Finance Committee on April 13th, 2010

[The Chair, Conservative, James Rajotte]

I call the seventh meeting of the Standing Committee on Finance to order.

We are continuing our study of the retirement income security of Canadians, pursuant to Standing Order 108(2).

We have five presenters with us here this afternoon. We have, first of all, Ms. Melanie Johannink, Mr. Paul Hanrieder, and Monsieur Sylvain de Margerie. From the Public Service Alliance of Canada, we have Patty Ducharme, the national executive vice-president. From the Communications, Energy and Paperworkers Union of Canada, we have

Mr. Renaud Gagné, Vice-President for Quebec.

We will have opening statements from each of you. We ask that you limit them, as close as possible, to seven minutes, and then we will go to questions from members.

We'll start with Ms. Johannink, please.

[Melanie Johannink, As an Individual]

Retirement security is about personal savings and pension security. Retirement security is being destroyed by unpaid severance and the loss of pension value during bankruptcies.

My name is Melanie Johannink. I am a Nortel-severed employee with 18 years of service. I was terminated with no severance pay on April 30, 2009. I am the person who initiated the petition presented in the House numerous times to change the BIA and CCAA to protect all Canadians impacted by a corporate bankruptcy. I am a mid-career hard-working Canadian victimized by bankruptcy, and my retirement is at serious risk. Unpaid severance has long-term impacts on hundreds of thousands of people, as dipping into retirement savings becomes a necessity to pay mortgages and bills to avoid personal bankruptcy while looking for new work.

I am part of a troubled generation with my future retirement heading down the drain. I currently stand to lose approximately $250,000 in my nest egg for my golden years due to an induced bankruptcy. I am here today to explain to you that the archaic bankruptcy laws we have can literally wipe out a family’s financial life savings, thus creating poverty into retirement. Lack of severance, lack of full pension owed, and immediate benefit termination deplete savings, and if this happens more than once in a career, the effects are truly devastating. The severed are a silent group. People have lost their homes, are hurting financially, are too afraid or embarrassed to speak up, and are busy trying to re-establish their lives and find another job during this hard-hitting recession.

At the same time, executives in companies under bankruptcy are receiving massive bonuses. Where is the justice? The faster the executives throw people off the ship and into the taxpayers' purse, the bigger their bonus.

Jobs are moving offshore. Defined benefit pensions are becoming a thing of the past, and more weight is being placed on our personal savings. According to a recent RBC study, people are not saving enough money for retirement, and yet the existing bankruptcy laws are allowing the financial industry to extract our net worth, which I call reverse Robin Hood. The middle class will vanish if nothing is done to protect the people.

On the date of termination, I lost my benefits, a remaining portion of my pension, and my severance. I am downloaded onto the taxpayers' purse, and now employment insurance is my income. EI means living barely above the poverty line. During a global economic recession, a time when it is so difficult to get a new job, the government is failing to protect the EI fund. It allows employers to escape paying any severance and lets taxpaying Canadians pick up the bill, despite companies having billions of dollars on their balance sheets and paying millions of dollars in executive bonuses.

What happens to severed employees in bankruptcy is an expropriation of our net worth. The federal government is causing my loss by wiping out provincial employment protection laws that workers fought decades to get. This is institutionalized abuse. Companies are able to stay all employee-related claims. The government assists the foreign junk bond owners to reap an inappropriate share of the bankruptcy assets.

In the Nortel case, there is expected to be $6 billion in cash from business sale proceeds and from the operations at Nortel. The government is expropriating my property by allowing the judges to interpret that it is the CCAA's intent that I should lose my money. Truly it cannot be the federal government’s intent to wipe out employment standard laws in place to protect my property. Nortel had $2.4 billion in cash when it declared bankruptcy protection. In Nortel's liquidation, my money will be taken out of the country, forcing me to use my retirement savings as supplemental income in my mid-career. People have been told to save for retirement, and yet the federal government has an archaic bankruptcy policy that is expropriating my savings and future retirement savings.

Unpaid severance and shortfall in my pension received deny me the ability to save for my own retirement. Does the federal government know that they are expropriating my savings? Some provinces have stepped up to help pensioners. However, the severed continue to lose the remaining funds on their pension and need to reach into personal retirement savings. This is devastating.

