THE STANDING SENATE COMMITTEE ON BANKING, COMMERCE AND THE ECONOMY
EVIDENCE
OTTAWA, Wednesday, February 8, 2023
The Standing Senate Committee on Banking, Commerce and the Economy met with videoconference this day at 4 p.m. [ET] to study Bill C-228, An Act to amend the Bankruptcy and Insolvency Act, the Companies’ Creditors Arrangement Act and the Pension Benefits Standards Act, 1985.
Senator Pamela Wallin (Chair) in the chair.
[English]
The Chair: Good evening to everyone and welcome to this meeting of the Standing Senate Committee on Banking, Commerce and the Economy. My name is Pamela Wallin. I’m the chair of this committee, and I’d like to introduce some senators with us today: Senator Deacon, Nova Scotia, we have Senator Wells with us, we have Senator Arnot — who is visiting — and Senator Smith. I think others will probably join us as the proceedings unfold.
Today, we will begin our examination of Bill C-228. This is an act to amend the Bankruptcy and Insolvency Act, the Companies’ Creditors Arrangement Act, and the Pension Benefits Standards Act, 1985.
Joining us to begin our study of this bill, we have the pleasure of welcoming Marilyn Gladu, Member of Parliament for Sarnia—Lambton, who is the sponsor of this bill in the other place. Welcome and thank you for joining us this evening.
We’ll begin, Ms. Gladu, with your opening remarks.
[Translation]
Marilyn Gladu, Member of Parliament, Sarnia—Lambton, sponsor of the bill, as an individual: Thank you, Madam Chair.
I am happy to be here today to discuss my bill, which pertains to the protection of pension plans.
[English]
Over the last 20 years, there have been multiple efforts from the Senate and various parties in the House of Commons to bring forward a pension protection bill. We’ve all seen the many companies — Eaton’s, Sears, Nortel, Grant Forest Products, Indalex — that have gone bankrupt, and after someone has worked their whole life, they receive pennies on the dollar of their pension. I looked at all the different pension protection bills and cherry-picked the parts that people could agree on because in every one of them there was something that somebody couldn’t agree to. That’s how we came to Bill C-228, and the bill essentially does three things. It requires that a report be tabled in the House of Commons every year on the solvency of federally managed funds in order to have greater transparency, that way we know where the trouble is. There’s a mechanism to transfer money into the fund without tax implications to fix an insolvent fund. In the case of bankruptcy, pensions would be paid out in priority ahead of secured creditors, preferred creditors and unpreferred creditors.
I think each one of you received a table that shows a summary of the three-inch-thick bankruptcy protection act that shows you exactly where the pension protections go in.
The support for this bill was unanimous in the House of Commons. Many parts of the bill had been previously studied in Parliament before. For example, a Bloc colleague of mine brought a bill that had the priority part in it, which was studied at the House industry and technology committee and they heard a lot of witnesses on that.
There’s broad support from parliamentarians, from seniors’ organizations, CARP, pensioners and the Canadian Labour Congress, but not everyone is a fan. You’ll also likely hear testimony from the banking community, which believes that this bill might have the consequence of having people who have insolvent funds not able to get credit or to have to pay more interest for that credit.
What I would say about that is there’s a coming into force on the priority part of the bill that comes into force four years after Royal Assent. That’s giving companies plenty of time to get their fiscal house in order, and I would say that if they couldn’t get their fiscal house in order, then that, from a free market point of view, is why you do pay higher interest rates or don’t get as much credit.
You may also hear that this bill will cause defined benefit plans to become extinct, and what I would say about that is that they are already declining at about a per cent a year — and that’s before this bill came forward and probably after this bill came forward. The fair reason is that defined benefit plans are more expensive, and employers are choosing other types of plans. The reality is only 30% of Canadians actually have a pension plan, so that is a concern, but we want to make sure that those who do have one are protected.
