I call this meeting to order.
Welcome to meeting number 62 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 the 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, and please mute yourself when you are not speaking. With regard to interpretation for those on Zoom, you have the choice, at the bottom of your screen, of floor, English or French. Those in the room can use the earpiece and select the desired channel.
I will remind you that all comments should be addressed through the chair. Members in the room, if you wish to speak, please raise your hand. 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.
Members, before we move on to the election of the vice-chair, on the collective behalf of the finance committee, we would like to thank and take this opportunity to pay our respects and tribute to our friend and former colleague, the late Honourable Bill Blaikie, our friend MP Daniel Blaikie's father. The speeches in the House today were truly moving. We're with you, Daniel, in honouring and celebrating your father today.
Also, members, I do recognize that during our last meeting we had to end abruptly, cutting short MP Blaikie's time, owing to House resource constraints. As a mutual moment of courtesy on our behalf, I'd like to allow MP Blaikie the two-plus minutes of his remaining time.
MP Blaikie, the floor is yours.
Thank you very much for that, on both counts, Mr. Chair.
You may recall that, at that time, I moved a motion with respect to how to dispense with Bill . It's a little bit stale, given that we're hearing from witnesses today—which is wonderful, and I'm very glad to have them here—but I wonder if I might have unanimous consent from the committee to replace that motion that was on the table with the following, and perhaps we could pass it swiftly: that the committee dedicate the meetings of October 24 and 26 to pre-budget consultation hearings and dispense with clause-by-clause consideration of Bill C-228 on Monday, October 31.
I'm happy to motivate that, if you'd like, Mr. Chair. I think it speaks for itself in the context of the last day's discussion. If there are any questions, I'm happy to answer them, but if folks around the table are comfortable with that, then we could perhaps proceed to the decision.
Members, I'm looking again for approval.
(Motion agreed to)
The Chair: That is carried.
Now we'll move to our witnesses. We have until seven o'clock.
I would like to welcome our witnesses. From the Association of Canadian Pension Management, we have Andrea Boctor, partner and chair of pensions and benefits at Osler LLP; Ross Dunlop, executive vice-president, Ellement Consulting Group; and Ric Marrero, chief executive officer, Association of Canadian Pension Management.
From the Canadian Association of Retired Persons, we have Bill VanGorder, chief operating officer and chief policy officer. Welcome.
We also have Alex Gray, senior director, fiscal and financial services policy, Canadian Chamber of Commerce; Michael Powell, president, Canadian Federation of Pensioners; Siobhán Vipond, executive vice-president, and Chris Roberts, director of social economic policy, Canadian Labour Congress; and Nicolas Lapierre, area coordinator, United Steelworkers.
Welcome to all our witnesses.
We will now have an opportunity to hear remarks from our witnesses.
The Association of Canadian Pension Management is on first, for five minutes.
Thank you to the committee for allowing us to get our point across. We will keep it very brief.
I've been with ACPM since 2012. I spent the last 30 years in national senior management in the charitable and private sectors.
We are a politically neutral, non-profit national organization. Our membership contains many of the largest DB plans in Canada. Our private and public sector members together manage plans totalling trillions of dollars, with millions of plan members.
I would like to introduce my volunteer colleagues.
Ross Dunlop is the executive vice-president of Ellement Consulting Group. Ross is a pension actuary and investment consultant who has, for over 30 years, provided advice to pension plan sponsors and trustees. He has experience in winding up pension plans, pension plan provision design, investment strategy design, and assisting clients in hiring and terminating investment managers. He is the past president of ACPM and has been an ACPM board member for over 10 years.
Andrea Boctor is a partner and the national chair of the pension and benefits group at Osler, Hoskin & Harcourt LLB. She has practised pension and benefit law for the past 20 years. Her practice has included all types of stakeholders, such as debtors, creditors, monitors, receivers and plan windup administrators appointed by pension regulators. She has taught pension law at Queen's University and pension insolvency law at the University of Toronto and Osgoode Professional Development. She is a past chair and current member of the ACPM federal council, which deals with federally regulated plans.
I would now like to turn it over to Ross Dunlop.
Good afternoon, everybody.
There is no other organization in Canada that has done more work promoting retirement security for plan members than ACPM, while at the same time creating an environment where plan sponsors continue to offer pension plans.
ACPM clearly understands the unfortunate situation when a plan sponsor fails and plan members might not receive 100% of their benefit entitlement. Providing secure benefits to plan members is something ACPM has been working on for decades.
ACPM believes that DB pension plans are very valuable benefits for plan members, but we need to recognize that employers choose voluntarily to create and support these plans. Pension plan coverage—particularly defined benefit—has declined in Canada fairly precipitously over the last number of years. Public sector DB plan membership in Canada—this is from StatsCan—was about 82% 20 years ago. It's 82% today. Twenty years ago, private sector DB plan membership was about 21%. Currently, it's around 9%. It's the 9% we're talking about today. That's the worry at ACPM: the deterioration of the 9%.
Our specific concerns relate to the fact that employers need credit and loans to operate, and that banks and bond holders will not lend, or charge significantly higher interest rates, if they are subordinate to pension plans. This will incent board CEOs and CFOs to terminate pension plans that are subject to this legislation. Even those employers who would never find themselves in a bankruptcy situation will be incented to terminate these plans and wind them up.
Although Bill has the admirable goal of giving priority to plan members in the event of a bankruptcy, we believe what will happen is that plans will be terminated. Bill C-228 would apply to very few plans, because those plans will have been wound up.
At this point, I'm going to hand things over to my colleague Andrea Boctor.
Our goal in appearing before you today is to share with you other options that can help this committee achieve its important goal, but without sacrificing that 9%, or about 1.2 million private sector workers in Canada, who are presently accruing defined benefit pensions.
The pension industry has evolved in the last many years. We have tools in our tool box to enhance pension security without resorting to a superpriority. In my experience, where pensions have been cut after an employer insolvency, the cause of the cut is not that there's not enough money to provide the pension; the cause is the way we wind up pension plans in Canada. We immediately buy annuities from an insurance company to replicate the pension benefit. Annuities are fully guaranteed, but they are backed by low-yielding assets, and are therefore expensive relative to other options.
