I call this meeting to order.
Welcome to meeting number 61 of the House of Commons Standing Committee on Finance. Pursuant to the House order of reference adopted on Wednesday, June 22, 2022, the committee is meeting to discuss Bill , an act to amend the Bankruptcy and Insolvency Act, the Companies' Creditors Arrangement Act and the Pension Benefits Standards Act, 1985.
Today's meeting is taking place in a hybrid format, pursuant to the House order of June 23, 2022. Members are attending in person in the room and remotely using the Zoom application.
I would like to make a few comments for the benefit of witnesses and members. Please wait until I recognize you by name before speaking. For those participating by video conference, click on the microphone icon to activate your mike. Please mute yourself when you are not speaking. There is interpretation for those on Zoom. You have the choice, at the bottom of your screen, of floor, English or French. For those in the room, you can use the earpiece and select the desired channel.
I remind everyone that all comments should be addressed through the chair. For members in the room, if you wish to speak, please raise your hand. For members on Zoom, please use the “raise hand” function. The clerk and I will manage the speaking order as well as we can. We appreciate your patience and understanding in this regard.
I would now like to welcome, for our first panel, our witness, who is before us, the author of Bill , MP Marilyn Gladu.
Welcome, MP Gladu, to our committee.
I'd also like to thank all the committee members.
I'm happy to be here today to tell you about my bill on workers' pensions.
Over the last 10 years, there have been numerous efforts in the Senate and in almost all parties in the House to find a way to protect the pensions of those workers who have worked their whole lives when, unfortunately, at the end of their careers, a company goes bankrupt and they don't get, in some cases, very many pennies on the dollar, or sometimes get no severance.
I looked at all the previous bills that had been brought forward. I looked to the parts that people could agree on, cherry-picked all those parts and put them together in Bill . Then I added what I thought were my own brilliant ideas; we'll talk about whether they are or not.
That's where this came from. We know the history of all the companies—Eaton's, Sears, Nortel, Indalex, Grant Forest Products and so many more—that have gone bankrupt. Basically, a number of things were brought forward in the House. I see that my colleague Marilène Gill is here at committee today. She had a bill in the last Parliament that talked about making sure that pensions were paid out in priority, before large creditors. That went to the INDU committee and was very thoroughly studied, with a lot of witnesses. We were in a position where, with some minor changes, that thing would pass, but an election was called. I'm glad to be able to incorporate her great ideas into this.
There was a bill from . One of the good features in that bill was the tabling of a report on the solvency of funds to the House of Commons every year. This is not additional work. Currently there is a report that is done on the solvency of federally regulated funds, but it goes to the superintendent of finance. It's not clear what, if anything, is actually done to remediate these situations.
My bill will require the tabling of this in the House every year for greater transparency so that we can see where the troubled funds are. Then it adds a mechanism to be able to transfer money into the pension fund, without tax implication, to fix the problem. We want to prevent any of these situations from happening.
Then, in the case of bankruptcy, we would adopt a priority. The Bankruptcy and Insolvency Act is this document here. It's quite thick. For your benefit, I have provided a table prepared by the Library of Parliament that clearly shows the priority of where we're recommending pensions go: It's after the Canada and Quebec pension plans; all taxes that are payable; the employment insurance; suppliers' goods that were delivered shortly before the bankruptcy, and the same for agricultural products; unpaid salaries and allowances to $2,000 maximum; other salary contributions and the contribution to the pension plan; and costs incurred by a government to decontaminate land included in the bankrupt's assets. At that point, we would put in the pensions. After that would be secured claims, preferred claims and unsecured claims.
In terms of the feedback received from stakeholders, let's talk first about one of my brilliant ideas. I thought we should also add a mechanism so that if there was an insolvent pension fund, you could have third party insurance cover the insolvent portion. That might be helpful. Unfortunately, nobody liked this idea. Apparently, there's already a mechanism in place that allows people to transfer the risk to a third party, which is really the intent of that mechanism. So I would propose that we get rid of that part by striking clause 6.
Second, there was a drafting error. We tried to take out the part of the bill from that changed the type of pension. We feel that it's like a contract between the employer and the employee when they first start, and it's not right to change the deal at the end, after they have worked their whole lives. In order to get rid of proposed subsections 29(8.1) and 29(8.2), I am suggesting that we say no to clause 7.
There was another provision that had been recommended when this bill last went to INDU. There was a concern from the banking community that perhaps the mechanism would need to be changed so that the coming into force of some of the provisions, like the priority, should be delayed from the beginning. I'm suggesting a change from five years to three years. There's a proposal to perhaps add severance. I'm open to that discussion.
With that, I look forward to your questions and I look forward to your support of this bill.
Thank you very much, Ms. Gladu, for your great work. I just wanted to give you a little bit of an opportunity to talk about the benefits your bill actually has for Canadians.
I'll give you a bit of a story about a friend of mine who worked 30 or 40 years at a company called Atlas Steel, in Welland, Ontario. He worked his entire life expecting there to be a pension at the end of the day, and then the company went bankrupt just as he was ready to retire. He lost 50% of his retirement that he had worked so hard for.
With that story in mind, perhaps you can talk about the actual impact on seniors and other folks in Canada.
Actually, the reason I came with this bill was that my neighbour worked at Sears. She had worked at Sears for 30 years and was really happy about being able to retire, and then ended up receiving 70¢ on the dollar. Now that was certainly better than what happened at Eaton's, where they got no severance, no benefits, and in fact 40¢ on the dollar.
In many cases, there's money paid out to the lawyers in the bankruptcy case, executive bonuses, many things that are paid out, but the workers who worked their whole lives are left hanging out to dry.
I think there is an intent everywhere to fix this. We may not be able to do everything in this bill, but I think what's important is to get a bill passed that at least moves us in the direction of good. There may be chances to improve it in the future, but I really don't want to see us spin our wheels after 10 years of attempts to see this go.