Once seniors have been working their whole life, we want to make sure that they’re able to collect what is actually part of the contract. When they start working, they get benefits, they have a salary and they have a pension. So this bill will accomplish that, and I certainly hope that I can answer intelligently all the questions that you may have. I do hope that we can get this one over the line. After 20 years of trying, it would be really nice. It’s not everything that everybody wants, but it’s a good start and I think it would go well on the way to protecting people who have worked their whole lives for their pension. Thank you so much for your attention.
The Chair: Thank you very much for your concise, direct point. I know this was a very smart move on your part — cherry-pick the good stuff. Is there something distinctive about this bill over the others? Is there something in this one that was not in the others or vice versa that you think will make the difference?
Ms. Gladu: Thank you for the question. There was a bill that Erin O’Toole had originally brought to the House that had the tabling of this financial report. It’s a report that is already created and it goes to the Superintendent of Financial Institutions, but nobody knows what that person does with it — if anything — and in fact, there have been cases where federally managed funds have gone insolvent for quite a period of time. But that bill had in it that you could change the type of pension at the last minute, so nobody liked that, therefore that’s the part we left out. There was also a bill from Marilène Gill that had the priority part, which we fully incorporated here, and that had gone to committee and all parties agreed to do that. They wanted a different coming into force date to give companies time to react. Then there was the NDP bill that was talking about being able to top up a fund, and so this is where all the ideas have come from.
The Chair: Thank you for setting the stage. We’ll go to our first question.
Senator C. Deacon: Thank you, MP Gladu, for your pushing of this issue, and it’s clearly something that would be hard to find anybody who didn’t agree with the intention. I think we’re going to be hearing, as you said, from those who don’t agree with the approach.
If you could, you spoke about what you did to look at past bills and find how to structure this one in a way you felt best reflected why others didn’t proceed in Parliament so far. Did you look around the world at all? I haven’t been able to find another country that has taken this sort of approach. What research did you do in that regard to consider other approaches taken in European countries and other places where they’re after the same intention, but have gone at it in a very different way? Thank you.
Ms. Gladu: Excellent question, senator.
In the U.S., they have a program that backstops the pension. If a company goes bankrupt, they’ll pay up to $15,000. There are similar programs in some of the European countries. Some of them have programs more like Ontario. In Ontario, if a company goes bankrupt, they’ll backfill $1,500 a month, so that lessens the blow of a person that is left to their own devices. Those are the main examples.
Senator C. Deacon: I think we’re going to be asked to consider amendments. I’m expecting that we will be, and that is not going to be something that we take lightly. We also appreciate how important it is to do something here.
If you could give us the biggest reasons why you think it’s in the form now that addresses each — beyond what you’ve said in your statement — if there are any other reasons that we should be considering from the sponsor of this bill as we hear these other points or other questions we need to ask to make sure that we’ve looked at that as robustly as possible.
Ms. Gladu: That’s an excellent question, senator. As far as a good time to implement this bill? Now would be a really good time because the federally managed funds are averaging 109% solvency. They’re in good shape right now. That’s a good thing.
We saw in the pandemic that banks and creditors lent a lot of money to people, let them get really into the red and still continued to come and make arrangements to support. I expect that that is true. They’re in the business of lending and they’re more likely to be able to survive one company going bankrupt than an individual who is wholly dependent on their pension.
Senator C. Deacon: Thank you.
Senator Wells: Thank you, MP Gladu, for coming in and further explaining this to me. As you know, I’m the Senate sponsor of your bill. I was happy to do so. I think it’s a good bill with good intentions.
Will Bill C-228 create barriers to restructuring or refinancing? That’s the highest volume complaint or comment that I’ve heard on the downside of this bill, namely, about the difficulty in financing, refinancing and restructuring the obligation. Can you talk a bit about that, please?
Ms. Gladu: That’s why the preventative parts of the bill are important. You shine a light on the funds that are not in good shape and provide a mechanism to fix them so that you never get in a situation where you have to do a refinancing.
