Evidence of meeting #44 for Industry, Science and Technology in the 40th Parliament, 3rd Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was bankruptcy.
A recording is available from Parliament.
11:30 a.m.
Liberal
Marc Garneau Liberal Westmount—Ville-Marie, QC
I don't want to get into that issue right now. I'm talking about any other company that will face a similar situation.
11:30 a.m.
Vice-President, Policy and Communications, Canadian Council of Chief Executives
The question is, if you want to, in effect, make people whole—whether it's Nortel or another company—you have to determine where that money is going to come from and who's going to pay for that. The money is not going to be invented out of thin air. If you're going to, in effect, repay into the plan the money that was lost through investments in equities and other instruments that have gone down in value, you have to figure out where that money is going to come from. The question is whether it is right that it come from, for example, the small-trades people who have debts with those companies or are owed money by those companies.
11:30 a.m.
Liberal
Marc Garneau Liberal Westmount—Ville-Marie, QC
I want to get a second question in, so I'm going to stop you at that point.
This question is for Mr. Rienzo. Interpretation of what Bill C-501 actually says is problematic. You spoke quite a bit about it. Our interpretation of the bill is that it in fact makes changes to only a very small portion of what we call the “special payments” that were to have been paid by the company pension plan during the time between restructuring and actual bankruptcy. That's our interpretation of what Bill C-501 actually does. It touches only that special payment part of it. So given that, would it be fair to say that maybe we're making too much out of the predictions that this is going to throw the credit markets into turmoil as a result of what is actually contained in Bill C-501?
11:30 a.m.
Partner, Pensions and Benefits, Osler, Hoskin & Harcourt LLP
Thank you for the question.
I have two concerns about that. First of all, the bill could perhaps be clearer on the point. I understand that it could be interpreted just to apply to missed special payments at the time of bankruptcy. I have a couple of concerns about that, just from a technical point of view.
First of all, the stated purpose of the bill is very clear, and I think that's why people are concerned that the intention is for it to cover the entire pension deficit. So we want to make sure that the submissions are made now, so that the intention as stated in the summary--
11:30 a.m.
Liberal
Marc Garneau Liberal Westmount—Ville-Marie, QC
Never mind the intentions: how do you read what it actually says?
11:30 a.m.
Partner, Pensions and Benefits, Osler, Hoskin & Harcourt LLP
I understand what you're saying and I understand that it could be interpreted to just apply to those payments, so there are two other concerns there. First of all, Parliament is already passing Bill C-9, which deals with other ways to strengthen the pension system, at least on the federal level.
There's a provision the bill which provides that if a company becomes bankrupt, then all the money needed to fund the deficit becomes immediately due and payable. So there's a balloon payment due on bankruptcy. The concern there is that Bill C-501, in combination with Bill C-9, could cause the entire deficit to be due right on bankruptcy, and therefore that super-priority could apply to the whole deficit. So there's a concern there.
The other concern is--
11:35 a.m.
Partner, Pensions and Benefits, Osler, Hoskin & Harcourt LLP
Ask me again. I'll tell you the other concern.
November 16th, 2010 / 11:35 a.m.
Bloc
Robert Bouchard Bloc Chicoutimi—Le Fjord, QC
Thank you, Mr. Chair.
Ladies and gentlemen, good morning. Thank you for being here this morning.
My first question is for Mr. McCracken.
If pension plans were to become the responsibility...
11:35 a.m.
Chairman and Chief Executive Officer, Informetrica Limited
Excuse me. I'm not getting any interpretation through here, or just very faintly. Sorry about that.
11:35 a.m.
Chairman and Chief Executive Officer, Informetrica Limited
Okay. It's better now.
11:35 a.m.
Bloc
Robert Bouchard Bloc Chicoutimi—Le Fjord, QC
Thank you.
If the federal government were to take responsibility for pension plans, as Quebec has done to avoid pension funds being liquidated, do you think this move would provide better protection for retirees than that provided under Bill C-501, which is currently before us?
11:35 a.m.
Chairman and Chief Executive Officer, Informetrica Limited
I'm sorry, but I'm just not getting anything coming through here that I can make sense of. Perhaps when we come back.... Or someone else can answer the question, or phrase it for me. That would be helpful.
