Finance Committee on Oct. 17th, 2022

[Mark Schaan]

I will start, and then my colleague from Finance can weigh in.

As I already noted, pension solvency requirements vary enormously province by province. They set the degree to which a company is actually required to be holding assets in trust for the purposes of its pensioners.

As my colleague noted—and I'll let her weigh in—at the federal level we have extraordinarily stringent requirements. A number of provinces set standards for pension solvency that are quite different. In some cases, they actually only require a company to be investing and holding in trust enough to allow for the pension to be on a going-concern basis. That presumes that they only need to pay out to their actives, whereas others have set much lower solvency requirements and have required it to be on a windup basis, which does leave some money in case the company actually goes insolvent.

The relationship between the pension solvency and insolvency is important because obviously what you have at the time of insolvency is going to be determined by what you were required by your pension regulator to have when you were alive and well as a company.

I will just turn to my Finance colleague to say how we deal with that federally.

[Julie Dzerowicz, Liberal, Davenport, ON]

Take just 30 seconds because I have one more question.

Thanks.

[Kathleen Wrye]

Thank you.

I would just reiterate some of what Mark said.

All of the different jurisdictions set different funding requirements. Some, like the federal government, still require 100% solvency funding, but some provinces have moved away from that and now require 85% solvency funding. If the plan is more than 85% funded on a solvency basis, there are no special solvency requirements for those plans in those jurisdictions.

[Julie Dzerowicz, Liberal, Davenport, ON]

My next question is for Mr. Schaan.

You mentioned that you have some concern around the five-year implementation proposed. Can you be very specific about what your concern is?

At this point, if I heard Ms. Gladu properly, I think they're even proposing shortening it to three years. What is the specific implication if it is a three-year implementation or a five-year implementation?

[Mark Schaan]

I raised two different sets of issues and I'll speak to them.

One set of issues is about how it's drafted. Right now, regardless of whether it's three years or five years, it's set on the basis of a calendar year, as opposed to tying it back to the insolvency date. Right now, upon royal assent.... Four years in, you could have a restructuring process, as I noted in my opening, that would potentially have these new superpriorities imposed upon it midway through restructuring. This is one issue: When does it kick in? Is it a calendar year, or is set against something else?

The other consideration is what degree of runway will allow for planned sponsors to be able to make prudent decisions about the continued growth. If you have a pension solvency deficit and we set new rules about the fact that it's now going to be potentially superprioritized against your access to credit, you may race to try to increase your overall degree of solvency in the plan.

One of the questions is, given that we want to incentivize prudent behaviour on the part of planned sponsors to not invest irresponsibly or invest in high risks to be able to make up planned solvencies, what's the appropriate length of time? That's a consideration for the committee as they think about what the appropriate runway is to get a planned sponsor backup.

As my colleague mentioned, our solvency deficit under pension solvency law federally gives companies a five-year window to be able to make up their deficit.

[The Chair, Liberal, Peter Fonseca]

Thank you.

Thank you, MP Dzerowicz. That's your time.

[Julie Dzerowicz, Liberal, Davenport, ON]

Thank you.

[The Chair, Liberal, Peter Fonseca]

We'll move now to the Bloc, with MP Ste-Marie for six minutes.

[Gabriel Ste-Marie, Bloc, Joliette, QC]

Thank you, Mr. Chair. I'd ask that you please interrupt me after five minutes. I will be giving my last minute to my colleague Mrs. Gill.

I'd like to thank Ms. Wrye, Mr. Schaan, Mr. Morrison and Mr. Mackinnon for being with us and answering our questions. I also thank them for their opening remarks.

I will start by making a few comments for my colleagues on the committee.

First, I fully agree with Mr. Chambers' conclusion. He reminded us that this has been a topic of discussion for 10 years in the House and that the current Bill C‑228 was introduced last spring. I'm therefore anxiously waiting for the government party to put forward the required concordance amendments in terms of the existing framework, so that we can discuss them as soon as possible and improve the bill. Improvement is always the purpose of studying bills in committee.

Next, I would also like to thank the Library of Parliament research services. Our analysts do an outstanding job, and that's particularly the case for the briefing notes on Bill C‑228. Mr. Lambert‑Racine and Ms. Yong produced these notes. I congratulate them, they did a fine job.

In fact, I'm going to draw on one of the questions suggested in the briefing notes. I believe my question is for Department of Industry officials, but they will correct me if it isn't.

Could you provide some details on pension plan members? What's the situation right now? In the last 10 or 20 years, how many retirees have lost their pension due to their current or former employer's insolvency?

How much of the unfunded liability within pension plans have they recovered as unsecured creditors in insolvency proceedings under the current regime? In other words, how much of their pension have they lost?

[Mark Schaan]

Thank you for the question.

From 2009 to 2022, there were approximately 10 cases where the pension had been reduced due to insolvency.

These are under the Companies’ Creditors Arrangement Act proceedings. Bankruptcy and insolvency proceedings would be a different manner. I can speak to 10 where there were reductions, but I would also speak to a number where the restructuring was successful.

