Evidence of meeting #9 for Finance in the 40th Parliament, 3rd Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was money.
A recording is available from Parliament.
Conservative
Senior Partner, Mercer
Thank you.
I don't see why you can't proceed with both. It seems to me that the private solution will be ready well before the public one. It is going to take the Brits five years, and that's five years from having decided what they want to do. We're not at the “deciding what we want to do” stage yet.
The prudent thing to do would be to eliminate the barriers to having the private sector solution work. Get some task group figuring out what kind of supplementary Canada Pension Plan we need to launch if this doesn't solve all the problems, but hold off on deciding absolutely whether you need to launch it until this has its opportunity. I am worried that the Canada supplementary plan will crowd this out as an alternative if both are made available at the same time.
Conservative
The Chair Conservative James Rajotte
Thank you, Mr. McCallum.
Monsieur Paillé, s'il vous plaît, pour sept minutes.
Bloc
Daniel Paillé Bloc Hochelaga, QC
Thank you, Mr. Chair.
Indeed, Mr. Hamilton, you are right not to say “my” company in talking about Mercer. It reminds me of Mr. Wallace when he said “my” government. I would rather it not be his.
Bloc
Daniel Paillé Bloc Hochelaga, QC
They say that our pension systems are very good. When comparing systems, Mr. Hamilton, you say you agree. That being said, the fact remains there are still people such as Atlas and Nortel workers, and the 50% of the population working for private companies who do not have a pension system. It is nice to say that we have the best system in the world, but we cannot stick our head in the sand; we need to make it better.
I have a question about something you said. In fact, I would call it an urban legend about funding. A number of stakeholders have come here to tell us that it would be wonderful if employee pension plans were a preferred claim in the event of bankruptcy. They say that companies would no longer be able to fund themselves and that rates would be terrible.
As someone who has had his hand in that pot for his entire career before coming here, I have to say that is totally false. I think that giving out loans, being involved in funding and buying bonds or shares from companies requires a risk analysis. Investors would never prohibit themselves from investing in a good company. Perhaps this would have a large impact because these people might pay more attention to situations such as Nortel's and perhaps keep a closer eye on the company than what we see today.
Given your funding experience, why do you say it would be a lot more expensive and, in some cases, impossible to fund? Where does that come from? Where did that urban legend start?
Senior Partner, Mercer
I'm not sure that it's an urban legend, because we haven't had the issue on the table.
I'm not an expert in bankruptcy and I'm not an expert in the corporate raising of money, but I guess what I would observe is the following if I was lending to a corporation that didn't have a defined benefit pension plan. If I was told that if the corporation adopted a rich defined benefit plan, even if it was adopted after I lent them the money, and then it went under, with no money in the pension fund, all the pensioners who had been given a pension in that last year would get the corporate money before I, who lent the corporation money, would be repaid, I assume that what I would do is put in a debt covenant saying that there are things with pensions that the corporation is not allowed to do in exchange for accepting that loan.
I think borrowers will be rightfully very concerned about corporate amendments that improve pension plans with no money in the pension fund to pay for them. They'll be rightfully concerned about corporations having risky investment policies. They would know that what often happens is that companies go bankrupt at unfortunate times, when stock markets are down. If they have a risky investment policy, again, the creditors are the parties exposed.
I think there will be a lot of strings attached to the loans that go to those corporations. They'll decide that it would be better not to have a pension plan, or that if they have a pension plan, it would be better not to improve that plan, because it will make their borrowing situation quite complicated.
Bloc
Daniel Paillé Bloc Hochelaga, QC
I would tend to agree with you by saying that yes, in fact, loan agreements for large companies are extremely complex. They include a lot of restrictive clauses and a tremendous number of conditions. That probably should have made creditors stop and think, causing them to ask whether Nortel's employee insurance system, for instance, was not in a non-arm's length trust controlled by a third party. They probably would have had the means or, at the very least, they could have ensured they had the means to pay what they offered because a pension plan is basically income, deferred pay.
