Industry Committee on June 3rd, 2021

[The Chair, Liberal, Sherry Romanado]

Mr. Généreux, I'm sorry, but your time is up.

We will now go to MP Ehsassi.

You have the floor for six minutes.

[Ali Ehsassi, Liberal, Willowdale, ON]

Thank you, Madam Chair.

Thank you to each of the witnesses. I found your testimony to be very helpful.

I will start off with Mr. Zigler.

Mr. Zigler, you did say that Bill C-253 can be problematic. However, you did offer some solutions.

We have heard that, should Bill C-253 be adopted, it will effectively discourage companies from having defined benefit plans going forward. What would you say to that?

[Mark Zigler]

I would say that horse left the barn three decades ago. Most new pension plans are defined contribution arrangements or a group RRSP. The problem is that you have hundreds of thousands of people, if not a million people, in private sector defined benefit plans in this country. This is the regime that we have.

I'm not worried about new plans. I'm worried about protecting the people in the current plans. I'm worried about the fearmongering, frankly, that says all lending will dry up, that everything will dry up if you create some kind of priority.

We created a superpriority for wages, a small one, 15 years ago. Guess what? They are still lending.

Lenders know how to study actuarial reports. They know how to study all aspects of a business that are problematic and depend on future sales, future developments, future interest rates or future mortality, which is what pensions are about. They are sophisticated. They can protect themselves. Other suppliers can protect themselves because they can spread their losses. Even workers can protect themselves to a degree: They can get another job.

Pensioners can't do anything. If their pensions get cut, there's finality. So you have do something here. At least put a cap on this priority and really study the solution that even Mr. Docherty recommended. Create a viable guarantee fund. That's how you protect pensioners.

To do nothing, just because this bill creates a superpriority over everyone, is to ignore the problem and to let down the pensioners of this country.

[Ali Ehsassi, Liberal, Willowdale, ON]

Mr. Zigler, you said that the horse has left the barn, but is it not accurate to say that certain companies now have two-tiered systems where they have defined benefit plans for some employees, but they are now grandfathering those and for new employees they have undefined benefits plans?

[Mark Zigler]

Yes, that's true. Many have hybrid plans where they create defined contribution benefits going forward. In fact, that's what Nortel did during the last seven or eight years of its existence, but the vast majority of their liabilities were defined benefit ones.

[Ali Ehsassi, Liberal, Willowdale, ON]

Mr. Zigler, we have heard from Mr. Thornton. He has put something on the table, if you will.

What would your reaction be to the suggestions that Mr. Thornton presented today?

[Mark Zigler]

I believe, frankly, that they are not cognizant of what we have in this country.

Pension plans are already very strictly regulated. Valuations can be required more often than every three years if there are problems. We have pension regulators in this country in all provinces that try to make sure that pension plans are properly funded. What Mr. Thornton suggests is already being done.

The problem with insolvency is that a tsunami hits. Interest rates go crazy. Companies go out of business because their sales drop and their workforces drop. People live longer than the actuaries predicted. You will have a bankruptcy. There's no fixing this by looking in the rear-view mirror. You have to deal with the problem when the bankruptcy occurs.

Pension regulators already try to fix it. The solution Mr. Thornton has given you is a non-solution. At least Mr. Docherty mentioned a guarantee fund. That is a solution. Quarterly evaluations make no sense. It costs a fortune to have an actuary value a pension plan. They get done annually in many pension plans because the regulators order that. That's their job. That's a provincial responsibility. That's not something for this committee to do. This committee has to protect people once the bankruptcy occurs.

[Ali Ehsassi, Liberal, Willowdale, ON]

Thank you for that.

Mr. Cooper, how would you react to the recommendation that Mr. Thornton made?

[Cody Cooper]

I would tend to agree with a lot of it, but I also share Mr. Zigler's focus that this is why we're here. It's what happens when the shit hits the fan. Pardon me.

On the same point, the three people in the middle of my screen are also not telling you that every province basically is heading towards an 85% solvency level, which means that you're capped at 15% loss going in and you're still covering all the laws. Ontario did not increase its $1,500 payment at all, even though it should be almost $3,000 now, given inflation from when it started.

All of this arguing about the solutions has been going on for decades, but no one has ever implemented them, and when they go to the other forums they say that instead of 100% , we should have 85%, which is now basically the norm. I'm tired of hearing it from both sides of the mouth.