Thank you very much for that.
Maybe I'll go into a little bit more of the substance of the act from there.
As I understand it, and you can correct me if I'm wrong, a well-funded pension or any pension itself stands outside of the Bankruptcy and Insolvency Act and is administered separately. It's only when companies fail to fund the pensions that your bill would step in and give the higher priority.
So that the folks who are at home can understand that as well, maybe you can talk a little bit about what that actually means. What's a higher priority in the bankruptcy processing?
Thanks very much, Chair.
MP Gladu, it's great to have you here and to see you. Thank you for bringing this bill forward.
I want to start by saying that I used to be a member of the provincial Parliament in Ontario when the Ontario government at the time was the Kathleen Wynne government. I was parliamentary assistant to the minister of finance at the time when we announced additional support for Sears pensioners when their pension fund fell short of the benefits those workers were to receive. As someone who fully supported that decision by the Ontario government at the time, I completely understand how important it is that commitments to workers be met, and that includes pension commitments.
In that vein, we know about the Sears story. I certainly know it intimately. I was trying to do a little bit of research in advance of this hearing about how broad this problem is. Just for the folks watching at home who are trying to understand how significant and widespread this problem is, do you know, more or less, how many bankruptcies proceedings or CCAA proceedings with defined benefit plans have happened over the years that have led to the loss of pensions? Do you have any sense of that?
Thank you, Mr. Chair. I'd like to inform you that I'll be sharing my time with my colleague Mrs. Gill. We will have three minutes each to make it as fair as possible.
Good afternoon, everyone.
I'd like to welcome the newcomers from the Conservative Party to this committee.
Mr. Hallan, my colleague Mr. Brunelle-Duceppe, who sat on the Standing Committee on Citizenship and Immigration with you, has nothing but good things to say about you. It will be a pleasure to have your input on our committee.
I want to welcome you back, Mr. Morantz. Thank you for the tremendous work you've done on this committee. We're very fortunate to have you back.
Ms. Gladu, thank you for being here and for introducing Bill .
In Quebec, we often say that it's important to work transparently when all parties come together for the common good.
Ms. Gladu, your bill and the way you do things are a testament to the transparent approach. I hope this bill will bring real change for people across the country.
In your remarks, you mentioned a neighbour who worked at Sears and lost her pension when the company went bankrupt.
If your bill had been in force at that time, how would things have gone differently for your neighbour?
I'd like to thank Ms. Gladu for introducing Bill . Mr. Ste-Marie brought up the cross-party effort to discuss and amend the bill in a very collegial manner. I think that's a wonderful way to do things.
I will tell you the history of the bill. Ms. Gladu is aware that this bill came from the people. I, for one, can say that my constituents have been asking for a bill like this. Someone mentioned the last session of Parliament, but people have been talking about reforming these three laws for over 20 years. So this is nothing new. The NDP has also introduced several bills—I've introduced three myself. This session, because of the elections, we're talking to the same witnesses again. For example, Canada's Association for the Fifty-Plus, or CARP, supported my bill. CARP supported the bill that we almost had at second reading in June 2021.
Today, I'm hearing the entire committee, and I hope that our study can move forward quickly. I'm not saying that we'll cut corners, but we've already heard testimony on the subject. I would urge my colleagues to read the history of the bill so that we can finally get it passed. It's not perfect, but show me a perfect bill.
I'd like to see insurance included, for example. This bill is a potential solution for all Canadians hoping to recover the part of their salary that's due to them. We need to call it salary; we say pension fund, but this is a deferred salary, it belongs to Canadians. Workers decided to temporarily part with some of their salary to have a decent pension fund. They were promised something, and they should get it.
I don't have much time left, so I'd like to turn the floor over to my colleague Ms. Gladu.
What does she think could be improved? I feel she's very generous, and she was all ears when I was talking about insurance. Insurance was included in the bill I put forward because older people often need medication. What does she think about that?
I've been called the most collegial MP twice. That's the way I work. I feel that when we talk to each other, we come up with better solutions.
I quite like the idea of including insurance. Seniors need medication, for one. Having said that, I don't think the federal government is best suited to deal with things like that. Take, for example, passports. Do we want the federal government handling prescription drugs? I don't think so.
I had thought about including insurance in the pension plan, but not for drugs or other benefits because it's hard to figure out the costs. There are many programs out there. It's complicated.
First, I want to thank Ms. Gladu and Mrs. Gill very much for their work on this issue. People have been discussing the need for legislative change for a long time. However, this legislative gap has yet to be addressed, and as a result, tens of thousands of Canadians have lost all or a significant portion of their pensions.
For New Democrats, this bill is really about recognizing that it's not just capital investment that deserves to be protected. When workers work for a company, they invest their time, talent, and skill. They do that on a contractual basis with certain kinds of returns that are supposed to be there for them. That's not just their wages; it's other things, including their pension.
I think of what workers pay into the Canada pension plan and employment insurance. They pay that sometimes, if they're fortunate to be in a workplace...not fortunate, but in a workplace where people put in the time and effort to unionize and to negotiate pension plans for themselves and their fellow workers.
They also deserve to see that return on investment that was a matter of contract. It's a sad reflection on Canada that at the moment our laws don't guarantee that return on investment, even as people who are already fortunate enough to have the money to put up for the success of certain kinds of companies do get that protection. We know we can protect these investments. We know that through good law, we can make good on the return on investment.
We need to recognize that capital investment is not the only kind of investment that people make in order to see companies succeed. We need to protect that return for workers just as much as, or more than, we do for shareholders and investors.
