Evidence of meeting #62 for Finance in the 44th Parliament, 1st Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was plans.
A video is available from Parliament.
5:45 p.m.
Conservative
Marilyn Gladu Conservative Sarnia—Lambton, ON
It would be terrific if you could provide that to us.
One of my colleagues was describing to me today how, if you have an insolvent pension fund, there is actually already a mechanism to transfer the risk to a third party. Do you think that is a mechanism that would address some of the concerns that banks would have about credit?
5:45 p.m.
Senior Director, Fiscal and Financial Services Policy, Canadian Chamber of Commerce
It's possible that it could. As I mentioned before, there's a delicate balance in the insolvency framework and there's a delicate balance that's already been achieved in the bankruptcy framework as well.
My suggestion to you would be to hear from someone from the lending community on that.
5:45 p.m.
Conservative
Marilyn Gladu Conservative Sarnia—Lambton, ON
I certainly did hear quite a bit from the lending community and tried to find some common ground or changes we could make to granularity in the bill, but at the end of the day, I think they have a concern that I'm not sure is truly founded. I think there are other ways. We know that the government has certainly stepped in and backfilled whenever anybody who had a large corporation in Canada got into trouble.
Thank you, Chair.
5:45 p.m.
Liberal
The Chair Liberal Peter Fonseca
Thank you, Ms. Gladu.
Now we go to the Liberals, with MP MacDonald for six minutes.
5:45 p.m.
Liberal
Heath MacDonald Liberal Malpeque, PE
Thank you.
Thank you to the witnesses for being here. It's a great discussion and a very important topic for now and into the future, obviously.
I want to go to the Association of Canadian Pension Management and Ric Marrero and his team. Can you explain what could cause a DB plan liability?
5:45 p.m.
Executive Vice-President, Ellement Consulting Group, Association of Canadian Pension Management
Do you mean having an unfunded position at the point when the company goes bankrupt?
5:45 p.m.
Executive Vice-President, Ellement Consulting Group, Association of Canadian Pension Management
Typically what happens is that there's a stress event in the economy and the investment portfolio backing the liabilities has a mixture of fixed income and equities. The equities would lose their value by 15-20%, so the value of the assets would go down.
In addition, typically central banks move to lower interest rates. As you move the interest rates lower in a stress period when there's a recession, the liabilities go up. You get kind of whipsawed, such that the value of the assets goes down at that point in time and the liabilities go up.
Not every bankruptcy occurs when there's an economic recession or a troubling period, but many of them do, as a result of customers cutting back on purchases of their products.
5:50 p.m.
Liberal
Heath MacDonald Liberal Malpeque, PE
Do you think that making pension deficits a preferred claim or having a cap superiority would allow better balance?
5:50 p.m.
Executive Vice-President, Ellement Consulting Group, Association of Canadian Pension Management
Our concern is the fact that.... We're currently in a situation where we're a big believer in the defined benefit plan because of the value it provides to members of society. We're at 9% in the private sector, so we're trying to balance the various interests to stop that 9% going to zero. It has declined over the last 20 years from 20% to 9%.
We have some solutions. Maybe Andrea wants to add to the answer.
5:50 p.m.
Partner, Chair, Pensions and Benefits, Osler LLP, Association of Canadian Pension Management
We are not in favour of a priority for pension deficits. We are in favour of helping retirees in insolvent company pension plans. If their benefit is going to be cut, traditionally the plan is wound up and annuities are bought from an insurance company, as has been alluded to.
There are mechanisms other than superpriority that we can use to improve their recovery and to get them—like the Stelco retirees—to 100% or, in an insolvency.... Air Canada has been mentioned, which was actually a great success story. Every Air Canada pensioner is getting a hundred cents of every pension dollar they were promised, because of the collaborative restructuring that took place in 2004—a file that I was deeply involved in.
There are other ways, and we are supportive of improving retirees' outcomes. These are sad stories. We all have a ton of sympathy for them, but we are very worried about throwing the baby out with the bathwater. That 9% represents 1.2 million Canadians who, if their DB plan winds up, will not have a retirement pension of the calibre they're expecting.
5:50 p.m.
Liberal
Heath MacDonald Liberal Malpeque, PE
That's interesting.
If this becomes law, what do you think could be a coming into force that would allow companies with DB plans to adjust and avoid possible bankruptcies? What's your opinion?
5:50 p.m.
Partner, Chair, Pensions and Benefits, Osler LLP, Association of Canadian Pension Management
They will wind up their plans.
5:50 p.m.
Executive Vice-President, Ellement Consulting Group, Association of Canadian Pension Management
I concur. I think many of them will use this as a catalyst to wind up their plans.
5:50 p.m.
Liberal
Heath MacDonald Liberal Malpeque, PE
All right.
As you've read many times, and we talk about evaluations done by creditors....
I'm not even sure whom to direct this to. Perhaps it should go to Alex from the chamber.
Can you give me any examples of cases where accurately assessing risk profiles...there were major mistakes in larger companies, or even smaller companies, for that matter, that may have had an effect on insolvencies and bankruptcies?
