Finance Committee on Oct. 19th, 2022

[Sophie Chatel, Liberal, Pontiac, QC]

Mr. Lapierre mentioned earlier that one of the key problems was the restructuring of companies faced with bankruptcy. If pensioners have superpriority, then it doesn't allow the restructuring. Do you think that having banks first in the order of priority, and then pensions, would allow the restructuring of the company?

[Andrea Boctor]

You're asking whether, if the pension deficit had a spot perhaps behind secured creditors but ahead of unsecured creditors, that would be a good compromise.

I would say it could be a good compromise in some situations. CCAA insolvencies can be very complicated and nuanced. It depends on the liquidation value of the company. It depends on the position of all these creditors and how much there is to go around. It could be that your secured creditors are going to recover everything and there will be nothing left for pensioners. It could be that it is sufficient for payouts to unsecured creditors even after the pension deficit. It really depends on the CCAA—

[The Chair, Liberal, Peter Fonseca]

Thank you. We have gone over time.

We are at our third round, members and witnesses; we just don't have enough time for a full third round. As we do, we'll break out the time equally. It will be about five minutes and a bit for each of the parties.

I have Ms. Gladu for the Conservatives for her five-plus minutes.

[Marilyn Gladu, Conservative, Sarnia—Lambton, ON]

Thank you, Chair.

Thank you again to our witnesses.

Mr. Powell, one of the mechanisms in Bill C-228 is the ability for a company that has an insolvent fund to transfer money into it without any tax implication, so they can basically top it up and fix it. You mentioned the Stelco situation and that what actually helped there to get the pensioners their pension was a revenue flow into their funds. Can you describe what happened there?

[Michael Powell]

It's really complicated.

For simplification, the new purchaser wouldn't take over the entire responsibility. They agreed to put a stream of funding into it. If Stelco made over a certain percentage of profit, the pensions were given a stream out of that. They were also given a percentage of the land and facilities. All of that went in.

This allowed the people running the plan to keep it fairly stable, but they had this new money coming in to build it up. If you don't have a source for that money, as with the Sears situation, then you have the risk of.... Who is going to handle the risk and be responsible for it? The person running the plans can say, “I have no money coming in, so I can't take any risk”, and it's not going to grow. That's where you run into....

I also want to make the point that, at least as of last week, one of the Stelco pensions has not been annuitized and it's still under that program. That's the Stelco salary plan in the Lake Erie Works. Again, that's a member of my organization.

[Marilyn Gladu, Conservative, Sarnia—Lambton, ON]

Did the Stelco organization see any impact in terms of banks not wanting to lend them credit or any impact like that?

[Michael Powell]

I don't know.

[Marilyn Gladu, Conservative, Sarnia—Lambton, ON]

Let me talk a bit about the calendar date for coming into force.

For the benefit of committee members and those who weren't here the other day, we heard there's a problem with the legislation in terms of picking a calendar day for the coming into force of Bill C-228. There was concern that, if there were companies going through bankruptcy proceedings, they would have to switch measures halfway through. I've consulted with the legislative clerk and she has verified that this is not the case. The coming into force means.... Only bankruptcy proceedings that start after the coming into force would be under the new measures. I just wanted the committee members to know that.

We also heard department officials say that federally managed pensions had five years to get solvent. Mr. Powell, you had some data that suggested they've been insolvent for more than five years. Can you comment?

[Michael Powell]

This is one of the great misunderstandings of federally regulated pensions. When they say they have five years to pay back the deficit, everybody leaps to the conclusion that, five years after that deficit, the pension is fully funded. That's not what happens. They have five years to pay off that particular deficit.

In the federal program, if there's a deficit next year, they take what's owed from the first year and add it to the second year and get five more years. With the third year and the fourth year.... There's a great incentive. I have actually called the CRA and they won't let me do that with my taxes.

[Voices]

Oh, oh!

[Marilyn Gladu, Conservative, Sarnia—Lambton, ON]

Yes, well, we don't have enough time tonight to get into all the issues with the CRA.

My understanding of the situation we are facing today is that there have been 10 years of discussions on these bills. Certainly, we came very close, in the former Parliament before the election, to agreeing that the priority suggested here—before secured creditors, preferred creditors and unsecured creditors—is a good one. Right now, defined benefit plans are 109% funded, on average, in the federal government. That's a good situation.