That, to me, is what this project is about. It's why I was proud to re-present a bill that an NDP colleague of mine, Scott Duvall, had done a lot of work on in the 42nd and 43rd Parliaments. It's why I was glad to talk to both Ms. Gladu and Madame Gill about their respective efforts on the same file to try to come to a common understanding about how we can move forward.
I am happy to hear that we'll be able to remove certain clauses from the bill, which Marilyn made mention of in her opening remarks, and also add in language around the protection of severance and termination pay, which, as I said, is part of the terms and conditions of employment. People deserve similar protection as other types of investment, when a company is ultimately unsuccessful and has to apply for bankruptcy.
When we talk about the kind of general state of decline for defined benefit pensions that we've seen in Canada now for some time, this is not just an important protection for those who did work under a defined benefit regime and can't go back to work another 30 years now that they're retired. They're 70 years old, and the company has gone bankrupt. They don't have that option. They don't have a diversified portfolio in a way that Ms. Gladu was talking about earlier.
It's also an important part of the strategy to protect defined benefit plans that do exist, because we've seen companies like Stelco, for instance, where these loopholes in Canadian bankruptcy law are used as part of a divestment strategy to be able to relieve the company of its obligations under its defined benefit pension plan.
I'm talking about companies where we've seen a Canadian subsidiary declare bankruptcy. It gives everyone a haircut on their pension. It's actually the American counterpart that then takes over the company, and it does likewise. The Canadian subsidiary steps back in, and every time workers are getting dinged on their pension. It's the same company. It's ultimately the same set of shareholders who are the beneficiaries of these moves, and it's the same workers who continue to see a decline in their pension.
This is not just important from the point of view of trying to protect the value of defined benefit plans that are already there; it's also part of talking about potential risk to the culture of defined benefit plans. I hate to say it, because I've been part of a political movement fighting against it, but the fact is that the trend line has been downward for defined benefit pension plans.
One of the ways companies have already adopted that strategy for independent reasons, and have executed the strategy, has been through the deficiencies of our bankruptcy law. That's why it's so important to protect it. It's why, over time, I see this as part of pushing back against that movement of companies divesting their defined benefit pension obligations.
I want to turn the floor over to you, Marilyn, with the little time that I have remaining, to talk about termination and severance pay, and the importance of protecting that as part of the package that workers go to work for every day.
The Chair: Ms. Gladu, go ahead.
Thank you so much, Chair, and thank you to MP Blaikie for all his work and for bringing forward the bill that Scott Duvall previously brought forward.
As he said, these are deferred wages. There is a contract that you enter into, and you pay into your pension fund. You have severance terms that are all agreed to, and then at the end of the day, when the company goes bankrupt, in many cases executives get their bonuses, lawyers get paid, and it's billions, but people don't get their severance.
I'm absolutely supportive of putting that in here. I think it's important, and we want to make sure workers do get their wages. We talked to many stakeholders in the labour movement, like the Canadian Labour Congress and others, who are happy with the bill and the amendments we've talked about.
Thank you, MP Blaikie and MP Gladu.
A lot of work has been put in to get us to this point with Bill .
We are going to move to our second round. We have time only for this round, for questions for MP Gladu. I thought we'd get into a third round.
I will take this opportunity to congratulate and welcome MP Hallan and MP Morantz. Of course, MP Chambers, you're a staple here. To MP Lawrence, I have already said it.
In our second round, we'll start with the Conservatives. We have MP Chambers up for five minutes.
Thank you very much, Mr. Chair.
First, congratulations to Ms. Gladu on having this bill brought before the committee, and to all the other members who worked on this over the years.
We've heard some questions about potential or unintended consequences. The truth is, a version of this bill has been debated in various Parliaments over the last 10 years or so. In fact, a study was done in the last Parliament at the industry committee.
Do you think some of the concerns have been addressed previously and we can rely on that in this Parliament?
Thank you for the question.
I would say a number of things.
First of all, I think having a different “coming into force” and giving businesses a number of years to get their fiscal house in order with respect to the solvency of their funds is an important change.
I would also highlight that this bill covers federally regulated pensions. FYI, that's 9% of pension funds in Canada. It's not everything I wanted to do, but, many times, the provinces follow suit.
To MP Blaikie's point on the number of people doing a defined benefit pension, that pool is shrinking. I think all of those things will move us in the direction of good. That's why it's so important to get this bill over the line. If we want to do future improvements and future things, that's great for another day. Really, this is the moment and we need to seize it.
Thanks very much, Mr. Chair.
Thank you, MP Gladu, for your work on this. Some of the energy was being expended, I think, on trying to make the case that the changes are needed. I don't think energy needs to be expended there. I think everyone around the table is likely in agreement that there need to be improved protections for pensioners. In fact, the government has made a number of changes and would be supportive of the right changes that are contained in your bill, I think, with some adjustment.
I have just a quick question before I go on. The stakeholders you've heard from who felt the three-year coming into force was okay.... Which stakeholders were they?
Okay, thank you for the concise answer.
I raise it because, of course, the worry here is that, in our very good intentions—all of our good intentions, our collective good intentions—in trying to protect pensioners, we might make a mistake such that we provoke a perverse outcome, an unexpected outcome. That outcome would be to create a financial hardship for the company that's at risk such that it would be forced into bankruptcy and unable to discharge any of the pension requirements. The idea is that we want to provide as much protection for the pensioners as we can without harming the company such that the pensioners don't get anything.
One of the things our department and the Department of Finance have heard from external stakeholders is that three years would be.... I heard one person use the word “catastrophic”, that it would have the impact of forcing creditors to call loans. It could also have the impact of having companies switch out of defined benefits and into defined contribution plans. I know that the NDP is tied very closely to the unions in the country, and the unions, of course, are very interested in defined benefits, so this is a serious consideration.
The change we would like to make to your bill, then, is to move from three to five years. To be frank, 10 years would be ideal. That would give a lot of runway for companies to restructure and maximize the opportunity for pensioners to receive the equity that they put into the company for so long.