In our materials, we outline solutions that parliamentarians could consider instead. They are based on real, recent examples of Canadian successes. An example is allowing for the appointment of a special pensions insolvency trustee to manage or merge pension assets and liabilities based in part on the Stelco model, where pensioners received 100% of their pension, notwithstanding a large windup deficit when the company filed for CCAA protection.
Other examples are asset pooling based on the great success of the model deployed in Quebec for members of insolvent company plans, or variable and advanced life annuities, new tools recently added to the Income Tax Act. These solutions do more with the dollars that are there than simply rush to buy an annuity and crystalize a deficit, and none would disadvantage the 9% of private sector employees still covered by a defined benefit pension plan in Canada.
If the committee is nevertheless committed to a superpriority approach, we've made a number of suggestions in our materials to lessen the blow this bill will levy against existing defined benefit plans, as well as a number of technical comments, which we are happy to speak to.
Thank you, Mr. Chairman and members of the committee, for this opportunity to speak to you today on Bill .
My name is Bill VanGorder. I'm the chief operating officer of CARP, which is also known as the Canadian Association of Retired Persons. We're a national, non-partisan and not-for-profit organization that advocates for financial security, protection from ageism and improved health care for Canadians as they age. We have over 330,000 paid members in 30 chapters across Canada.
CARP seeks to play an active role in the creation of policy and legislation that impact older Canadians. CARP advocates on behalf of older Canadians at all levels of government and collaborates with other organizations on health, ageism, housing and financial issues, such as the issue we are on today.
CARP has been fighting for the protection of pensioners for over 20 years. When we created the Nova Scotia chapter of CARP, which I was involved in 20 years ago, one of the first planks in our policy platform was this issue. Our first board of directors had members of the Air Canada pensioners association, whose lives had been severely impacted by the Air Canada insolvency at that time. Pension protection continues to be one of CARP's seven advocacy priorities in 2022-23.
We have 330,000 paid members of CARP across Canada and we survey them on a regular basis. Their financial security continues to be their number one concern. They're all concerned about health, as all of us are, but certainly, their number one concern is whether or not they're going to have enough money to live on for the rest of their lives. Seniors are anxious that they're just not going to be able to do that.
Frankly, our members can't believe that after 20 years of advocacy, the current legislation allows the assets of a bankrupt or insolvent company to be divided among other secured creditors such as banks, the CRA and others, but doesn't move pensioners closer to the front of the line to improve their likelihood of receiving their full pension—a pension they've earned and planned for throughout their working careers. These aren't gifts or unearned benefits, but deferred wages that are earned by Canadians while they work and payable to them when they retire.
The changes that were made in the Bankruptcy and Insolvency Act and the Companies' Creditors Arrangement Act back in 2018 weren't enough. The current law is still unfair to older Canadians.
Inflation is anywhere from 5% to 7%. Food prices alone are up as much as 30%. The inequities across the country have to be addressed, and they have to be addressed now. These are changes that should have been made 20 years ago. Older Canadians are demanding action now. You know, if you're 80 years old and people tell you you have to wait three or four years for something to happen, that just doesn't wash.
CARP recommends actions that would protect pension investments with insurance policies that insure 100% of pension liabilities, and would ensure protection of seniors by amending the act to give pensioners priority status.
I'm not going to take your time by repeating the content of the letter that we and the other pensioners and seniors organizations sent you on September 21. I have other, more expert people in finance who are going to speak later from our group. CARP does want to emphasize that changes in Canada's laws must give underfunded pensions priority over large predators and halt the payout of executive bonuses in bankruptcy and insolvency issues.
The cases of Air Canada, Sears in 2017 and Nortel in 2009 are strikingly unfortunate examples of how tens of thousands of retirees are treated in bankruptcy and insolvency proceedings compared to secured financial lenders such as banks, bondholders and other stakeholders.
Protection of the financial security of older Canadian workers should be the absolute priority of this committee and the Parliament of Canada.
Thank you on behalf of the thousands of CARP members across the country who are looking for action today.
Thank you for having me here. I appreciate the opportunity to appear before this committee today.
Improving retirement security for pension plan members is a laudable goal, yet as Canadians continue to have concerns about their financial security in retirement, it is essential that Parliament not address this challenge in a manner that would negatively affect Canadian businesses, especially those that sponsor DB plans.
The legislative mechanisms proposed in Bill would impose material and adverse consequences on Canadian businesses of all sizes. I'll begin by discussing some of these unintended consequences. To end my remarks, I'll propose solutions that would protect retirement security without burdening the Canadian economy.
To start, Bill would increase the cost of credit for Canadian businesses that offer DB plans. Struggling companies would have greater difficulty securing loans, thereby undermining a core objective of insolvency legislation: to encourage successful restructurings that allow companies to continue employing Canadians, thereby mitigating the social and economic consequences of liquidations. Additionally, DB plan sponsors would reassess continuing to offer DB plans, thereby harming retirement security across the country.
As we prepare to enter unquestionably turbulent economic times, I must underscore that economic recovery depends on businesses' ability to access affordable credit so they can invest and grow. Bill would also force lenders to require more collateral and restrict companies' abilities to draw down credit facilities should a pension insolvency come into question. This is because financial institutions ensure systemic stability in part by accurately maintaining prudential regulatory requirements to prevent lending losses. At best, increasing the cost of doing business would impose a competitive disadvantage on Canadian companies that provide DB plans to their employees relative to their non-Canadian competitors. At worst, lenders could refuse to lend to said companies.
Additionally, Bill would increase the cost of doing business in Canada by imposing more stringent reporting requirements on companies maintaining DB plans. This is because creditors would face challenges in determining exposure to pension deficiencies. In the end, lenders would find themselves unable to make real-time credit decisions because solvency deficiencies are ultimately forecasts based on factors over which lenders have no control. I believe it would behoove the committee to hear from members of the lending community during this study.