I have a question for Ms. Marin. The situation is extremely urgent. A bill is before the Senate. We are in the House of Commons, and the bill will eventually have to come before the House for a vote. The only elected members of this Parliament are in the House of Commons.
Have you had any discussions to have this government act swiftly and bring a bill before the House of Commons?
As an Individual
The bill was introduced, but perhaps I will leave it to Mr. McCallum to elaborate on that. Obviously, we tried to get our story out there, to make people understand our situation and to explain that people's lives are on the line. It is crucial that this bill move forward, that it come before the House of Commons as quickly as possible and that it be passed before Parliament rises for the summer. I am telling you, this is a tragedy. It may be taking place far from the spotlight, but it is a tragedy. It is appalling.
Bloc
Daniel Paillé Bloc Hochelaga, QC
Likely the only way that Mr. McCallum could deal with the matter before Parliament rises in the spring is if he were in the government. And for that to happen, an election would have to be called.
I would just like a brief explanation from Ms. Reibel. On page 6, you say that employers would be hesitant to match employee contributions in multi-employer plans and that it may be necessary to prevent workers from accessing their pension plans. Does that not contradict the fact that participation in a pension plan, in others words, the contribution, constitutes differed pay?
Conservative
Senior Vice-President and General Manager, Group Savings and Retirement Solutions, Manulife Financial, Canadian Chamber of Commerce
I was referring to a group RRSP. There are no restrictions right now.
What employers are concerned about is the fact that they will contribute to their employees' retirement program and then, a year later, an employee takes that money out of that retirement program and buys a big-screen TV. They are contributing to their employees' retirement, but the money is not being used for their retirement. That is one of the reasons. When I talk to employers, they are saying they would rather give the money somewhere else.
Conservative
Conservative
Russ Hiebert Conservative South Surrey—White Rock—Cloverdale, BC
Thank you, Mr. Chair.
To continue with that line of questioning, you suggest in your written comments that the government lock in employer contributions. Are you not suggesting that they lock in employee contributions as well?
Senior Vice-President and General Manager, Group Savings and Retirement Solutions, Manulife Financial, Canadian Chamber of Commerce
Obviously that would be very desirable from a long-term savings perspective, but again, that is a very significant change to RRSP regulations. It's really the government's call on how far to push that. A lot of employers would prefer both pieces to be locked in. With the desire to have Canadians save more for retirement and have the money there for retirement, locking in would be desirable. But I think that goes against the framework of registered retirement savings plans. It could be done, but it's a question... But for sure, employers are looking to have their contributions locked in for retirement.
Conservative
Russ Hiebert Conservative South Surrey—White Rock—Cloverdale, BC
So that the employees could not take out the employer portion.
Senior Vice-President and General Manager, Group Savings and Retirement Solutions, Manulife Financial, Canadian Chamber of Commerce
Correct.
Conservative
Russ Hiebert Conservative South Surrey—White Rock—Cloverdale, BC
Now, isn't there a problem of commingling?
Senior Vice-President and General Manager, Group Savings and Retirement Solutions, Manulife Financial, Canadian Chamber of Commerce
No, we segregate. Our record-keeping systems segregate the employer contributions from the employee contributions and we track them, so they wouldn't be commingled.
Conservative
Russ Hiebert Conservative South Surrey—White Rock—Cloverdale, BC
Mr. Pierlot, you commented a few minutes ago on the comparison between private and government returns on pension investments. You didn't really get a chance to elaborate, but you were referring to the CPP versus the QPP, I believe.
Conservative
Russ Hiebert Conservative South Surrey—White Rock—Cloverdale, BC
Could you just finish your line of thinking there? I mean, I've seen the returns from the CPP myself and I sometimes wonder if there wouldn't be better way to invest. Could you elaborate?
Lawyer, As an Individual
I'm not an investment expert. My expertise is legal. By simply reading the reports from the Canada Pension Plan and the Quebec Pension Plan, I've observed a fairly wide divergence in the rates of returns for those plans throughout the last economic downturn. The divergence is about 25%, which is really significant.
Conservative
Russ Hiebert Conservative South Surrey—White Rock—Cloverdale, BC
Which was higher and which was lower?
