Industry Committee on Nov. 16th, 2010

[Donald Sproule]

State “preferred status”.

[Dan McTeague, Liberal, Pickering—Scarborough East, ON]

That will not help your employees.

[Donald Sproule]

I understand. First of all, they're not my employees; they're my fellow pensioners.

[Dan McTeague, Liberal, Pickering—Scarborough East, ON]

Sure. I mean your colleagues. Thank you.

[Donald Sproule]

From day one—I go back a year—we knew that it was risky for the Nortel pensioners and that a bill that would actually help them out was a long shot. Hope springs eternal within our breast. But as I stated a year ago, if we didn't do it for Nortel, who would be the next poor suckers to come along and get whacked by the same stick we've been hit with? That's our position.

[Dan McTeague, Liberal, Pickering—Scarborough East, ON]

I'll pass this over to Ms. Sgro at this point, Mr. Sproule.

[Judy Sgro, Liberal, York West, ON]

Thank you all very much for being here. I'm very sympathetic to your cause, to all of you.

You talk about pensioners having no other options. I think bond holders have lots of options, and other people have lots of options. But pensioners getting caught in this bind don't have any options, or have very limited options. I think we have been trying to find ways to address this issue.

I have a couple of straight questions. By the way, in the white paper I just recently released, which has 28 recommendations, most of those are up front, not at the end. If those changes were to be introduced and become part of government policy, I would hope they would go a long way toward preventing many other people here in Canada from having to undergo the terrible status that many of you from Nortel or otherwise have gone through.

The issue before us here is Bill C-501. Sadly, the bill is flawed, and there are some serious problems with it. It's not going to help the Nortel people, as you've indicated, which is very sad, because I believe many of us wanted it to. But the other thing is that Bill C-501 helps only with special payments. We heard this morning that there would be a major financial crisis throughout this country and so on if Bill C-501 were passed. Bill C-501 goes only to those special payments that are announced, let's say, in June when insolvency is announced until the time that the bankruptcy is finalized. The special payments for six months or eighteen months is all this bill addresses.

One of the gentlemen this morning said that it wasn't clear enough. Everyone I have consulted says it's very clear. This bill—Bill C-501—only handles special payments. So maybe it's two years maximum until insolvency is finalized, but that's all it does. So the sun isn't going to fall out of the sky tomorrow. This is giving a little bit of protection—that's all it's doing--but we're trying to find ways of making a little bit of protection out there to help a few people.

Don or anyone who wants to can comment. How familiar are you with this? And do you realize that this covers only special payments?

[Donald Sproule]

The one thing I could address is the potential impact there could have been on Nortel pensioners. I think currently it's every three years that we have to go through an actuarial evaluation. The last one was done in 2006, and at that time the plan was 86% on a solvency basis. To that, Nortel was contributing $20 million a year. In 2008-2009, we actually went through the downturn. Legally they had to file the next pension plan actuarial report at the end of 2009, which they did. That actually captured the full essence of what the losses were, and special payments might have gone from $20 million to $200 million. It could have been significant in the case of Nortel, especially if the actuarial calculations were now reduced to a yearly basis, rather than being on a three-year basis. So I do think even that small focus could help out pensioners.

[Judy Sgro, Liberal, York West, ON]

But we can't make this retroactive.

[Donald Sproule]

I understand. I'm looking forward for other poor people.

[The Chair, Conservative, David Sweet]

That's time. Thank you, Madam Sgro.

Mr. Cardin, you have five minutes.

[Serge Cardin, Bloc, Sherbrooke, QC]

Thank you, Mr. Chair.

Good morning, ladies and gentlemen. Welcome to the committee.

Clearly, if retirees whose pension funds are taking a substantial hit had known in advance that this would happen, they would have planned their pensions differently and could have probably also contributed to the Registered Retirement Savings Plan.

However, if we look at Nortel's case, for instance, what was the main cause of solvency deficiencies in its retirement fund?

