Finance Committee on April 20th, 2010

[Kelly Block, Conservative, Saskatoon—Rosetown—Biggar, SK]

In your role as a national organization, certainly in representing municipalities or businesses from across the country, can you comment on whether you see the need for the provinces and the federal government to work together on the solutions we come up with?

[Shirley-Ann George]

One of the challenges the private sector faces today in filling that gap--and one of the costs that small businesses have to face especially--is that there's different legislation in the provinces and in the federal government. Some sort of cooperation or harmonization that would just reduce those costs is one more way to encourage companies to provide pensions for their employees.

[Kelly Block, Conservative, Saskatoon—Rosetown—Biggar, SK]

Okay. Thank you.

[The Chair, Conservative, James Rajotte]

We have about a minute.

Mr. Menzies.

[Ted Menzies, Conservative, Macleod, AB]

I'll be very quick, Mr. Chair. Thank you.

I have all kinds of questions and I thank everyone for being here, but I wanted to pick up on Ms. Reibel's comment about the U.K.

We just heard recently that the original cost of this U.K. voluntary plan was 35 basis points. Now, apparently, the minister that's attempting to put it together is saying that they need about eight to ten more years to do this and, oh, by the way, it's going to be 200 basis points higher. So while Mr. McCallum is saying that's a wonderful idea, who on earth is going to pay for that?

[Sue Reibel]

Those numbers are correct. The expected annual cost was 30 basis points. They recently announced that they're going to levy a 2% charge on every contribution that comes into that plan to cover the set-up costs. They don't know how long that 2% is going to be in place. They said it could be 10 or 20 years until they can make the fund self-sustaining.

[Ted Menzies, Conservative, Macleod, AB]

It's hugely complex to set up. Obviously they thought it was a slam dunk. It's not as easy as some here are suggesting it could be.

[Sue Reibel]

Well, I don't know all the details of how they've structured it, but they had to hire a number of people to support it and build the systems. Anything on that scale, a national scale, is expensive. I mean, our industry has invested in this for decades, so--

[The Chair, Conservative, James Rajotte]

Okay.

[Sue Reibel]

It's there.

[The Chair, Conservative, James Rajotte]

Thank you.

We'll go to Mr. McKay again, please.

[John McKay, Liberal, Scarborough—Guildwood, ON]

That's a comparison between apples and oranges, it seems to me. I tend to think that this is a false comparison, because with CPP, setting up an additional defined contribution plan is not rocket science. It can be run separately. There is an infrastructure already in place, and their return has thus far been at least as good as, if not better than, private sector funds.

Anyway, that wasn't where I was going. It was with respect to this locked-in business. It seems to me that your argument is essentially that it works for the mutual fund industry or the private sector administration.

But it doesn't necessarily work for the folks who are in the plan; you could effectively be the next Nortel, and I'm the beneficiary in the next Nortel, and I'm stuck with a really lousy plan. Because you say that the ability of workers to access funds, especially employer contributions, “makes group RRSPs unattractive” to many employers, and also “makes employers hesitant to match employees' contributions”. You go further and say that when employees “switch employers or retire, they will have the option to transfer” only to another plan, another group RRSP, or one offered by a new employer. Effectively, it's a locked-in savings plan. I can't get at my money.

I buy your argument that you lock them in to try to create a critical mass in order to be able to run a fund. What I don't understand is, having said all that, why, if I feel your plan is awful, I can't get out of it.

[Sue Reibel]

There are a couple of points in there. One is that you're referring to these as mutual funds. These are employer-sponsored plans. I know that there has been earlier communication that the cost and scale of employer-sponsored plans is very different from a retail mutual fund. For very large employers, it can be 50 or 60 basis points when you aggregate all those people together. That's what I'm talking about, the two or three—

[John McKay, Liberal, Scarborough—Guildwood, ON]

As opposed to 200 basis points...? Okay.

[Sue Reibel]

Those are on individuals; this is a group. The points I've brought forward, all those things that I've put forward, exist right now within a defined contribution pension that's regulated by a province. All the characteristics already exist under the pension legislation. What I'm suggesting or recommending is to allow those same characteristics within a group RRSP. They work right now in a DC plan, a defined contribution plan, regulated by the provinces and the federal government. I'm asking that they also work within an RRSP.