I must also stress the consequences of imposing Bill on a timeline shorter than seven years. Minimizing the fallout for businesses would require considering the length of typical bargaining periods, generally three to five years, and pension plan valuation cycles, generally three years, as well as relevant notice periods to plan members on plan reforms, generally two years.
Those businesses that would need to move to defined contribution pension plans as a result of this legislation would incur significant costs. In such a scenario, DB plan members who are close to retirement would also need a great deal of time to settle with their employers. Additionally, any coming into force date should consider the progress of insolvency proceedings cycles, rather than the current approach of being imposed on a particular calendar date.
By way of providing constructive solutions to providing retirement income that would not burden Canadian businesses, which already operate in a time of economic precarity, the Canadian Chamber of Commerce would encourage amending the BIA and CCAA to allow for the appointment of pension insolvency trustees to wind down insolvent employers' pension plans. Said trustees would have the authority to maximize available pension dollars. This model, as has previously been mentioned, has been successfully deployed in Stelco pension plan members' receipt of full pension payments.
Another solution the government could study is paving the way for large multi-employer pension plans to subsume smaller pension plans from insolvent companies in order to leverage economies of scale. A pension insolvency trustee could also be empowered to merge insolvent company plans where deemed appropriate.
Upsetting the order of priority in insolvencies would impose adverse and unintended economic consequences across the economy, especially absent a broader consideration of Canada's insolvency legislative framework. Ultimately, the best solution for pensioners and employees of a distressed company is to encourage successful restructuring so that it can keep paying salaries and making contributions to its pension plan. If passed, Bill would discourage this universally desirable outcome, despite its merits and despite its laudable intent.
Thank you. I look forward to your questions.
We've submitted the specific changes we believe need to be made to Bill , so I won't discuss those here.
I will be talking about some of the points included in the submission that we made supported by CFP and five other leading Canadians seniors' advocacy organizations.
The fundamental challenge for this committee is to choose between the status quo and extending superpriority in insolvency to the unfunded pension liability. We know the status quo, the intended consequences. We've heard of the personal stories and tragedies of those impacted. CFP estimates that since 1982, 250,000 vulnerable Canadian seniors have had their income reduced for the rest of their lives.
We've all heard the unintended consequences. Here is a quote that I have: “there could be a significant negative impact on Canadian productivity and employment since businesses...will have a tougher time getting financing, and their costs could rise dramatically.” If true, those consequences would have a significant impact on the Canadian economy, a measurable impact. That's why I don't understand why we're having this discussion. That quote is from the 2005 committee review of Bill , the Wage Earner Protection Program Act.
WEPP extended superpriority to unpaid wages and other items in insolvency and was passed in 2005. Note that WEPP impacts every insolvency; extending superpriority to the unfunded pension liability would only impact the relatively small and declining number of companies with defined benefit pensions. Where are the binders of evidence of Canada's poor economic performance versus competitors since 2005? If these charges were true, we should be towards the bottom in GDP growth, at the top in unemployment, at the top in companies filing for insolvency, and at the top in liquidations. Where is the data?
The reality is that superpriority would simply put a price on abandoning pensions in insolvency. Today, the minute a company files, the pension deficit disappears like a puff of smoke.
Be honest: Knowing there's no penalty for underfunding a pension and no obligation that survives insolvency, what CEO is going to fully fund their pension? Allocating funds to the pension instead of, for example, dividends, when not legally required, would get you fired. As Mr. Schaan said on Monday, companies only do what is required. Another comment from Monday said that federally regulated pensions are not required to be 100% solvency funded, at least not as I understand the term “required”.
Statistics support this. From 2012 to 2020, on average, 73% of federally regulated plans were under 100% solvency; that's not required. As mentioned on Monday, the 2021 median funding was 109%, which means today is the time to act, because when that gap is small to get to full funding and many plans are fully funded, then companies can de-risk their pension and pose no threat to lenders going in the future.
We also know that companies are going to regulators and looking for contribution holidays, looking to reduce those solvency levels. Now is the time to step in and stop that. If you change the rules, corporate behaviour will change.
This was the case with Air Canada. At the time of its insolvency in 2003, Air Canada had a $1.3-billion pension deficit. Under ministry monitoring, by 2013 that deficit ballooned to $4.2 billion. In 2013, the finance minister at the time, Jim Flaherty, agreed to further relief, subject to restrictions until the pension was fully funded. Executive compensation increases, special bonuses, and other incentive plans were curtailed. The airline was prevented from paying dividends and buying back stock. With those restrictions in place, that pension was fully funded by May 2015. Monitor, and companies do what is required; change the rules, and behaviour will change.
In Canada, we have two levels of legislation, and pensions get whipsawed between them. We have insolvency legislation, and underneath it 11 different pension benefit acts.
ACPM—they're not unique, but they're here so I'm going to use them as an example—argue that pensions shouldn't be protected in insolvency, that insolvency is not the place, yet they advocate for the removal of solvency requirements in pension regulations. The most recent one I know of was in Saskatchewan a couple of years ago. It's online and you can find it. We know that anything less than 100% solvency funding increases the risk to pensioners. It leaves pensioners as acceptable collateral damage in insolvency.
Since 2005, proposed solutions from governments and the greater pension industry have all been based on shifting risk from the companies that willingly accepted the obligation to the pensioners without obtaining the pensioners' informed consent. This is the very definition of elder financial abuse.
Superpriority would at least partly address the power imbalance in insolvency.
This committee will determine whether to continue the status quo or to protect vulnerable Canadian seniors.
Thank you, Mr. Chair. Hello to you and all the committee members. Thank you for this opportunity to appear in front of you.
My name is Siobhán Vipond, and I'm the executive vice-president of the Canadian Labour Congress, Canada's largest central labour body. We, as Canada's unions, advocate on national issues on behalf of all workers from coast to coast to coast.
Pensions are essential to the financial security and well-being of working people. Canadian research shows that income from an employer pension plan can make the difference between financial security in retirement and a decline in living standards, compared to pre-retirement levels. Next to their homes, pension savings are one of the most important pools of assets that workers accumulate over their lifetimes.