In the case of bankruptcy, it’s always before the court. Although the Bankruptcy and Insolvency Act and the Companies’ Creditors Arrangement Act provide guidelines for the judge to follow, they do have some latitude, except with respect to priority. Keeping the pension funds in good shape will mean there’s not as much room to make up, if any, and having the court’s flexibility to work out a good arrangement would be the rest of the way.
Senator Wells: Thank you. I have a question about the circumstance of a jointly sponsored pension plan. You have multiple companies — hundreds, maybe. In the case I’m thinking about, it’s not oversubscribed but fully subscribed with respect to funding. What happens when one of those companies goes bankrupt in the case of the application of this law?
Ms. Gladu: That’s a very good question. We’re talking about entities like the Healthcare of Ontario Pension Plan, or HOOPP, for example, where the employer pays in a certain portion of pensions to HOOPP and then the employees pay a portion into HOOPP, but it’s a third party. When a company goes bankrupt, HOOPP is still going to provide the pension for these individuals. That’s the advantage of having it, actually. They’re not going to be impacted by this bill because this bill is clear that it’s the employer that has a pension fund that has the responsibility — or the liability — to provide that to their employees.
Senator Wells: So that their farming it out to a third party to administer it won’t have a material impact on this? That is, it will still be the obligation of the company or the employer.
Ms. Gladu: For sure. They’ll pay out less than what they would have had to pay if the company had stayed in business longer because the amount going in is less.
Senator Wells: Thank you very much.
[Translation]
Senator Bellemare: I want to go back to the last question from my colleague Senator Wells about the joint pension plans that were just discussed, which market themselves to workers and businesses as a way to pool risks and provide assurance that the pension plan — so what a worker contributed to it — will be paid out.
I want to understand properly because these companies may be concerned that Bill C-228 will harm them in some way and harm companies that would like to enrol in these shared-risk plans.
Can you comment on these concerns and allay them, if possible?
Ms. Gladu: Thank you for the question.
[English]
For these organizations that companies go to get the pension — CAAT, I think, is another one, and the colleges and universities are in that one — the advantage is they’re not involved in the bankruptcy. They’re not named in the bankruptcy. It’s only the employer, and the employer has a responsibility to make sure it’s paid out. The fact that they’ve chosen these other types of pension funds has no bearing; it’s not involved in the court case, for example. The CAAT or HOOPP people will have to pay the pension out the way they always did. They’re not going to receive any more input, except if a company was slow on sending in their part. It’s part of the priority — you’ll see it in the list — that they have to pay any premiums that they didn’t pay before. That’s the only impact, but it won’t cause people to not choose them. In fact, I would argue that companies are more likely to start using this type of arrangement because defined benefit plans are expensive. Employers don’t want to be on the hook for those, and it’s a way of employees feeling much more secure than they would have if they had their pension and all their benefits sewed up by the employer.
[Translation]
Senator Bellemare: Ms. Chabot, I assume that you support the bill. What do you think of these companies that offer shared risks between workers and employers?
Louise Chabot, Member of Parliament, Thérèse-De Blainville: Thank you, Senator Bellemare.
I would like to add a comment. I think Ms. Gladu has painted an adequate picture of the bill, which is ultimately an attractive risk.
I think I understand your question. We support this bill. We have worked together. The Bloc Québécois has already introduced bills on this subject. We worked together to introduce a common bill. There were some differences from the bills introduced by the Bloc, for example, with respect to group insurance. That was removed to protect only pension funds.
If I have one more argument to make, it’s that it is important, after all these years, to never lose sight of what we want to protect. That’s why they will be preferred creditors. Retirement income is a deferred salary for workers. Early in their careers, they agree — and often agree to earn less — to have money put into retirement funds.
For workers, it’s about protecting their nest egg, but not at any cost. For example, this would not prevent corporate restructuring. I think that unions also want to work in the case of corporate restructuring because, when you can save a company, it is even better. The aim is to protect the workers at least in a preferred status. The common element in this bill is workers’ pension funds.
Senator Bellemare: Thank you.
