Finance Committee on March 23rd, 2010

[Dean Connor]

First, let me clarify your point around the fees.

I would observe that in the large end of the Canadian life and health insurance pension market, the fees are indeed very competitive. We're talking fees in the 60 to 70 basis points for record-keeping and investments, and these benchmark favourably against the most competitive nation in the world just to the south of us, which has a 401(k) industry that's 20 times larger.

This proposal to allow smaller employers to build up into a larger plan—and it's encouraging to hear the idea of knocking down the impediments—will indeed provide Canadians with access to very cost-effective pensions that the largest of Canadian employers enjoy today through DC plans.

Specific to the question of could you have a Canada pension plan alongside that, clearly the answer is yes. Our concern with that is when you look around the world and the activity to set that up, and if you look at the U.K. as a good example, it's costing the nation $50 million a year. It started in 2003, and I think it'll be implemented in a phased-in basis starting in 2013 or 2014.

So I would just simply say time and money.

[The Chair, Conservative, James Rajotte]

Thank you.

Mr. McCallum, your—

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

I would just observe that the Canada Pension Plan Investment Board—

[The Chair, Conservative, James Rajotte]

Mr. McCallum, I'm sorry, you're well over your time here.

Thank you. We will have another round for the Liberal Party.

Mr. Paillé, you have seven minutes.

[Daniel Paillé, Bloc, Hochelaga, QC]

I want to thank everyone for being here, especially those who make the effort to speak in French, even if it is not their mother tongue.

First, I want to say to the people from Air Canada that you are probably and unfortunately an example of downloading by an employer, one that twice used the law to avoid paying its contributions, took a premium holiday and left you without a parachute—if I can say that.

Clearly, you are hoping to find a landing strip with the federal government, it being a former shareholder, or the state. Would it be possible to apply the solution in place in Quebec, which is to allow the pension board to take over the distressed pension plans of employers?

While you think about that, I have something to say to the officials from the Canada Pension Plan Investment Board. I am happy to hear you say that in 2010, your results are encouraging, because at -18.6 in 2009, we were part of the downward surge.

Obviously funding over a period of 75 years is quite prolonged. Moreover, you say in the annual report that it is a funded pension plan that is different from a fully funded plan.

Would you be able to manage funds such as Air Canada's, which are in the position of being downloaded, in the position of an air pocket—if you will permit me to use the same analogy? Would you be able to take over, the same as the RRQ and the Caisse de dépôt et placement du Québec?

Ms. Thompson?

[Katherine Thompson]

Okay. I'll take a shot at capturing what you were asking me. If I get it wrong, please correct me.

During my speech I referenced the fact that the entire point of pension regulation is to ensure that members who participate in a pension plan are not then reliant on the survivability of their corporation in order to have that pension promise kept.

In the case of Air Canada, the pension holidays they took were allowed by pension legislation. Many of our members believe that somehow Air Canada didn't abide by the rules and wasn't contributing to the pension. They contributed exactly what legislation provided for them to contribute. Unfortunately, it's legislation that has failed the employees of Air Canada, and hopefully the sessions that are taking place today will rectify that situation.

[Donald Raymond]

With respect to the second part of that question about the CPP Investment Board managing the assets of distressed pension funds, clearly, that's not part of our mandate today. There is a process to change our mandate. That would require building some additional capabilities, which, if asked to do, we would be prepared to do.

We think it would be important, if that were the choice, to point out that for the purposes of cost accountability, it would make sense to try to keep the costs in managing the CPP assets separate from the costs in managing those other assets.

[Daniel Paillé, Bloc, Hochelaga, QC]

Using the same logic, do the people at OMERS... At OMERS, you said you received expanded powers to allow you to offer services to clients outside Ontario and Canada. I am thinking about what the Caisse de dépôt et placement du Québec did in the 1990s. They went everywhere. The experiment was not a huge success, to say the least.

On your end, rather than going all over the place, could you offer services to companies or pension funds whose administrator is bankrupt or in the process of bankruptcy? Do you think that OMERS could specialize in that area and provide services to that type of clientele?

[Jennifer Brown]

OMERS, as I have mentioned in my report, has the ability to do third-party fund management and third-party administration for all types of pension plans in Canada. We are currently building that infrastructure in order to be able to deliver on that.