The second amendment would be to agree with you to move the priority of the pensioners a few notches up the food chain to just below secured creditors. So, it would be above unsecured creditors but below secured creditors.
With those changes, I think we could support your private member's bill. I think that we could perhaps convince members of the committee of those changes if we were able to hear the full slate of witnesses that's already been published for Wednesday, which includes the Association of Canadian Pension Management, CARP, the Canadian Chamber of Commerce, the Canadian Federation of Pensioners, and United Steelworkers. These are folks who have gone to the trouble of preparing a presentation already. I think it's incumbent on the committee in a democratic process to hear from all the stakeholders and not just some.
If there's any time left, is there anything in there that you'd like to respond to?
First, let me say that I certainly wouldn't support extending this to a 10-year frame. I do think that even five years is a bit long. I also don't want to put secured creditors ahead of pensioners. Secured creditors include these banks that are making multi-billion dollar profits at this point in time, and I don't think they're going to not extend credit. We saw how the banks supported people through the pandemic. There were many businesses that were struggling. They were extended a lot of credit and were given many opportunities to restructure their loans, etc.
I believe the banking community will support those who are working to repair their funds. At the same time, I definitely would not support moving the secured creditors ahead of pensioners. Pensioners are suffering. Hundreds of thousands of Canadians have lost what was due them, and I think now is the time to act.
Ms. Gladu, my comment is related to Mr. Fillmore's questions.
Can you explain to us again the ranking of creditors under your bill in the event of a corporate bankruptcy?
As I understand it, pension funds would be lower in the ranking, not at the top, to give companies the opportunity to refinance, if necessary.
I'd like you to reiterate that for us—I believe you had already done so. It will also answer Mr. Fillmore's question.
Excellent. I'll say it in English because there are a lot of financial terms that I probably can't say in French.
Basically, the order of operation is all of the taxes that are due, all of the pension plan funds that are due and the employment insurance program funds. Then suppliers are able to repossess their unpaid goods that were delivered within 30 days of the bankruptcy. This is a great protection for small businesses, essentially.
Then there is the value of unpaid agricultural and aquaculture products delivered 15 days prior to the bankruptcy. Again, farmers and small businesses will be advantaged there. Then, the value of unpaid salaries and allowances up to a maximum of $2,000 per employee. In some of the bankruptcy cases that we've seen, people did not receive their wages. There were people who had worked and had hours banked, and they were not receiving any money for that.
Then, there's making sure that people's contributions to their pension plans are in. We can't have them receiving it if they haven't actually donated everything they were supposed to donate. Then, there is the cost incurred by a government to decontaminate land. That's so that we don't have companies walking away from contamination issues.
We would then put the pensions in place. My suggestion would be that severance goes after that or that we somehow make sure that the severance we're talking about doesn't include large executive bonuses, which could be a huge amount of money.
Then, it will be secured claims, preferred claims and unsecured claims.
That's the recommendation in the bill. That's certainly what was at INDU previously with Marilène Gill's bill, which was considered to be excellent. If there was a mechanism to allow people to get their fund in order, everybody was happy to support it.
Parliamentary Secretary Fillmore talked a little bit about the kind of perverse outcomes or unintended consequences that you can sometimes get by passing legislation. It seems to me that we've had a perverse outcome for a long time now. There is a fair bit of cross-party agreement that something wrong is happening in the case of bankruptcies where workers are losing their pensions. The failure to get a working coalition, if you'll excuse the term here, in Parliament to get legislation passed has meant that this wrong has persisted.
If we take the statements of people around the table at face value, that's not an intended consequence. You talked earlier about the moment that we're in. How long it has taken to get here has been part of our conversation.
I just want to give you an opportunity to speak to the kind of perverse and unintended consequence—I think people around this table anyway would want to say it's an unintended consequence—that people have been short-changed on their pensions in the case of bankruptcy and also about the moment that we're at, in this Parliament at this time, where there does seem to be a working majority that's willing to get something done.
Perhaps you could speak to that, please.
Yes, thank you for the question.
Absolutely, Canadians have suffered. After working their whole lives, they have ended up having to continue to work, sometimes when their health was not good, and that was a real struggle. Sometimes it has meant the loss of their homes, etc. There was a lot of that.
I did not hear any of the small business folks I talked to being concerned about this, because what has actually happened in the private sector is that 70% of people don't have pensions at all. They don't. Small businesses can't afford to pay into it unless they belong to an organization like HOOPP that pools a third party, which is a great idea.
Essentially, the people who are making the loudest noise here are the large corporations or the large banking institutions, which have, in fact, the most resiliency in terms of surviving one company going bankrupt.
To me, in all the talk over the 10 years, everybody was well intentioned, but now is the time to say, “These are the things from various bills that have been agreed on. They are all here together. Let's agree on these, and then we can continue to work on this in the future.” We can move forward in an improved direction. Certainly, if the government has additional things it wants to do, it is the government and can put those things forward.
This is the moment when we need to help Canadians who have worked their whole lives and protect their pensions.
First of all, I want to say that it's great to be back on the finance committee. I see some familiar faces around: Ms. Dzerowicz, Gabriel Ste-Marie, Peter. It's nice to be working with you all again. I'm looking forward to working with all the new faces that we see here today.
I just want to say thank you, Marilyn, for being so strident in bringing this bill forward. I think one thing we can all agree on around this table is that we need to find a way in a country like Canada to protect pensioners. We need to find a way to protect these pensions.
We've talked about this before. I mentioned to you that I come from a law background. I was a corporate commercial lawyer. I did many securitization packages for banks. Banks are really concerned about one thing, which is that they want to make sure they have enough security in place so that if things go wrong, they'll get their money back.
