Finance Committee on May 2nd, 2019

[The Chair, Liberal, Wayne Easter]

Thank you very much. We met with the group when we were doing pre-budget consultations as well and made a recommendation.

Ms. Rudd.

[Kim Rudd, Liberal, Northumberland—Peterborough South, ON]

Thank you, Chair.

Yes, we did. We had an excellent presentation by them. Certainly as an organization that's been around for some time, I was very surprised at the contributions they receive from organizations, charities and donations, which is really what keeps them going. This renewal of their fleet was urgent, if I can use that word.

In terms of STARS, the majority of their funding does come from non-governmental places, if you will. Is there a provincial-territorial contribution to this and if so, what is that or are you aware of it?

[Martin Joyal]

I could not quote you exact numbers, but yes. The proposed federal contribution here is only for helicopters. That doesn't speak to operations. Their operations since 1985, when they established themselves, have been through private, local, community fundraising, as well as having one agreement with each province in the Prairies, Manitoba, Saskatchewan and Alberta. They have operational agreements so that they integrate their operations and through that they get another amount of funding to support operations. It is also to better integrate their operations centre with the provincial operations centre so that the deployments are done in an integrated fashion. That's how they generate revenue to support the operational side of it.

As part of that as well, it's our understanding from STARS, with the federal grant to provide for five new helicopters, Alberta and Saskatchewan have also come to the table. I think Saskatchewan has made a public announcement about this, but they have also come forward to provide the funds for a helicopter each, so that's also contributing to the full renewal.

[Kim Rudd, Liberal, Northumberland—Peterborough South, ON]

Excellent, so the federal contribution actually ended up creating more than originally thought by the provinces coming in.

[Martin Joyal]

All of this is contributing to the fleet renewal, yes.

[Kim Rudd, Liberal, Northumberland—Peterborough South, ON]

Thank you.

[The Chair, Liberal, Wayne Easter]

Thank you.

Are there any further questions? Thank you, gentlemen.

We'll turn to part 4, division 5, “Enhancing Retirement Security”.

I'm not sure who was heading this up. We have Mr. Schaan, Mr. Patterson, Ms. Wrye and Mr. Kanter.

Welcome.

[Mark Schaan]

Thank you, Mr. Chair.

In response to concerns about the security of workplace pension plans in the context of some corporate insolvencies, the government committed in Budget 2018 to undertake a whole-of-government, evidence-based approach to enhancing retirement security for Canadians. Consultations in late 2018 with workers, pensioners, companies and the public resulted in more than 4,400 online submissions, in addition to formal written submissions from stakeholder groups, on this important issue.

As a result of this work, the government proposes legislative amendments to federal insolvency, corporate governance and pension statutes. These amendments will enhance retirement security while continuing to support Canada's marketplace framework laws as strong platforms for economic growth, innovation and jobs for Canadians.

I'll briefly describe what division 5 of part 4 amends, and it amends a number of statutes.

First it amends the Bankruptcy and Insolvency Act to, first, clarify that the duty of good faith applies to all parties in proceedings, giving courts another tool to ensure that parties act honestly, reasonably and candidly. Second, it provides courts with further powers to address executive payments made before an insolvency, where appropriate, deterring executives from taking actions contrary to the interests of employees and pensioners. Third, it exempts registered disability savings plans from seizure by creditors in bankruptcy proceedings, providing assurance that the funds in these accounts are safe.

Division 5 of part 4 also amends the Companies’ Creditors Arrangement Act, and it does so in three key ways. First, it limits the scope of initial court orders and interim financing. It lessens the chances of extraordinary relief, such as suspension of pension contributions being granted at the outset, and gives courts more time to hear all parties' views before making more consequential orders. Second, it requires creditors to disclose their real economic interests in proceedings, if required by courts, helping to preserve fairness in insolvency negotiations by rectifying information imbalances amongst the parties. Third, in line with the Bankruptcy and Insolvency Act change, it clarifies that the duty of good faith applies to all parties.

Division 5 of part 4 also amends the Canada Business Corporations Act to, first, require publicly traded corporations to report on policies that pertain to workers' and pensioners' interests and the recovery of certain incentive-based compensation, providing more market oversight and encouraging conversations about factors impacting corporate strategy and decision-making processes. Second, it would clarify that corporate directors may consider employee and pensioner interests, among others, in their decision-making, encouraging directors to take a more comprehensive approach to assessing the long-term interests of the company. Third, it would require publicly traded corporations to hold non-binding shareholder advisory votes on executive compensation, facilitating conversations about more balanced executive compensation schemes in certain cases.

Finally, there are changes to the Pension Benefits Standards Act, 1985, which my colleagues from Finance will detail.

[Kathleen Wrye, Acting Director, Pensions Policy, Department of Finance]

Thank you.

Division 5, part 4 also amends the Pension Benefits Standards Act, 1985, in two ways.

The first is that it clarifies that a plan member's entitlement to their pension benefits cannot be made conditional on the continued operation of the plan. In other words, it clarifies that members are entitled to the same pension benefits on plan termination as when the plan is ongoing. This clarification is in order to ensure that employers fund all benefits properly.