I urge you, when you are reviewing retirement security today, to look at the wide-reaching effects of people in my situation. Loss of severance means reduced retirement savings, reduced immediate savings, and significant loss to the overall economy. To create a strong economic action plan would be to put the money that belonged to the people into the people’s hands, but instead we have to reach into our life savings, reach into our children’s future education, delay our retirement, and lower our retirement living expectations due to the existing BIA and CCAA.

Is this the Canada I know and love?

The cost of capital seems to be an issue behind the failure to change the BIA and CCAA to protect Canadians. I would like to table a few reports on this.

The first is a report from Australia when that country changed its BIA equivalent to include preferred status for employees and employee-related pension claims, which confirms there was no impact on the cost of capital.

I have spoken directly with Gordon Thompson, who did a study at the World Bank and whose finding I'd like to submit as well. He found that 38 of 53 countries have minimum preferred status for employees. Canada is not one of them.

Another report is from Insolvency Institute dealing with the significance of employee-related claims for preferred status and recommendations on how to change the acts to protect employee-related claims.

The Australian paper confirms there was no issue for the cost of capital, and it's a paper that was strictly related to the cost of capital on severance payments.

Another previously tabled study also confirms that 0.16% would be the impact—a baby toe in the big ocean—with 99.84% still working to continue the cost of capital.

Credit default swaps are not a private matter. They are a public matter impacting thousands of Canadians who are harmed by bankruptcy. Insurance is available to offset the credit losses of junk bond owners, and even to gain windfall profits, yet employees have no insurance to offset their liabilities.

In the Nortel case, the bankruptcy legal representation entered into a settlement agreement that I feel severely wronged by. Our duly appointed representation, through the law firm, led us into an agreement for all parties, the severed, the disabled, and the pensioned. To get the tuppence of $3,000, I am now legally bound by an agreement without being consulted. To me, this is abusive. The agreement was a private agreement that did not seek my approval. What constitutes an agreement reached? The agreement did not represent the severed.

I fully believe that the federal government would have been able to make the BIA change for unpaid severance, and now that the government needs a retroactive BIA, it's imperative. An interim settlement agreement to make us equal with junk bond holders destroyed a massive campaign that had momentum to change the BIA. We are left with such little value rendered, it will be difficult to get us out of the hole we're in.

The government is legally able to make the CCAA and BIA amendments retroactive to all proceedings that began prior to the implementation of the amendment. It is paramount to protect hard-working Canadians. Bill C-501 needs to be implemented to apply to all current CCAA and BIA proceedings, including any settlement agreement that is put into force before the final plans have been sanctioned.

We are young families who are being told we aren’t saving enough. We need to deplete our retirement savings to supplement our incomes due to archaic federal bankruptcy laws, and at the same time we are being reprimanded by the government for not saving. My unpaid severance is due to an abuse. It's not a compromise I should be asked to make so there can be an ongoing business concern helping others receive a windfall. It's massive amounts of wealth that junk bond holders receive, with the government gifting my money to these large and powerful investment companies.

I urge the government to act immediately so that I and thousands of other Canadians impacted through bankruptcy can live in democracy, manage our savings for retirement, and retire in dignity.

Thank you.

[The Chair, Conservative, James Rajotte]

Thank you for your presentation.

We'll now go to Mr. Hanrieder, please.

[Paul Hanrieder, Professional Engineer, As an Individual]

I speak to you today to present a working Canadian's perspective on the retirement income security of Canadians. My name is Paul Hanrieder, and I was a longstanding employee at Nortel who was severed with no severance in 2009.

Retirement planning is something that is part of every facet of every decision you make during your working career. Retirement saving is a balancing act many of us have been successful at, but potholes, loopholes, and other obstacles that are far beyond our control are making working Canadians' heads spin. These obstacles are caused by outdated legislation and a shift in balance between the interests of ordinary Canadians and business investment interests. Archaic government legislation is being used by business interests to shift the balance away from working Canadians to secure profits for junk bond holders. It is important to ensure a strong economy, to ensure jobs for workers, but if the Canadian workforce is destroyed and their retirement is left in ruin, we face a much larger problem.

I inject that those influences have been permitted for so long without correction that we are in a crisis. Sophisticated investors and business interests have been able to engineer a business environment that permits unloading of debts, objectifying of workers, and rampant ethical breaches, all in the pursuit of profits.