[English]
The Chair: I will now introduce Member of Parliament Louise Chabot, who joined as MP Gladu was our witness today. It’s nice to see a show of cross-party support here. We welcome you to answer questions on this issue.
Senator Woo: Thank you, colleagues from the House. MP Gladu, you talked about one source of concern coming from the banking community, which is that if they see a pension fund is not whole or not solvent, they would be reluctant to lend new monies to the company. In a sense, that could precipitate a downward spiral of the company, which would then lead to a situation where this act would come into effect.
Would there be another concern that banks might have, namely that even if a pension fund is solvent at a given point in time — that is, when the company needs a line of credit, new financing and so on — they would apply a stricter lens in assessing the credit worthiness of that company simply because their seniority has been affected in the event of a bankruptcy? Things can change very fast, right? Companies solvent today can go under a few months later.
Have you heard this concern, and what would you say to it?
Ms. Gladu: Thank you for the question. Banks evaluate the risk, and certainly they’re going to take that into account. In 2005, when the salaries were put up in the priority of the Bankruptcy and Insolvency Act, the banks expressed these same fears, and nothing transpired that they were fearing.
I trust them to make billions of dollars of profit, as they have been, and I’m sure that they’re very skilled at assessing the risk.
The really important part of the bill is the prevention part. Getting the transparency and allowing that four-year period so that people can get their fiscal house in order and keep it in order. I think that will be very helpful in minimizing — I can’t dictate what the banks do, but I would imagine that they would be as magnanimous as they were in the pandemic with people, trying to help keep them operating.
Senator Woo: I want to ask about the big picture now, which is the retirement savings of Canadians more broadly, including future generations of Canadians not yet in the workforce or just starting the workforce who don’t yet benefit from company pension plans.
You’ve acknowledged that this bill will likely discourage companies from pursuing defined benefit pension plans, but that’s already happening. Is it correct to say that this bill essentially helps a population of Canadians that is going to diminish over time because nobody else is going to want to set up a defined benefit plan? And this act will actually discourage companies from setting up defined benefit plans? At some point, this helpful provision will perhaps no longer be needed.
The big question is: What are we doing to think about the retirement plans of the much larger population of Canadians who are not on these plans, who don’t get any protection through this act and who won’t be getting protection because companies are not going to be setting up defined benefit plans under these circumstances?
Ms. Gladu: Let’s take the last one first because that will be my next private member’s bill. I really like the way CAAT, HOOPP and all these organizations work. It’s great protection for the pensioners.
Today, the way the act is written, you cannot subscribe to HOOPP or CAAT because you’re not an employer. It’s only employers that can use them as their pension fund, so that is an opportunity.
In terms of the defined pension plans, keep in mind that the pension priority here will apply to any kind of pension — defined contribution, defined benefit, all the different kinds of plans — and right now of the six and a half million Canadians who have a pension plan, most of the defined benefit ones are in the federal government. It would be shocking for them to lose the defined benefit plan. We’ve seen about a 1% decline per year, and so I would imagine that in 20 years or 30 years, the scenario you’re describing may come to fruition.
Senator Woo: If this also impacts defined contribution plans — and I can see how it might — would it not discourage companies from setting up pension plans in the first place?
Ms. Gladu: No. Right now, the market for workers is hot, and it’s hard to get workers. People are having to come with a benefit package or a pension plan in order to attract the worker. I think that competition will continue. That’s the projected growth, and I would imagine that this will become a differentiator for employers providing a good pension plan.
The Chair: We have discussed that.
Senator Ringuette: First of all, I want to congratulate you. I tabled a similar bill in the Senate after the Nortel disaster — defined benefits, defined contribution. I was listening to the exchange here, and I believe that some of our witnesses will be putting a lot of energy indicating that, “Oh, well, the result of this bill is going to be a lot less defined benefit plans and a lot more defined contribution plans.”
The defined contribution plan took off 15 years ago when there were a lot of human resources available. The situation has changed. What is your argument in front of those witnesses?