Second, it also amends the PBSA to permit defined benefit pension plan administrators who purchase annuities from a regulated life insurance company to transfer their obligation under the plan to provide retirees and other beneficiaries with a pension to the regulated life insurance company, subject to certain conditions. This will help increase the benefit security of retirees for whom they are purchased, as those retirees' pensions would now be provided by a life insurance company. The retirees would no longer be subject to the risk of employer insolvency, and it also helps to improve the sustainability of defined benefit plans by allowing them to de-risk.

Thank you.

[Pierre Poilievre, Conservative, Carleton, ON]

How will these changes affect the pension benefits paid to employees of newly bankrupt companies whose pension funds are inadequate to fulfill obligations?

[Mark Schaan]

The situation that you describe is an unfunded pension liability. This is when there is a portion of the pension that is insufficient in terms of the amount that's held in reserve, which is sacrosanct. I'll just make two distinctions.

Pension plans are regulated both provincially and federally. There are different standards to which companies are required to hold funds. Any—

[Pierre Poilievre, Conservative, Carleton, ON]

Excuse me, but I'm speaking about after bankruptcy, when you have an unfunded liability after bankruptcy. I'm aware of all the regulations that exist beforehand, but I'm now talking about after a bankruptcy occurs.

What impacts will these changes have on unfunded pension liabilities?

[Mark Schaan]

They are threefold.

One, there is a certain number of preventative measures. I know you're speaking about what happens in an insolvency. If the situation is what it is right now, then the change that most affects that would be the change related to first issuance orders and duties of good faith insofar as that will allow for retirees and pensioners to be participants in the process at an earlier stage. Essentially, the first issuance order change ensures that only those essential orders are done at first. On those unfunded pension liabilities, those pensioners would be unsecured creditors to the bankruptcy and insolvency either under CCAA or BIA. This will allow them to be more aptly represented in that process as the restructuring and the negotiation of the insolvency continues.

Two, the duties of good faith are also important in that this will actually ensure that those obligations are now being placed on everyone who is party to the insolvency and that there are best interests being maintained.

Three, the economic proceedings are also important, particularly on the restructuring side. If it's a pure insolvency and it's a liquidation, that's another matter. If it's actually proceeding to insolvency under the possibility of a restructuring, that capacity to be able to know exactly who you're at the table with and to have full understanding of the other economic actors that are party to the restructuring is another zone.

The vast majority of these changes, though, are focused on the preventative side and aimed at trying to prevent the situation.

[Pierre Poilievre, Conservative, Carleton, ON]

I did hear you mention amendments. I think it was for the Pension Benefit Standards Act. I think it was with Ms. Wrye.

You mentioned amendments that guarantee the right of the pensioner to his or her defined benefit even after the termination of the pension plan.

Did I quote you properly? If not, please feel free to correct me.

[Kathleen Wrye]

As I said, this is a clarifying amendment. There has been a suggestion that our legislation was unclear with respect to benefit entitlement at the termination of a plan.

This is clarifying the intent, which is that an individual's entitlement to their pension benefit is the same when the plan is ongoing as when it is terminated. It doesn't necessarily speak to what the funding in the plan is and how much they may get in an insolvency situation, but their entitlement is the same in all aspects when the plan is ongoing or when it is wound up.

[Pierre Poilievre, Conservative, Carleton, ON]

When you say “wound up” you typically mean when the plan is converted into an annuity.

[Kathleen Wrye]

Yes.

Typically for a defined benefit plan, all of the people would receive an annuity in lieu of their pensions.

[Pierre Poilievre, Conservative, Carleton, ON]

Right. Basically they take the orphaned pension fund, OSFI hands it to a supervisor, who converts it into an annuity, and that annuity pays out to the pensioner.

If there's not enough money in the fund to buy an annuity that meets the obligation the plan offered, what happens?

[Kathleen Wrye]

That's where it would turn to the insolvency statutes. All we are clarifying is that your entitlement to your benefit does not change.

[Mark Schaan]

It has two material changes.

The amount that you would be an unsecured creditor for would be the full amount. It's clear that what you were eligible for when the plan was living is what you're entitled to when the plan is winding up. Similarly, that would be the determination of what amount you're holding in the bankruptcy as the bankruptcy proceeds.

[Pierre Poilievre, Conservative, Carleton, ON]

You're almost like an unsecured creditor at that point.

[Mark Schaan]

An unfunded pension liability is an unsecured creditor.

[Pierre Poilievre, Conservative, Carleton, ON]

Right.

There's a lot of debate going on right now. I'm not going to ask you to comment or offer an opinion, but I just want to clarify the status quo.

Many are suggesting that pensions should be moved ahead of other creditors in the case of insolvency and bankruptcy. At present, can you please describe the priority of payout to creditors in the event of a liquidated insolvency or bankruptcy?

[Mark Schaan]

There's a relatively small number of layers to the priority system. The first priority goes to what some people call “super priorities”. There are a very limited number of super priorities that already exist, in part because the goal of the super priority is essentially to pay out folks for whom there was almost no other economic option for them to be able to render back what was theirs.

The super priorities right now are for wages. There's one that relates essentially to a back-pay super priority for up to....

[Darryl C. Patterson, Director, Corporate, Insolvency and Competition Policy Directorate, Marketplace Framework Policy Branch, Department of Industry]

It's $2,000.