I worked for Nortel Networks as an engineering manager, and at that time knew very little about the issues I am talking about today. I accepted a layoff for downsizing with the assurance of a legislated severance. These funds would help me transition to another job and allow me not to become a burden to the taxpayers' purse. In January 2009 Nortel declared bankruptcy protection, allowing the company to forfeit any severance owed, and my foundation for transition was destroyed. At this point, the severed employee has no income and no recourse other than to immediately find employment, file for EI, and offset financial deltas from personal savings or by liquidating retirement investments. Years of retirement planning are thrown out the window. It's survival mode. A pay cheque and funds to transition you to a new job vaporize.

The average Canadian has approximately two weeks of savings. Once those savings are depleted, money is pulled from retirement savings to avoid financial distress. These moneys used from retirement savings could take several years to replenish at best. This is unrecoverable for most.

Federal CCAA or bankruptcy filing immediately allows a company to stay all pending obligations for employee-related claims and they become unsecured creditor claims. Having been through the bankruptcy process now with Nortel, I am disgusted at the whole process. The bankruptcy process, by design, is a long and drawn-out process to allow a company to restructure in the implied hope for recovery, wearing down creditors to accept less of a claim. In the case of Nortel, the executives lined their pockets with $470 million in so-called “retention bonuses”, while to pay severance would only have cost about $165 million. We have the most to lose and the least to gain of any other creditor class. Employee-related claims should have preferred status in bankruptcy. No other group has such claims without recourse for recovery.

The legal representation process is debilitating. There are three distinct groups that exist in the Nortel employee situation: the severed, the long-term disabled, and the pensioned. Three groups with vastly different issues, each distinct with their own concerns that were shoehorned together to have one legal counsel to represent all parties.

Things get worse. Nortel got to approve the law firm that would represent employee-related claims. How would that be fair? The unelected steering committee was asked to sign blanket non-disclosure agreements on details of their work in our interest by our legal counsel. How can our committee represent us if they can't even talk to us about what they're discussing? Legal counsel still has not identified a date to close employee-related claims. An unsecured creditor committee has been created with no employee representation even at the table--one of the largest unsecured creditor groups.

In my opinion, an artificial deadline was recently invented by Nortel where all payments to pension, health trusts, and benefit plans were to stop by the end of March. This created a distinct fear and uncertainty within the select few representing us, which forced retired and some disabled people to accept a settlement agreement that gave up substantial potential gains by the employee group. It honestly felt like a gun was held to our heads and we were forced to choose between two equally bad options. In the end, the agreement forced us, without a vote or even a poll of agreement from the so-called “steering committee”, to give up all rights against Nortel and the potential future BIA changes we have been working to get with the government.

We are outraged, and feel that we have been sold down the river for issues that are of no concern to the severed. Nortel has saved approximately $1.2 billion--an outrageous dollar amount--by successfully playing this gambit. Who's protecting the hard-working Canadian during this process?

The severed are disillusioned and poorer than ever, and have nowhere to turn. Our very legal system that supposedly has checks and balances built in to ensure that this cannot happen has been used to permit this to occur.

Yes, we can find yet another lawyer to represent us, but without a lottery win, this is extremely unlikely, as the Nortel legal bill is already over $290 million and growing. Why did they not just pay the obligation rather than paying it to lawyers to fight us? Something is really wrong here.

You may ask how this applies to retirement. Many say, “You have half your working life ahead of you, you can recover.” I strongly object to this logic. This is an emotional and financial upheaval that many will never recover from, with wide-reaching effects. The loss of these earned benefits means that we cannot retrain. We have no money to be able to wait for the right job. We end up taking anything we can find.

Our ability to re-plot our course has been damaged forever. Many of us hang our heads in humiliation and disgust that this has been allowed to happen. We, however, have no financial means to fight this. Some, like me, will speak out in the hope that someone will hear and will eliminate this injustice, but most will plod on in search of a foothold to attempt to recover.

These are but a few of the many items that still exist in the minefield we have uncovered. In the interest of time, I'll provide some of those additional issues in an addendum to this presentation text. If anyone would like to discuss them, please feel free to contact me. They're on the following pages.

We need your help to make retroactive amendments to key legislation in Canada now to ensure priority of the interests of ordinary working Canadians who have no other means to legally protect their own interests. This is a situation that cannot be resolved without government involvement. That is why I've come here to speak to you today. Without these changes, how can any Canadian worker sleep at night? This could happen to them tomorrow.

