Mr. Chair, honourable members, thank you for the opportunity to appear this morning.
I'd like to begin by acknowledging the efforts of John Rafferty and other parliamentarians on behalf of private sector workers who are covered by defined benefit pension plans.
The issue of pension benefit security is both serious and complex. Particularly in the wake of the global financial crisis, it has received a great deal of attention in Canada and throughout the industrialized world.
As you know, Parliament has already taken a number of important steps this year to strengthen protection for pension plan members. In the past, for example, a federally regulated company that terminated its DB plan would have been free to walk away from any deficit. As a result of legislation passed this year, such a plan will now have a claim on the assets of the corporation similar to that of any other unsecured creditor, the same level of protection offered to members of provincially regulated plans. Moreover, if the company is behind in its contributions or has failed to remit employee contributions, those amounts will be treated as super-priority claims. Both of these changes are fully consistent with OECD recommendations on pension benefit security.
On top of those reforms, plan sponsors are now also required to file actuarial updates every year rather than every three years. This is intended to reduce the size of future pension deficits by requiring that companies act sooner to make supplementary payments. Also this year, the federal government moved to restrict the ability of employers to suspend contributions when pension plans are in surplus, and to revise the previous tax rule that actually forced companies to halt contributions when the plan was more than 110% funded. Taken together, these changes represent a substantial and important overhaul of the rules surrounding defined benefit plans for employees of federally regulated companies.
Most provincial governments have implemented or are in the process of implementing similar reforms. So let's be clear. The pension system as it now stands is very different from the one that existed prior to the economic downturn.
The issue now with Bill C-501 is whether to go dramatically further by enacting changes that have not been tested in any other advanced industrialized country with a pension system similar to Canada's. Let me expand on that. The proponents of this bill have said repeatedly that most other developed countries already provide the kind of protection offered by Bill C-501. The truth is that most of the countries they cite have pension systems that are in no way comparable to Canada's because they rely predominantly on defined contribution or state-sponsored plans, as opposed to the private sector plans that would be affected by Bill C-501. On the other hand, Germany, Ireland, the Netherlands, Portugal, the U.K., and the U.S. do have pension systems similar to Canada's, yet in not one of these countries are pension deficits given priority over all other creditors in the event of bankruptcy.
Bill C-501, in other words, is an experiment. Before you decide to embark on that experiment, the members of the CCCE would urge you to consider the risks.
The most obvious risk is the impact that this bill will have on the cost and availability of credit. I suspect you're going to hear a lot about this during these hearings. The bill's supporters are going to tell you that the impact would be negligible, that you can go ahead and experiment with the pension system because the financial consequences would be minimal. That's not what the OECD says, however. In a 2007 study of pension protection, the OECD called the idea of giving priority rights to pension creditors controversial--their word. The OECD report said, and I quote, that “assigning ‘super priority’ rights ahead of even secured creditors would likely have a major impact on capital costs, particularly given increasingly market based pension accounting and funding standards”.
Recently a number of independent studies in Canada have reached the same conclusion. I'll leave it to other witnesses to discuss the specifics, but they demonstrate convincingly that the cost to bond holders and companies would be in the billions. What's more, the impact of Bill C-501 would be greatest for precisely those companies that are most in need of credit to stay in business. Lenders would either refuse to provide more credit, or would demand punitive rates.
The bottom line is simple. If passed, this bill will almost certainly force into receivership and into liquidation companies that would otherwise have had a chance to survive. Far from helping workers, it would destroy jobs and hurt Canadian families.
In closing, let me again congratulate members of Parliament for the important steps you have already taken to strengthen Canada's system of private sector defined benefit plans. Bill C-501, however, is clearly a step in the wrong direction.
Thank you.