[Daniel Paillé, Bloc, Hochelaga, QC]

I have one last thing to say, Mr. Chair.

This is for the Canadian Bankers Association. In the beginning, you said that you were concerned that it would simply result in a shift of savings from one pot to another, as opposed to helping Canadians or others increase their savings. You referred to the TFSA, the tax-free savings account. Would it not be another solution to just remove the $5,000 cap to create more savings?

I have a sub-question. Your fourth point was that you did not want fragmentation across the country. What do you mean by that? Quebec and Canada, for example, already have pension plans that are quite developed and very well managed, but they use two different management approaches.

[Terry Campbell]

I apologize, but I will have to answer in English.

First of all, I would say that the worry about solutions, and that's very carefully defined here, could result in just shifting the savings from one pot to another. When we looked at the issue--and I'll come to the TFSA in just a moment--we did some examination of Statistics Canada data on the financial security of households. We looked at it over the whole life cycle.

As you know, the financial needs of families change dramatically over time. If a solution that's put in place has mandatory or virtually mandatory contribution requirements, for instance, that are imposed upon people at a certain point in their lives, there's a concern. For younger people, let's say, who need their lower levels of income to apply to household needs and to building up this asset and that asset, the concern, unless it's very carefully thought through, is that you could actually be working against their interests. That's just one of the issues.

[The Chair, Conservative, James Rajotte]

Okay. Very quickly, Mr. Campbell.

[Terry Campbell]

On the national solutions, we like the TFSA. It's a new program and it's going to take some time to see how it works out, but our sense is that it's very popular. Also, it's very flexible, which is good.

In terms of the national approaches, we would be distressed if we saw in individual provinces a blossoming of different kinds of plans, because it would give rise to mobility issues, comparability issues, and that sort of thing. We're not calling for a particular national solution in terms of a model, but for a national approach for all parties. We think that is a much better approach.

[The Chair, Conservative, James Rajotte]

Merci.

We'll go to Mr. Wallace, please.

[Mike Wallace, Conservative, Burlington, ON]

Thank you, Mr. Chairman. I want to thank the panellists for coming today.

Mr. Chairman, I do want to make a point that this is a large panel and a very important topic. From my perspective, we may want to call some of these witnesses back. In the future I'd prefer smaller panels so that we have more time to ask questions.

I have provided the CPPIB with the questions I have here. I have a large number of questions and I would like to see them responded to all of the committee in writing by April 12, if possible. That might require you to come back to defend those answers you put forward.

I am going to read them into the record so that my colleagues on the other side know what I'm interested in. Some of you have broached that subject already.

One question is with respect to the idea of the voluntary supplementary CPP, which we've heard about. Is the CPPIB currently equipped to run and expand a voluntary or mandatory system as outlined in some of the recent proposals? How long would it take for CPPIB to build the infrastructure to run such a system, and how many more employees would the CPPIB require, in your estimation?

What advantages to clients would a voluntary CPP-run system offer compared to the private financial system, financial institutions? What risk would taxpayers not contributing to the voluntary CPP system be exposed to?

Does the current CPP outperform market offerings? We heard a little bit about that. Could a voluntary CPP supplement confidently be expected to achieve the same over-performance or performance levels? Would a voluntary CPP preserve the administrative cost advantage, which we've heard about, now enjoyed by the current mandatory CPP?

In addition to that, following up on Monsieur Paillé's questioning, is the CPPIB currently equipped to take on distressed private sector pension plans? I think you commented briefly on that. How long would it take for the CPPIB to build the infrastructure to take on such plans and how many more employees would the CPPIB require? Finally, what risk would be borne by taxpayers if the CPPIB were mandated to take the guardianship of distressed pension plans?

Those are a lot of questions. But I think in general what we're hearing from others, and not just from the opposition benches but from other people who have come forward last week and previously when we had some brief discussion on pensions earlier in the fall, is that a voluntary program run by the CPPIB is an option, but I think there are a lot of questions. This isn't a four-hour or five-hour discussion; we only have a few minutes, actually.