I would like to thank you all for your time and attention in listening to my concerns today, and I welcome any questions you may have going forward.

Thank you.

[The Chair, Conservative, James Rajotte]

Thank you for your presentation.

Mr. de Margerie, please proceed.

[Sylvain de Margerie, As an Individual]

Ladies and gentlemen, good afternoon.

My brief is available in French, but I intend to make my presentation in English.

Dear sirs and madams, I am Sylvain de Margerie. I am speaking on behalf of my spouse, Doris de Margerie, a Nortel long-term disability beneficiary. My daughter is also disabled.

I was for a long time, and still am, an executive and director in various corporations, so I can speak with some confidence about the impact on the private sector of any legislation you may make.

The intent of my brief is to ensure that any consideration of retirement security deals with retirement in its broadest sense, which includes long-term disability pensions. Doing otherwise will lead to discriminatory treatment. Furthermore, there are means within the government to correct these issues.

First, this committee is charged with looking at retirement income security for Canadians. I will ask you first to look at the definition of pension and retirement. From the Encyclopaedia Britannica we have this definition:

[a] series of periodic money payments made to a person who retires from employment because of age, disability, or the completion of an agreed span of service. The payments generally continue for the remainder of the natural life of the recipient, and sometimes to a widow or other survivor.

Similar definitions can be found in many other reference texts, in legal documents, and in jurisprudence.

The point I want to make is that although age and years of service are criteria by which most of us become eligible for retirement pensions, long-term disability is also one of the criteria that hits a few of us. If you remove that from your consideration, you are only looking at part of the problem.

In relative terms, long-term disability pensioners represent about 2.5% of the total number of pensioners. That's the number I get from Nortel. There are about 400 people on long-term disability and about 17,000 on pensions. The precedent for considering retirement because of disability and old age together exists in our very own CPP and in the Quebec RRQ. Since 1966, these programs have included both facets of retirement. Many other countries do so also.

I'll go into the consequence of inequitable pension treatment and of not having this overall view.

Canadian provinces have instituted legislation to protect employer-sponsored defined benefit pensions but have chosen, either in the text of their legislation or through its interpretation, to exclude pensions associated with disability. As a result, long-term disability pension benefits are unregulated, and employees who have become disabled can find themselves with no pension fund or income guarantee whatsoever. Unregulated pensions are vulnerable mainly in the case of sponsor insolvency. When everything goes well, you get your money, but you're vulnerable to insolvency.

For example, in the Nortel insolvency, recipients of long-term disability pensions find themselves with no income security of any kind. All of our income benefits from Nortel are due to stop. In contrast, other Nortel pensioners will recover about 80% of their revenue. Approximately 69% will come from the underfunded but regulated pension fund and an average of about 10% will come from the Ontario Pension Benefits Guarantee Fund.

Yet Nortel employees on LTD contributed to a plan that in all aspects was a defined benefit pension plan. Each month, the employer and the employees contributed an agreed upon amount to a plan that promised to pay these employees a portion of their salaries should they ever be forced into retirement because of disability.

Who are the long-term disability pensioners? They are Canadians who were promised by their employer the security of a defined benefit pension if they became disabled. Most of these plans included employee contributions, as in any other pension plan.

These people are also younger than most pensioners, since by definition they had not reached the eligible criterion for old age pension. This means that in most cases they are also poorer because they were stopped in mid-life by disability, having no savings, having still young families to care for, having no assets, and having liabilities, such as student loans, still left to pay.

They are also, by definition, disabled by conditions so crippling that they cannot work. They include victims of cancer, car accidents, surgical procedures gone wrong, strokes, multiple sclerosis, schizophrenia, and other mental disorders, to name but a few. Thus they are doubly poor, as they typically must bear extraordinary medical costs and often need to pay others to care for them and their families.

Long-term disability pensioners also had no choice in the matter of retirement, in contrast to many other pensioners, who can choose when to retire or who have the option of finding other employment to compensate for the shortfall in pension revenue.

The impact of income security is much more severe on long-term disability pensioners than on others. It affects them for a much longer period of their life, since they start retirement earlier. It also worsens what is already a severely degraded quality of life. Many once dynamic and proud contributors to Canada's economy, who had paid for income security, are now at risk of the worst kind of poverty.

