Finance Committee on March 16th, 2010

[John McCallum, Liberal, Markham—Unionville, ON]

Thank you very much.

[The Chair, Conservative, James Rajotte]

Thank you, Mr. McCallum.

Monsieur Paillé, pour sept minutes.

[Daniel Paillé, Bloc, Hochelaga, QC]

Thank you very much for your presentations. I appreciate the fact that some of you sent them in advance in French.

Mr. Charbonneau, with respect to the Canadian Institute of Actuaries and your idea of pension security trusts to manage the risks, I was wondering about the mechanism that would be involved in such trusts in Quebec and Canada.

Do you have any doubts about having a single pension security trust, or would it be better, given that the situation in Quebec is different because we are somewhat ahead of other jurisdictions in this area, to have a completely different structure in Quebec?

[Serge Charbonneau]

No, it would not be necessary to have different rules. That said, the legislation in each jurisdiction would have to be adapted. So the Quebec legislation, the ORCR, should allow for this change. This concept can be applied across Canada for employers under federal, Ontario or Quebec jurisdiction.

You also mentioned risk management, and you asked how it would be structured. It is simply a side account that is virtually identical to the first one, which is a true trust. The only difference is that the employer would voluntarily put more funds into the new vehicle. Moreover, the employer could withdraw the funds later, but only if there is a surplus in both funds combined and a surplus that exceeds the recommended safety margin.

That is why it is attractive from the participants' point of view. The only time an employer could get its hands on the money would be when there was already a surplus and a cushion.

[Daniel Paillé, Bloc, Hochelaga, QC]

We saw with the 110% idea that everyone was expressing fears, even while premium holidays were much too long and the quality of benefits was being improved.

I was wondering why there was an absolute amount of, for example, 25%. We know that the initial idea was to close a corporate tax loophole.

Basically, employers can reach agreements with their unions or employees to give various kinds of wage increases, and everyone knows that pensions are a type of deferred wages. Why do we have this 125% standard? Could you ask to have that eliminated?

[Serge Charbonneau]

The CIA does not object to changing the 125% standard. However, from a fiscal point of view, our thinking is that it has been at 110% forever, and that if you decide to increase it to 125%, that is a huge jump, considering that it has always been at 110%.

In our original document, we said that the rate of 25% should be twice the calculated security margin. So in a more risk-based pension plan with a 15% margin, the threshold should be 2 times 15. Which means that it would go up to 130%.

To address the first part of your question, it is true that this type of margin would not be the perfect solution. Even at 110%, if things turn bad and you lose 20%, and end up in a deficit position, at least you have a good cushion and you are protected.

[Daniel Paillé, Bloc, Hochelaga, QC]

We can see this in the current situation.

I presume that the Certified General Accountants Association does not take issue with the standard of 125%. If I may put it this way, accountants will make calculations based on the rules, so if they have to apply a margin of 150%, they will do so.

[Rock Lefebvre]

Of course, there is always a risk of going too far. However, if we decide on 125%, that would be a good, solid increase.

If we apply a rate of 125%, it is because we want to protect existing members. There is always nervousness when a new trust comes along to protect groups of employees, rather than the employer's entire group of employees.

That is why I prefer higher percentages for existing members.

[Daniel Paillé, Bloc, Hochelaga, QC]

Aside from the fact that I don't know whether we should start tomorrow morning, by either including new employees or imposing new amounts, and if we leave aside the past, are we not wasting a lot of time discussing where to draw the line? We have to draw it somewhere.

[Rock Lefebvre]

It is hard to go back in time. We prefer to look ahead.

I think that the greatest risk today is that a growing number of employers will back away from defined benefit plans. If we do not do anything, one day there will no such plans left.

[Daniel Paillé, Bloc, Hochelaga, QC]

Mr. Benoit, I would like to come back to something you said.

You said that employers today do not know the rules because the government has not sent them out yet. I think that it was good that you stated loud and clear—in fact, you highlighted this in your French brief—that it is extremely important that the amendments be known as soon as possible. I also thought they would be included in the budget.

However, I have managed the finances of many companies, and I find that a lot of time has passed since the 2010 budget was tabled and adopted, and since projects received their funding, and I feel that we are not five months behind, but rather one year behind, and that the issue will only be addressed next year.

Have we not just lost a year because of the current government's foot-dragging?

[Michel Benoit]

Listen, it is clear that...

[Daniel Paillé, Bloc, Hochelaga, QC]

You can say it.

[Michel Benoit]

The 2010 budgets have been completed. They are as we say cast in stone. Obviously, companies—at least those I represent—did not wait for the rules, which were announced last October, to come into force before they completed their budgets.

