Mr. Speaker, perhaps my friend from Sherbrooke might have misunderstood what the bill sets out to do. It does in fact set out to address many of the problems he identified in his speech. There is certainly a problem with the way pension assets are addressed in a bankruptcy proceeding. I completely agree with him on that point. This legislation is part of a solution to some of these issues.
In a free and competitive economy, firms compete with each other for goods and services to consumers. This is the most efficient and effective way for people to get what they want.
However, in a free society with a market economy, businesses will fail from time to time. When a business fails, we need to have appropriate laws in place so companies that have to restructure under bankruptcy remain viable, but can minimize losses to investors, to creditors, to past and present employees and ensure fairness.
Bill C-405 addresses a weakness in Canada's balance between these competing interests in its approach to pensions and bankruptcy and insolvency law. The bill provides a timely and practical approach to an issue that concerns unfunded pensions and bankruptcy cases.
Before speaking further on the content, I want to take a moment to thank the member for Durham for tackling this issue through a private member's bill.
Private members' bills are a great way for opposition members from all parties, as well as non-government members within the governing party, to contribute to the legislative process even if they are not members of the government.
The legislation is great example of a way, through Private Members' Business, we can tackle a problem with a precisely targeted practical and non-ideological approach to a national problem. I encourage all my colleagues from all parties to support this common sense bill.
Canada's current bankruptcy and insolvency laws suffer from weaknesses, which exacerbate unfunded pensions when a business fails.
First, when administering pension plans during bankruptcy proceedings, Canadian companies are required to purchase annuities in order to make payments in the plan. These annuities return only a fraction of what pensioners are owed and prevent pensioners from agreeing to other investment options to salvage their contributions. It often has the effect of forcing the conversion of pension assets at precisely the wrong possible time.
Corporate bankruptcies are more likely to happen at exactly the same time as a general downturn in the economy and in financial markets. What actually causes the bankruptcy in the first place will also cause a conversion of pension assets at the least advantageous time and at the least advantageous valuations. It creates a perfect storm that can destroy pension assets. Administrators of pension plans currently have no flexibility for how best to preserve existing assets in a pension fund.
The second problem is that companies at any time undergoing bankruptcy proceedings need to have strong leadership to guide them back to profitability. They need to have their best employees in order to have any chance to recover.
However, at the same time, paying retention bonuses to executives or key employees of firms with an unfunded pension liability is unfair. Employees do not want to see company executives receiving bonuses, while they are losing their job, having their wages or hours reduced or simply having to endure the strain of uncertainty during a difficult time. Key employees are going to be needed to somehow be retained if a business is going to survive. Limiting or putting conditions on key employee retention payments are needed in cases where a business that has failed has an unfunded pension liability.
The third problem is that pension plans often are opaque. Important information about a pension plans sustainability can be difficult to access by its members. Canadians should be able to see how their pension plan is doing and be able to press their employer to adequately fund a pension.
The best way to solve the problem of unfunded pension liabilities is to not allow a pension to become unfunded in the first place.
The bill would allow pension administrators to secure approval from pensioners to amend the plan or to transfer assets to other plans instead of having to buy annuities at the worst possible time. This would allow more funds to stay in the plan or be reinvested to continue earning returns while bankruptcy proceedings were in progress. It would give administrators more flexibility to salvage the value held in the plan and it would give plan members more say in how their plan would be managed. The bill would ensure plan members themselves would be the ones who would determine whether the administrators would keep the assets invested or convert them to annuities.
Bill C-405 would also improve fairness when restructuring companies have unfunded pensions. It would limit the key employee retention payments that executives could receive during the restructuring, setting pre-conditions for such payments to be made and limiting their size. These measures would prevent executives, officers and owners from profiting from mismanagement and would incentivize them to keep pension plans in good order.
The bill sets the right balance between protecting employee assets and ensuring the business has the best opportunity to recover.
Third, the bill would give past and present employees greater access to information about their plan by requiring an annual public report on its health. It would also facilitate coordination with provincial governments and securities regulators around pension sustainability.
Again, the most effective way to deal with the problem of unfunded pensions is to stop or discourage them from becoming unfunded in the first place. Greater transparency is a key to that objective. With greater transparency comes greater incentive from management to ensure pensions are viable.
These are reasonable means to increase protection for Canadian pensioners, without harming competitiveness and access to capital. The member for Durham explained these points in detail in the first hour of debate, but I will focus on why these measures are superior to other proposals that have been put forward, in particular, the option of creating a super-priority for pensions, which some members of the House would prefer.
Like many of my parliamentary colleagues across Canada, I have received many letters from constituents urging me to protect Canadian pensioners through the creation of a super-priority for pensions in bankruptcy and insolvency cases. They often mention particular examples that are heartbreaking in the way employees have lost their savings after working for many years. They mention companies like Sears, Algoma, Nortel and many others.
We all are tremendously sympathetic to pensioners of companies like those and other failed businesses when the business could not meet its pension obligations. However, creating a super-priority for pensions will not fix the problem. In fact, a super-priority would probably make the problem worse.
Super-priority for pensions would risk creating disincentives to outside investment. It could undermine investor confidence, which would mean more business failures, bankruptcies, lost employment and lost pensions. Super-priority would also make it much more difficult for a business that is being restructured to attract investment at a critical time.
I recognize that some in the House might disagree with me on the issue of super-priority, but why not support the bill anyway? The bill clearly would move the balance of competing interests in the event of a corporate bankruptcy toward workers and pensioners. The bill is surely a move in the direction that those who favour super-priority would want to take us.
The bill would do many things. Therefore, I encourage members to vote for it for what it does rather than what it does not do. The bill would change the current rules to allow more businesses to recover from bankruptcy, more pension assets to be salvaged during bankruptcy, regulate retention bonuses to be paid during bankruptcy and increase transparency on pension plans before they become subject to a bankruptcy proceedings in the first place. The bill is good for workers, for pensioners, for shareholders and creditors.
In conclusion, Canadian workers deserve practical laws that protect their interests and the years of hard work they have put into their companies and pensions. Such laws must strike the best balance between allowing companies to restructure and not being a disincentive to investment. This bill would achieve that balance. I encourage all members of the House to support the bill.