What is the cost of disability pension? The point I want to make here is that this is affordable by any means. The cost of insuring income benefit promises of employers must be borne by the private sector as part of the cost of doing business. This is only fair and relieves the public purse of the burden of supporting many of our disabled.

Insuring the income security of long-term disability pensioners is not prohibitive by any means. This is so because a relatively small number of Canadians find themselves disabled, for which we are fortunate. Using CPP as a benchmark, the cost of disability benefits is only at .02% of the total cost of the pension program. This is by far not something that is going to crush industry or anybody else if these payments are forced upon them.

The federal government controls the outcome. As pointed out above, income security for long-term disability is vulnerable mostly in corporate insolvencies. Even if the provinces had stronger regulations for protecting LTD pensions, the Companies' Creditors Arrangement Act and the Bankruptcy and Insolvency Act supersede provincial laws and are the only reliable backstop to ensure that income security for those on long-term disability.

Several options exist, and among them are to provide unconditional priority to claims related to unregulated pension plans, such as those for long-term disability; second, to place a responsibility with directors and officers of companies for any remaining shortfall and funding of unregulated pension plans, such as for long-term disability. This is actually very similar to the position of director entailing liability for payroll remittances by a corporation.

Whatever solution is adopted, special attention must be paid to unregulated long-term disability pension plans, as they suffer much more prejudice. It would be unconscionable to only look at the problems and solutions for 97.5% of Canadians, letting 2.5% flounder in poverty because they have been forced into retirement by disability.

The Canadian government has the obligation, under its own Charter of Human Rights and Freedoms, and the means, through its CCAA and BIA legislation, to assure the income security of employer-sponsored long-term disability pensions.

The recommendations of this committee depend largely on the meaning you attribute to “retirement”. If, in this meaning, you exclude the 2.5% of people who retire because of disability, you are entrenching the systematic discrimination of this group.

Thank you.

[The Chair, Conservative, James Rajotte]

Thank you for your presentation.

We'll now go to PSAC. Madame Ducharme, please.

[Patty Ducharme, National Executive Vice-President, Executive Office, Public Service Alliance of Canada]

Thank you, Mr. Chairperson and committee members, for providing the Public Service Alliance of Canada, the PSAC, a union representing approximately 172,000 members, the opportunity to appear before this committee today to discuss the retirement income security of Canadians. Unfortunately, my presentation wasn't finalized in writing before leaving the office, so I will have copies to the clerk in French and English first thing tomorrow morning.

Before starting my presentation, though, I'd like to acknowledge the human tragedy of the Nortel bankruptcy and the urgent need for the Government of Canada to do the right thing, not just for these workers but for all workers in situations where companies do go bankrupt. Bankruptcy should not be carried out on the backs of workers and at the human cost of workers.

The majority of our members pay into and ultimately receive benefits under the Public Service Superannuation Act, the PSSA. The PSSA is a final average earnings defined benefit pension plan and is funded through contributions from both employers and employees. Both the contribution rate and benefit formula under the PSSA are integrated with the provisions of the Canada and Quebec pension plans. Pension benefit payments under the PSSA are indexed each year to the cost of living. The PSSA contains provisions that provide the opportunity for participants to retire with an unreduced pension after having reached at least the age of 55 with a minimum of 30 years of pensionable service. It is with some consternation that PSAC has observed a number of organizations in Canada diverting attention away from the public debate on retirement security in Canada using criticisms of the pension entitlements of federal public sector employees. These efforts are also accompanied by the perpetuation of myths concerning the actual pension entitlements of Canadian public sector employees.

First and foremost, PSAC would emphasize to the members of this committee that according to the most recent report of the Office of the Chief Actuary of Canada, tabled in the House of Commons in November of 2009, the federal public service pension plan is in an actuarial surplus position of approximately $4.6 billion for service accrued prior to April 1, 2000, and $972 million for service accrued subsequent to April 1, 2000. Consequently, the results of this actuarial evaluation would indicate that there are no immediate financial issues with the federal public service pension plan that would require any further infusion of public funds.