It’s important to remember that workplace pensions are not gifts from employers. Pension benefits are deferred wages. Pensions are earned and paid for by workers, and workers depend on that money being there for them when they retire. Employers are legally obligated to provide those pensions when a worker retires. It is frustrating and unjust that this legal obligation can be torn up when a company enters insolvency.
When a company enters insolvency proceedings, workers and pensioners go to the back of the line. They are essentially treated like involuntary unsecured creditors of the firm, behind the banks and the secured creditors. No one asked workers and plan members if they would lend the value of their pension benefits to their employer. It's quite the opposite. Plan members trust that their employer will live up to the terms of the pension bargain.
Unlike commercial creditors, employees and pensioners are generally unable to protect themselves against the risk of their employer’s insolvency. If their previous employer enters bankruptcy, pensioners cannot easily return to work and find new and additional sources of income.
In 2018, Sears Canada pensioners outside Ontario learned that their pension benefits would be reduced by 30%. One Sears retiree in Calgary—which happens to be my hometown—who had worked for 44 years took a monthly pension cut of $800 a month. After a lifetime of work and a lifetime of pension contributions, his pension was slashed in retirement.
Another retiree, who had worked for 35 years, saw his pension drop by $450. In anticipation of benefit reductions, this 72-year-old pensioner took a job at Home Depot as a greeter. For many others, taking a minimum-wage job to make up for pension reductions is not a realistic option, nor should it be an expectation.
The way pensions and benefits are treated in insolvency is outrageous and unfair. Despite this, the government has not taken steps to extend protections to pensioners and plan members.
The government’s legislated changes in response to the Sears Canada debacle were woefully inadequate. In 2019, Bill made minor changes around the edges of the problem. None of these legislated changes would have prevented another Sears Canada, or the pain and suffering it caused for Sears pensioners.
This is especially frustrating since the evidence shows that many companies with underfunded pension plans could eliminate the solvency deficiencies of their plans by allocating just a portion of their shareholders' payouts to the pension plan. Studies show that many firms consciously choose to reward shareholders and senior executives, boosting the stock prices, rather than fully funding their pension plans. This leaves pensioners and plan members at risk if the company becomes insolvent.
Over the years, we at the CLC have supported numerous NDP and Bloc members' bills. None of these bills have been allowed to proceed. For years, we have urged governments to put in place national mandatory pension insurance akin to the Ontario pension benefits guarantee fund. We have been unable to get traction on this idea.
The CLC supports the passage of the revised Bill , and we support the bill’s proposed changes to the CCAA and BIA. The proposed amendments to the Pension Benefits Standards Act are not well conceived and should be deleted from Bill C-228 in their entirety.
We will be very happy to answer any questions you may have. At the centre of this issue are the workers and pensioners across this country.
Thank you for your attention.
Thank you very much, Mr. Chair.
Good evening to all the members of the committee, and thank you for your attention.
The United Steelworkers union represents 225,000 workers across Canada, 60,000 in the province of Quebec alone.
In 2017, 2018 and 2019, the USW met with more than 250 members of Parliament and senators to raise awareness of the need to amend the Companies' Creditors Arrangement Act and the Bankruptcy and Insolvency Act. For six weeks, more than 30 activists were on the Hill to raise awareness. They discussed the discussions and problems that arise when a company declares bankruptcy or goes into receivership.
The most striking example was Cliffs Natural Resources, a North Shore-based mining company, which placed itself under creditor protection. As a result, 1,700 retired workers and surviving spouses have seen their pension benefits reduced by 21% to 25%. As a result of various legal actions, several million dollars were recovered. Nevertheless, pensioners and surviving spouses suffered a loss of 8% to 10%. For some, this represented about $200 less per month, while for others, the loss was $600 to $700 per month. It is also important to understand that most private plans do not provide for cost-of-living adjustments. In the case of someone who retired in the 1980s, for example, because their benefits were not indexed, the impact of the reduction in 2015 was even greater.
During the six weeks of lobbying, we listened to you. I personally participated in the discussions. We were sensitive to some of the arguments, one of which was that it might prevent business recovery or prevent banks from granting loans to businesses. We were sensitive to that argument and we changed our position accordingly. Bill proposed by MP Marilyn Gladu provides for just such a change in the order of priority of creditor claims. We would come right after the banks. So the argument that we were going to prevent companies from recovering no longer holds water. We have responded to some political parties who had a concern in this regard. Now, Bill puts us behind the banks, but ahead of school boards and municipalities that want to collect taxes. So it's a significant leap for us and a very structuring gain for workers.
By the way, this would be a step forward not only for unionized workers, but also for non-unionized workers who have a defined benefit plan.
At the United Steelworkers, we believe that, as legislators, you have a role to protect Canadian citizens from a possible loss of income if a company seeks protection from its creditors.
I appeal to your sense of responsibility, your empathy, your concern for human beings, especially those in their 70s, 80s or 90s. These are human beings who are in distress. Canadian citizens voted for you because they had confidence in you to fulfil your role as legislator. It is now up to you to take advantage of this bill to say that enough is enough. This has been going on for decades. Several bills have been tabled. Moreover, Bill is the result of a consensus among all political parties.
In fact, I remind you that in 2021, there was consensus in the committee studying the previous bill. Unfortunately, an election was called, so we didn't get there, but we were very close. But there was a consensus and we did what you wanted. You were concerned that pensioners were coming before the banks. Now they come after the banks, but at least they are ahead of the municipalities. Bill reflects a difficult consensus that takes your concerns into account. Banks come before us and pensioners come after.
Currently, we are picking up the breadcrumbs, picking up what is left, and that is not acceptable. If pensioners were to make a significant jump in the order of creditors, it would be a giant step for all workers, for all Canadians. Please, for the sake of our seniors, be diligent and put some water in your wine. Bill is not perfect, but it is a very acceptable consensus as well as a giant step forward for workers.
I could name several situations, among them Cliffs Natural Resources, Sears in 2018, Mabe Canada, White Birch or Atlas Stainless Steel. How many similar situations will it take before we act?
