Finance Committee on March 1st, 2012

[Scott Brison, Liberal, Kings—Hants, NS]

Thank you, Mr. Chair.

Earlier this week, in testimony, we heard from the Canadian Bar Association and the CFIB and the Canadian Association of Retired Persons that the Liberal proposal to have a supplementary, voluntary CPP would help achieve the stated objectives of Bill C-25.

Mr. Laporte, first of all, you're a pension lawyer. You're a member of the bar association. Would the low-fee option help, for instance, provide some advantages, including competition to PRPPs, and as such help keep fees lower?

[Jean-Pierre Laporte]

I definitely think introducing a large quasi-public sector competitor to the marketplace would create some market discipline, which would help with the objective of keeping the cost of managing these plans low.

[Scott Brison, Liberal, Kings—Hants, NS]

Is it likely that any particular PRPP option would match the diversification across asset class, sector, geography, and the low-fee structure and scale of the CPP? I think $152 billion is under management.

[Jean-Pierre Laporte]

No, I don't believe it would be possible for the private sector solution to match the CPP Investment Board in that regard. I believe the provinces would have to mandate that PRPPs be offered to members to reach those levels of scale that would then keep the costs low.

[Scott Brison, Liberal, Kings—Hants, NS]

Ms. Byrnes, in the event of a significant drop in the markets, a crash in the markets, either late in somebody's career or during a person's retirement, what would be the difference between the PRPP option and a fairly well-diversified RRSP, as it exists today, in terms of its effect on people's retirement security?

[Leslie Byrnes]

There are various considerations administrators will be taking a look at in the design of PRPPs. One of the things I know life insurers are interested in taking a look at is whether there is a way to incorporate some retirement stream security at some point along the line. It's possible that you could be looking at annuitizing some components as you go along. Those are the things that are still being explored.

[Scott Brison, Liberal, Kings—Hants, NS]

The PRPP options would not include a defined benefit option, for example.

[Leslie Byrnes]

No, they would not.

[Scott Brison, Liberal, Kings—Hants, NS]

A voluntary supplemental CPP would provide a defined benefit option. I understand the merit of the NDP proposal, but there is some concern about increasing payroll premiums at a time of high unemployment. This option would provide the advantages of a defined benefit, on a voluntary supplemental basis, without dramatically increasing payroll premiums at this time.

I'd appreciate hearing Mr. Benson. You have comments from your members.

[The Chair, Conservative, James Rajotte]

There is about one minute for a further comment.

[Phil Benson]

For the Teamsters, our experience is more in multi-employer, direct contribution plans. We have a chunk of our membership in DBs, which we dearly want to protect.

I think the PRPP, if you look at our fiduciary duty that we're talking about, would give the biggest protection versus an RRSP. In other words, you would be having professionals looking at the age groups and the people in there and starting to shift over to different types of products or investments. The larger the plan, the cheaper the cost should be. I don't think the cut will come from competition. If we had competition now, our RRSPs would not have the highest MERs in the western world.

[Scott Brison, Liberal, Kings—Hants, NS]

Again, I appreciate hearing from any of you.

Would simply adding to the mix, including a PRPP and a voluntary supplemental CPP option, provide some benefit to strengthening retirement—

[The Chair, Conservative, James Rajotte]

We have time for about one answer, Mr. Brison. Which one would you like?

Mr. Skerrett, give just a brief response, please.

[Kevin Skerrett]

I would say the proposal you're describing, if it is a supplement that is providing for a defined benefit CPP element, would certainly be superior to an uncertain insecure question mark, which is really what people are going to get from the PRPPs. The concern we have with that model is exactly this question of voluntary versus mandatory.

I think we're all very glad that the original design of the CPP was mandatory and across the board. If it had been voluntary back in 1966, our whole system I think would be much weaker for it. That would be my quick thought.

[The Chair, Conservative, James Rajotte]

Thank you.

We'll go to Mr. Van Kesteren, please.

[Dave Van Kesteren, Conservative, Chatham-Kent—Essex, ON]

Thank you, everybody, for coming.

At the last meeting I told the story of the wise king who determined the wisdom of the ages. He broke it down to one line, which was basically, “There is no free lunch”.

We've talked about defined contributions. We've talked about defined benefits.

Pensions fall, in the private sector, with SMEs or corporations. With corporations you will sometimes find defined benefit pensions. In the public sector there are primarily defined benefits.

In a perfect world, I suppose we would have a system in which the workers would pay x number of dollars. We'd determine what that was. Then the government would pay whatever on top of that, whether it was two or three times that. That would have to be determined. It would then fall upon the government, if there was a shortfall, to take the risk and to take the cost if there was a discrepancy at the end of a number of years or something.