Secondly, in accordance with the Public Sector Pension Investment Board Act, the contribution rates of employees to the federal public service pension plan will have increased by approximately 60% over the period from 2005 to 2013. A significant portion of the current salary of public service employees is deducted as pension contributions to provide for future retirement benefits under the federal public service pension plan as prescribed by the act.

Finally, as indicated in the latest report on the public service pension plan, the average annual pension provided under the PSSA is $24,506 a year. It is the position of PSAC that PSSA plans are on sound financial footings and do not need to be changed.

PSAC has long advocated for a strengthening of the public pension system in Canada to ensure a dignified retirement for all Canadians. The resolve of PSAC on this matter has only been intensified in response to the weaknesses and vulnerabilities of the pension entitlements of Canadians that have resulted from the financial crisis and recession of 2008 and 2009.

PSAC stands strongly behind the current Retirement Security for Everyone campaign, the campaign of the Canadian labour movement that was presented to this committee by the Canadian Labour Congress. This campaign includes, for the doubling of future Canada Pension Plan benefit entitlements, a one-time 15% increase in the guaranteed income supplement and a new national system of pension insurance.

These proposals are necessary and justifiable. For example, the most recent data from Service Canada indicates that 1.6 million seniors across Canada collected the guaranteed income supplement with their old age security pensions. This means that they earn less than $15,000 per year.

In addition, all available evidence indicates that CPP is a primary public program providing retired Canadians with a standard of living above the poverty level. In comparison with other retirement income instruments in Canada, the CPP represents a cost-effective and efficient mechanism for providing Canadians with a secure post-retirement income.

In order to ease the transition, the labour movement proposes that over a seven-year period, employer and employee contribution rates be increased and that the yearly basic exemption for earnings subject to CPP contributions be increased from the current $3,500 to $7,000.

As federal Finance Minister Jim Flaherty stated on March 27, 2010, at the pension summit co-sponsored by the CLC and the Ontario Federation of Labour, the current pension challenges confronting Canadians will necessitate a generational shift in required policy.

Canadians have grown increasingly tired and wary of quick-fix solutions to complex problems. While it is true that the full implementation of the proposals for the CPP will require 40 years to complete, retiring Canadians would experience incremental CPP benefit increases immediately. PSAC is confident that the Canadian public would be receptive to such an approach.

In closing, I would again like to thank the committee for the opportunity to present these viewpoints today, and I would again urge you to do the right thing for the Nortel workers.

[The Chair, Conservative, James Rajotte]

Thank you very much, Ms. Ducharme.

We'll now have Monsieur Gagné, s'il vous plaît.

[Renaud Gagné, Vice-President, Quebec, Communications, Energy and Paperworkers Union of Canada]

Good afternoon, ladies and gentlemen.

I would like to begin by thanking you for your invitation to participate in this important study. Indeed, as Vice-President of the Communications, Energy and Paperworkers Union of Canada, I am always concerned about issues that relate to retirement plans, and let us just say that I am even more concerned these days. I will have an opportunity to explain why a little later in my presentation.

As the name suggests, our union represents members from three major areas: telecommunications and communications, with companies like Bell and all its affiliates; energy, and here our members work for such petrochemical companies as Petro-Canada, Shell and Ultramar; and paper, forestry and wood product manufacturing, in all its forms. Within the union, my role relates to this last sector for the Quebec region. Altogether, we represent more than 45,000 members in Quebec. As you can see, we are primarily concentrated in the private sector.

Let us take a moment to talk about public plans. First of all, although I do not intend to provide the historical background of public plans at the federal level and in Quebec, as others have done that previously, I do want to lay out a couple of initial premises. For one thing, as far as our union organization is concerned, there is no doubt that the best way of providing a decent income to the population as a whole, on a universal and equitable basis, is through public plans.

As regards supplemental pension plans, our union experience shows that people do not spontaneously or easily contribute to a supplemental pension plan, even when the offer is attractive. The only example I can provide is that of the FTQ Solidarity Fund and the tax benefit it provides in terms of tax credits for share purchases—a benefit of 30%. Another example would be the approximately 40% in tax credits an individual receives through RRSPs, depending on income, but with respect to which we find ourselves having to explain to and convince members and the public in general just how important it is to prepare for retirement.