[Donald Sproule]

I think there are two aspects. One of them is what happened in the marketplace, and certainly that's been experienced by all pension plans. And also there is current regulation, where, again, in 2006 the plan was only 86% funded; so you put that in place, the drop in the market value, and on top of that the bankruptcy of Nortel, and it's the perfect storm, as somebody has stated. It's a confluence of events that has left us in this sad situation.

[Serge Cardin, Bloc, Sherbrooke, QC]

Over all these years, have there ever been any surpluses in the Nortel pension fund?

[Donald Sproule]

I do believe that in 2006, on an ongoing basis, they were actually 1.06% funded on an ongoing basis. That's the only data that I have.

[Anne Clark-Stewart, Nortel Retirees, As an Individual]

They were actually overfunded in the late 1990s, as well as early 2000. They had 105% of that fund.

[Serge Cardin, Bloc, Sherbrooke, QC]

Under the law, if surpluses in pension plans exceed 10%, a moratorium must be declared on pension contributions. This may mean that, at times, the performance of several pension funds could have been much higher and resulted in much bigger surpluses.

Do you think we should look into the possibility of pension funds including a train-out fund or a reserve fund?

[Anne Clark-Stewart]

Yes, I do believe so. I know that the federal legislation has been changed to reflect that. It's been proposed that it goes up to 125% without penalties. I am sure the fact that it was only at a 10% level discouraged people from putting any more in it.

[Serge Cardin, Bloc, Sherbrooke, QC]

Given the current economic situation, funds are not performing that well, so there isn't likely to be much of a surplus. We witnessed what happened during the financial crisis. You depend on company management when it comes to pension funds. Pension fund managers and the large financiers are also part of the equation. We've only to recall the negative impact of asset-backed commercial paper on many people. So, there are a number of Canadian pension funds that are very close to being in the red if they are not already.

You talked about the consequences for Nortel. Let's imagine that Bill C-501 had been implemented. You feel that $200 million should have been contributed to the Nortel pension fund as privileged debt. Is that right?

[Donald Sproule]

It is $1.1 billion that is the deficiency in the pension plan.

[Serge Cardin, Bloc, Sherbrooke, QC]

Even if pensioners were at the top of the secured creditors list, would Nortel have been able to make up the shortfall?

[Anne Clark-Stewart]

They had $2.5 billion in cash when they declared bankruptcy, or went into CCAA. They may not have been able to put all of that into a pension fund, but certainly if there was a priority to the pension fund, at least a portion of that should have gone into it.

One of the things I do want to mention, just to make it clear, we talk about the funded ratio. The way the laws are is that the funded ratio is the solvency ratio. But when you get into bankruptcy, then you have the wind-up ratio. Our pension is now at 65%, versus the 86% or 81% that is floating around on the solvency ratio. That gap in the law is what's really impacting us. When we talk about the fact that the pension plan is going to be wound up, it's wound up at the wind-up ratio, not at the solvency ratio.

[The Chair, Conservative, David Sweet]

Thank you, Madam Stewart.

Thank you, Mr. Cardin.

Now we'll go on to Mr. Brown for five minutes.

[Gord Brown, Conservative, Leeds—Grenville, ON]

Thank you very much, Mr. Chairman.

I did support this bill coming to committee, because I think this discussion is something that all Canadians are interested in, and my riding happens to have a population that is a little older than many others across the country. It's just south of Ottawa here along the St. Lawrence River: Brockville, Gananoque, Prescott, and areas like that. Many of the Nortel pensioners actually do live in my riding, so I have heard from many of my constituents who have been impacted by this.

But the bill is actually about super-priority. Mr. Hilton mentioned that many other countries--and I've learned quite a bit about this, much more than I ever anticipated--do have a preferred status for pensioners.

Mr. Hilton, you also mentioned that there are other measures, in addition to preferred status, that some other countries have. Maybe you could elaborate a little bit on that, please.

[Robert Hilton]

I'm not fully cognizant of all the details, but in the United States there are certain aspects of pension plans that are guaranteed by the government, so that if certain types of pension plans go into a bankruptcy situation, the federal government in fact picks up the cost.