Finance Committee on Oct. 19th, 2022

[Andrea Boctor, Partner, Chair, Pensions and Benefits, Osler LLP, Association of Canadian Pension Management]

Thanks, Ross.

Our goal in appearing before you today is to share with you other options that can help this committee achieve its important goal, but without sacrificing that 9%, or about 1.2 million private sector workers in Canada, who are presently accruing defined benefit pensions.

The pension industry has evolved in the last many years. We have tools in our tool box to enhance pension security without resorting to a superpriority. In my experience, where pensions have been cut after an employer insolvency, the cause of the cut is not that there's not enough money to provide the pension; the cause is the way we wind up pension plans in Canada. We immediately buy annuities from an insurance company to replicate the pension benefit. Annuities are fully guaranteed, but they are backed by low-yielding assets, and are therefore expensive relative to other options.

In our materials, we outline solutions that parliamentarians could consider instead. They are based on real, recent examples of Canadian successes. An example is allowing for the appointment of a special pensions insolvency trustee to manage or merge pension assets and liabilities based in part on the Stelco model, where pensioners received 100% of their pension, notwithstanding a large windup deficit when the company filed for CCAA protection.

Other examples are asset pooling based on the great success of the model deployed in Quebec for members of insolvent company plans, or variable and advanced life annuities, new tools recently added to the Income Tax Act. These solutions do more with the dollars that are there than simply rush to buy an annuity and crystalize a deficit, and none would disadvantage the 9% of private sector employees still covered by a defined benefit pension plan in Canada.

If the committee is nevertheless committed to a superpriority approach, we've made a number of suggestions in our materials to lessen the blow this bill will levy against existing defined benefit plans, as well as a number of technical comments, which we are happy to speak to.

[The Chair, Liberal, Peter Fonseca]

Thank you for your opening remarks.

Now we'll hear from the Canadian Association of Retired Persons, CARP. We have Bill VanGorder with us.

[Bill VanGorder, Chief Operating Officer and Chief Policy Officer, Canadian Association of Retired Persons]

Thank you, Mr. Chairman and members of the committee, for this opportunity to speak to you today on Bill C-228.

My name is Bill VanGorder. I'm the chief operating officer of CARP, which is also known as the Canadian Association of Retired Persons. We're a national, non-partisan and not-for-profit organization that advocates for financial security, protection from ageism and improved health care for Canadians as they age. We have over 330,000 paid members in 30 chapters across Canada.

CARP seeks to play an active role in the creation of policy and legislation that impact older Canadians. CARP advocates on behalf of older Canadians at all levels of government and collaborates with other organizations on health, ageism, housing and financial issues, such as the issue we are on today.

CARP has been fighting for the protection of pensioners for over 20 years. When we created the Nova Scotia chapter of CARP, which I was involved in 20 years ago, one of the first planks in our policy platform was this issue. Our first board of directors had members of the Air Canada pensioners association, whose lives had been severely impacted by the Air Canada insolvency at that time. Pension protection continues to be one of CARP's seven advocacy priorities in 2022-23.

We have 330,000 paid members of CARP across Canada and we survey them on a regular basis. Their financial security continues to be their number one concern. They're all concerned about health, as all of us are, but certainly, their number one concern is whether or not they're going to have enough money to live on for the rest of their lives. Seniors are anxious that they're just not going to be able to do that.

Frankly, our members can't believe that after 20 years of advocacy, the current legislation allows the assets of a bankrupt or insolvent company to be divided among other secured creditors such as banks, the CRA and others, but doesn't move pensioners closer to the front of the line to improve their likelihood of receiving their full pension—a pension they've earned and planned for throughout their working careers. These aren't gifts or unearned benefits, but deferred wages that are earned by Canadians while they work and payable to them when they retire.

The changes that were made in the Bankruptcy and Insolvency Act and the Companies' Creditors Arrangement Act back in 2018 weren't enough. The current law is still unfair to older Canadians.

Inflation is anywhere from 5% to 7%. Food prices alone are up as much as 30%. The inequities across the country have to be addressed, and they have to be addressed now. These are changes that should have been made 20 years ago. Older Canadians are demanding action now. You know, if you're 80 years old and people tell you you have to wait three or four years for something to happen, that just doesn't wash.