This would range from Nortel Networks, where, depending on the province that you lived in.... Because of some particularities of provincial legislation, pensioners received 90% of their overall pension obligations in Ontario, and 82% of payments in other provinces.

With regard to Fraser payments, there was a difference between the salary pension payout and the hourly pension payout. The hourly pension payout went somewhere between 56% and 64%. The salary pension was between 65% and 69%. I would note Wabush Mines, where pensions were reduced by an estimated 8%. Pensions were reduced by 20% to 30% in Groupe Capitales Médias.

I would also note a number of successful restructurings. There is Air Canada in 2004, where pensions were made whole and continued on within the ongoing operations of the successful restructuring. There was AbitibiBowater in 2002, as well as Canwest, Hollinger, U.S. Steel and Algoma. All of these were situations where essentially the pension obligations were preserved and the pension was allowed to continue with a going concern company.

It's important to look on both sides of the restructuring as to what kind of.... Then, just to bring it back to the other point, you'd have to also look at what the solvency requirements were of the province or the regulator of the pensions in question because those are obviously material as to what further reductions one might see in a restructuring.

[The Chair, Liberal, Peter Fonseca]

Thank you.

Thank you, Mr. Ste-Marie.

That's five minutes.

[Gabriel Ste-Marie, Bloc, Joliette, QC]

Thank you.

[The Chair, Liberal, Peter Fonseca]

Now we'll go over to your colleague, MP Gill.

[Marilène Gill, Bloc, Manicouagan, QC]

Thank you, Mr. Chair.

I would like to thank the witnesses for sharing their experience and knowledge with us. Obviously, it will help us make informed decisions.

Mr. Schaan, you mentioned the fear businesses have with respect to the risks that would result from passing Bill C‑228. You also talked about the bill's complexity.

I would hope that committee members won't let this uncertainty keep them from taking action.

As my colleague Mr. Ste-Marie and several others have said, we've been talking about this for decades. I don't believe businesses would be caught by surprise if a bill like this were to be passed.

I'd like to talk about one more thing.

The risks, complexities and fears of businesses have come up a lot. When it comes down to it, I was elected by the people, and it's them who want to take this risk. They understand the complexity, but they're willing to play the game and see what happens. I, for one, don't believe they are protected right now, but I also feel the bill would protect them.

I hope that we can pass a bill that's to everyone's liking fairly quickly.

[The Chair, Liberal, Peter Fonseca]

Thank you, Mrs. Gill.

Now we are going to hear from the NDP for six minutes.

MP Blaikie, go ahead.

[Daniel Blaikie, NDP, Elmwood—Transcona, MB]

Thank you very much.

Thank you to the officials for their testimony and contributions in trying to help us understand what's at stake in the bill. Obviously the question is about risk. We're talking about institutions that deal in risk for a living, and we're talking about what is very likely a very small percentage within their own portfolio.

We've heard different numbers mentioned around the table, but the one that is really important to me is the fact that fewer than 30% of Canadian workers right now work in a workplace with a pension. We're already talking about over 70% of the market not applying, because those are Canadians who unfortunately don't have the benefit of a good pension plan in their workplace.

We also know that about 20% of all Canadians who are employed are employed by some level of government, some kind of public sector employment, and typically those are people with defined benefit plans, but they're within the 30% of Canadians who are working with a pension. If 20% of Canadians work in the public sector, I think it's fair to say that those are probably 20% of Canadians who are working with a defined benefit plan.

Now we're talking about 10% of Canadian workers who are working in a workplace that isn't a public sector workplace but does have a pension plan. That doesn't mean they're working in a workplace with a defined benefit pension plan. They could have a defined contribution plan. In fact, in the private sector, there are more employers who have defined contribution plans than have defined benefit plans. Let's call it, I don't know, 40%, which would be quite generous to say. Of the people working in the private sector in Canada who have a pension plan, 40% have a defined benefit pension plan. We're talking about 4% of workers. What percentage of business overall is that? I don't know, but certainly not all the banks.... No one bank is invested in all of that business, so it's 4% of an investment portfolio.

Incidentally, not all of those companies are going to fail. Of that 4% of Canadian workers who work at a company in the private sector that maybe has a defined benefit plan.... I think that number is probably lower. How many of those Canadians are going to be at a company that fails? Well, it's going to be a far lower number.

I think we're getting well into the territory of margin of error, as far as I'm concerned, for large financial institutions. They fund businesses for a living, and they have experience picking winners. I don't think Canada's financial institutions go out and give loans to people who they think are going to fail. By and large, businesses do succeed. We're talking about a very small portion of private sector workplaces with defined benefit plans whose businesses fail.

Then let's take a look at some of the cases where we've seen extraordinary failure. Department officials mentioned Air Canada in 2004. Well, guess who was there to backstop Air Canada in 2004. It's no great secret. Usually, when Air Canada screws up, there's a lot of public money that goes into backing Air Canada. Let's not kid ourselves around this table. We all know it to be true.