People have come through a pandemic, where they have been extended huge amounts of credit by banks to help them out of their situation or keep them going. It seems to me that, with this, we are in a very good time in history to finally protect workers and their pensions, and strike that correct balance.

I want to thank everybody again for all their input and ideas.

I turn the time back to you, Mr. Chair.

[The Chair, Liberal, Peter Fonseca]

Thank you, MP Gladu.

Now, we are moving to the Liberals.

We have PS Fillmore for five minutes.

[Andy Fillmore, Liberal, Halifax, NS]

Thanks very much, Chair.

Thanks again to the witnesses for joining in person and virtually.

I don't think there's a person in the room or on the call who disagrees with the notion that we need to do better for Canada's pensioners, and that the money or equity they've put into these companies is their own to withdraw in their retirement. Of course, the money they pull out is not just the money they put in; it's also the money being earned by current employees and by the ongoing work of the company while the pensioners are in their retirement.

What we're hearing—fairly clearly, I think—is that pensions are a superpriority for pensioners, but despite how morally connected pensioners might feel to that, or how right it is that they get their full pension, or how much bargaining clout it might give them if they're in a superpriority position, that doesn't change the cold hard math of what happens when a company has to pack up entirely and is not able to restructure because of a pension superpriority. There's what we feel is right, and then there's the math. This is the space we're in right now.

The picture that emerges in our conversation today is that we're hearing from two sides of this. There's the side, perhaps, of the Association of Canadian Pension Management, which is speaking on behalf of the employers—the companies and the people who are manufacturing and producing goods—and then there's the side of the people who are speaking on behalf of the pensioners at the other end of that machine, receiving what is rightfully theirs. What we're hearing from the first group is that the machine is put at risk by pension superpriority.

I'd like to go to Andrea Boctor and Ross Dunlop, if I could, to bring it back to practicalities. We'll go back to the cold math, if you will.

Right now, the bill puts pensioners in a superpriority position over secured and unsecured creditors. Can I ask for your opinion on making an amendment to the bill that introduces a capped superpriority? We've seen this in other jurisdictions. It would still put the pensioners ahead of secured and unsecured creditors and so forth, but it would be capped and it would increase the chances and the runway for companies to restructure.

Can I get an opinion on that?

[Andrea Boctor]

Implementing a superpriority, similar to the WEPPA, of a couple of thousand dollars per pensioner or per member, or something of that magnitude that can be calculated and reserved by banks would very likely deal with the risk associated with access to capital that we see. Certainly, in our materials, we are supportive of a WEPPA-like priority on a per-member basis that is not volatile, that is calculable and that is understandable.

[Ross Dunlop]

I agree with that.

If there was a defined cap of a dollar amount per member, at least the lender would know and would be able to assess that risk. The challenge they have now is that they're trying to assess both the assets of the plan and the liabilities of the plan, which are subject to a lot of variation due to yield curve changes.

This would be most helpful for them to assess it, and it would be a good compromise.

[Andy Fillmore, Liberal, Halifax, NS]

If you were asked to choose between—I don't mean to put you on the spot like that—this option and an option that we heard discussed earlier today, which was to put the pension liability just below the secured creditors and the banks, is there a preference, in terms of the math and the potential positive outcomes?

[Ric Marrero]

For some of the options that we're proposing, it's not putting one ahead of the other. It's simply keeping that pension fund alive and managing it to a better outcome.

Our main point here is that we represent people who manage pension plans on a daily basis. They deal with millions of plan members on an annual basis. Quite honestly, we have complete sympathy for the retiree and we agree that more needs to be done there, but we don't think that a superpriority is the right approach. It's an approach that is used hardly anywhere in the world because of its disruption to the investment and financial regimes.

We're simply giving you an alternate option that the government can easily implement without disruption.

[Andy Fillmore, Liberal, Halifax, NS]

Okay.

The bill is calling for a three-year coming into force. We've heard that seven years would be a better number. I've heard five bandied about. What do you suppose would be the coming into force term that would have the most positive outcome?

