Finance Committee on Oct. 19th, 2022

[Andrea Boctor]

I think studies have been done showing that the cost of capital will increase for companies that are investment-grade and have defined benefit pension plans. We can provide those to you.

I would also say that a well-funded pension plan at a point in time is not necessarily an indication that the pension plan will always be well funded. Banks assess risk. They will assess this risk. It will add costs to the capital for defined benefit sponsors.

Let me just repeat that ACPM is for helping pensioners—just not in this way. The superpriority is the issue. We have suggested in our materials three concrete ways that parliamentarians can help pensioners. We urge the committee—because of the 1.2 million Canadians in defined benefit pension plans whose pensions should be valued as well—to study this issue further so that you can say with authority that there's no risk, or that in fact you're okay for five million...of this 1.2 million to lose their DB pension, and that's fine because it's the cost of this bill that you're accepting.

I don't think the studies have been done to assess that.

[The Chair, Liberal, Peter Fonseca]

Thank you, MP Lawrence.

Now we're going to the Liberals and MP Dzerowicz for five minutes, please.

[Julie Dzerowicz, Liberal, Davenport, ON]

Thank you so much, Mr. Chair.

For a number of years, I've been paying very close attention to this issue because a number of people in my riding were really impacted by Sears and its bankruptcy. They're still very traumatized by it.

I've also been very blessed that before politics I had about 20 years of experience in the business sector, particularly in biotech and in the banking industry. Again, I do quite a bit of reading and I do believe that companies know ahead of time whether they're going to be filing for bankruptcy and whether they're planning on restructuring. Often, I have found that employees are the last to learn, so I do believe that pensioners need some additional protection—far more than what exists right now. I do believe it needs to be 100% protected.

I do want to thank all the witnesses for being here. All of your presentations and answers are very important today, so thank you for being here and thank you for your patience.

My first question is for the Association of Canadian Pension Management.

I have a note from our Library of Parliament and it's very similar to what you were saying. It says:

Statistics Canada data shows that the percentage of paid workers covered by defined benefit pension plans in the private sector decreased from 21.3% in 2000 to 9.6 % in 2020. During that period, many employers have been abandoning their defined benefit pension plans in part because of the volatile and onerous funding requirements associated with such plans.

I guess my question for you is this: Is that the way it's going anyway, in terms of defined benefit plans being converted into defined contribution plans? I would like to hear your thoughts on that because I think you've made an argument that if this piece of legislation moves forward, it would actually accelerate defined benefits being cancelled.

[Andrea Boctor]

Sure, I'll start, and then Ross can feel free to jump in.

The decline of the defined benefit pension plan in the private sector is a known issue. It is one that provincial legislatures across the country have tried to reverse by tweaking funding obligations and, in a lot of cases, revamping funding obligations so that pension plans can be maintained on a going-concern basis and so that there is more of an incentive to maintain defined benefit pension plans.

This bill works in opposition to all of those initiatives.

I'll turn it over to Ross to respond as well.

[Ross Dunlop]

I would reiterate that we're big believers in the value of a defined benefit plan for plan members. We see the value of that, which is why we're trying to find a solution and maybe—

[Julie Dzerowicz, Liberal, Davenport, ON]

I'm sorry to interrupt. I totally agree with that. I think all of us would love defined benefits plans—

[Ross Dunlop]

Yes.

[Julie Dzerowicz, Liberal, Davenport, ON]

—but what I'm trying to say is that you're already seeing companies that are starting to transition out of that as well.

Are you looking at the numbers?

[Ross Dunlop]

Our belief is that this would accelerate that to significantly below the 9%. This, then, leaves the active group that's accruing that benefit with less of a benefit.

That's the concern we have.

[Julie Dzerowicz, Liberal, Davenport, ON]

I think my colleague partially asked this. I want to be very clear. If this bill were to go through, there are a number of different proposals on the table for implementation, whether it's a year, three years or five years.

What would be your opinion on how many years are needed for implementation, if this bill were to move forward?

[Ross Dunlop]

Typically, longer would be better for them to react and to look at their loans and their collective agreements, so five years would seem reasonable to us.

[Julie Dzerowicz, Liberal, Davenport, ON]

I'll go over to Mr. Gray.

You've outlined a number of risks. I think you were talking about interim loans and the impact on interest rates. I think you mentioned a number of risks.

What would be your opinion on how long the delay should be in the implementation or coming into force, so as to help mitigate some of the concerns you have raised?

[Alex Gray]

I agree with Mr. Dunlop that longer would be better. Taking into account pension plan valuation cycles and required notice to members, as I outlined in my statement...seven years.

[Julie Dzerowicz, Liberal, Davenport, ON]

Okay.

I want to say a huge thanks to the Association of Canadian Pension Management for putting three proposals on the table.

Mr. Gray, would you have any additional proposals on the table, if there were going to be adjustments to this bill, that would keep the pensioners' pensions whole, but also be able to address some of the concerns that you have raised around companies?

[Alex Gray]

We jointly signed a letter with them on the proposals. Feel free to take a look on the committee website.

[Julie Dzerowicz, Liberal, Davenport, ON]

Thank you.

[The Chair, Liberal, Peter Fonseca]

Thank you, Ms. Dzerowicz.

Now we'll go to the Bloc and MP Ste-Marie for two and a half minutes.

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

Thank you, Mr. Chair.

I'd like to hear from Mr. Lapierre first and then, if there's time, from Mr. Powell.

There was just a lot of talk about the risks that companies and pension fund managers would have to manage if this bill were to pass.

In your view, are these risks insurmountable? Is it worth the risk? Are they able to live with these risks?

[Nicolas Lapierre]

I just want to make sure I understand your question, Mr. Ste-Marie.

Are you talking about the possibility of companies converting their pension fund to a defined contribution plan?

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

If you like. In fact, take whatever angle you want to answer my question. This is one of the risks raised if the bill were to pass.

[Nicolas Lapierre]

For my part, I don't think this risk is that great. The majority of defined benefit plans are found in large, highly unionized companies. We know that just over 9% of paid workers are covered by a defined benefit pension plan.

If a company wanted to migrate to a defined contribution plan, this would therefore need to be done through a formal negotiation process. If the parties agree to that change based on their right to free bargaining, that's okay and we'll let them make that decision.

However, I don't see why companies would suddenly decide to migrate to a defined contribution plan, because there are risks. If the risks scare them, they just have to fund the pension plan. However, it's not that simple and they won't want to fund that pension plan, invest money in it. They will assume, by analogy, that they can live with that risk just fine.

You can't not invest money without it raising risks later on. At some point, you have to be consistent. If a company doesn't want to take risks, it has to fund its pension plan. However, the legislation allows pension plans not to be funded. So let's accept the current state of the law and the legislation.

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

I like your analysis.

Mr. Powell, do you have a comment to add on this subject?

[Michael Powell]

Again, when we talk about risk, the companies have a lot of resources to manage the risk. I will go back to the data. When you look at the percentage of companies that routinely and normally underfund their pensions, it's a matter of choice. It's not because they have to; it's because it gives them cash flow.

[The Chair, Liberal, Peter Fonseca]

Thank you, Mr. Ste-Marie.

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

Noted, thank you.