CARP recommends actions that would protect pension investments with insurance policies that insure 100% of pension liabilities, and would ensure protection of seniors by amending the act to give pensioners priority status.

I'm not going to take your time by repeating the content of the letter that we and the other pensioners and seniors organizations sent you on September 21. I have other, more expert people in finance who are going to speak later from our group. CARP does want to emphasize that changes in Canada's laws must give underfunded pensions priority over large predators and halt the payout of executive bonuses in bankruptcy and insolvency issues.

The cases of Air Canada, Sears in 2017 and Nortel in 2009 are strikingly unfortunate examples of how tens of thousands of retirees are treated in bankruptcy and insolvency proceedings compared to secured financial lenders such as banks, bondholders and other stakeholders.

Protection of the financial security of older Canadian workers should be the absolute priority of this committee and the Parliament of Canada.

Thank you on behalf of the thousands of CARP members across the country who are looking for action today.

[The Chair, Liberal, Peter Fonseca]

Thank you, Mr. VanGorder.

We just heard from a number of our witnesses virtually. It's great that we're able to do that. People can come to us from many different locales.

Before us, here in the House, we have the Canadian Chamber of Commerce. Mr. Alex Gray has opening remarks for his organization.

[Alex Gray, Senior Director, Fiscal and Financial Services Policy, Canadian Chamber of Commerce]

Good evening.

Thank you for having me here. I appreciate the opportunity to appear before this committee today.

Improving retirement security for pension plan members is a laudable goal, yet as Canadians continue to have concerns about their financial security in retirement, it is essential that Parliament not address this challenge in a manner that would negatively affect Canadian businesses, especially those that sponsor DB plans.

The legislative mechanisms proposed in Bill C-228 would impose material and adverse consequences on Canadian businesses of all sizes. I'll begin by discussing some of these unintended consequences. To end my remarks, I'll propose solutions that would protect retirement security without burdening the Canadian economy.

To start, Bill C-228 would increase the cost of credit for Canadian businesses that offer DB plans. Struggling companies would have greater difficulty securing loans, thereby undermining a core objective of insolvency legislation: to encourage successful restructurings that allow companies to continue employing Canadians, thereby mitigating the social and economic consequences of liquidations. Additionally, DB plan sponsors would reassess continuing to offer DB plans, thereby harming retirement security across the country.

As we prepare to enter unquestionably turbulent economic times, I must underscore that economic recovery depends on businesses' ability to access affordable credit so they can invest and grow. Bill C-228 would also force lenders to require more collateral and restrict companies' abilities to draw down credit facilities should a pension insolvency come into question. This is because financial institutions ensure systemic stability in part by accurately maintaining prudential regulatory requirements to prevent lending losses. At best, increasing the cost of doing business would impose a competitive disadvantage on Canadian companies that provide DB plans to their employees relative to their non-Canadian competitors. At worst, lenders could refuse to lend to said companies.

Additionally, Bill C-228 would increase the cost of doing business in Canada by imposing more stringent reporting requirements on companies maintaining DB plans. This is because creditors would face challenges in determining exposure to pension deficiencies. In the end, lenders would find themselves unable to make real-time credit decisions because solvency deficiencies are ultimately forecasts based on factors over which lenders have no control. I believe it would behoove the committee to hear from members of the lending community during this study.

I must also stress the consequences of imposing Bill C-228 on a timeline shorter than seven years. Minimizing the fallout for businesses would require considering the length of typical bargaining periods, generally three to five years, and pension plan valuation cycles, generally three years, as well as relevant notice periods to plan members on plan reforms, generally two years.

Those businesses that would need to move to defined contribution pension plans as a result of this legislation would incur significant costs. In such a scenario, DB plan members who are close to retirement would also need a great deal of time to settle with their employers. Additionally, any coming into force date should consider the progress of insolvency proceedings cycles, rather than the current approach of being imposed on a particular calendar date.

By way of providing constructive solutions to providing retirement income that would not burden Canadian businesses, which already operate in a time of economic precarity, the Canadian Chamber of Commerce would encourage amending the BIA and CCAA to allow for the appointment of pension insolvency trustees to wind down insolvent employers' pension plans. Said trustees would have the authority to maximize available pension dollars. This model, as has previously been mentioned, has been successfully deployed in Stelco pension plan members' receipt of full pension payments.