Pensioners have the same grievance. They want to make sure that the benefits of their labour are also secured. It strikes me that we have a bit of a Solomonesque problem here. We need to find a way to protect pensioners but also make sure there is stability in the financial markets so that we don't have adverse macroeconomic consequences to industry across Canada. I don't know what the answer to that is, but I think all of us around this table should be able to find the answer to that question.
I do have some concerns about the idea of simply putting pensions ahead of secure creditors and what impact that might have on the lending community. I'm not so sure that they would just go on with business as usual. I think we need to hear from them about that.
I also worry about the fact that we need to protect the pensioners' pension nest egg. We don't want to kill the golden goose that lays that egg along with the workers and the business. There needs to be a solution that works for both sides of this equation, in my view.
I'm just wondering if you could comment on what I've suggested.
Thank you so much, Mr. Chair.
I want to thank you, Ms. Gladu, for presenting this private member's bill.
I will tell you my bias automatically. Many residents of my riding of Davenport have worked for a number of companies that have gone bankrupt and have been impacted in terms of their pensions. They have very much talked to me through the years about this. I have a very big heart, and I do believe that we need to provide stronger protections for them, unequivocally.
I will tell you that I was reading through the INDU testimony. I was reading through some of the comments that were made because I want to understand why it has taken so long to have this bill passed. For me, it seems like it's been more than just needing to get all the parties onside. It seems like there's a bit of complexity that needed to be talked through. There was a need to hear from a number of different stakeholders to understand what the issues are so we could make sure that we have strong legislation and that we put into place the protections we desperately need for pensioners.
One thing we've mentioned in this session is that there seems to be a concern that some companies can't get interim funding to help them restructure. Are there any other issues that have been raised with you that you believe have been addressed in your bill?
I call this meeting back to order.
For our second hour, from the Department of Finance, we have Kathleen Wrye, director of pensions policy, financial sector policy branch. Also, we have Mr. Neil Mackinnon, senior adviser, financial sector policy branch. From the Department of Industry, we have Mark Schaan, senior assistant deputy minister, strategy and innovation policy sector; and Paul Morrison, manager of the corporate, insolvency and competition directorate.
It will be five minutes from Finance and five minutes from Industry. We'll have Finance first, and then Industry after.
Please go ahead.
Thank you, Mr. Chair, for the opportunity to speak to this committee about Bill .
I will confine my remarks only to the insolvency law aspects of the bill. My colleagues from Finance Canada we speak to the provisions of the bill affecting federal pension legislation.
Let me start by describing what the bill would do.
Canada's insolvency laws provide two sets of options to financially distressed companies—liquidation, or bankruptcy; and restructuring. The superpriority in Bill would affect both options. Liquidation occurs when the company can no longer continue as a going concern. It must be wound up and its assets sold to pay the company's creditors. In bankruptcy, pension claims would change from unsecured status to superpriority status, meaning that they would be paid ahead of most other creditors.
The second impact of the bill would be on restructurings. Our insolvency laws are designed to encourage companies that are financially distressed but fundamentally viable to try to avoid liquidation through court-supervised restructuring plans with creditors. Bill would change the current balance by requiring that a restructuring plan provide for payment in full of unfunded pension liabilities to receive court approval.
This quick presentation completed, I should note a few general contextual elements for the committee. Given our years of practice in analyzing and working with the domestic and international insolvency and bankruptcy systems, it is worth stating at the outset that the Canadian Bankruptcy and Insolvency Act and the Companies’ Creditors Arrangement Act are carefully considered and calibrated regimes. Our fundamental aim in the system is to avoid liquidations and allow restructurings where possible, to ensure an orderly and fair system that prevents gaming or a race to the courthouse, and to incentivize behaviours that maximize the value of the corporation and its returns for all workers and creditors.
Large corporations, such as those most likely to have defined benefit pension plans or to avail themselves of the Companies' Creditors Arrangement Act, are complicated entities with a number of competing interests. Shifts in one aspect of the regime will have implications and considerations for other aspects.
I will seek to highlight some of these areas of consideration for the committee, given the shifts that this bill would introduce.
It is also worth noting that this is an area to which we have dedicated considerable time and effort. In particular, I would note for the committee the important work proposed and implemented in the retirement security project, which saw changes to insolvency, corporate governance and federal pension laws with an eye towards the protection of pensioners and workers.
With that, I would begin by bringing some potential drafting issues to the committee's attention.
First, the committee should be aware that the bill uses terminology from federal pension law that may or may not be relevant to the various provincial pensions laws. The bill also does not distinguish between different types of pension plans with different employer funding obligations. My Finance colleagues would be happy to answer questions on these issues.
Second, I wanted to note that the five-year transition period, as drafted, is tied to a calendar date, to five years after coming into force. Insolvency law transition clauses are typically drafted to only affect proceedings that start after they come into force, to ensure that the rules do not change in the middle of an ongoing insolvency proceeding. Under Bill , a restructuring proceeding could start four years after coming into force, but the new superpriority could come into force a year later, changing the rules midstream and potentially reducing the chances of a successful restructuring.
I will now turn to a number of more substantive considerations the committee may want to investigate during its study of Bill .
First, the committee may want to look at the differential impact the bill could have on pensioners under different scenarios.
When the bankrupt assets are sufficient to cover unfunded pension liabilities, for instance, the bill may increase the amount that pensions could receive in a liquidation because they would be placed ahead of other creditors. When the bankrupt employer's assets are insufficient to cover the liability, which can be very large, it may be that losses could be locked in for pensioners without any prospect for further recovery given the impacts that the bill may have on restructurings or other possible futures of the plan.