[John McKay, Liberal, Scarborough—Guildwood, ON]

But suppose I were prescient, saw your plan as the next Nortel, and wanted to get out of the plan. Suppose, for whatever reason, that I wanted to get out of this plan. What you're recommending here is that I would be stuck. Is that correct?

[Sue Reibel]

It's not like a Nortel plan because that's a defined benefit plan. But I'm saying that while the employer sponsored it, you can stop your contributions; you can move your contributions out. But the employer's contribution should stay there while you're employed by that employer, because they're putting in that benefit to you.

[John McKay, Liberal, Scarborough—Guildwood, ON]

Okay. Well, that's an interesting distinction. So you're saying, “I'm not stuck, but you as the employer are stuck.”

[Sue Reibel]

The employer has made the choice to put their plan there. The employer can move their plan.

[John McKay, Liberal, Scarborough—Guildwood, ON]

Okay. That's a legitimate point.

I have one minute left, and I'll go back to Mr. Hamilton here, who has been very popular this afternoon.

Your first point was to increase funding levels. It just seems to me so blindingly obvious that if those funds...

Can you just expand on that thought for us for a second, please?

[Malcolm Hamilton]

The way you traditionally try to make benefits safer--if you're going to choose risky investments--is to put more money aside than you think you need so that if you lose some of it, you've still got enough.

Here's the problem with defined benefit plans. Employers don't want to do that, because they're told that if they put too much money aside and if things aren't bad, if they get good experience and the surplus gets large, there is no guarantee they'll ever be able to get it back. So we put them in a system where we say, “You should all be very responsible and make sure those benefits are adequately secured, but if you over-secure them, you lose the money.”

Naturally, they find this a bit like a rope-a-dope. If they put too little aside, everybody criticizes them for exposing the members. If they put too much aside, everybody turns up and says, “Whoa, look at all that surplus. I guess that should be given away.”

That's a problem. Unless that problem gets addressed—there have been all sorts of proposals to address the problem, but nobody's done it--it's hard for the employers to do the thing that would most naturally address benefit security.

[The Chair, Conservative, James Rajotte]

Thank you.

Thank you, Mr. McKay.

We'll go to Mr. Wallace, please.

[Mike Wallace, Conservative, Burlington, ON]

Thank you, Mr. Chairman.

I want to thank our guests today. We've had an excellent discussion. I appreciate the input you are providing.

Obviously there is no one answer to all the problems we're having with the pension issue. We're looking at it here, and the minister is going across the country with Ted, looking at the issue. I had a public meeting in my riding where pensions were not the whole meeting but a significant portion of it.

To the chamber, it's my understanding that multi-employee plans can exist as long as they're all within the same industry, or the same grouping. You indicated to a previous question that your members might be interested in plans that allow multi employers, regardless of what industry they're in.

Can you definitively tell me if your members, as chamber members, are actually demanding that issue in terms of the ability to have pension plans, and is it important in terms of not only their own future retirement but retention of employees?

[Shirley-Ann George]

Thank you for that question.

We have not asked our members if they would be interested in that option. It's simply not something that we could legally offer them. The question has never been tabled.

Definitely, from our members' perspective, one of the things they look for from membership is something that will reduce their overall costs. Any kind of plan, whether it be auto insurance where we have plans for reduced costs for gasoline...you know, a number of what we call “affinity” programs. What they do is provide greater access to more, especially for small business, at a lower cost. Some sort of system that allowed us to provide pensions where the individual employers would not have to incur these significant costs for administration would be something that we would be happy to talk to companies about; some sort of group plan.

[Mike Wallace, Conservative, Burlington, ON]

Okay.

To Mr. Pierlot, if you have a copy of your statement—I don't think I have it in front of me, but it might just be in this pile of paper here—I wouldn't mind having it. There were a couple of things in there on taxes.

My view is that there is no magic solution to this. We need to find some things that make sense. Your issue in terms of being able to make up for losses in your RRSP, in terms of increasing your contribution levels, based on what your loss is...or I'm assuming that's what you're talking about. If I lost money on my RRSP this year, but it doesn't really affect my contribution levels for next year, you're saying we should be able to do that. I'm not sure that's administratively possible, but I'm assuming it is.

It's an idea that I'd like to see, so I would appreciate having a copy of anything you have concerning the tax piece. If you would send a copy to the clerk, they would pass it around.

Just for my own education, you are listed as an individual, a lawyer. Are you with a firm that deals with just tax issues, retirement issues? I don't understand your background.