Actually, in that sense, I don't think we've lost a year, because the proposals which will be of interest to the companies I mentioned are those that will apply to the actuarial evaluation due by December 31, 2010, which, in fact, should be ready by the end of June of this year. So that aspect is clear. The evaluation will help companies set their premiums, not only for this year, but for the coming years as well.

Therefore, we have to act quickly. The five-month delay is beginning to take its toll.

[Daniel Paillé, Bloc, Hochelaga, QC]

Are the 5 or 10 years—

[The Chair, Conservative, James Rajotte]

Mr. Paillé—

[Daniel Paillé, Bloc, Hochelaga, QC]

Yes, I only have a small question.

Regarding a company's ability to close the solvency deficit over 5 or 10 years, can't we simply make it 10 years?

[Michel Benoit]

The group I represent wants 10 years to amortize their solvency deficit.

The government proposed moving away from the five-year rule and using other means to evaluate solvency, such as basing funding requirements on a three-year average. That's a step in the right direction. It's not a silver bullet, but if this is what the government is putting forward now, that's what we will work with.

[The Chair, Conservative, James Rajotte]

Merci, Monsieur Paillé.

Mr. Menzies, please.

[Ted Menzies, Conservative, Macleod, AB]

Thank you, Mr. Chair, and thank you to our witnesses.

We have some of the best experts here today. I met with all of you, actually, in our first process of consultation. So thank you once again for coming. I'm sure you will all admit that it is a very complex issue. I'm happy that the finance department is taking a non-partisan view to discussing this, and in light of that, Mr. McCallum suggesting that we should just fix it right now....

In fact, Mr. Benoit said there's lots of study needed. Mr. Charbonneau, you said, to quote you, “Let's look into it.”

I think you all would recognize and affirm that there's no quick fix for this, or it would have been fixed a long time ago. So we do appreciate those comments.

To that, Mr. Lefebvre, I just want to read something from the Mintz report, which I'm sure most of you have read:

...a more thorough analysis of subgroups that appear not to be saving enough, differentiated by family type and income level, and based on a comprehensive analysis of all forms of savings, including the role of assets outside the retirement income system, (e.g., housing equity) in financing retirement consumption;

Your members advise on estate planning, retirement planning. Can you reflect on that, on what your members are telling you about different ways...?

[Rock Lefebvre]

We have in fact conducted three surveys over the last three years with Canadians from across the country and in fact have learned identical findings to those of Mr. Mintz. In fact, we've identified those earning under $35,000 as being literally incapable of taking advantage of certain investment devices such as RRSPs and tax-free savings accounts. I think it was iterated in one of your earlier presentations about how that group of people needs to be dealt with, and possibly more expediently than other groups, in fact.

One of the concerns that we often have when we discuss the whole issue of retirement and pensions is we tend to muddle up employer-sponsored plans. We don't differentiate between public sector and private sector plans. We lump CPP and old age security in there. Basically everything is thrown in there. One of the reasons why we prescribe taking the time to understand it is that all these subjects essentially have to be studied at the same time so that they can be compartmentalized. Otherwise, this is where we run the risk of doing things without considering the knee-jerk reaction in the other areas.

I'm long-winded, but I would echo the findings of the report you cite.

[Ted Menzies, Conservative, Macleod, AB]

Thank you, and I think that needs to be emphasized. I appreciate the fact that you did that, because we have one of the best systems in the world. The OECD report reminds us of that. We need to make sure we don't damage the best system in the world. That's not to say it can't be made better, and that's what we've been talking about. One thing we do need to remind all our witnesses here is that all options are on the table as far as the finance minister's process going forward goes. We're looking at all options. That's why we wanted you folks here today.

Mr. Georgetti, I noticed even Mr. McCallum was questioning the math on the CLC's proposal. Mr. McCallum, of course, being an economist, would question this. We've spoken to some experts who have left us less than satisfied as to when this is actually going to take effect. With this plan, is it sustainable, and would it be 40 years before seniors would see the results?

[Ken Georgetti]

Within the mandate of the Canada Pension Plan now is the idea that you basically take out what you've put in. What we're saying is to keep that going but to raise the amount from 25% of the YMPE to 50%. You can double the benefit by raising the contribution by 40%. So for a 40% increase in your contribution, you can get a double outcome from your pension plan over a lifetime of work.

I think the phraseology in our document is a little bit misleading. We're saying that a 40 basis point increase per year for seven years would achieve, over a lifetime of work after that, a doubling of your Canada Pension Plan benefit, consequential from that.

[Ted Menzies, Conservative, Macleod, AB]

Okay, fair enough. Thank you.

As I say, I guess all options are on the table, but we have some more immediate issues that we need to deal with too, concerning how we deal with people.

[Ken Georgetti]

The one thing I wanted to say, sir, is that the minister said in his report that there's no poverty among seniors in this country.