Thank you.
GENMO is an organization that advocates on behalf of over 7,000 of GM Canada's salaried retirees, and we thank you for the opportunity to speak to you this morning.
Like most people, we thought government regulations protected pensioners. After all, defined benefit pensions are supposed to be guaranteed for life. Then, in 2008 and 2009, GM Canada came perilously close to bankruptcy. In fact, GM in the U.S. and Nortel both did file for insolvency. A vague potential pension problem became too close to being real for us.
Out of this situation, GENMO was born in May of 2010. We discovered that pension advocates are the only stakeholders making proposals to solve this problem. While other stakeholders all profess to understand that pensioners are unfairly treated and should be better protected, they haven't brought forward a single credible solution. We have to thank Madam Gill and Mr. Duvall for joining with pension advocates to try to correct this inequity.
The only credible solution on the table today is Bill C-253. It is opposed by some stakeholders. They claim it would put companies with defined benefit pension plans at risk by facing lending premiums that would lead to insolvencies. However, the Ontario Indalex ruling, which made pension deficits a deemed trust, stood for two years without any resulting wave of insolvencies.
Companies will operate within the legislative environment that governments set. Change this environment and companies will change their behaviour. Implementing Bill C-253 will likely have two major impacts on corporate behaviour towards pensions.
First, the pension obligation will be real, not something that disappears during an insolvency. Companies will better fund their pensions to maintain a good standing with all of their creditors. For example, when boards consider dividends, share buybacks and executive bonuses, they will consider their pension obligation more seriously.
Studies have shown that companies with defined benefit pension plans pay out far more out of the company than would be required to address their pension obligations. Sears, as an example, literally took hundreds of millions of dollars out of the company, while leaving behind a pension obligation in the millions.
Secondly, companies would improve their pension fund risk management. Company pension contributions come from two sources: cash from their continuing operations and money earned on the assets within their plan. There is an incentive for companies to take risks with pension assets to try to generate higher returns, thereby reducing the contributions from their operations. If they lose or miscalculate on this bet, what is the downside? They may get five, 10 or 15 years to make it up, and if worse comes to worst and the company goes out of business or fails, the debt literally vanishes.
In my case, in 2009, when GM Canada told salaried employees their pension was 95% funded, the reality was that after the market crashed, the pension fund was probably in about the 50% funded range. Was GM taken by surprise? Certainly. Was GM too heavily invested in higher-returning equities? Absolutely.
Under the tighter controls that followed, GM Canada reduced significantly the risks in its pension fund and actually brought it to over 100% funded. This is possible with the right motivation.
We hear lots of speculative claims about the consequences of superpriority. How would small businesses get financing? Who would be impacted? In fact, very few, if any, small businesses have defined benefit pensions.
What about other stakeholders during insolvency? If businesses make the adjustments I have discussed previously, there should be little impact. In any case, every other stakeholder has negotiated their risk. They have at risk only the unpaid portion of their contract. Pensioners actually have 20, 30 or 40 years on the table.
We also hear about deflection. You will likely hear witnesses say the solution is elsewhere, in tighter solvency regulations, limits on dividends, etc. However, these things are very difficult to deal with. The point is that while some of these ideas sound reasonable, they are a jurisdictional nightmare. They involve three areas of legislation—pension, business and tax—and they cross provincial and federal jurisdictions. It would take a lot of effort to do this.
The single point at which to address protection in Canada is insolvency legislation. Bill C-253 provides a reasonable solution.
Thank you.