Whatever the range of products and options we are seeing today, there are seniors living in conditions that are absolutely unacceptable. In my opinion, it is unthinkable that the society in which I live would choose to turn a blind eye to the money problems seniors are facing. Recently, an absolutely astounding story on the program L'épicerie on Radio-Canada talked about the fact that thousands and thousands of seniors currently suffer from inadequate nutrition, and not always because of poor lifestyles, since money is a major factor. No one should end up in a situation like that. That is why more generous public pension plans would be the best way of ensuring that seniors can rely on a decent income.

I would now like to turn my attention to the introduction of private pension plans. Given the current situation, for quite some time now we, in our various union organizations, have focused on the introduction of defined benefit pension plans, which we consider to be the most appropriate in terms of providing a stable and predictable retirement income. It should be said that we have worked so diligently that, in a number of industry sectors where we represent members, we have succeeded in introducing sound pension plans for the benefit of those working in these industries. Unfortunately, the financial and economic problems we have faced in recent years have seriously disrupted the plans in place, in some cases resulting in changes, when some were turned into defined contribution plans or were simply terminated.

I have two comments to make with respect to that new reality. First of all, I want to say, as others have before me, that it simply is not possible to pin all the problems associated with private pension plans on the difficult economic context we have experienced recently. Although the crisis may have precipitated these events, it is important to emphasize the lack of foresight and planning, as well as premium holidays—which certain employers made a habit of—which weakened these same plans. At some point, market returns were meeting plan requirements so well that some employers forgot that, in years when the stock market was not doing so well, they might have to pay out more. When recess was over and the bell rang, the reality of the situation hit hard.

Secondly, as in the past, it was again the unions being innovative by developing a new pension plan known in Quebec as the “member-funded pension plan”, which is, in fact, a type of defined benefit plan. We are already well acquainted with it, but the difference is that there may be multiple employers involved, as workers from different companies are grouped together under one plan and, at the same time, employers are no longer responsible for any deficit that may occur.

In that case, significant reserves need to be constituted in order to respond to stock market fluctuations. In that respect, we would make the same recommendations as the Fédération des travailleurs et travailleuses du Québec with respect to the introduction of such plans in areas under federal jurisdiction. Indeed, the member-funded plan has required regulatory adjustments that have been made in Quebec, but not at the federal level.

I would like to move now to the final part of my presentation, which has to do with the application of Bill C-36, the Companies' Creditors Arrangements Act, or CCAA. As I indicated previously, I have special responsibility for the forestry and wood product manufacturing sector. That basically refers to members working in forestry operations, sawmills, panel plants, paperboard and paper mills. I don't think I need to provide a lengthy explanation regarding the disruption that has been occurring in this economic sector for years now. Whether it is because of the economic context, the higher cost of energy, problems with the softwood lumber agreement or the collapse of the paper market—and I'm sure I have forgotten some others—you are aware that the major forestry companies are now in an extremely precarious situation. In fact, in Quebec we have four of the largest employers and, as if the rest was not enough, they are under the protection of the CCAA. I am referring here to Smurfit-Stone, AbitibiBowater, Fraser Papers Inc. and White Birch Papers. These four companies alone employ 7,000 workers who are members of our union. And that does not include these companies' 10,000 retirees, 3,000 of whom I have met with all across Quebec.

I will spare you the technical details, but suffice it to say that enforcing that legislation is extremely complex and makes our life extraordinarily difficult. To be perfectly frank, I would say that both our members' working conditions and pension plans are in doubt. I am sure you have heard about this: people at Fraser Papers Inc.—both current and retired workers—have lost almost 40% of the value of their current and future retirement benefits; there have been wage cuts of more than 3%; the defined benefit pension plan was scrapped, even though the owner, Brookfield Asset Management, made profits of more than $680 million in 2009. At White Birch Papers, which has three major plants in Quebec, as well as 1,000 active workers and 1,600 retirees, the plans are only 67% solvent. I will stop my description of the disaster there, because I think you have understood my point: it is absolutely critical that pension plans be better protected and be deemed to constitute privileged claims when problems arise.

Is it normal for a worker who is on the verge of retiring, and who has contributed to a pension plan for 30 years, to now be told that the value of his pension benefits has dropped by 5%, 10% or even 40%? Is it normal for retirees who invested throughout their active life in their pension plan to suddenly find themselves without income? At a time when people were being affected by cutbacks, Smurfit-Stone was paying $47 million in bonuses to retain its managers and simply stopped making special contributions.