I appeal to your sense of responsibility to citizens and your duty of care, and I ask you to endorse Bill quickly, so that we can say once and for all that we have helped the middle class.
Thank you very much.
Thank you to all the witnesses who are here.
I want to assure Monsieur Lapierre that the priority that is assigned in Bill is exactly that which was put into Bill by my Bloc colleague, Marilène Gill. It is before banks, secured creditors, preferred creditors and unsecured creditors.
I only have six minutes, so I am going to ask some quick questions.
My first question is for Mr. VanGorder.
Do you agree with the priority that we've assigned to pensions in Bill ?
We are not in favour of a priority for pension deficits. We are in favour of helping retirees in insolvent company pension plans. If their benefit is going to be cut, traditionally the plan is wound up and annuities are bought from an insurance company, as has been alluded to.
There are mechanisms other than superpriority that we can use to improve their recovery and to get them—like the Stelco retirees—to 100% or, in an insolvency.... Air Canada has been mentioned, which was actually a great success story. Every Air Canada pensioner is getting a hundred cents of every pension dollar they were promised, because of the collaborative restructuring that took place in 2004—a file that I was deeply involved in.
There are other ways, and we are supportive of improving retirees' outcomes. These are sad stories. We all have a ton of sympathy for them, but we are very worried about throwing the baby out with the bathwater. That 9% represents 1.2 million Canadians who, if their DB plan winds up, will not have a retirement pension of the calibre they're expecting.
We're dealing with the situation, as I think everybody is, on the premise that this is a good bill, with possible modifications based on the conversations we're having here. It seems as though everybody is on the same page, which doesn't often happen.
Mr. Powell, how do we all come together and ensure that all sides are being looked after in this regard to ensure that we are going in the right direction? We all hear you. I don't think anybody is challenging the situation or the process. How do we get there, in your opinion?
I have to confess that my undergrad is in engineering, so that's my view in life. I think you go to the data.
I would issue a challenge. WEPP was implemented in 2005. At that time, these same industries, these same groups, made the same claim that disaster was going to occur. They can provide no data of what bad things happened. I can't remember the ACPM person who talked about the cycle of business, when businesses are failing and pensions are in trouble. I agree with that. That's the textbook answer. But that doesn't answer why over 70%, on an annual basis, of federally regulated pensions were underfunded from 2012 to 2020. Those two things don't jive.
The companies are playing, and I'm sorry to say it, a game. They don't have to fully fund their pension. It's in their interest not to. It's a cash flow gain for them. So I really struggle with how you give them the cash flow they want and protect pensioners. I think that's the other thing.
I do want to clarify one thing as well. Stelco is one of my members. The reason Stelco succeeded wasn't that they were given a trustee over on the side. The reason they succeeded was that there was a revenue flow built into that pension. Money went into that pension and is still going into that pension. The purchaser of the company didn't take over full responsibility, but they put some money in. There are all sorts of technical complexities—
The current laws allow companies not to fund pension plans, and everyone accepts that. We wish that wasn't the case, but that's the current situation. We know from the start that there is a shortage of money in the pension scheme. When there is a bankruptcy, it's hard to tell pensioners that, under current laws, it's okay not to pay them what they are owed.
It's important to understand that a defined benefit plan guarantees an annuity, from retirement until death. The benefits will even go to the surviving spouse. As my colleague from the Canadian Labour Congress said, it is a deferred wage. When collective agreements are negotiated, choices are made. For example, we invest less in salary and more in retirement.
The retirees or the workers who will become retirees have no idea that, 10 or 15 years later, they will not get everything they were promised. This situation cannot be tolerated. At the very least, they must be given more of a chance and elevated to the rank of creditors, so that dramas like the ones we have experienced do not occur again.
Thank you very much, that's very clear.
Basically, when workers negotiate their collective agreement, they either ask for a bigger hourly or annual wage, or they take a pay cut to get a better pension. If the company goes bankrupt and they have decided to take higher wages, they may not get their final paycheques; if they have made the trade-off of taking lower wages to get a better pension, the pension will be underfunded by the company, because the current law allows it. The company will tell their employees that it's legal and it's okay for them to lose 20% to 30% of their pension, as you were saying earlier.
What are your comments on the current situation, and on what Bill does in fact solve, concretely, for pensioners?
Let's hope that this time will be the right time and that my colleague Ms. Marilyn Gladu's bill will turn the situation around.
Everything you have just said touches me very much. In your testimony, you recalled that pensions were not indexed to inflation. So, in addition to losing 10% or 30% of their pension, pensioners see their purchasing power eroded over the years and decades. It is therefore not surprising that they have to choose between food and medicine. These are unacceptable situations, especially when, as in the case you mention, it is a large company that has not paid what it should by underfunding its pension scheme.
Do I have any time left, Mr. Chair?
That's excellent, thank you.
In your presentation, you explained the importance of letting banks, because they can refinance, come before pension schemes in the order of priority of creditors. Can you say something about that?
I just saw my colleague Ms. Gladu arrive. She doesn't want to ask questions, but she says hello. She was at an event to commemorate Louis Riel and she has just joined us.
I am listening, Mr. Lapierre.
Thank you, Chair. It's an honour to be at this committee.
If I were just reading the business press about bankruptcies, it would seem to me to be sad: markets and tragedy, and everyone trying to do their best. But I come from mining country, and we've seen how it plays out. We've seen how the Pamour gold mine, an extraordinary gold operation, was taken over by Peggy Witte and Royal Oak, how it was stripped of assets and how she paid out bonuses to all the members of the board of directors.
They left that mine till it fell into the ground, and then they all gave themselves golden parachutes and they walked away. That wasn't considered criminal behaviour. She was mining woman of the year, and the Pamour miners—many who were injured, who had illnesses—were left with nothing.
I want to ask the Canadian Labour Congress, is this something that just happens in my region among working-class people, or is this how corporate Canada has treated workers and their pension obligations time and time again?
Thank you for that question.
I think almost every witness here has said that there are lots of examples, so it isn't just in one region. Quite honestly, there's the example you gave, but also, when we look at Sears Canada, everything that happened was legal. Everything that happened was allowed, so we sit here looking at you and we're asking you to do something, because nobody hears the stories of these pensioners and thinks they're just, they're fair and that's what should be happening.
