Good afternoon. I would like to thank the committee for inviting the Fédération des travailleurs et travailleuses du Québec.
The FTQ represents over 1 million workers in the private and public sectors of the economy, including several federal sectors. Our members rightly believe that their pension plan is one of the most important benefits earned during their working lives.
However, historically, the FTQ has always believed that private pension plans are the union's solution to a public pension system which falls short. When the CPP/QPP were created at the end of the 1960s, it was a great step forward, but the fact remains that it was just the first step.
The CPP/QPP coverage rate was set at a maximum of 25% of eligible earnings. For decades, we have been calling for the creation of a public and universal pension plan with a higher rate of salary replacement—50% to 70%—applicable to the maximum threshold of eligible earnings, which would be higher than the current threshold.
The CPP/QPP is a pension plan which is almost ideal. It can be fully transferred from one employer to another, it is indexed to the cost of living, it takes into account a worker's very low income periods, and even periods when a worker has no income, such as when a spouse stays home to raise very young children. Lastly, a public system would cost less to administer than an assortment of private plans. A public plan would be more resistant to short-term market variations. The FTQ is convinced that a public and universal system offering better coverage is preferable to the current situation. We therefore join our voice with that of the Canadian Labour Congress, which has called for the creation of such a system.
Where others might see a three-tier pension system, we see a system of social security—old age security—a public system, but which does not provide sufficient retirement income—the CPP and the QPP—and the more-or-less successful efforts of the private sector to compensate for the lack of coverage provided by the public system. Further, we believe, as does the Canadian Labour Congress, that the social security part, that is, old age security, is insufficient. It keeps Canadians in poverty and should be substantially increased.
At a time when many people are thinking about creating a second tier of coverage within the CPP/QPP, private plans are falling short. Too few workers are covered by these certified plans. Further, in the last few years, many private sector employers have been trying to put an end to these plans or, at the very least, deny them to young workers entering the labour market, thus reducing coverage and the quality of pension plans for future cohorts.
There is no doubt that we need to review the public pension system, and not add a new tier of defined benefits, but to clearly improve the current level of benefits. Until that happens within the CPP/QPP, the FTQ will continue to negotiate certified pension plans for its members.
It comes as no surprise that the FTQ wishes to restate its support for defined benefit plans which, compared to defined contribution plans, are better tools for retirement planning. A defined benefit plan lets workers know what their retirement income will be. Market-related risks are assumed by the plan's sponsor, or collectively by the members.
As it is often linked to a member's salary, it is easy to understand the promise of a pension. Lastly, while the costs associated with the actuarial evaluation and the administration of defined benefit plans can be high, they are mostly compensated by the professional management of assets over a long period of time, which should generate a higher return on investment, in addition to lower management fees.
In comparison, defined contribution plans, be they public or private, are less effective tools for retirement planning. Each of our members bears the risks of market fluctuations, and members will only know what their retirement income will be when they actually retire. Their pension income will depend on their level of contribution throughout their working careers, the returns earned during good years, and the level of interest rates when they retire, if they choose to purchase a life annuity, of course. Let's not forget that it costs more to administer these individual accounts.
Since they wish to take advantage of high stock returns, promoters of defined contribution plans have, over the years, adopted increasingly aggressive investment policies. In doing so, they hoped to reduce the amounts they would have to contribute, through any surpluses generated by their investments.
That is indeed what happened. The Régie des rentes du Québec established that, between 1991 and 2000, over 6,000 contribution holidays were taken, for a total value of $5.5 billion. The value of the plan increased by $1.6 billion. It was the same for federal plans.
The adoption of an aggressive investment policy worked. Since 2001, however, financial markets did not perform so well. Two major economic crises forced federal and provincial lawmakers to adopt measures loosening the rules governing the funding of defined contribution pension plans. Were these measures necessary? We at the FTQ believe they were. But we thought that the sponsors of private plans could have done better in years past. Rather than focusing on surpluses and contribution holidays, they could have adopted a funding policy which would have minimized the fluctuations of contributions while protecting members' benefits.
We believe that imposing a funding policy for pension plans is extremely promising. In our view, it is precisely because there is no such policy that sponsors tried to maximize their return on investment at any cost and take as many contribution holidays as possible.
As for an investment policy, we should go further than simply choosing between stocks or managers. The way the companies we invest in are managed holds some guaranteed return on investment. For example, everyone who invested with Bernard Madoff were in for a rude awakening. This is why it is important to assess the character and qualifications of those we ask to invest our money.
The current crisis has also led the FTQ to ask itself whether it is necessary to bring in an insurance system. In Ontario and elsewhere, trying to create a deficit-insurance program for pension funds has proven difficult. The risks associated with each pension fund have to be estimated and tariffed if an insurance plan is to work. As well, there would have to be legislation to force pension plans' sponsors to adopt funding and investment policies based on the demographic profile of a plan's members, and on the plan's purpose, too. However, despite all of this, we support the creation of an insurance system which respects provincial jurisdictions in the pension sector. But some conditions need to be met before insurance plans can be put in place: we need stricter funding rules and stronger powers of intervention for monitoring authorities. We would also have to prioritize the accounts receivable of pension funds, including solvency deficits in case a pension plan's sponsor declares bankruptcy.
If there is one thing the FTQ has learned in light of the current crisis, it is precisely that we need to protect members' pensions at all costs in cases of bankruptcy. Otherwise, workers who lose their jobs are penalized twice: they lose their income today and they lose their income tomorrow. This situation is unacceptable: we need to act. We cannot support Canadian companies with workers' pension funds. If we want to better protect members' pensions, we also need to amend the legislation to force the sponsors of pension plans to fully fund their pension funds in case they cease their operations. The fact that this is not already enshrined in federal legislation demonstrates negligence rather than an enlightened choice.
Lastly, on a note which more properly reflects the FTQ's views, we believe that the legislation should make it easier to create new such plans. Under new regulations made under the Supplemental Pensions Act, which was passed in 2007, the FTQ created a defined benefit multi-employer plan, whereby employers are not responsible for fixing deficits.
Since then, the member-funded pension plan—RRFS—has helped 3,000 workers, employed mainly by small companies, to become members of a good pension plan. Recently, a large group of employees negotiated a MFPP, and this happened just before they fell under federal jurisdiction. We had approached the Régie des rentes, which was immediately open to allowing employees working in a federal jurisdiction to join a MFPP, something which is specifically forbidden in the regulations. Our discussions with federal authorities are more akin to trying to navigate an obstacle course. To this day, we cannot see how these obstacles can be overcome, which will prevent federal workers from accessing a defined benefits plan.
In conclusion, I would like to remind you that the FTQ is calling for Canada Pension Plan and Quebec Pension Plan benefits to be doubled. We would be pleased to discuss with you how this can be achieved. In the meantime, there is no doubt we will have to amend the legislation to better protect the retirement income of all workers.
Thank you. I would be pleased to answer your questions.