Another solution the government could study is paving the way for large multi-employer pension plans to subsume smaller pension plans from insolvent companies in order to leverage economies of scale. A pension insolvency trustee could also be empowered to merge insolvent company plans where deemed appropriate.

Upsetting the order of priority in insolvencies would impose adverse and unintended economic consequences across the economy, especially absent a broader consideration of Canada's insolvency legislative framework. Ultimately, the best solution for pensioners and employees of a distressed company is to encourage successful restructuring so that it can keep paying salaries and making contributions to its pension plan. If passed, Bill C-228 would discourage this universally desirable outcome, despite its merits and despite its laudable intent.

Thank you. I look forward to your questions.

[The Chair, Liberal, Peter Fonseca]

Thank you, Mr. Gray.

Now we'll hear from the Canadian Federation of Pensioners and Mr. Michael Powell.

[Michael Powell, President, Canadian Federation of Pensioners]

Thank you.

We've submitted the specific changes we believe need to be made to Bill C-228, so I won't discuss those here.

I will be talking about some of the points included in the submission that we made supported by CFP and five other leading Canadians seniors' advocacy organizations.

The fundamental challenge for this committee is to choose between the status quo and extending superpriority in insolvency to the unfunded pension liability. We know the status quo, the intended consequences. We've heard of the personal stories and tragedies of those impacted. CFP estimates that since 1982, 250,000 vulnerable Canadian seniors have had their income reduced for the rest of their lives.

We've all heard the unintended consequences. Here is a quote that I have: “there could be a significant negative impact on Canadian productivity and employment since businesses...will have a tougher time getting financing, and their costs could rise dramatically.” If true, those consequences would have a significant impact on the Canadian economy, a measurable impact. That's why I don't understand why we're having this discussion. That quote is from the 2005 committee review of Bill C-55, the Wage Earner Protection Program Act.

WEPP extended superpriority to unpaid wages and other items in insolvency and was passed in 2005. Note that WEPP impacts every insolvency; extending superpriority to the unfunded pension liability would only impact the relatively small and declining number of companies with defined benefit pensions. Where are the binders of evidence of Canada's poor economic performance versus competitors since 2005? If these charges were true, we should be towards the bottom in GDP growth, at the top in unemployment, at the top in companies filing for insolvency, and at the top in liquidations. Where is the data?

The reality is that superpriority would simply put a price on abandoning pensions in insolvency. Today, the minute a company files, the pension deficit disappears like a puff of smoke.

Be honest: Knowing there's no penalty for underfunding a pension and no obligation that survives insolvency, what CEO is going to fully fund their pension? Allocating funds to the pension instead of, for example, dividends, when not legally required, would get you fired. As Mr. Schaan said on Monday, companies only do what is required. Another comment from Monday said that federally regulated pensions are not required to be 100% solvency funded, at least not as I understand the term “required”.

Statistics support this. From 2012 to 2020, on average, 73% of federally regulated plans were under 100% solvency; that's not required. As mentioned on Monday, the 2021 median funding was 109%, which means today is the time to act, because when that gap is small to get to full funding and many plans are fully funded, then companies can de-risk their pension and pose no threat to lenders going in the future.

We also know that companies are going to regulators and looking for contribution holidays, looking to reduce those solvency levels. Now is the time to step in and stop that. If you change the rules, corporate behaviour will change.

This was the case with Air Canada. At the time of its insolvency in 2003, Air Canada had a $1.3-billion pension deficit. Under ministry monitoring, by 2013 that deficit ballooned to $4.2 billion. In 2013, the finance minister at the time, Jim Flaherty, agreed to further relief, subject to restrictions until the pension was fully funded. Executive compensation increases, special bonuses, and other incentive plans were curtailed. The airline was prevented from paying dividends and buying back stock. With those restrictions in place, that pension was fully funded by May 2015. Monitor, and companies do what is required; change the rules, and behaviour will change.

In Canada, we have two levels of legislation, and pensions get whipsawed between them. We have insolvency legislation, and underneath it 11 different pension benefit acts.