We know that people should have a good job and get a retirement, but we have a system set up that is not serving them well, because these rules are such that it can just be ripped out from under them. We know these rules have to change so that we are protecting pensioners. As Mr. Lapierre said, they can't be making that impossible choice between whether it's food or this.
I also think it's false to say that this means it's not helping the economy. We know that the best way we can build our economy is to put money in people's pockets, people who are consumers. Guess what? That means giving workers enough money so they can make choices.
I appreciate your framing. You're absolutely right. It is heartbreaking to hear from retirees and pensioners with their stories, but it also is a call to action for us to make changes.
I want to follow up on the call to action, because when the Pamour mine went down and the Kerr-Addison gold mine, one of the richest mines in the country, was stripped of its assets and the pensioners were left with nothing, the pensioners believed that they had savings, but they were lied to, and then they found that they were at the back of the line.
When I hear people say how unfair it is that we move these people, who spent their lives and literally gave the health of their lives to the company, and that somehow we're going to affect business if we give them any priority.... What happened at Pamour happened 30 years ago. I would have thought that it would have changed, but then I look at Sears. Then we are told “Oh well, it's a bricks-and-mortar business and they can't compete”, blah, blah, blah. Sears was a damn good business. It was taken over by a hedge fund bandit, Eddie Lampert, who stripped it. Again, it was perfectly legal.
We had legislation brought in that was supposed to protect those Sears workers. What lessons have we learned? Did Bill do the job it was supposed to do, or are we just continually letting these bandits rob pension funds and strip assets out of good, valuable companies?
Sure, I'll answer as well as I can.
The wage earner protection program has been expanded to cover more termination benefits. That's very important for vulnerable workers. It would be great to have that in this legislation so that those owed payments are also protected.
Also, OPEBs, the other pension and related employee benefits in retirement, are extremely important to retirees. Those aren't featured in this legislation.
There's still more work to be done. In response to the member who asked how we can come together around some of the proposals, I would even say that some of the proposals that ACPM has forwarded about allowing plans to temporize, instead of winding them up at the worst possible moment, make a lot of sense.
There are many steps we can take to fully protect pensioners and plan members, but I think it does start with moving them up the queue and not leaving them at the back of the bus in insolvency—
Thank you, Mr. Chair. Thank you to all the panellists who are here today.
I would like to say a kind word for those companies that are putting in a DB pension and are taking that risk. They are helping Canadians by being part of the 9%, not the 91% of private companies that don't have a DB. I think that needs to be stated on the record.
That being said, Mr. Gray and Mr. Dunlop, I've heard you say over and over that these pensions are going to be wound up, yet I haven't heard one shred of evidence, not one bit of data, as Mr. Powell has pointed out.
Would you stake your professional reputation that 50% of these DBs are going to be wrapped up if this bill passes, or 25%, 10%, 5%? Would either of you be willing to stake your professional reputation on this?
Thank you so much, Mr. Chair.
For a number of years, I've been paying very close attention to this issue because a number of people in my riding were really impacted by Sears and its bankruptcy. They're still very traumatized by it.
I've also been very blessed that before politics I had about 20 years of experience in the business sector, particularly in biotech and in the banking industry. Again, I do quite a bit of reading and I do believe that companies know ahead of time whether they're going to be filing for bankruptcy and whether they're planning on restructuring. Often, I have found that employees are the last to learn, so I do believe that pensioners need some additional protection—far more than what exists right now. I do believe it needs to be 100% protected.
I do want to thank all the witnesses for being here. All of your presentations and answers are very important today, so thank you for being here and thank you for your patience.
My first question is for the Association of Canadian Pension Management.
I have a note from our Library of Parliament and it's very similar to what you were saying. It says:
Statistics Canada data shows that the percentage of paid workers covered by defined benefit pension plans in the private sector decreased from 21.3% in 2000 to 9.6 % in 2020. During that period, many employers have been abandoning their defined benefit pension plans in part because of the volatile and onerous funding requirements associated with such plans.
I guess my question for you is this: Is that the way it's going anyway, in terms of defined benefit plans being converted into defined contribution plans? I would like to hear your thoughts on that because I think you've made an argument that if this piece of legislation moves forward, it would actually accelerate defined benefits being cancelled.
For my part, I don't think this risk is that great. The majority of defined benefit plans are found in large, highly unionized companies. We know that just over 9% of paid workers are covered by a defined benefit pension plan.
If a company wanted to migrate to a defined contribution plan, this would therefore need to be done through a formal negotiation process. If the parties agree to that change based on their right to free bargaining, that's okay and we'll let them make that decision.
However, I don't see why companies would suddenly decide to migrate to a defined contribution plan, because there are risks. If the risks scare them, they just have to fund the pension plan. However, it's not that simple and they won't want to fund that pension plan, invest money in it. They will assume, by analogy, that they can live with that risk just fine.
You can't not invest money without it raising risks later on. At some point, you have to be consistent. If a company doesn't want to take risks, it has to fund its pension plan. However, the legislation allows pension plans not to be funded. So let's accept the current state of the law and the legislation.
Mr. Lapierre, my grandfather, Charlie Angus, was a steelworker. He died at the mine—he was almost 70 years old—because in those days, you worked until you died. I was underground recently at a gold mine in Timmins, and I met a 70-year-old man working the drills. You work the drills when you're young. He was working the drills because he said his pension had completely failed him.
We're told here by some of our witnesses and the business community that we need to wait longer and we need to think more about this because this might affect capital. What effect from this do you see on steelworkers, particularly those who are working in underfunded pensions?
This will certainly reassure them. In my opinion, it will above all demonstrate the importance of the work of parliamentarians, who are elected in particular to defend the common good and the middle class and to strike a fair balance.
We want companies and workers to make money. We want workers to live well. That being said, when they are promised a pension through a defined benefit plan, we should try to honour that promise. At the very least, there should be a process in place to minimize the negative impact on workers.
