Committee
Consult the user guide
For assistance, please contact us
Consult the user guide
For assistance, please contact us
Add search criteria
Results: 1 - 15 of 163
View Scott Duvall Profile
NDP (ON)
Thank you, Madam Chair.
Thank you to everyone for being here.
I want to talk to Mr. Schaan. Last week, he mentioned that federally regulated pensions are protected, because they're required to be 100% funded. However, I understand there are a lot of federally regulated pensions that aren't 100% funded. Is that true?
If you look at Canada Post, are they 100% funded? Do you know what the deficit is?
Mark Schaan
View Mark Schaan Profile
Mark Schaan
2021-06-15 12:03
I don't have the Canada Post unfunded liability currently before me. Maybe I can clarify, because I think I talked a little last week about how the process of a federally regulated pension was held.
The standard requires that the pension be [Technical difficulty—Editor] but then, obviously, there are actuarial valuations that actually determine the relative level of funding, and then a process by which to make up that gap.
To be absolutely clear, the federally regulated defined benefit pension plans are subject to the funding requirements that are set out in the Pension Benefits Standards Act of 1985 and the pension benefits standards regulations of 1985. Those plans are required to be 100% funded on a solvency basis, but with any shortfall paid by the employer within five years in order to help ensure that the plans have sufficient assets to provide for all benefits, both while the plan is ongoing and in the event of a plan termination.
If the latest—
View Scott Duvall Profile
NDP (ON)
Mr. Schaan, I understand, but what I'm trying to get at is that Canada Post has a huge deficit. They've had a five-year plan, but they've also asked for extension after extension and they're not paying into it, so the deficit gets higher and higher.
Who is going to be responsible for that if something happens?
Mark Schaan
View Mark Schaan Profile
Mark Schaan
2021-06-15 12:04
In the case of an amendment [Technical difficulty—Editor]. When an actuarial valuation occurs, the plan sponsor then needs to be making special payments on each of the subsequent five years to be able to make up that gap. Any variation from special payments needs to be approved by the pension regulator. In the case of the federal government, that would be OSFI.
If there is a plan that currently has an unfunded pension liability and the plan sponsor is not making that up, that's under the express approval of the pension superintendent for the purposes of extenuating circumstances, and that's the bar the regulator sets to ensure that it truly is extraordinary circumstances.
I talked last week about the fact that this is often in co-operation. In the case of Air Canada, for instance, which was a federally regulated pension, the deferral of continued pension payments was with the approval of the union for the purposes of allowing for a market rebalancing and a return to normal returns, which ultimately did occur and ultimately allowed for the plan sponsor to be able to make up that unfunded pension liability and return to good solvency.
View Scott Duvall Profile
NDP (ON)
I'm sorry, Mr. Schaan, for cutting you off there, but we have very little time.
Indalex demonstrated, even given the pension deficit deemed trust status, it did not result in a tsunami of liquidations. I don't see, as Mr. Poilievre said, a lineup of business people here as witnesses protecting what they're saying, which is that the sky will fall. In fact, what I'm hearing is a lot of people saying enough is enough and that we need to change the law to protect pensioners from deferred wages that they worked for not to be taken up by the global market.
Mark Schaan
View Mark Schaan Profile
Mark Schaan
2021-06-15 12:10
Yes, a deemed trust is a complicated piece of insolvency, so it's difficult to generalize on the basis of deemed trusts, and Indalex is an issue that remains an issue in a number of potential and current cases.
To your broader point, though, about relative levels of fundedness, it is worth noting that the current funded ratio for DB pension plans belonging to companies in the S&P/TSX composite index increased from 90.8% to 91.2% funded over the past 12 months. We are seeing high levels of fundedness, particularly for those plans that are held to high-funded solvency ratios like they are in the federal zone.
In terms of the economic rationale for the potential implications of a superpriority, which we discussed, I don't know if it was through Mr. Poilievre's urging or others', but we did, I believe, through the clerk receive.... We received and then, I believe, the clerk received an indication from the Association of Canadian Pension Management of their strong concerns about the economic implications of a superpriority.
Just to note, there has been some, but I can't speak to the others. All I can say is that we do worry about the potential implications of a decline in restructurings and not liquidations.
View Ali Ehsassi Profile
Lib. (ON)
View Ali Ehsassi Profile
2021-06-15 12:13
Thank you, Madam Chair.
