Thank you, Mr. Chairman.
The Bell Pensioners' Group represents the interests of some 31,000 retirees from Bell Canada. We're also a founding member of the Canadian Federation of Pensioners, and, collectively, these two member organizations represent some 150,000 Canadians across the country.
I have handed out a relatively short text, and I would ask that you take the time at some point to give it a quick read. It shouldn't take terribly long. I won't be reading it here, but will be focusing on many of the comments in it.
The focus of both the BPG and the CFP, the Canadian Federation of Pensioners, is the protection of the pension benefits promised to our members. These people have already lived their lives of employment and of course can't relive them again, so if something happens to their pensions, they really have very little recourse to make up the difference. That's why it is so critically important that we mitigate as much of the risk facing pensioners as we can.
The biggest risk to our pensioners is that their plan will be underfunded at the same time the plan's sponsor finds itself in a situation where it can no longer contribute. Clearly, a bankruptcy proceeding is one of those situations.
I want to put the numbers in context here. We're not talking about pensioners with very large pensions that, if they were reduced somewhat, would still leave the pensioners with a substantial amount of income. For Bell Canada pensioners, the average pension income is $22,000 a year.
We think there are three objectives that pension rules should follow so they can mitigate risk for pensioners. What I will do today is to touch on each of them and talk about how the objectives can actually be put into practice.
The first objective is for fully funded pension plans. For these plans, the rules should help them to stay fully funded and keep them from falling into an underfunded state.
The second one is for pension plans that are not fully funded. Then the rules should bring them back to a fully funded status in a relatively short period of time.
The third one is for pension plans that are underfunded and the sponsor is facing bankruptcy. Then pensioners should have a better chance at realizing the pensions that were promised to them by getting better access to some of the assets of that sponsor.
Let me spend just a moment on the first objective, keeping healthy plans healthy. There has actually been a fair amount of work done by the government and others, of course, on this issue over the last year. Last October an announcement was made about the government's plans for pension rules. By pension rules, the government meant not only legislation but regulation as well.
Many of the elements of that announcement were very encouraging. We endorse many of them and we think they do a good job at contributing to the security of pensioners, so we want those to go ahead. I have listed a number of them in the brief document I passed out.
Where they fall short is in not requiring sponsors to contribute in good times in a way that would allow pension plans to better weather the tough times. Though there is a recognition that it is good to have a surplus in the plan and that a sponsor can't take a contribution holiday unless a 5% surplus remains in the plan, there is actually no requirement for the plan to build the 5% surplus. We are somewhat disappointed by that aspect of it. But the other rules really do quite a reasonable job of keeping healthy plans healthy.
I'll turn to the second objective, where we're talking about bringing an unhealthy plan back to health. By unhealthy plan, I am talking about one that is not fully funded.
This was a disappointment to us, I have to say, and I want to contrast the current rules with what is being contemplated for the new set of rules going forward. Today, if a plan is underfunded, a sponsor has five years to bring it to a fully funded status, by making equal contributions over that period of time to eliminate its deficit. Under the new rule that the government seems to be contemplating, rather than taking five years and doing it in five steps, the rule would be that in any year, if there were a deficit in a plan, then 20% of that deficit has to be eliminated through contributions by the sponsor.
I can compare the difference between these two approaches with the simple analogy of walking across a road. I could walk across a road in five steps and get to the other side. That's similar to the current rules. Or I could take an approach that says, every time you take a step, just cover one-fifth of the distance remaining to the other side. So my first step would be the same size, one-fifth of the distance; my second step would be smaller; and my third step smaller still. After five steps, I would still have one-third of the distance to cover to get to the other side. I take more steps and they get smaller and smaller. After ten steps, I still have 10% of the distance to cover, and so on, and I actually never quite get to the other side.
Now, why is that a risk? It's a risk to pensioners because if a pension plan sponsor should ever find itself in bankruptcy, the longer the deficit remains, the more likely this sad circumstance of the sponsor is going to occur at the same time the plan is in deficit. When the plan is in deficit, pensions are cut. That's the risk to pensioners.
Again, to go back to my analogy, if I'm crossing a road, at least I can look both ways and maybe see if traffic is coming. But in the world we're talking here today, a sponsor's world, where there is so much business uncertainty, you don't really know what's coming down the road. You don't know if a truck is coming around the corner, so the quicker I get across the road the better.
I first thought we had taken a backwards step on this particular issue of retiring a deficit, but it's actually not a backwards step, but a step into an area we have never been before. So I would strongly urge that the current five-year rule, amortizing a deficit over a five-year period, remain in place.
Now if the sponsor finds itself having difficulty meeting that financial obligation—and it is a financial obligation—there is the possibility under the proposed new rules that the sponsor and the plan members could negotiate a different contribution schedule than the five-year rule. That allows a pressure valve for some sponsors who find it's too much financial pressure to meet a five-year schedule.
The third objective is that of improving a pensioner's ability to garner assets from the pension plan should the sponsor find itself in bankruptcy at the same time the plan is underfunded. There has been more than one suggestion in this vein. One would be, don't wind up the pension plan in the case of a bankruptcy. That is a possibility, and it may be a very good option in some circumstances. In fact, I think we should hold it out as an option, that is, don't wind up the plan but let it continue to operate. It will continue to invest in the market, and it could be that the plan will come back to a healthy situation. However, it will only do so if there is luck in the market. It's not a solution to the fundamental problem that the sponsor can no longer contribute. It may be helpful, but it isn't a solution.
The second approach was to allow sponsors to access more assets in bankruptcy proceedings than they can today. Again, that's a good approach. There are a number of countries--I've listed them in my paper--that already allow this to happen. I think Canada should really be doing this now. I do want to stress, nonetheless, when talking about the third objective, where the plan is underfunded and the sponsor is in bankruptcy, that there is no really good solution. That's why the first two objectives, keeping plans healthy and bringing them back to health, are so terribly important.
That concludes my comments.
I'd like to thank you very much for allowing us to provide our views.