I repeat that the future legislation obviously does not guarantee that workers will get back all the money promised. However, it does increase their chances.
I give you the example of Cliffs Natural Resources, a mining company that had a plant in Sept-Îles and declared bankruptcy. The City of Sept-Îles recovered $10 million in unpaid taxes. At the same time, the pension fund was $10 million short of 100% funding.
Citizens are all taxpayers, but a municipality can mutualize its losses. In this case, the city could very well have borrowed money and paid it back over a period of 20, 30 or 40 years. Thus, the consequences for citizens would have been minimal.
A city does not die, but a pensioner does. At 70, 80 or 90, the surviving spouse is alone at bat, alone in the face of adversity. We can't leave her alone. We can't leave people in distress and anxiety. We can't leave them in a state of incomprehension.
By passing this bill, parliamentarians from the opposition and ruling parties would send a message that they are capable of making a difference.
I've been listening intently. It's been a very interesting conversation.
I want to seek some clarification on a few things that have been said. I think I'll start with Mr. Powell.
One of the concerns I share with Mr. Gray and the business community is the idea that when you put a pension plan in priority to secured creditors, secured creditors are going to look at whatever the deal is that they have before them and they're going to assess the risk. They're going to want to know exactly what they're subordinate to. Just like property taxes or any other items that may be payable under the current legislation in priority to a lender, they will look at that and make that assessment.
One of the questions that have come up is what evidence the business community has to say that lenders are going to back off, that lenders are going to decide not to lend in a particular sector or, if they do lend in a particular sector, that they're going to have to charge more because of the perceived inherent risk.
I want to go back to your opening statement, because you said something that I wasn't quite following. You talked about something that happened in 2005, and I'm not aware of it. You said that if this was going to be an aftermarket effect on risk for lenders, where is the evidence? I'm wondering if you could explain that argument to me again, because I want to make sure that I understand it. Was that legislation you were talking about something that put pensions in some sort of position pari passu or in priority to secured creditors?
I'm sorry. I had a lot to go through, so I was speaking quickly.
In 2005, the Wage Earner Protection Program Act was passed, and the wage earner protection program gave superpriority to unpaid wages, unpaid expenses and some other things. The issue is that.... If you make something a superpriority, what happens? The quote I had was from the Insolvency Institute of Canada, but you can find quotes from other similar organizations. Their quote was, “there could be a significant negative impact on Canadian productivity and employment since businesses...will have a tougher time getting financing, and their costs could rise dramatically.”
We've heard that today about Bill , but nobody has provided any data that anything bad happened after WEPP. If it was that draconian, if the financial armageddon was going to occur, we should have data. These are things that people monitor.
We almost all agree that pension funds and pensions need to be protected. We feel very strongly about that. The government is there to ensure that the rights of workers and pensioners are respected.
In my view, we have a problem, not with all pensions, but rather with defined benefit pension plans. I note that there is already a decline in these kinds of schemes, except for the civil service, and I think that this decline is inevitable because of the risks that these schemes pose. However, that is another topic.
Mr. Lapierre, as you said, a pension is a negotiated and deferred salary. It is therefore important for the government to take the necessary measures to support the pension funds.
However, it is equally important not to accidentally create a situation that could be worse for workers and pensioners. I don't think anyone around the table wants that. I am concerned about one element of this bill. It could prevent the restructuring of certain companies. A company that is heading for bankruptcy can choose to restructure and thereby save current jobs and the pension fund. However, I have heard from witnesses this week that the bill could be problematic in that regard.
Mr. Lapierre, I think you have provided a solution and I want to make sure I understand it. I'm very concerned about the obstacles that might prevent a restructuring from going ahead. You are proposing to keep bank loans in the order of priority, just ahead of the pension funds. In this way, not only would the pensioners move up in the order of priority, but it would also ensure the continued survival of the companies, while also giving priority to the banks. Have I got that right?
It's really complicated.
For simplification, the new purchaser wouldn't take over the entire responsibility. They agreed to put a stream of funding into it. If Stelco made over a certain percentage of profit, the pensions were given a stream out of that. They were also given a percentage of the land and facilities. All of that went in.
This allowed the people running the plan to keep it fairly stable, but they had this new money coming in to build it up. If you don't have a source for that money, as with the Sears situation, then you have the risk of.... Who is going to handle the risk and be responsible for it? The person running the plans can say, “I have no money coming in, so I can't take any risk”, and it's not going to grow. That's where you run into....
I also want to make the point that, at least as of last week, one of the Stelco pensions has not been annuitized and it's still under that program. That's the Stelco salary plan in the Lake Erie Works. Again, that's a member of my organization.
Yes, well, we don't have enough time tonight to get into all the issues with the CRA.
My understanding of the situation we are facing today is that there have been 10 years of discussions on these bills. Certainly, we came very close, in the former Parliament before the election, to agreeing that the priority suggested here—before secured creditors, preferred creditors and unsecured creditors—is a good one. Right now, defined benefit plans are 109% funded, on average, in the federal government. That's a good situation.
People have come through a pandemic, where they have been extended huge amounts of credit by banks to help them out of their situation or keep them going. It seems to me that, with this, we are in a very good time in history to finally protect workers and their pensions, and strike that correct balance.
I want to thank everybody again for all their input and ideas.
I turn the time back to you, Mr. Chair.
Thanks very much, Chair.
Thanks again to the witnesses for joining in person and virtually.
I don't think there's a person in the room or on the call who disagrees with the notion that we need to do better for Canada's pensioners, and that the money or equity they've put into these companies is their own to withdraw in their retirement. Of course, the money they pull out is not just the money they put in; it's also the money being earned by current employees and by the ongoing work of the company while the pensioners are in their retirement.
What we're hearing—fairly clearly, I think—is that pensions are a superpriority for pensioners, but despite how morally connected pensioners might feel to that, or how right it is that they get their full pension, or how much bargaining clout it might give them if they're in a superpriority position, that doesn't change the cold hard math of what happens when a company has to pack up entirely and is not able to restructure because of a pension superpriority. There's what we feel is right, and then there's the math. This is the space we're in right now.