[Ali Ehsassi, Liberal, Willowdale, ON]

I understand that, Mr. Cooper, but just so I have a better grasp of what you are suggesting, you said there were certain elements of Mr. Thornton's recommendation that you agreed with. What are those certain elements?

[Cody Cooper]

If you had a uniform across-the-provinces establishment of the timeliness with respect to the evaluation, it would be appropriate. You could then judge things on a national basis, somewhat, even though it's provincially legislated. On the fact of having a plan three years out versus one year, you should get closer to one.

[The Chair, Liberal, Sherry Romanado]

Thank you very much.

Mr. Lemire, you have the floor for six minutes.

[Sébastien Lemire, Bloc, Abitibi—Témiscamingue, QC]

Thank you, Madam Chair.

It is a pleasure to be able to meet in person.

I would like to turn to Mr. St‑Gelais, president of the Comité des retraités de Mines Wabush, from Cliffs.

Mr. St‑Gelais, let me first give you my colleague Marilène Gill's warmest regards and congratulate you on your commitment to pensioners.

Bill C‑253, An Act to amend the Bankruptcy and Insolvency Act and the Companies’ Creditors Arrangement Act (pension plans and group insurance plans), could also have been called the Wabush Mines Pensioners' Committee bill, in our opinion, to highlight your overall contribution to this debate.

First, how does having a bill that is not clear affect pensioners?

Bill C‑253 is intended to protect 1.2 million Canadian workers and pensioners from the impact of corporate bankruptcies on the pension funds of retirees and workers.

Could you tell us what the impact of the Cliffs Natural Resources insolvency has been on workers and pensioners?

[Gordon St-Gelais]

You have to look at the pensioners' careers. Workers retire at about 55 or 60, with the idea that, after working all their lives, for 30 or 40 years—that was the case in our days—they will be able to count on the pension fund to which they have contributed and pay off their debts before retiring. They are guaranteed to have a pensioner's salary for the rest of their lives, usually until the age of 82 or 83. Some live longer and some live shorter.

In our case, Cliffs went bankrupt because it made mistakes in its mine purchases. They bought the Bloom Lake mine. It cost them a lot of money, because they paid $4 billion for one mine. To get rid of it, they bankrupted the Bloom Lake mine, waited three months, and then bankrupted the Wabush mine in my area, which opened in 1960 and was still very productive. Those retirees were left with a 21% to 25% loss of their pension funds for the rest of their lives.

We must not think of a retirement as striking gold. It's not a lot of money. If someone retired in 1980, the amount in 1980 and the amount in 2015 are not the same. There's a big difference between the two amounts. If they lose 21% of that amount, they end up with a tiny income that is almost equivalent to the poverty line. It's even worse if you take away their drug coverage or life insurance. In our case, the provincial government's life insurance is $2,500. After taxes, that gives us $1,800 to bury our dead. I live in a northern region, and I can tell you that it is extremely expensive.

Those are the problems it causes us. We believe that all pension funds should be equal. Bill C‑253 would help level the playing field and ensure that we have a pension fund that values us.

[Sébastien Lemire, Bloc, Abitibi—Témiscamingue, QC]

Thank you very much for the poignant truth in your testimony.

I would also like to quote Dominic Lemieux, from the United Steelworkers, who appeared last Tuesday.

He said that pensioners come after banks in the bill, which is true. Consequently, the banks remain ahead of pensioners in the hierarchy. However, pensioners could come before school boards, for example. In your case, in Sept‑Îles, this would have made it possible to address the shortfall. Is that right?

[Gordon St-Gelais]

Yes, that is absolutely true.

However, we obtained a settlement from the court regarding the Cliffs bankruptcy and the trustee managing that bankruptcy, FTI Consulting. We got a little over $10 million. When the town of Fermont and the school board found out about this, they went to court to assert their rights, like the pensioners. We had negotiated this settlement with the Steelworkers. I was part of the committee that took part in that negotiation.

[Sébastien Lemire, Bloc, Abitibi—Témiscamingue, QC]

Thank you.

Let me just ask Mr. Docherty a quick question.

Mr. Docherty, what do you feel about the pleas of Mr. St‑Gelais and Mr. Cooper for urgent action? The measures in the bill do not refer to public funds and they maintain the priority given to the banks. However, we are talking about an issue that affects the dignity of our most vulnerable pensioners, who are also your clients.