With regard to clause 2—and this is true of every clause we're considering today—there are potential impacts on beneficiaries, employers and on other creditors as well. I was wondering if we could ask Mr. Schaan to perhaps unpack the impact that clause 2 would have on all three of those groups.
Mark Schaan
View Mark Schaan Profile
Mark Schaan
2021-06-15 12:14
Thank you for the question.
Clause 2 extends the superpriority for unremitted employee contributions and unpaid employer normal cost contributions owing to the pension plans to any unpaid special payments and unfunded pension liability. It also extends the superpriority for unremitted employee contributions and unpaid employer normal cost contributions owing to the pension plans to any unpaid special payments and unfunded pension liability.
As noted, this essentially creates a superpriority that would place unfunded pension liabilities and unremitted pension contributions.... It's worth noting that unremitted pension contributions—actually those contributions that would have been subject to a payroll contemplation in the lead-up to an insolvency—already have a superpriority. The major piece here is the extension of the superpriority to the overall, including unfunded, pension liability. This includes, in the federal case, those special payments that were required to be made over the subsequent five years to make up for the gap.
What that essentially does is place them above preferred claims in the case of a restructuring. It also places them above unsecured and secured creditors in the case of a restructuring. In many cases, this would essentially mean that the unfunded pension liability would take precedence, potentially leaving significantly less available in the estate for the purposes of secured and unsecured creditors.
In this case, because it's a superpriority, thereby meaning it's an automatic.... For the case of restructuring, this may mean that the unfunded pension liability is such that the assets remaining are simply insufficiently interesting or won't allow for a restructuring to occur. This would mean that the entity would proceed into liquidation and people would be paid on a pro rata basis. We would essentially be prioritizing the unsecured claim of unfunded pension liabilities above those of other unsecured creditors, which can include small and medium-sized enterprises, other suppliers and other providers of services and assets to the now liquidated entity.
In the case of clause 2, this is with respect to BIA liquidations. In a liquidation, this would essentially prioritize and provide that superpriority for the unfunded pension liability.
As discussed, we [Technical difficulty—Editor] impact on the cost of credit and the availability of the entity to proceed through restructuring, and then, should they be in a position to continue, to potentially allow them to access the necessary liquidity to do so.
View Ali Ehsassi Profile
Lib. (ON)
View Ali Ehsassi Profile
2021-06-15 12:17
Yes, I just have a follow-up question.
You're essentially saying that this would be adverse in interest to the employees as well on certain occasions.
This is my fundamental question. Over the course of the past decade, we've seen many companies manage to work through a liquidation and actually manage to save the farm, if you will. What would the impact of this have been if it had been in effect? Some or all of these companies that we understand have restructured would probably not have had that opportunity. Would that be correct?
Mark Schaan
View Mark Schaan Profile
Mark Schaan
2021-06-15 12:18
Yes, obviously we think that the general premise is that the best way to ensure the ongoing vitality and the security of retirement income is for a going-concern entity to be continuing to make pension payments and have its pension plan ongoing. Winding up at any given moment, just given the vagaries of the market, obviously you leave some risk that, on a solvency basis, they may not have sufficient funds. The best way to continue that is obviously to have the entity continue to be economically active, allow themselves to be restructured and maintain the jobs of the entity, as well as, then, the continued opportunities for pension payments.
Therefore, there are two considerations for a superpriority and the potential implications of the lack of restructuring. One consideration on the superpriority is that it's not in all cases necessarily the case that the assets at hand would still allow for full payment of the unfunded pension liability. There are actually instances where the unfunded pension liability exceeds that of the assets on hand of the entity. In fact, even in some cases with a superpriority, you still may actually have individuals who potentially will not receive the fullness of their pension promise.
There's obviously also an implication in terms of the considerations for active workers who are making active payments to the pension plan on the premise that they will one day be able to retire and, obviously, if the entity is unable to restructure and instead proceeds toward a liquidation, those individuals need to find new sources of active income and potentially with or without the pension. Even if there were a superpriority, as I said, it may be fully funded, but certainly it would only be fully funded at the contributions to date of their participation.