The picture that emerges in our conversation today is that we're hearing from two sides of this. There's the side, perhaps, of the Association of Canadian Pension Management, which is speaking on behalf of the employers—the companies and the people who are manufacturing and producing goods—and then there's the side of the people who are speaking on behalf of the pensioners at the other end of that machine, receiving what is rightfully theirs. What we're hearing from the first group is that the machine is put at risk by pension superpriority.
I'd like to go to Andrea Boctor and Ross Dunlop, if I could, to bring it back to practicalities. We'll go back to the cold math, if you will.
Right now, the bill puts pensioners in a superpriority position over secured and unsecured creditors. Can I ask for your opinion on making an amendment to the bill that introduces a capped superpriority? We've seen this in other jurisdictions. It would still put the pensioners ahead of secured and unsecured creditors and so forth, but it would be capped and it would increase the chances and the runway for companies to restructure.
Can I get an opinion on that?
Before I ask my question, I would like to make a comment. I think the House has been debating bills similar to this one, aimed at better protecting pension funds, for about 20 years.
As was mentioned earlier in this meeting, the problem is that in order to have more money or cash flow, which allows them to generate more profits, the company voluntarily chooses to underfund their pension fund. This problem needs to be corrected. Company profits are made on the backs of workers' future incomes, resulting in a great inequity. As mentioned, these are big companies, with strong backs and very clever finances.
This is not the case with pensioners. When workers lose 10% of their pension fund, they can find themselves in a bad situation, since it can be a few decades since their pension has been indexed. We need to intervene.
I find it amusing that we say something needs to be done, but not what the bill before us proposes. Yet the latter is tangible. In my opinion, it is a bit too late to go back. I like the foundation and the principle of this bill. Again, I commend the member who introduced it.
As my colleague Sophie Chatel said, we do not want a bill to create more harm than good. That is why all bills are studied in committee. That is also why the Standing Committee on Industry and Technology studied a similar bill introduced by my colleague Marilène Gill.
The people around the table have given us good solutions and that is reassuring. Risk management will not be as complicated as some would have us believe and, as we have heard, it may force companies to properly fund their defined benefit pension funds.
Mr. Lapierre, you said earlier that under the current law, retirees of a bankrupt company lose not only part of their pension fund, but also their drug coverage, which is very serious. As my colleague Ms. Gill said, it is difficult for someone in their 80s to find a new insurer or a new drug plan, and to pay for it on a lower income.
I would like you to give me more details as to this reality. On a day-to-day basis, what does this mean for retirees and surviving spouses?
Thank you for your question, Mr. Ste-Marie.
Many collective agreements do provide for retirees to retain some of their group insurance, including life insurance and drug insurance. These coverages are very important since the older you get, the more at risk you are and the less insurable you become.
The example was given of the Cliffs Natural Resources mining bankruptcy, after which retirees lost their life and drug insurance. As has been said, it is impossible for a person of 80 years or older to buy new life insurance. This causes them great distress, as they wonder what they will be able to leave to their spouse and children. This is in addition to the great stress caused by the loss of income due to the reduction of the pension fund. These people are experiencing drama and anxiety, and this human distress must be addressed.
Thank you for your reply.
Let's hope that this bill moves forward and provides more fairness for workers and retirees.
Personally, I think it's very serious to no longer have access to life insurance or drug coverage. That's another argument for passing the bill.
As you said in your statement, we are legislators.
Colleagues, it is therefore time to legislate.
Thank you so much, Chair. Thank you for chairing and inviting me and letting me sit in on this fascinating discussion.
I remember when the Nortel workers came here to Ottawa after they were robbed of their pension—in the United States, the pension shortfall of $514 million was covered by the Pension Benefit Guaranty Corporation—and I remember members of every party coming out. They all went up and they said they were so sorry.
We're not talking about somebody's funeral here; we're talking about a policy failure. We're here to talk about whether or not we are going to change policy to protect pensions.
My Liberal colleagues have suggested an amendment to this bill where we put a cap on what the pensioners get in order not to unfairly leave behind the hedge fund operators or the banks.
Mr. Powell, do you think a cap on what pensioners should be allowed to get would be fair? Would you suggest it for this bill? Would a cap on what pensioners get—pensioners who are not getting what they deserve out of what they paid—be a reasonable option for us?
We're here to say that this needs to be a superpriority. If you put a cap or a partial superpriority.... The reality is that when you're investing in your pension, you're not investing in your pension with the hope that you get most of it. You're investing in your pension expecting your pension to be at that level.
Let's just talk about the impact that's going to have. Supposedly, nobody is going to be able to borrow money ever again. Banks take into consideration so many...in terms of the risk that is associated with that. The ability for pensioners to demand the full value of their pension may absolutely be part of that discussion, but it's not going to be the only factor.
Commercial creditors, like banks and financial institutions, can take steps to protect their investment against the risk of default. They can expect companies to fully fund their pension benefit plans; I think that's not a bad thing. They can require increased disclosure about the funded status of their pension plans, and that's not a bad thing.
The reality is that when we look at interest rates over time, lenders still keep lending because they're in the business of lending. That's how they make their profit. There's no evidence to show that they're suddenly going to pull all of that, because the reality is that they need to stay in business as well.
Workers need to be at the top of that list so that they are not the ones taking on the risk when others are better able to take that risk.
Again, I don't know, but if you use the term “wind up”.... To wind up a pension if you're an ongoing business, you have to fully fund it before you wind it up, which is not necessarily a bad thing.
The other thing is that when you talk about the 1.4 million or whatever it is, those are the active employees. There are probably four to five million already retired people depending on these benefits who are losing out.
I can say from my experience—I worked for General Motors of Canada—in the last AV we had, there were 600 to 700 actives in the pension plan and 6,000 to 7,000 retirees. When you look at that 1.2 million or 1.3 million, those are just the people who are actively working. This is another ageism thing in government. Nobody keeps track of pensioners. Statistics Canada doesn't. Nobody does.
The armageddon, in my mind, has never been proven. It's been threatened and forecast, but it's never happened.