ACPM—they're not unique, but they're here so I'm going to use them as an example—argue that pensions shouldn't be protected in insolvency, that insolvency is not the place, yet they advocate for the removal of solvency requirements in pension regulations. The most recent one I know of was in Saskatchewan a couple of years ago. It's online and you can find it. We know that anything less than 100% solvency funding increases the risk to pensioners. It leaves pensioners as acceptable collateral damage in insolvency.

Since 2005, proposed solutions from governments and the greater pension industry have all been based on shifting risk from the companies that willingly accepted the obligation to the pensioners without obtaining the pensioners' informed consent. This is the very definition of elder financial abuse.

Superpriority would at least partly address the power imbalance in insolvency.

This committee will determine whether to continue the status quo or to protect vulnerable Canadian seniors.

Thank you.

[The Chair, Liberal, Peter Fonseca]

Thank you, Mr. Powell.

Now we will hear from the Canadian Labour Congress and Ms. Siobhán Vipond for five minutes, please.

[Siobhan Vipond, Executive Vice-President, Canadian Labour Congress]

Thank you, Mr. Chair. Hello to you and all the committee members. Thank you for this opportunity to appear in front of you.

My name is Siobhán Vipond, and I'm the executive vice-president of the Canadian Labour Congress, Canada's largest central labour body. We, as Canada's unions, advocate on national issues on behalf of all workers from coast to coast to coast.

Pensions are essential to the financial security and well-being of working people. Canadian research shows that income from an employer pension plan can make the difference between financial security in retirement and a decline in living standards, compared to pre-retirement levels. Next to their homes, pension savings are one of the most important pools of assets that workers accumulate over their lifetimes.

It’s important to remember that workplace pensions are not gifts from employers. Pension benefits are deferred wages. Pensions are earned and paid for by workers, and workers depend on that money being there for them when they retire. Employers are legally obligated to provide those pensions when a worker retires. It is frustrating and unjust that this legal obligation can be torn up when a company enters insolvency.

When a company enters insolvency proceedings, workers and pensioners go to the back of the line. They are essentially treated like involuntary unsecured creditors of the firm, behind the banks and the secured creditors. No one asked workers and plan members if they would lend the value of their pension benefits to their employer. It's quite the opposite. Plan members trust that their employer will live up to the terms of the pension bargain.

Unlike commercial creditors, employees and pensioners are generally unable to protect themselves against the risk of their employer’s insolvency. If their previous employer enters bankruptcy, pensioners cannot easily return to work and find new and additional sources of income.

In 2018, Sears Canada pensioners outside Ontario learned that their pension benefits would be reduced by 30%. One Sears retiree in Calgary—which happens to be my hometown—who had worked for 44 years took a monthly pension cut of $800 a month. After a lifetime of work and a lifetime of pension contributions, his pension was slashed in retirement.

Another retiree, who had worked for 35 years, saw his pension drop by $450. In anticipation of benefit reductions, this 72-year-old pensioner took a job at Home Depot as a greeter. For many others, taking a minimum-wage job to make up for pension reductions is not a realistic option, nor should it be an expectation.

The way pensions and benefits are treated in insolvency is outrageous and unfair. Despite this, the government has not taken steps to extend protections to pensioners and plan members.

The government’s legislated changes in response to the Sears Canada debacle were woefully inadequate. In 2019, Bill C-97 made minor changes around the edges of the problem. None of these legislated changes would have prevented another Sears Canada, or the pain and suffering it caused for Sears pensioners.

This is especially frustrating since the evidence shows that many companies with underfunded pension plans could eliminate the solvency deficiencies of their plans by allocating just a portion of their shareholders' payouts to the pension plan. Studies show that many firms consciously choose to reward shareholders and senior executives, boosting the stock prices, rather than fully funding their pension plans. This leaves pensioners and plan members at risk if the company becomes insolvent.

Over the years, we at the CLC have supported numerous NDP and Bloc members' bills. None of these bills have been allowed to proceed. For years, we have urged governments to put in place national mandatory pension insurance akin to the Ontario pension benefits guarantee fund. We have been unable to get traction on this idea.