Then when we actually look at some of the restructurings that have occurred, those active pension plans have allowed for the continuation of those payments to both retirees and active workers. There are a few successful restructurings that have involved a significant number. We've talked of Air Canada [Technical difficulty—Editor] of the employees, this was over 29,000 employees who were covered by the plan and as a function of that restructuring there was a plan of compromise and arrangement that allowed for the pensions to continue to be paid without reduction. In the case of AbitibiBowater, this was again another 10,000 employees covered by the plan, where a restructuring plan of compromise and arrangement allowed for the pensions to continue to be paid without reduction.
Even in some cases where there potentially wasn't the allowance of a plan to allow for its continued operation, for instance in the case of Hollinger, the plan was 100% funded on a wind-up basis as a result of the distribution from the plan of arrangement. The restructuring produced significant financial outcomes in terms of asset sales and other measures that allowed for the plan to be terminated and ultimately for it to be 100% funded on that wind-up basis.
There are a number of these indications where we have seen companies enter into restructurings and allow for the ongoing participation of the plan. That is the potential concern vis-à-vis the potential superpriority of unfunded pension liabilities as a disincentive.
View Helena Jaczek Profile
Lib. (ON)
Thank you very much, Madam Chair.
We certainly did hear some testimony talking about a three-year transition period. Could Mr. Schaan give us his opinion in relation to this as a possibility?
Mark Schaan
View Mark Schaan Profile
Mark Schaan
2021-06-15 12:38
An unfunded pension liability, as we've noted, particularly depending on the jurisdiction, could be quite large. Three years is not a lot of time, depending on the nature of the markets at the time.
There are a few things that should be considered.
One is, obviously, that employers that are already in financial difficulty could have difficulty reducing their unfunded pension liabilities during that transition period. Lenders who face the risk of nonpayment from borrowers with a large unfunded pension liability, when the superpriority comes into force, may use the transition period not to actually put pressure on employers and the plan sponsors to make pension payments but instead [Technical difficulty—Editor] reducing that unfunded pension liability, so that when the transition period ends, they are essentially made whole rather than the pension fund.
The other is that employers may actually decide to discontinue defined benefit pension plans or group insurance plans during the transition period to avoid the impact of higher insolvency priorities on credit availability by either winding things up or closing health insurance, dental or other plans, because that would impact their bottom line. Lenders with exposure or employers with unfunded pension liabilities or group insurance plans may pressure employers to take such action before an insolvency.
It is also worth noting that one of the things.... There are three categories that are of superpriority within this bill. There are unfunded pension liabilities. There's also the claim for terminated group insurance plans, but there's also severance pay and, obviously, severance pay can include many things, including the potential for severance for significant executives.
One thought is also that, if this is ultimately going to lead to a liquidation, you may actually see some gaming behaviour wherein people increase their overall severance payments, particularly for a particular cadre of their employees, because they're recognizing that they potentially might be heading toward a liquidation and their severance pay would have a superpriority above all secured and unsecured creditors.
View Helena Jaczek Profile
Lib. (ON)
If I could just follow up, would it be possible for an employer to shift from a defined benefit plan during that time period? How does that work? Can an employer do that in just the normal course of events?
Surely it's part of union negotiations that there is a defined benefit plan. Could you elaborate on that piece?
Mark Schaan
View Mark Schaan Profile
Mark Schaan
2021-06-15 12:41
It's going to vary on a case-by-case basis, and it's going to vary based on the pension regulations they are being held to. Plan sponsors can ultimately make a determination, dependent on their unique circumstances, to terminate and close a plan or potentially to propose to their workforce to convert a plan from a defined benefit to a defined contribution, or to some other retirement scheme.
They are obviously on the hook for the pension payments that have been made to date to those individuals. The reality is that active workers within one of those organizations may potentially find themselves no longer having access to a defined benefit pension plan but a defined contribution plan, so that the employer can essentially minimize the risk of the unfunded liability that's been accrued to date for those workers.
On health benefits, it really depends on the nature of the negotiation between the workers and the employer. There are often changes that can be made to planned sponsorship in those regards, so the employer could simply say—as a function of these ongoing liabilities and the risks that they pose—they've chosen to scale back benefits or, potentially, to change the nature of the insurance plans that are on offer.
Those can be made as a function of a collective bargaining agreement, but depending on the employer sometimes that may not be required.
Results: 1 - 15 of 163 | Page: 1 of 11

1
2
3
4
5
6
7
8
9
10
>
>|
Export As: XML CSV RSS

For more data options, please see Open Data