimo Pacetti Liberal Saint-Léonard—Saint-Michel, QC
Okay. I have another question for you. You represent a good cross section of the Canadian population. You represent both the private and public sectors.
Liberal
Massimo Pacetti Liberal Saint-Léonard—Saint-Michel, QC
If contributions to the Canada Pension Plan and the Quebec Pension Plan were not voluntary—if they were mandatory instead--
Liberal
Massimo Pacetti Liberal Saint-Léonard—Saint-Michel, QC
--what effect would this have on the people you represent in the public sector? Would that bring down their costs? Would it be more advantageous? Would it be more equal, or would there still be that difference between the public and private sectors?
National President, Canadian Office and Professional Employees Union
All Canadian workers would benefit by having a basic universal pension income greater than $11,000 a year. It makes no sense these days for people to have an income of $11,000 a year. For people with supplemental plans, other contributions would be made to the plans. There are some pension plans where contributions amount to 26%.
Most of these plans are integrated plans. If the public plan's share increases, there will be a decrease in contributions to the private plan. That does not mean that people would pay less; they would pay the same, but it would be distributed differently. There would be greater solidarity among Canadians, because even people who do not currently have a pension plan could contribute.
This may not be the ideal solution. At the very least, however, we need to take the time to convene a truly national conference, in order to hear everyone's point of view before adopting a definitive position. I think that would be the intelligent thing to do, given that the public plans have been in place for 40 years.
Conservative
The Chair Conservative James Rajotte
Thank you very much. Thank you, Mr. Pacetti. Mr. Carrier, please.
Bloc
Robert Carrier Bloc Alfred-Pellan, QC
Good afternoon and welcome to our Committee.
Among the different pieces of testimony we have received, there is one that seems a little offside—the comments made by Ms. Nielson, who spoke a lot of private companies and pension plan insurance companies.
In fact, Ms. Nielson, since you hold the chair in insurance and risk management, it is perfectly normal that you should have talked about that. However, as parliamentarians, we have been hearing from people for several weeks now with the aim of enhancing pension plans for workers all across Canada. We are confronted with cases like that of the former Nortel workers and others we are aware of, including the Jeffrey mine in Asbestos, Atlas Stainless Steel, and so on. The people who worked for these companies contributed to unsecured pension plans and ended up losing all of their pension income.
Earlier, Mr. Marston seemed to say that our approach is not that different from that of the Conservatives. I certainly hope we are coming closer together because, last fall, the Bloc Québécois tabled Bill C-290, An Act to amend the Income Tax Act (tax credit for loss of retirement income) to at least provide a refundable tax credit to people who lose their pension benefits when the company they work for goes bankrupt. That will not resolve all the issues, but the Conservatives actually voted against even that minor protection.
Mr. Lockwood mentioned earlier that he was hopeful with respect to the bill currently before the Senate, Bill S-216. If the government wanted to quickly provide assistance in the above mentioned cases—particularly since it now has a majority in the Senate—it could speed up that review in order to resolve the rare cases of people who lose their disability insurance and find themselves with nothing.
Personally, I feel that all the parties have to make a real effort to move closer together, so that we can make these improvements. I would like to ask Ms. Nielson to comment on what Mr. Cadieux was proposing,—a doubling of CPP so that all workers will at least have a secure pension system, one that does not depend on a company's profitability or the way the insurance fund was managed. It has been proven, however, that the Canada Pension Plan is safely managed.
I would like to hear your views on this. It would still be possible to have private pension plans.
Professor and Chair in Insurance and Risk Management, Haskayne School of Business, University of Calgary, As an Individual
Raising the replacement ratio to 50% is a little too large. It's like hitting the tack with a sledgehammer. It's in the right direction but it's a bit too heavy-handed.
The research report that my colleague Jack Mintz worked on with Mr. Menzies and his office in the fall indicates that the lowest 30% or so of Canadians, among the 60% in particular who do not have pensions, have replacement ratios in the 90% range and higher because of the excellent job that OAS and GIS do in combination with CPP. So there is a gap in the middle that needs to be closed, but the gap is not as big as we thought it was going into the fall.