So I would prefer that we all get those answers. They'll have to be in both English and French. That way we'll have a proper discussion. And my--

[The Chair, Conservative, James Rajotte]

I'll open the floor so they can comment. They have four minutes to respond now.

[Mike Wallace, Conservative, Burlington, ON]

Yes, I'm going to let them comment. But that way we'll have a proper discussion based on the information. If you'd like, pick one, because before I'm done I have one other question for our life insurance friends. If you'd like to pick one you'd like to comment on, I'd appreciate it.

[Ian Dale]

Thank you. I'd be pleased to answer that question.

There is a range of questions there, as you say. I think the way to look at it is that there is a range of complexity there. Currently we are an investment management organization asked to look after one single pool of capital. As you add complexity onto that, we are generally not set up to do that at the moment. If the 10 stewards of the CPP--the federal and provincial governments--decided to give us additional powers, we could certainly do that.

I think as you get into each of these things, as the complexity grows the degree of difficulty grows.

One of the things that we have right now is a very simple and powerful mandate, which is to maximize returns without undue risk of loss for 17 million Canadians and fund those future pensions.

[Mike Wallace, Conservative, Burlington, ON]

I'm sure you have as an organization, but these questions are designed to get you thinking as policy-makers about whether we're going to head that way and what the actual ramifications are. This gives you an opportunity to put that in writing for us. I'd appreciate that.

My final question is for our life insurance friends, and it is just because I don't know it. The multi-employer pension plan that you're recommending as an option, does it exist already in this jurisdiction, other jurisdictions? Do you have any sense of limits in terms of how many employees or employers can be involved in that kind of issue? Do they have to be solvent and all those kinds of things? Just tell me a little bit about the plan, because I don't know anything about it.

[Dean Connor]

The multi-employer pension plan model actually exists today in Canada, but to join it you have to be affiliated with the other employers. For example, in the construction industry, you'll have a number of stand-alone companies that are able to join an MEPP, because they all happen to be part of that particular industry. But if a company that makes auto parts wants to join in with a company that is a wholesaler of food, today they cannot join. There are limitations in the law, which won't allow them to join together in a common plan.

The DC-MEPP is a plan in which individuals have their own account balance, so the plan is always fully funded. It's whatever they happen to have in their account balance that they, and possibly their employer, have put in. If they leave that company, it's portable in the sense that they can just leave their money there and move from company to company. It's simple. It's meant to drive down costs by taking advantage of the economies of scale inherent in the business. And there's really no risk to the employers who participate in that multi-employer plan.

[Mike Wallace, Conservative, Burlington, ON]

Thank you, Mr. Chair.

[The Chair, Conservative, James Rajotte]

Thank you, Mr. Wallace.

Mr. Marston, you have seven minutes.

[Wayne Marston, NDP, Hamilton East—Stoney Creek, ON]

Thank you very much, Mr. Chair.

I've been outside of this hallowed place for 26 meetings, listening to very ordinary Canadians, people who don't necessarily have any real expertise with pensions.

You talked about the three pillars. Those in defined contribution plans or with RRSPs are in serious trouble right now, but I won't go deeper into that.

Mr. Campbell, I agree with you about the fragmentation of how we address this. One of the propositions the NDP has put forward calls for the doubling of CPP. Of course, that's going to be amortized over a long period of time before we accomplish it. It will increase the benefits--I think the maximum today is $907 a month--to $1,814 to form a base and strengthen that one pillar of the two pillars of the public plan.

We understand that sixty-some percent of working Canadians in total, both public and private, have no savings and no pensions at all. I'd like your comment on that.

Then if I could, Ms. Thompson, I'd like to talk to you for a moment about the fact that the NDP has a bill, Bill C-476. Air Canada went through CCAA. We're seeking to have preferred status given to pensions in both CCAA and BIA. I'd like your comments on that, please.

[Donald Raymond]

Sir, could you just repeat what you'd like me to comment on?

[Wayne Marston, NDP, Hamilton East—Stoney Creek, ON]

It is the facility we're talking about in the sense of doubling CPP. We're not talking about a supplemental plan. We're talking about doubling it. Our estimate is an approximate 2.5% increase in premiums for employers and the same amount for employees. It would be a mandatory plan. That would form the basis of a floor we could build on to raise people up.