Second, the committee may want to look into how the bill would change restructuring dynamics when a defined benefit pension plan is involved. We are all familiar with examples of insolvencies that resulted in pensioners not receiving their full benefits. On the other hand, there are also many examples of restructurings under current law where the pension plan was successfully preserved, along with the employer and ongoing jobs, such as Air Canada, Stelco and AbitibiBowater.
New superpriorities could, for example, shift the behaviour of players in the insolvency systems. With a new possibility that a secured creditor may be at risk of not receiving full payment given a pension deficit, that creditor may have a strong incentive to choose to race to the bank to call their loan, or similarly take steps to maximize their return in advance of an insolvency. It is possible that a change in the incentives in restructuring could trigger more insolvencies and even minimize the outcomes for pensioners when insolvency is triggered. The committee may want to speak to the creditor community to assess their views about the impact of this bill.
Similarly, the committee may want to consider the impact the bill could have on the availability of interim financing—that is, the special insolvency loans that insolvent companies must acquire to cover the restructuring costs.
Good evening. My name is Kathleen Wrye. I'm the director of the pensions policy team at Finance Canada. I'm here today to answer your questions about this private member's bill, Bill . I would also like to take this opportunity to provide a bit of context on the funding requirements in federal pension legislation, which is the Pension Benefits Standards Act, or PBSA for short, and how the legislation works to protect the pension benefits of defined benefit plan members and retirees.
I will also provide a few of the key comments we have on the proposed amendments to the PBSA in Bill and how they interact with existing provisions in the act.
Under the PBSA, the federal government regulates the pension plans of Crown corporations and private sector plans covering areas of employment under federal jurisdiction, such as telecommunications, banking and interprovincial transportation, as well as private pension plans in the three territories.
The Office of the Superintendent of Financial Institutions is responsible for supervising federally regulated plans with the mandate to protect the rights and interests of plan beneficiaries. At this time, there are over 1,200 federally regulated pension plans. Over 400 of those plans are defined benefit or a combination of defined benefit and defined contribution. Approximately 7% of pension plans are federally regulated, with the remainder being regulated by the provinces.
The PBSA sets forth a number of requirements in respect to the funding and administration of plans that are designed to protect and promote pension benefit security for plan members while acknowledging that the financial health of plan sponsors is important for the continued operation of these plans.
Under the PBSA, there is a specific requirement for plan assets to be held separate from those of the employer. This protects plan assets from being seized by creditors in the event of bankruptcy proceedings.
Further, federally regulated defined benefit plans are generally required to be 100% funded on a solvency basis, which means that they must have enough assets to purchase annuities from a life insurance company to provide the promised pensions in the event of an employer insolvency. The employer is required to fund any funding shortfalls within a period of five years. As of December 31, 2021, the average estimated solvency ratio of federally regulated defined benefit plans was at 109%, meaning that the assets of these plans were, on average, 9% higher than their solvency liabilities.
To address solvency deficits and ensure benefit protection, plan sponsors are able to obtain a letter of credit in lieu of making any solvency special payments up to a limit of 15% of the plan solvency liabilities. The letter of credit amounts would be paid into the plan in the event of an employer insolvency, similar to insurance. Plan sponsors are also able to obtain life annuities from regulated life insurance companies either by purchasing them as a planned investment or by having insurance companies make pension payments directly to retirees. Transferring the obligation to make these payments to a life insurance company helps to secure pension benefits for plan members and retirees.
The use of insurance to meet funding requirements as proposed by the amendments in Bill would not be very different from the existing tools available to plan sponsors under the PBSA. However, I would note that the existing PBSA provisions are accompanied by a number of safeguards to ensure that pension benefits are protected, such as details regarding which institutions can provide letters of credit to plan sponsors. The current bill does not include any such safeguards to ensure that the insurance to be used would be appropriate for protecting retirement benefits.
I would also like to take this opportunity to raise the consideration related to the amendments regarding transparency requirements in the bill. Bill contains amendments that would require the superintendent to consult with the Office of the Chief Actuary on its annual report prior to its being tabled in Parliament, and to send this report to provincial ministers of finance and provincial security commissions. I would note for the committee's consideration that neither the Office of the Chief Actuary nor provincial ministries of finance or security commissions have any roles or responsibilities with respect to federally regulated private sector pension plans. As such, it is not clear what these amendments are intended to achieve, in particular as this report is already made available on OSFI's website.
To close, I would like to thank the committee for allowing me to provide some additional context and raise these considerations as part of its work to study the bill.
I look forward to answering any questions you may have or discussing other considerations with respect to the amendments to the PBSA proposed in Bill .
Thank you very much, Mr. Chair.
Thank you to our officials for appearing with us here this afternoon. I will ask my questions, but feel free to delegate them as you wish, depending on your area of expertise.
I'm hoping to get a discussion on.... We've heard some questions about unintended consequences and potential liquidity issues or lending issues of those organizations that might be close to insolvency now if these rules were to come into force.
The question is more around a sizing of this problem. I heard some stats. There are about 400 defined benefit pension plans, 7% of which are federally regulated. Are there any studies, any information that can be shared with this committee, that have looked at the number of companies that would be affected by this legislation and/or the number of companies that may, in an unintended way, be negatively impacted by this legislation? For example, they might have a challenge getting credit.
Do we have an idea of the size of the issues that we're dealing with?
Perhaps in my last 30 seconds I'll just make the point that I'm highly sympathetic to those individuals who have some concerns about unintended consequences for people who are maybe pushed into bankruptcy.
The issue, I think, is that the government has had this legislation since June. We've looked at this legislation previously. I have yet to hear or see any amendments brought forward on behalf of the government to improve the bill.
We all recognize and can read the room that the bill has cross-party support, at least on this side of the table. It would be incumbent upon the government to introduce amendments that it feels it could live with in this piece of legislation. It has had a significant amount of time to generate this over the last 10 years as various versions of this bill have been before various Parliaments.
Thank you, Mr. Chair.