11:35 a.m.
Conservative
The Chair Conservative David Sweet
Can you hear okay on your headset, Mr. Rienzo? Okay, then, why don't you--
11:35 a.m.
Chairman and Chief Executive Officer, Informetrica Limited
Go ahead again.
Yes, that's perfect.
I'm sorry, Mr. Bouchard. Would you please restate that?
11:35 a.m.
Bloc
Robert Bouchard Bloc Chicoutimi—Le Fjord, QC
If the federal government were to take responsibility for pension plans, as Quebec has done to avoid pension funds being liquidated, do you think this move would provide better protection for retirees than that provided under Bill C-501, which is currently before us?
11:35 a.m.
Chairman and Chief Executive Officer, Informetrica Limited
It's hard to say. I do think that anything we can do to make companies responsible, with a longer-term view, for the obligations they've entered into would be a plus.
I would also point out that on this list of who gets what when, the federal and provincial governments are at the top of the list. They're number one, the crown. What happens when a pension is not paid? Who loses? The pensioner loses. But for the pensioner, that income is subject to tax at this point, and roughly half that income will go to the crown.
So the crown sits here, they take any claims and then they look out and see what's happening and they're not terribly concerned about what's happening, but they should be. They should be prepared to put on the table something to cause pensions to be paid and to help pensions be paid, since they're going to get back 50% of it; and that 50% is a combination of income tax and clawback of OAS and GIS, etc.
So it strikes me there is a vital role, particularly for the federal government, in ensuring that pensions are paid out, and not just for the individual benefit of the people, the voters, but also from a fiscal viewpoint. As long as they make a contribution that's less than half, they're ahead of the game compared to just sitting there and doing nothing.
Does this bill do that? No. Will this bill help? Will it show a direction? Will it give you a sense that yes, we do have to look at the nooks and crannies of this system and we need to protect workers who otherwise are going to get a haircut that might be right at the neck? And we don't want that; I don't want that. So that's where I think there is a role for the federal and provincial governments to play strongly in this area.
11:40 a.m.
Bloc
Robert Bouchard Bloc Chicoutimi—Le Fjord, QC
Thank you.
Ms. Urquhart, you anticipate that giving pension funds priority in case of bankruptcy would increase the cost of credit for companies. You even talked about a percentage between 0.16% and 79%.
How did you arrive at these figures?
11:40 a.m.
Independent Financial Analyst, As an Individual
First of all, the impact is negative 1.5%, not what you just said. I said 20 basis points, so that's 0.20%. So if the mid-term bond now is at 3.25% interest rate, I'm saying that's going to go to 3.45% interest rate, so that's a difference of 0.20%.
When the interest rate goes up, the value of the bond goes down. So we can, through bond calculators, say that if interest rates go up by 0.20 percentage points, that means the bond value is going down under 2%. So it's in that context that I say that the damages of a full payment of the deficits that are currently in place would have only that nominal impact on the bond market as a whole. That compares to the average deficit today at 20%.
So with a 20% pension deficit, the bankrupt company results in the pensioner taking a 20% haircut. Fixing that problem with either super-priority or preferred status has only a very small impact on the value of current bonds. So we say that's a reasonable balance for this government to take as a matter of social policy.
If I had more time, I'd talk about some good business reasons to do it as well, but that is the answer to your question.
11:40 a.m.
Conservative
The Chair Conservative David Sweet
Thank you, Madam Urquhart.
Thank you, Monsieur Bouchard.
Now on to Mr. Lake for five minutes.
11:40 a.m.
Conservative
Mike Lake Conservative Edmonton—Mill Woods—Beaumont, AB
I'll start with a really quick question for Mr. Rafferty.
Do you agree with Mr. Laver when he says this bill does nothing to help Nortel pensioners specifically?
11:40 a.m.
NDP
John Rafferty NDP Thunder Bay—Rainy River, ON
It's difficult to say at this point, because we've just started the hearings. Some amendments may be put forward over the course of the next two weeks. There may be some changes or things that members of the committee put forward. I don't know quite yet.
The bill as it stands is not retroactive.