Who gets taken care of in that? Well, it's also true that the financial institutions get taken care of, because the government steps in to have their back. What is another case when Canada's major financial institutions were exposed to incredible risk? In 2008, when we had a global recession, did they get hung out to dry? No. Who stepped in to have their back? Again, the federal government stepped in to have their back to make sure they were doing okay.

In 2020, when the world economy shut down, did the banks shut down? Did they lose their shirt? No. The federal government stepped in with taxpayer money to make sure that the big banks and insurance companies were doing just fine, thank you very much. In fact, they made record profit. That's why we've had to call for an extraordinary pandemic dividend in order to get some of that public money back, because not only were they not losing their shirt, but they were making record profits.

I find it really hard to hear some kind of violin song play around this table for Canada's largest financial institutions. Somehow we're talking about risk that's going to bring them down because we want to do something for the person who worked at Sears for 30 years and paid into a pension plan. It wasn't a gimme or a Christmas present. It was something they went to work for, and when that gets cut, that's their rent, their groceries and their ability to have a nice outing with their partner in their golden years that gets taken away.

I'm not trying to minimize the importance of conversations about risk, but we're talking about people who do risk professionally for a living and get a lot of help from around these tables when things go wrong for them.

This is one time that we can do something for people who never get that help. They certainly don't get it often enough.

Unless we get some really compelling, real numbers—whether they come from department officials who are concerned about the potential unintended consequences, or whether they come from the financial institutions—we should absolutely be moving forward with this bill and ensuring that Canadian workers finally get something like the protection that financial institutions bank on every day of the year.

I don't have any questions. I think I have heard enough, frankly. What I want to do is move forward. If I'm going to hear from anyone, it's going to be people who have real-life experience of being on the wrong end of the current bankruptcy laws, because those are the people to whom we owe our time and service around this table.

Thank you very much.

[The Chair, Liberal, Peter Fonseca]

Thank you, MP Blaikie. That's right on six minutes flat.

Members, we are moving into our second round. We don't have enough time for a full second round, so what we are going to do, as we always do, is divide the time equally. It is quite a bit of time, so we'll have about four and a half to five minutes for each party.

We are starting with the Conservatives. I have MP Morantz.

[Marty Morantz, Conservative, Charleswood—St. James—Assiniboia—Headingley, MB]

Thank you, Mr. Chair.

This is a very interesting conversation.

I want to circle back to something I think Mr. Schaan said at the beginning, regarding the coming into force provisions of the proposed legislation. I believe what you said was that the coming into force provision would be activated on the date of the coming into force of the legislation, and that could create some logistical problems.

Could you elaborate on that? Could you offer suggestions on what type of coming into force mechanism you think might be appropriate?

[Mark Schaan]

The coming into force transition clause that's more typical to insolvency law affects only proceedings that start after the coming into force date, to ensure that rules don't change in the middle of an ongoing insolvency proceeding.

What the current private member's bill does is set the coming into force date on a calendar date, five years after coming into force. It doesn't suggest that the coming into force is tied at all to where it is in the proceedings cycle.

As I said, transition clauses for insolvency are often about proceedings that would begin after the coming into force date, as opposed to noting that the provision was in place five years from a calendar date, which would mean that any proceedings that were already under way would be subject to the new rules.

[Marty Morantz, Conservative, Charleswood—St. James—Assiniboia—Headingley, MB]

Okay. I'm trying to get this clear in my mind.

The act comes into force, and a financial institution and the company that has conduct of the federally regulated pension plan have, say, five years to make sure that the pension plan is fully funded in order for it to gain its priority over a secure creditor. You're saying that somehow that does not work in the context of normal bankruptcy proceedings.

[Mark Schaan]

What I'm indicating is that traditional transition clauses in insolvency policy would say that any insolvency proceedings that go from this point forward would be subject to these rules. From the coming into force date, any new proceeding would be subject to the provisions as they're set out, as opposed to suggesting that it's a calendar date that is five years from this date, regardless of where you are. If you commence the proceeding before the coming into force date, but are midway through it, you are now subject, as the superpriority would apply.

It's more on the application of the superpriority than it is on the degree to which the consideration around the possibility for full solvency would apply.

[Marty Morantz, Conservative, Charleswood—St. James—Assiniboia—Headingley, MB]

Moving on, I think you also said that current federally regulated pension plans, as of December 2021, are 109% funded. I want to get some clarity on that. It might have been Ms. Wrye who said that.

That's an average, so are there any underfunded federally regulated pension plans currently?

[Kathleen Wrye]

Yes. There are plans that are funded under 100%. The estimated average solvency ratio for all federally regulated DB plans is 109%.

[Marty Morantz, Conservative, Charleswood—St. James—Assiniboia—Headingley, MB]

How many federally regulated pension funds are currently underfunded?

[Kathleen Wrye]

I'm sorry, but I will have to pull that information up quickly as well. I have lots of things open with numbers to answer questions—one moment, please.