It would be much like our health care. Our health care operates kind of that way. Whatever it costs, we foot the bill.

This would give—I think Mr. Benson would agree—our manufacturers an enormous advantage, because now we could go to corporations that operate across the borders, and we wouldn't have to offer them any pensions, because now our government would cover those as well. It would definitely do what the NDP wants to do, which is to level the playing field for all Canadians. The only problem, of course—and I do not have the figures—is that I estimate it would cost hundreds of billions of dollars. So it's a moot point.

Mr. Benson, you told me a number of years ago when we were talking about pensions on another issue that the Teamsters handle their own pensions. You have companies, of course, so you have to take that into consideration every time you negotiate a settlement. If there is going to be a problem, you don't want to bankrupt your company. I'm sure you have companies that come along and say they can't make the payments.

I'm probably telling you what you already know, so why don't you tell me and the committee what your company or what your Teamsters have done to avoid that situation, and how you have managed to handle that issue.

[Phil Benson]

Thank you for the question.

Basically the difference between the DB and DC plan is that the DC plan has wages. A DB plan has wages too, but in the DC plan, of course, it's the sponsor and the workers contributing who bear the risk.

Now I'm very proud to say that the Teamster's fund is 100% funded. It was 100% funded in 2008, 2009, 2010, and it's fully funded now. Clearly we're doing a pretty good job.

The biggest problem we face is trying to get new members or new groups in. It's a constant battle with OSFI and with the regulators. They make it very difficult.

For example, we may find a new group of workers. They come into the Teamsters. They join the Teamsters, and we'd like to offer them a pension plan. Of course, we would like them to come into our pension plan, which is 100% funded and well managed.

[Dave Van Kesteren, Conservative, Chatham-Kent—Essex, ON]

I want to break you up for just a second. I have a second question, and I don't have much time.

If you have a company that comes along and says they can't make the payments, and it's a big company, and you have sent your actuaries in, and you find out they're right—they can't—what happens to the rest of your group? Obviously, you have less money coming in.

[Phil Benson]

That would be a situation only in a DB plan or a stand-alone plan. That's a different situation. Companies like Purolator and UPS would have their own plans. Those are huge employers. CPR and CN have DB plans. They are kind of unique in the Teamsters. We do not have a lot of DB plans.

It's a situation of looking at the story, having the actuaries go in and see what the story is.

[Dave Van Kesteren, Conservative, Chatham-Kent—Essex, ON]

But if it were true, would you all share the risk then?

[Phil Benson]

For a DC plan, you all share the risks.

[Dave Van Kesteren, Conservative, Chatham-Kent—Essex, ON]

Do you think the current PRPP has an adequate ability to share the risk with those who would participate?

[Phil Benson]

I think clearly the PRPP will be some kind of a DC plan, and under a DC plan, you share the risks. The difference in the PRPP plan is that unless an employer wishes to contribute—and hopefully most employers will choose to go that route—it will be simply the employees. That's why we're adding the features. We're asking to look at the fiduciary duties, especially in the discretionary investing. I can't underline that more. Take the choice of investment away from individuals—they make very bad choices—and leave it with experts to look after the numbers and everything. I think that would really help reduce the risk the most.

[The Chair, Conservative, James Rajotte]

Thank you, Mr. Van Kesteren.

Mr. Chisholm, please.

[Robert Chisholm, NDP, Dartmouth—Cole Harbour, NS]

Whether defined contribution or defined benefit, this stuff about a free lunch...these are negotiated plans, regardless. Benefits are in exchange for wages. The question, though, at the end of the day, is this. Is it guaranteed or is it not guaranteed? In terms of who suffers the risk, if it's defined contribution, it's the employee, at the end of the day, who ends up potentially without any money.

I think the point that Mr. Skerrett made is instructive about the reality out there in terms of what kind of money ordinary working people are taking home from their pensions. It's tough out there. There are an awful lot of low-income Canadians, and their pensions reflect that.

Maybe you can expand a bit on that. Also, there have been many before our committee—and members of our committee—who have talked about the idea that increasing contributions to CPP over a number of years is going to just devastate the economy in this country. There are going to be unemployed people lined up down the street and around the corner, everywhere. I wonder if those who support the idea of using the CPP to actually achieve what the government has talked about in terms of enhanced retirement income security could talk about what that plan actually looks like in terms of its impact on the economy.

Maybe, Mr. Roberts, you could start.