What do you say to them?

[Charles Docherty]

Of course, we are incredibly sympathetic to what they are going through and what they've described. We're just here today to outline the negative consequences of this bill.

As a few of the other witnesses have testified, there are other solutions available that would help to avoid the negative impacts of this bill for companies that are trying to raise credit, have access to credit, restructure, grow their operations, employ employees, expand and all those great things that help generate a healthy economy.

[The Chair, Liberal, Sherry Romanado]

Thank you very much.

Our next round of questions goes to MP Duvall.

You have the floor for six minutes.

[Scott Duvall, NDP, Hamilton Mountain, ON]

Thank you very much, Madam Chair.

I want to thank all our guests for coming here today on this important issue.

My first question is for Mr. Docherty.

Lenders and investors knowingly put their money into a business at some calculated risk. They do so with the intention of turning a profit. I see the workers as this type of investor, too. They invest their time and labour, and they do it in return for a paycheque and, in the case of an employer-sponsored defined benefits plan, for a deferred wage.

Do you agree that this bill, Bill C-253, would finally put a much-needed change to the standard and culture of how we look at pensions so that workers' investments in a deferred wage come before investors that do so at a risk for a chance to make a profit?

[Charles Docherty]

I have heard that term of deferred wages used during the testimony. Personally, wages are earned while you're working for a company, and you earn that. I think what we're here to talk about today is unfunded pension obligations, and why I'm here in particular is to speak to the broader economic impacts of this bill, if it were to be adopted, and the need to carefully study this issue, given the broader context and the potential negative implications on the broader economy.

[Scott Duvall, NDP, Hamilton Mountain, ON]

Thank you.

Mr. Thornton, we've had a witness at committee who spoke to the matter of concerns around lending when it comes to the change of priority of claims during bankruptcy. In the case of Sun Indalex Finance versus United Steelworkers, the pension deficit was ruled to be a deemed trust by the Court of Appeal for Ontario. This ruling put pensioners higher than even what Bill C-253 is proposing. This ruling has stood for about two years. As far as we can see, the sky did not fall for borrowers and the sky did not fall for the lenders.

Can you share any past evidence of measures like those in Bill C-253 that negatively affected investors? Would we not expect investors to be able to easily adapt to this change that would bring fairness to workers getting their deferred wage?

[Robert I. Thornton]

Lenders, really, are not the issue here. They will find a way to adapt. They may charge more for the risk that they're taking and can't calculate, but the real people we have to talk about here are the unsecured trade creditors. Now a 79% recovery for a pensioner is a bad thing. They're expecting 100%. However, the trade creditors are going to get zero per cent under this bill. They are the ones at the bottom of the stack. Today there's often something there for them. There will be nothing if the pension deficit is large and it goes to the top of the stack.

The unsecured trade creditors represent the micro, small and medium-sized businesses in the country that the World Bank estimates account for 80% of economic activity. They're the ones who are getting affected, and, no, they're not going to be able to protect themselves. They're going to still try to sell their products and services on credit and take that risk, and some of their customers are going to go down. Unlike now where they usually will get some recovery over time, they are going to get zero. For that reason, we should find the other solutions to this problem. Yes, it is a problem. Yes, it needs to be fixed. Inverting the capital stack with the priorities, as this bill purports to do, is not the right way to do that, in my opinion.

[Scott Duvall, NDP, Hamilton Mountain, ON]

Thank you.

The problem is that I keep hearing about trade contractors and the creditors, and it all depends on what type of contract they have with that company.

My next question is for Mr. Cooper, and I want to thank him very much for his intervention.

Mr. Cooper, do you believe that the members who you represent go into these jobs and sign on to a pension plan knowing that they are going to get something for their years of service that.... When they sign on, do they know that they're doing so at a risk?

[Cody Cooper]

I'm going to try to be brief here.

When you sign on, you're probably in your late teens or early twenties, and you're not even thinking about it. When you get to the point of contemplating retirement, even if you're 10 or 15 years away from it, you are trapped because of the terms of the pension. It's probably based on your best five years, and you can't afford to go anywhere else. You are what we call a prisoner of pension. You have to stay there because it's too lucrative not to, and you're definitely staying with the idea that you're going to get what you were told.