Thank you so much, Mr. Chair.
I think Mr. Chambers stole all of my question notes. I think he literally took the direction of every single one of my questions.
I want to start off just by thanking our officials for being here today. Thank you for your extraordinary work. I know this is not an uncomplicated matter, so I really appreciate all of your hard work on this.
As mentioned by my colleague, I think there's a very strong desire to strengthen protections for pensioners. I personally suspect that the reason it's taken this long is that it is actually highly complicated. On the one hand, you want to provide room for companies that are in financial difficulty to restructure and get back on their feet, while at no point in any way threatening 100% of the pensioners' pensions.
I would like to very quickly make sure it's clear on the record. Ms. Gladu had indicated that this bill would only affect federal pensions, but what I heard from Mr. Schaan is that it would actually impact companies right across the country. It would be applicable to all companies across Canada.
Can you please verify that?
I will start, and then my colleague from Finance can weigh in.
As I already noted, pension solvency requirements vary enormously province by province. They set the degree to which a company is actually required to be holding assets in trust for the purposes of its pensioners.
As my colleague noted—and I'll let her weigh in—at the federal level we have extraordinarily stringent requirements. A number of provinces set standards for pension solvency that are quite different. In some cases, they actually only require a company to be investing and holding in trust enough to allow for the pension to be on a going-concern basis. That presumes that they only need to pay out to their actives, whereas others have set much lower solvency requirements and have required it to be on a windup basis, which does leave some money in case the company actually goes insolvent.
The relationship between the pension solvency and insolvency is important because obviously what you have at the time of insolvency is going to be determined by what you were required by your pension regulator to have when you were alive and well as a company.
I will just turn to my Finance colleague to say how we deal with that federally.
I raised two different sets of issues and I'll speak to them.
One set of issues is about how it's drafted. Right now, regardless of whether it's three years or five years, it's set on the basis of a calendar year, as opposed to tying it back to the insolvency date. Right now, upon royal assent.... Four years in, you could have a restructuring process, as I noted in my opening, that would potentially have these new superpriorities imposed upon it midway through restructuring. This is one issue: When does it kick in? Is it a calendar year, or is set against something else?
The other consideration is what degree of runway will allow for planned sponsors to be able to make prudent decisions about the continued growth. If you have a pension solvency deficit and we set new rules about the fact that it's now going to be potentially superprioritized against your access to credit, you may race to try to increase your overall degree of solvency in the plan.
One of the questions is, given that we want to incentivize prudent behaviour on the part of planned sponsors to not invest irresponsibly or invest in high risks to be able to make up planned solvencies, what's the appropriate length of time? That's a consideration for the committee as they think about what the appropriate runway is to get a planned sponsor backup.
As my colleague mentioned, our solvency deficit under pension solvency law federally gives companies a five-year window to be able to make up their deficit.
Thank you, Mr. Chair. I'd ask that you please interrupt me after five minutes. I will be giving my last minute to my colleague Mrs. Gill.
I'd like to thank Ms. Wrye, Mr. Schaan, Mr. Morrison and Mr. Mackinnon for being with us and answering our questions. I also thank them for their opening remarks.
I will start by making a few comments for my colleagues on the committee.
First, I fully agree with Mr. Chambers' conclusion. He reminded us that this has been a topic of discussion for 10 years in the House and that the current Bill was introduced last spring. I'm therefore anxiously waiting for the government party to put forward the required concordance amendments in terms of the existing framework, so that we can discuss them as soon as possible and improve the bill. Improvement is always the purpose of studying bills in committee.
Next, I would also like to thank the Library of Parliament research services. Our analysts do an outstanding job, and that's particularly the case for the briefing notes on Bill . Mr. Lambert‑Racine and Ms. Yong produced these notes. I congratulate them, they did a fine job.
In fact, I'm going to draw on one of the questions suggested in the briefing notes. I believe my question is for Department of Industry officials, but they will correct me if it isn't.
Could you provide some details on pension plan members? What's the situation right now? In the last 10 or 20 years, how many retirees have lost their pension due to their current or former employer's insolvency?
How much of the unfunded liability within pension plans have they recovered as unsecured creditors in insolvency proceedings under the current regime? In other words, how much of their pension have they lost?
Thank you for the question.
From 2009 to 2022, there were approximately 10 cases where the pension had been reduced due to insolvency.
These are under the Companies’ Creditors Arrangement Act proceedings. Bankruptcy and insolvency proceedings would be a different manner. I can speak to 10 where there were reductions, but I would also speak to a number where the restructuring was successful.
This would range from Nortel Networks, where, depending on the province that you lived in.... Because of some particularities of provincial legislation, pensioners received 90% of their overall pension obligations in Ontario, and 82% of payments in other provinces.
With regard to Fraser payments, there was a difference between the salary pension payout and the hourly pension payout. The hourly pension payout went somewhere between 56% and 64%. The salary pension was between 65% and 69%. I would note Wabush Mines, where pensions were reduced by an estimated 8%. Pensions were reduced by 20% to 30% in Groupe Capitales Médias.
I would also note a number of successful restructurings. There is Air Canada in 2004, where pensions were made whole and continued on within the ongoing operations of the successful restructuring. There was AbitibiBowater in 2002, as well as Canwest, Hollinger, U.S. Steel and Algoma. All of these were situations where essentially the pension obligations were preserved and the pension was allowed to continue with a going concern company.
It's important to look on both sides of the restructuring as to what kind of.... Then, just to bring it back to the other point, you'd have to also look at what the solvency requirements were of the province or the regulator of the pensions in question because those are obviously material as to what further reductions one might see in a restructuring.
I would like to thank the witnesses for sharing their experience and knowledge with us. Obviously, it will help us make informed decisions.