I'm sure you can understand that, to my own way of thinking, that is still completely unacceptable. And it is no more acceptable for workers who are owed money in the form of termination bonuses to find themselves out of luck because the company is subject to the CCAA. That is currently the case for the AbitibiBowater plants in Beaupré and Dolbeau, in Lac-Saint-Jean. Vigils are being held to prevent the company from transferring or liquidating equipment for its own benefit.

I realize I have deviated somewhat from the pension plan issue, but this bolsters the recommendation we have made many times to the federal government, namely that quick action is needed to amend the CCAA and the regulations. It is important that debts to workers not be taken hostage, like any other debt, and that they be settled retroactively.

I wanted to make you aware of the reality we are currently facing. This is something that must be corrected, so that the CCAA can never again be used as a loophole to escape obligations under a pension plan. Even more recently, Kruger split the company in order to group its least productive paper divisions. Our fear is that the company will apply for CCAA protection in order to circumvent solvency requirements. In the hope that you will act on our recommendations, I thank you for this opportunity to appear.

[The Chair, Conservative, James Rajotte]

Thank you for your presentation.

We will start members' questions with Mr. McCallum, please, for seven minutes.

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

Thank you, Mr. Chair.

I would like to thank all our witnesses for being with us today.

I'd like to begin with Ms. Ducharme. You mentioned that there was a large increase in the contribution rates of employees until 2013, or some such year.

[Patty Ducharme]

Yes.

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

I've read that certain provinces have a fifty-fifty contribution rate between employer and employee, less so in the federal government. Is it the case that these large increases are taking the federal system closer to that fifty-fifty sharing?

[Patty Ducharme]

It definitely takes it closer to a fifty-fifty share, but it takes it up to a 0.42% share.

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

What is it now?

[Patty Ducharme]

It's in transition. I believe it's close to 0.4% now, but each year it's moving up. In 2013 it will be at the full 0.42%.

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

A few years ago, I think it was more like 0.35%, or a third. So it's been going up over quite a number of years.

[Patty Ducharme]

Yes, that's correct.

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

Okay.

I'd like to clarify another point you mentioned. I think there's been some misrepresentation of this plan for the CPP that would double the benefits. You said there would be a transition period of 40 years--that's also my understanding--so that the benefits would increase gradually, and it would take 40 years until they were fully implemented. Therefore, there is no cross-subsidization across the generations. Is that correct?

[Patty Ducharme]

The way it would work is that the increases would happen incrementally. People would see increases to their benefits incrementally.

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

Right, but they'd only get those benefits as they were earned. They wouldn't be subsidized by younger people, to my understanding.

[Patty Ducharme]

I actually can't answer that question, Mr. McCallum.

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

Okay. Well, thank you.

Mr. de Margerie, I really liked your presentation.

It happens that I asked a question about this in question period today. We have a bill in the Senate, under Senator Eggleton. I imagine you're aware of it. I deliberately said in my question that I was not being partisan, but if all parties were to agree, such a bill could pass in a matter of days.

So I'm hoping, not on partisan grounds but on humanitarian grounds, that the government might agree. I'm being very polite to the government at this point. I didn't really get an answer yes or no, but I'm hoping still that it might have a chance for support.

As you point out, you're not talking about something that's very big or very costly, but it's something that's extremely important for people who are among the most vulnerable.

Just to confirm, my understanding is that there are approximately 400 such cases in Nortel, but there would clearly be cases in other companies that could one day go bankrupt; that those people currently earn something on the order of $20,000 to $30,000 per year; that they stand to lose 85¢ on the dollar, approximately; and that they also stand to lose their medical payments, which are, by definition, crucial for people on long-term disability.

Am I at least in the right ballpark on those figures?

[Sylvain de Margerie]

I'm very happy that you understand our problems so well.

Yes, you're exactly right, the salaries are about what you have discussed. One difference between LTD beneficiaries and old age retirees is that the LTD folks have these small revenues, but they still have a family to run. They have kids who will go to university. Clearly, those kinds of revenues, when put into the context of the obligations you have in mid-life, are completely inadequate. As you've said, they're completely vulnerable to bankruptcies.

The 85% cut in their revenues assumes, essentially, that we will get a 15% dividend from the bankruptcy of Nortel. But we haven't seen that yet. If we get less than 15%, the cut will be more than 85%--