First of all, there is a little bit of disconnect. I have been asking for 12 years, where did this 70% replacement ratio number come from? And I have had a few political answers. I have had no actuarial answers. But we're starting to have some evidence that maybe the right replacement ratio is in that 50% to 60% range.
There is some information that is not yet ready for public release that suggests that if you look at couples, the group that's right above the YMPE--the middle decile, to use Stats Canada's very statistical terminology--have replacement ratios in the 40% to 55% or 60% range. And 40% is a little too low, so if we could push that 40% up closer to 50% I think we will have solved the most urgent part of that problem. And a 25% increase in the YMPE would cut that in half, perhaps.
Conservative
The Chair Conservative James Rajotte
Thank you.
I'm going to take the next round, as the chair.
I want to start with Mr. Lockwood. I appreciated your presentation. In your presentation I think you adequately described what the challenge was with the LTD plan with Nortel, which is that it was in-house.
I don't know this for certain, but certainly the presentations we've had to committee.... The perception you had, as an employee of Nortel, was that it was managed in-house. So it was not managed by a third party, by Sun Life or Manulife, where it would have been in much better shape. And if it had been in bankruptcy or CCAA you would not be in the situation you are today. So I appreciate that.
One of the challenges raised by Manulife and Sun Life is that if you change the BIA or amend the CCAA you may in fact encourage more companies to take more risk and do their plans in-house, and thereby five years or seven years down the road we actually will have not one massive challenge like Nortel but seven or eight or ten companies that would be in this position.
What's your response to that concern they have raised?
As an Individual
I want to clarify something. Number one is the fact that the group I was with at Nortel actually had a true third-party insurance plan and I actually am covered by it. None of the other employees are.
When we made the transfer to the other group at Nortel, all the documentation was very ambiguous. No one would have known they were sliding off a truly third-party underwriter to a self-insured plan. That was the first challenge.
Conservative
The Chair Conservative James Rajotte
Just to clarify, you are covered and others are not because it was covered by a third party and that plan was changed.
As an Individual
That is correct in my case. So out of 410 people who are basically going to slide into the pit, I am the only person covered by a bona fide program.
But of course when I went to enrol with the new documentation there was no indication that it had ceased to be a truly underwritten insured plan by Manulife or whoever, and it went to a self-insured situation. There was no indication of that whatsoever.
Conservative
The Chair Conservative James Rajotte
But can you address the concern that Manulife and Sun Life have raised?
As an Individual
What I am promoting is that these firms should be forced to buy insurance from a third-party underwriter, and there are half a dozen in the business that offer that service. Companies should not be offering self-insured plans. This concept of being too big to fail is garbage, and we've seen the implosion of these various companies.
Conservative
The Chair Conservative James Rajotte
And as a final clarification--because you mentioned in your address about secured and unsecured--you want to be at the top of the unsecured? You're not asking to be a secured....
As an Individual
It actually should be ahead of the secured parties.
The premise is thrown on the table that this is going to cost extra in the world of capital. I disagree with that. It will be taken into account when the lending covenants are put into place. Companies have their lending covenants reviewed with the lenders on an occasional basis. I've been a lender in the past. You keep in mind what your minimum requirements are and they're adjusted accordingly.
Conservative
The Chair Conservative James Rajotte
So you're saying that in terms of the disability claim they should be a secured creditor.
As an Individual
Well, in this case.... But I'm referring to Nortel because they had a self-insured situation. If disability insurance is offered by a true third-party underwriter, the insurance companies are supporting it; it's not even on the table for discussion.
Conservative
The Chair Conservative James Rajotte
Okay. My time is quickly running out, but I did want to ask a follow-up question with respect to the pensioners. There is the pension, the severance, and the disability, so you actually have three challenges. In terms of the pension plan, our understanding is that it has a deficit of about $1.1 billion.
Mr. Wacheski, our understanding is that the pension plan is funded about 80%. Is that accurate?