The CLC supports the passage of the revised Bill C-228, and we support the bill’s proposed changes to the CCAA and BIA. The proposed amendments to the Pension Benefits Standards Act are not well conceived and should be deleted from Bill C-228 in their entirety.

We will be very happy to answer any questions you may have. At the centre of this issue are the workers and pensioners across this country.

Thank you for your attention.

[The Chair, Liberal, Peter Fonseca]

Thank you, Ms. Vipond and the CLC for your opening remarks.

Now we will go to the United Steelworkers via video conference. I have Nicolas Lapierre, who is with us for five minutes.

[Nicolas Lapierre, Area Coordinator, United Steelworkers]

Thank you very much, Mr. Chair.

Good evening to all the members of the committee, and thank you for your attention.

The United Steelworkers union represents 225,000 workers across Canada, 60,000 in the province of Quebec alone.

In 2017, 2018 and 2019, the USW met with more than 250 members of Parliament and senators to raise awareness of the need to amend the Companies' Creditors Arrangement Act and the Bankruptcy and Insolvency Act. For six weeks, more than 30 activists were on the Hill to raise awareness. They discussed the discussions and problems that arise when a company declares bankruptcy or goes into receivership.

The most striking example was Cliffs Natural Resources, a North Shore-based mining company, which placed itself under creditor protection. As a result, 1,700 retired workers and surviving spouses have seen their pension benefits reduced by 21% to 25%. As a result of various legal actions, several million dollars were recovered. Nevertheless, pensioners and surviving spouses suffered a loss of 8% to 10%. For some, this represented about $200 less per month, while for others, the loss was $600 to $700 per month. It is also important to understand that most private plans do not provide for cost-of-living adjustments. In the case of someone who retired in the 1980s, for example, because their benefits were not indexed, the impact of the reduction in 2015 was even greater.

During the six weeks of lobbying, we listened to you. I personally participated in the discussions. We were sensitive to some of the arguments, one of which was that it might prevent business recovery or prevent banks from granting loans to businesses. We were sensitive to that argument and we changed our position accordingly. Bill C‑228 proposed by MP Marilyn Gladu provides for just such a change in the order of priority of creditor claims. We would come right after the banks. So the argument that we were going to prevent companies from recovering no longer holds water. We have responded to some political parties who had a concern in this regard. Now, Bill C‑228 puts us behind the banks, but ahead of school boards and municipalities that want to collect taxes. So it's a significant leap for us and a very structuring gain for workers.

By the way, this would be a step forward not only for unionized workers, but also for non-unionized workers who have a defined benefit plan.

At the United Steelworkers, we believe that, as legislators, you have a role to protect Canadian citizens from a possible loss of income if a company seeks protection from its creditors.

I appeal to your sense of responsibility, your empathy, your concern for human beings, especially those in their 70s, 80s or 90s. These are human beings who are in distress. Canadian citizens voted for you because they had confidence in you to fulfil your role as legislator. It is now up to you to take advantage of this bill to say that enough is enough. This has been going on for decades. Several bills have been tabled. Moreover, Bill C‑228is the result of a consensus among all political parties.

In fact, I remind you that in 2021, there was consensus in the committee studying the previous bill. Unfortunately, an election was called, so we didn't get there, but we were very close. But there was a consensus and we did what you wanted. You were concerned that pensioners were coming before the banks. Now they come after the banks, but at least they are ahead of the municipalities. Bill C‑228 reflects a difficult consensus that takes your concerns into account. Banks come before us and pensioners come after.

Currently, we are picking up the breadcrumbs, picking up what is left, and that is not acceptable. If pensioners were to make a significant jump in the order of creditors, it would be a giant step for all workers, for all Canadians. Please, for the sake of our seniors, be diligent and put some water in your wine. Bill C‑228 is not perfect, but it is a very acceptable consensus as well as a giant step forward for workers.

I could name several situations, among them Cliffs Natural Resources, Sears in 2018, Mabe Canada, White Birch or Atlas Stainless Steel. How many similar situations will it take before we act?

I appeal to your sense of responsibility to citizens and your duty of care, and I ask you to endorse Bill C‑228 quickly, so that we can say once and for all that we have helped the middle class.

Thank you very much.