5:50 p.m.
Senior Director, Fiscal and Financial Services Policy, Canadian Chamber of Commerce
I can't give you a specific example, but what I can do is illustrate the fundamental challenges of doing so. Examining a pension solvency is not like going onto your app and seeing how much money you have in your account. It's based on actuarial forecasts, which are essentially a snapshot in time. They can take weeks to prepare. It involves a fair bit of forecasting. That underscores the fundamental challenge that it's not necessarily a readily available number.
5:50 p.m.
Liberal
October 19th, 2022 / 5:50 p.m.
Liberal
Heath MacDonald Liberal Malpeque, PE
Thank you.
We're dealing with the situation, as I think everybody is, on the premise that this is a good bill, with possible modifications based on the conversations we're having here. It seems as though everybody is on the same page, which doesn't often happen.
Mr. Powell, how do we all come together and ensure that all sides are being looked after in this regard to ensure that we are going in the right direction? We all hear you. I don't think anybody is challenging the situation or the process. How do we get there, in your opinion?
5:50 p.m.
President, Canadian Federation of Pensioners
I have to confess that my undergrad is in engineering, so that's my view in life. I think you go to the data.
I would issue a challenge. WEPP was implemented in 2005. At that time, these same industries, these same groups, made the same claim that disaster was going to occur. They can provide no data of what bad things happened. I can't remember the ACPM person who talked about the cycle of business, when businesses are failing and pensions are in trouble. I agree with that. That's the textbook answer. But that doesn't answer why over 70%, on an annual basis, of federally regulated pensions were underfunded from 2012 to 2020. Those two things don't jive.
The companies are playing, and I'm sorry to say it, a game. They don't have to fully fund their pension. It's in their interest not to. It's a cash flow gain for them. So I really struggle with how you give them the cash flow they want and protect pensioners. I think that's the other thing.
I do want to clarify one thing as well. Stelco is one of my members. The reason Stelco succeeded wasn't that they were given a trustee over on the side. The reason they succeeded was that there was a revenue flow built into that pension. Money went into that pension and is still going into that pension. The purchaser of the company didn't take over full responsibility, but they put some money in. There are all sorts of technical complexities—
5:55 p.m.
Liberal
The Chair Liberal Peter Fonseca
Thank you, Mr. Powell, and thank you, MP MacDonald.
Now we will have questions from the Bloc.
MP Ste-Marie, you have six minutes.
5:55 p.m.
Bloc
Gabriel Ste-Marie Bloc Joliette, QC
Thank you, Mr. Chair.
I welcome all the witnesses and thank them for their presence. Their testimony and the arguments they raise are very interesting.
My questions will be for Mr. Lapierre.
Mr. Lapierre, do you have any comments on what Mr. Powell just said?
5:55 p.m.
Area Coordinator, United Steelworkers
The current laws allow companies not to fund pension plans, and everyone accepts that. We wish that wasn't the case, but that's the current situation. We know from the start that there is a shortage of money in the pension scheme. When there is a bankruptcy, it's hard to tell pensioners that, under current laws, it's okay not to pay them what they are owed.
It's important to understand that a defined benefit plan guarantees an annuity, from retirement until death. The benefits will even go to the surviving spouse. As my colleague from the Canadian Labour Congress said, it is a deferred wage. When collective agreements are negotiated, choices are made. For example, we invest less in salary and more in retirement.
The retirees or the workers who will become retirees have no idea that, 10 or 15 years later, they will not get everything they were promised. This situation cannot be tolerated. At the very least, they must be given more of a chance and elevated to the rank of creditors, so that dramas like the ones we have experienced do not occur again.
5:55 p.m.
Bloc
Gabriel Ste-Marie Bloc Joliette, QC
Thank you very much, that's very clear.
Basically, when workers negotiate their collective agreement, they either ask for a bigger hourly or annual wage, or they take a pay cut to get a better pension. If the company goes bankrupt and they have decided to take higher wages, they may not get their final paycheques; if they have made the trade-off of taking lower wages to get a better pension, the pension will be underfunded by the company, because the current law allows it. The company will tell their employees that it's legal and it's okay for them to lose 20% to 30% of their pension, as you were saying earlier.
What are your comments on the current situation, and on what Bill C‑228 does in fact solve, concretely, for pensioners?
5:55 p.m.
Area Coordinator, United Steelworkers
Your understanding of the situation is perfect. At least, with this bill, we will improve the chances of retirees, their surviving spouses and active workers to get more money in the event of a wind-up process. This is not a guarantee, because in some cases the pension plan deficit may be greater than the company's assets, but let me repeat that we are at least greatly improving the chances of recovery for retired workers and their surviving spouses.
In 2015, 2016, 2017 and 2018, people in their 70s, 80s and 90s came to my office in tears after Cliffs went bankrupt because they had to make a choice between food and their medication. Not only had their pension plan been cut by 25%, but they had also lost their group insurance coverage. It's not acceptable to do that to our seniors, the people who built our society.