Finance Committee on April 29th, 2010

[Jean-Claude Primeau]

It wouldn't necessarily be the case that the companies making use of the letters of credit would be in that position. It would be a case of how they would want to use their cash resources at a particular point in time. It would also be that whatever credit they use for the pension plan is not available for other purposes that the company might consider. So I'm not sure that it would necessarily always be the choice of the company to use a letter of credit. It would depend on the company's investment plans and things that are outside of the pension plan.

[The Chair, Conservative, James Rajotte]

Thank you.

We'll go to Mr. Menzies now.

[Ted Menzies, Conservative, Macleod, AB]

Thank you, Mr. Chair. I thank our witnesses for appearing here today.

I might explain to John and some of the other members and remind them—I'm sure I've reminded you a couple of times—that this is about the 7% of private pension plans that we actually regulate federally. Some of them were in very serious trouble over the last year, and that's why we put these changes in. They're not out of the woods yet. And I guess that would be my question. I've tried to implore this committee to move this along quickly because we have a June 30 deadline on the solvency of many of these funds that are not out of the woods. We seem to be stalling this bill because some people say there are too many fringe things in it. We've got some very important legislation. Is this not probably one of the most time-sensitive issues in this bill?

[Leah Anderson]

I would think yes. This certainly does put in place relief or enhanced benefit security for pension members. It's very important. Certain rules needs to be in place in advance of the solvency valuations, which my colleague can speak to. Certainly the bill needs to be passed in order for some of the regulations to come into effect. The broad sweeping changes that the government announced last October are dependent on provisions in this bill being in force. Until the bill is in force, some other regulations cannot be brought into force.

Do you have something on the valuation question?

[Jean-Claude Primeau]

Yes. Actuarial valuations for federally regulated pension plans are required to be filed within six months of the year-end for which the valuation is done. For most plans, that's December 31, so their due date is June 30. At this point, many plan sponsors are waiting for the passage of these measures so they can anticipate how much funding they will need to make in their pension plans for this year and in future.

[Ted Menzies, Conservative, Macleod, AB]

And we're talking billions and billions of dollars here. It's a pretty serious change for some of these funds.

Thank you. I wanted to get that point on the record.

[The Chair, Conservative, James Rajotte]

Thank you.

Mr. Carrier.

[Robert Carrier, Bloc, Alfred-Pellan, QC]

Welcome. The part under consideration, part 9, does not deal with companies that are presently failing. This is a huge concern to us because this is happening in several of our ridings. I was wondering if your department did not come up with a solution that would see the pension plan of a number of companies placed under trusteeship? Could you talk about this? Did you look into this matter? What would be the consequences of such a policy?

[Leah Anderson]

Certainly that's a major issue, which we've heard a lot about from everybody throughout the media and letters we've received in the department and across the government. I would say that with respect to pension plans, there are safeguards in place in the event of insolvency. In the first instance, the money that people pay in to pension plans is held in trust and it is there for pensioners when they retire. With respect to unfunded but due pension deficiencies or pension payments, the government made changes to give them a super priority in the event of insolvency.

More broadly speaking, though, any liabilities in terms of keeping the plan whole in the event of insolvency is an issue that hasn't received much discussion. The bankruptcy and insolvency legislation is a matter for the Minister of Industry. I know that ministry is looking into that issue, as committed to in the throne speech--that they would examine issues with respect to pension plans in the event of insolvency.

[Robert Carrier, Bloc, Alfred-Pellan, QC]

Fine, thank you.

[The Chair, Conservative, James Rajotte]

Mr. McKay, please.

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

Just to speak to Mr. Menzies' point, this is a matter that has been hanging around for quite a while. There's no reason this couldn't have been introduced as a separate piece of legislation. It could have been introduced months ago if in fact there was a timeline that it was of concern.

I don't know whether I'm in favour of it or against it, because I haven't heard from witnesses, but the witnesses are going to be jammed into a short period of time, and then it's kind of an all-or-nothing deal. So I reject the premise of Mr. Menzies' point.

With respect to the issue for the workout scheme, you say, “Will the workout scheme result in the employer being able to force the plan members into an agreement that is not in their best interests?” The answer is no. And then further on you say, “The workout scheme will permit sponsors, plan members and retirees of a distressed pension plan to negotiate funding arrangements.”

That strikes me as saying the gun is at your head and there isn't enough money, so too bad for you, retirees, go visit your friends in Nortel. That's what it strikes me as.

I haven't absorbed the material entirely, to be fair, but it strikes me that the retirees will be in some sort of negotiation, it will be stalemated, they'll come to the minister and the minister will make a decision, and, boom, the retirees will have no recourse.

[Leah Anderson]

I think the key element there is that it requires all-party consent at the end of the process. So it's an alternative for everybody involved in the issues facing that company to be able to take some stock and see if funding rules can be changed in order to restructure the pension plan.

Everybody will have a say in it; everybody who has a stake in it will have a say in it. I can't pre-judge what that outcome will be, but presumably people will vote in their interests in the—

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

But are you actually enhancing control for the retirees? Some of these plans are in trouble because of stupid investment decisions, which were made by people who thought they could make lots of money and that they were way brighter than the rest of us.

When a plan is in trouble, you're giving some greater authority for a workout, but are you actually allocating greater authority to the retirees to control the investment decisions that get these plans in trouble in the first place?

[Leah Anderson]

I think there are a few provisions there. A key one is greater disclosure that will be provided to plan members so that they can look at the situation of their plans on an ongoing basis and be better informed about its status. So it's taking quite a leap in terms of the elements of disclosure that are required.

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

But in some respects, disclosure doesn't cut it. If in fact I'm running a plan and you are a retiree, a potential retiree in the plan, and I disclose that I just bought a whole whack of derivative stuff through Goldman Sachs—

[Leah Anderson]

There are investment rules associated with the plan funding, as well.

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

Well, there may be, but you disclose it—

[Leah Anderson]

The prudent person—

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

—thank you very much, and it's still a big problem.

[The Chair, Conservative, James Rajotte]

Mr. McKay, you've asked a good question. Ms. Anderson had one point, but I believe she had something further to add in terms of the disclosure.

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

Sorry.

[Leah Anderson]

There's a wide range of disclosure elements that will enhance transparency about the status of the plan to members.

On the investment side, there are investment rules associated with the framework, and they are consistent with the prudent person rule. The scenario you just described would not be consistent with that.

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

But as far as your amendments are concerned, there is nothing on that side of the equation—that is, on the prudent person rule. Is that a fair assumption?

[Leah Anderson]

That's right.

I think a lot of the issues that were faced by pension plans are as a result of the situation in the stock market, which nobody predicted, and a lot of the difficulties or challenges they were facing were a result of spikes. So another key element of the reforms being proposed is to smooth some of that for plan sponsors to be able to make it easier to make payments, going over an average of three years versus one year. It's reducing their procyclicality.