[The Chair, Liberal, Peter Fonseca]

Thank you, Mr. Lapierre.

To all the witnesses, thank you for your opening remarks.

We are going to move to our rounds of questions. In our first round, witnesses and members, it will be equal time for all the parties, which is six minutes. We are starting with the Conservatives, and we do have with us today MP Gladu, who is the author of Bill C-228.

MP Gladu, go ahead.

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

Thank you, Mr. Chair.

Thank you to all the witnesses who are here.

I want to assure Monsieur Lapierre that the priority that is assigned in Bill C-228 is exactly that which was put into Bill C-253 by my Bloc colleague, Marilène Gill. It is before banks, secured creditors, preferred creditors and unsecured creditors.

I only have six minutes, so I am going to ask some quick questions.

My first question is for Mr. VanGorder.

Do you agree with the priority that we've assigned to pensions in Bill C-228?

[Bill VanGorder]

Yes, we do. We've had some suggestions, as you've seen in our letter from our coalition of groups, but certainly that's the kind of direction that will take great strides to make this wrong a right.

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

Thank you.

Mr. Powell, we heard that the pension plan reform cycle is three years. We have suggested that instead of the five-year coming into force that's in my bill, maybe three years would be better.

Do you agree with the priority, and do you agree with the coming into force that's been suggested?

[Michael Powell]

Yes, I do, to both of those.

Again, I want to reiterate the point that pensions are very well funded right now, and if we act quickly, we can take advantage of that opportunity.

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

Yes, I noted that the DB plan impact for federal plans.... This is the first year that they've actually been funded above 100%, so now is a great time to act.

I have a question for Ms. Vipond.

There are several sections of the bill that I understand you don't like. One is proposed subsections 29(8.1) and 29(8.2), which allow a company in bankruptcy to change the type of defined pension it is. Is it correct that you would like to see that deleted?

[Siobhan Vipond]

Yes, we know that the strongest types of pensions are defined benefit pensions, so we think that's extremely important.

I can pass it to my colleague, Chris Roberts, who has joined me today, to get into the technical side of it. We do appreciate that this is being prioritized, but thank you for highlighting those changes.

[Chris Roberts, Director, Social and Economic Policy, Canadian Labour Congress]

I think the provisions in the bill that allow an administrator of a plan to apply to the superintendent for permission to transfer the liabilities and assets of a plan that is sponsored by a distressed company are just underdetailed. There need to be far more protections for DB plan members to ensure that those accrued DB benefits are not converted to DC or lesser benefits.

We would just argue to strike that entirely.

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

Yes, it was actually a drafting error on my part. That was a leftover from Bill C-405. We tried to get rid of that part of the phrasing. That will definitely need to go out.

The other thing I understand is that the Canadian Labour Congress has concerns about the suggestion of the insurance mechanism to get a third party to insure a pension.

Is it true that you'd like to see that part deleted as well?

[Chris Roberts]

Yes.

Again, there is just some confusion over the terms, the unspecified or undefined terms, in this portion of Bill C-228. For the purpose of clarity, and for the purposes of precision and simplicity, it is best to just eliminate those aspects, so yes, we'd agree.

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

Thank you.

Mr. Powell, you have undertaken quite an engagement with stakeholders across the country. Could you describe for the committee the efforts you undertook and what you heard?

[Michael Powell]

Yes, we actually got involved with the House of Commons committee petition that Ryan Turnbull sponsored. There were 12,332 Canadians who signed on, saying that pension protection was important to them.

We've also, at CFP, run some email campaigns, the most recent in support of Bill C-228. We had just under 7,000 Canadians from coast to coast to coast sign that. What I found most impressive—and if you've tried to do email campaigns, so you'll understand this—is that well over 50% of the people who used our email tool checked the box saying that they would like to be engaged further on this issue. To have a mailing list of 3,600 people who want to fight for your particular issue.... That is powerful.

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

Thank you.

Mr. Gray, we've had quite a rough time through the pandemic, so I wonder if you have any data on how many companies have gone bankrupt and how many would be in a position of having their pension funds being insolvent.

[Alex Gray]

Certainly Canadian businesses have had a difficult time throughout the pandemic. I don't have that data in front of me, but we could provide that in writing to the committee.