Mr. Schaan, you mentioned the fear businesses have with respect to the risks that would result from passing Bill . You also talked about the bill's complexity.
I would hope that committee members won't let this uncertainty keep them from taking action.
As my colleague Mr. Ste-Marie and several others have said, we've been talking about this for decades. I don't believe businesses would be caught by surprise if a bill like this were to be passed.
I'd like to talk about one more thing.
The risks, complexities and fears of businesses have come up a lot. When it comes down to it, I was elected by the people, and it's them who want to take this risk. They understand the complexity, but they're willing to play the game and see what happens. I, for one, don't believe they are protected right now, but I also feel the bill would protect them.
I hope that we can pass a bill that's to everyone's liking fairly quickly.
Thank you to the officials for their testimony and contributions in trying to help us understand what's at stake in the bill. Obviously the question is about risk. We're talking about institutions that deal in risk for a living, and we're talking about what is very likely a very small percentage within their own portfolio.
We've heard different numbers mentioned around the table, but the one that is really important to me is the fact that fewer than 30% of Canadian workers right now work in a workplace with a pension. We're already talking about over 70% of the market not applying, because those are Canadians who unfortunately don't have the benefit of a good pension plan in their workplace.
We also know that about 20% of all Canadians who are employed are employed by some level of government, some kind of public sector employment, and typically those are people with defined benefit plans, but they're within the 30% of Canadians who are working with a pension. If 20% of Canadians work in the public sector, I think it's fair to say that those are probably 20% of Canadians who are working with a defined benefit plan.
Now we're talking about 10% of Canadian workers who are working in a workplace that isn't a public sector workplace but does have a pension plan. That doesn't mean they're working in a workplace with a defined benefit pension plan. They could have a defined contribution plan. In fact, in the private sector, there are more employers who have defined contribution plans than have defined benefit plans. Let's call it, I don't know, 40%, which would be quite generous to say. Of the people working in the private sector in Canada who have a pension plan, 40% have a defined benefit pension plan. We're talking about 4% of workers. What percentage of business overall is that? I don't know, but certainly not all the banks.... No one bank is invested in all of that business, so it's 4% of an investment portfolio.
Incidentally, not all of those companies are going to fail. Of that 4% of Canadian workers who work at a company in the private sector that maybe has a defined benefit plan.... I think that number is probably lower. How many of those Canadians are going to be at a company that fails? Well, it's going to be a far lower number.
I think we're getting well into the territory of margin of error, as far as I'm concerned, for large financial institutions. They fund businesses for a living, and they have experience picking winners. I don't think Canada's financial institutions go out and give loans to people who they think are going to fail. By and large, businesses do succeed. We're talking about a very small portion of private sector workplaces with defined benefit plans whose businesses fail.
Then let's take a look at some of the cases where we've seen extraordinary failure. Department officials mentioned Air Canada in 2004. Well, guess who was there to backstop Air Canada in 2004. It's no great secret. Usually, when Air Canada screws up, there's a lot of public money that goes into backing Air Canada. Let's not kid ourselves around this table. We all know it to be true.
Who gets taken care of in that? Well, it's also true that the financial institutions get taken care of, because the government steps in to have their back. What is another case when Canada's major financial institutions were exposed to incredible risk? In 2008, when we had a global recession, did they get hung out to dry? No. Who stepped in to have their back? Again, the federal government stepped in to have their back to make sure they were doing okay.
In 2020, when the world economy shut down, did the banks shut down? Did they lose their shirt? No. The federal government stepped in with taxpayer money to make sure that the big banks and insurance companies were doing just fine, thank you very much. In fact, they made record profit. That's why we've had to call for an extraordinary pandemic dividend in order to get some of that public money back, because not only were they not losing their shirt, but they were making record profits.
I find it really hard to hear some kind of violin song play around this table for Canada's largest financial institutions. Somehow we're talking about risk that's going to bring them down because we want to do something for the person who worked at Sears for 30 years and paid into a pension plan. It wasn't a gimme or a Christmas present. It was something they went to work for, and when that gets cut, that's their rent, their groceries and their ability to have a nice outing with their partner in their golden years that gets taken away.
I'm not trying to minimize the importance of conversations about risk, but we're talking about people who do risk professionally for a living and get a lot of help from around these tables when things go wrong for them.
This is one time that we can do something for people who never get that help. They certainly don't get it often enough.
Unless we get some really compelling, real numbers—whether they come from department officials who are concerned about the potential unintended consequences, or whether they come from the financial institutions—we should absolutely be moving forward with this bill and ensuring that Canadian workers finally get something like the protection that financial institutions bank on every day of the year.
I don't have any questions. I think I have heard enough, frankly. What I want to do is move forward. If I'm going to hear from anyone, it's going to be people who have real-life experience of being on the wrong end of the current bankruptcy laws, because those are the people to whom we owe our time and service around this table.
Thank you very much.
I'd just like to move that at our next meeting, we take an hour with witnesses and then begin clause-by-clause in the second hour of the meeting.
The reason for that is that we've heard some who would like to hear more on this. We've also heard that this issue has been well studied by Parliament, over a number of Parliaments now. I'm offering what I hope is a compromise that allows us to hear a few more voices on the bill, but also allows us to proceed quickly with the passage of the bill.
If there's no further debate, I'd be happy to proceed to a vote on that.
I just wanted to say that the situation that some pensioners are finding themselves in, having worked all their lives, is unacceptable. We need to do something.
You know my background. For me, it's important that when we put something forward, it's good. You said the law is not perfect. Well, why don't we make it perfect? I really want this committee to have the ambition to make it perfect. If it takes a little bit more time, I'm willing to take it.
I want officials to help. There are issues such as connection and what Gabriel Ste-Marie said earlier about how we need to harmonize some of this legislation with new legislation. I'm just concerned that we could, by accident, create a flaw in the legislation.