[Andrea Boctor]

I think we are supportive of five to seven years, and the reasons are these: It's about two valuation cycles for a pension plan. It would allow for pension sponsors to renegotiate whatever lending agreements they have, renegotiate collective agreements to the extent they have to in order to be able to continue to access capital on a seamless basis, and then to do the windup, if they need to. It takes 18 to 24 months to wind up a pension plan, for a variety of reasons.

With all of these things taken together, we think five to seven years would give an appropriate amount of time to adjust.

[The Chair, Liberal, Peter Fonseca]

Thank you.

That's the time, PS Fillmore.

We are going to the Bloc and MP Ste-Marie for five-plus minutes.

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

Thank you, Mr. Chair.

Before I ask my question, I would like to make a comment. I think the House has been debating bills similar to this one, aimed at better protecting pension funds, for about 20 years.

As was mentioned earlier in this meeting, the problem is that in order to have more money or cash flow, which allows them to generate more profits, the company voluntarily chooses to underfund their pension fund. This problem needs to be corrected. Company profits are made on the backs of workers' future incomes, resulting in a great inequity. As mentioned, these are big companies, with strong backs and very clever finances.

This is not the case with pensioners. When workers lose 10% of their pension fund, they can find themselves in a bad situation, since it can be a few decades since their pension has been indexed. We need to intervene.

I find it amusing that we say something needs to be done, but not what the bill before us proposes. Yet the latter is tangible. In my opinion, it is a bit too late to go back. I like the foundation and the principle of this bill. Again, I commend the member who introduced it.

As my colleague Sophie Chatel said, we do not want a bill to create more harm than good. That is why all bills are studied in committee. That is also why the Standing Committee on Industry and Technology studied a similar bill introduced by my colleague Marilène Gill.

The people around the table have given us good solutions and that is reassuring. Risk management will not be as complicated as some would have us believe and, as we have heard, it may force companies to properly fund their defined benefit pension funds.

Mr. Lapierre, you said earlier that under the current law, retirees of a bankrupt company lose not only part of their pension fund, but also their drug coverage, which is very serious. As my colleague Ms. Gill said, it is difficult for someone in their 80s to find a new insurer or a new drug plan, and to pay for it on a lower income.

I would like you to give me more details as to this reality. On a day-to-day basis, what does this mean for retirees and surviving spouses?

[Nicolas Lapierre]

Thank you for your question, Mr. Ste-Marie.

Many collective agreements do provide for retirees to retain some of their group insurance, including life insurance and drug insurance. These coverages are very important since the older you get, the more at risk you are and the less insurable you become.

The example was given of the Cliffs Natural Resources mining bankruptcy, after which retirees lost their life and drug insurance. As has been said, it is impossible for a person of 80 years or older to buy new life insurance. This causes them great distress, as they wonder what they will be able to leave to their spouse and children. This is in addition to the great stress caused by the loss of income due to the reduction of the pension fund. These people are experiencing drama and anxiety, and this human distress must be addressed.

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

Thank you for your reply.

Let's hope that this bill moves forward and provides more fairness for workers and retirees.

Personally, I think it's very serious to no longer have access to life insurance or drug coverage. That's another argument for passing the bill.

As you said in your statement, we are legislators.

Colleagues, it is therefore time to legislate.

[The Chair, Liberal, Peter Fonseca]

Thank you, Mr. Ste-Marie.

Now we're going to move to our final questioner. It will be the NDP.

We have MP Angus to finish off this round in this session.

[Charlie Angus, NDP, Timmins—James Bay, ON]

Thank you so much, Chair. Thank you for chairing and inviting me and letting me sit in on this fascinating discussion.

I remember when the Nortel workers came here to Ottawa after they were robbed of their pension—in the United States, the pension shortfall of $514 million was covered by the Pension Benefit Guaranty Corporation—and I remember members of every party coming out. They all went up and they said they were so sorry.

We're not talking about somebody's funeral here; we're talking about a policy failure. We're here to talk about whether or not we are going to change policy to protect pensions.

My Liberal colleagues have suggested an amendment to this bill where we put a cap on what the pensioners get in order not to unfairly leave behind the hedge fund operators or the banks.

Mr. Powell, do you think a cap on what pensioners should be allowed to get would be fair? Would you suggest it for this bill? Would a cap on what pensioners get—pensioners who are not getting what they deserve out of what they paid—be a reasonable option for us?