Ms. Gladu: Certainly, for the ones that will say defined benefit programs will disappear, I don’t have a crystal ball. I would say they’re declining right now, but I agree with your point that the market is changing and that people who are looking for talent are having to put out more benefits, more pensions, more shiny things to attract workers to them.
I don’t know that we can predict the future, but I know for sure that a solid portion of the defined benefit plan that sits in the public sector is probably not going to disappear because they’re backstopped by the government.
Pension plans, as a whole, will become more and more important because with the inflationary pressures we’re seeing, we know the Canada Pension Plan, or CPP, is not keeping up. We know that people’s Old Age Security and Guaranteed Income Supplement isn’t being indexed well to the huge inflation rates we’re seeing. I would imagine that people will be shopping more for companies to have a pension for them.
Senator Ringuette: I see in your bill that you’re allowing a four-year transition. I find that quite extensive because this can be surely shortened. My preference would be two years, but why have you gone to a four-year transition?
Ms. Gladu: This is the art of the cooperation we were speaking about. Originally, my friends in the Bloc wanted three years, my Liberal friends wanted seven to ten years and the Conservatives wanted five years.
In the discussion, the important points that came out were that a lot of companies are recovering from the pandemic, and it’s estimated that they may take one or two years to recover from the pandemic, so we should allow a little extra time on top of the three years. The Liberals and everyone were willing to compromise on four, and that’s how we landed there.
Senator Smith: Great to see you. Looking at the scale of the problem and underfunded pensions, what research were you folks able to do to get a sense of the underfunding, and how big is the problem?
Ms. Gladu: Great question. There is a report on the solvency of federally managed funds, which, as I mentioned, goes to the superintendent, and it used to be published on the web page and it suddenly disappeared. That’s why we wanted it tabled in the House of Commons. If you looked at that, you would say probably half of the federally managed plans were not fully solvent.
In many of the provinces, they have prescribed that provincial plans have to be 85% funded, and there is a check. They do have to report on it. Although we don’t know how many and where they are because there’s no reporting that we could find, we know they’re at least 85% funded because that’s the provincial requirement.
Senator Ringuette: They’re not.
Senator Smith: My point is probably, from what you’ve said — and just estimating what the situation could be — it could be a lot of these folks are somewhere between 50% and 60% funded, and your four years would give them a catch-up opportunity. Is that correct?
Ms. Gladu: Absolutely, and they would want to do that. My hope is that when we pass the legislation federally, often the provinces will look at it to try to harmonize the requirements, and so I hope that they would get some transparency of reporting as well based on the bill.
Senator Smith: What type of feedback have you received in terms of the unintended consequences from companies?
Ms. Gladu: Honestly, other than the banking community and some of the stakeholders that are speaking from the Association of Canadian Pension Management — I think that was the name of the other witness that we had at committee that objected — everyone else seems quite happy.
It seems, “Well, okay, it’s a report that’s tabled, there is a mechanism to top it up and we’re moving people in the priority.” Certainly, banks are more likely to be able to withstand one company going bankrupt than an individual is to lose their whole livelihood for the rest of their life.
Senator Smith: What type of support have you received verbally or in writing from organizations and associations for your initiative?
Ms. Gladu: I have a huge number of stakeholders that have written support, and I think I mentioned some of them — CARP; Mike Powell, from the Canadian Federation of Pensioners; the Canadian Labour Congress; there were a number of United Steelworkers — who came forward and were all very supportive. I think there were a number from Quebec. Mostly, there has been support. There has been a very small amount of resistance, and it’s coming from folks who lend money.
Senator Smith: Thank you.
Senator Arnot: Thank you to the witnesses who are here today and for the good work you’ve done in working collaboratively and cooperatively in the other place to get the bill to this stage.
There is a concern that hasn’t been mentioned yet, and it comes from the Association of Canadian Pension Management in that they believe this act may be unconstitutional in the sense that it impinges provincially regulated employees.
I think that argument is weak and of not much substance, so I’m giving you the opportunity to tell me exactly that and put it on the record.
Ms. Gladu: Thank you for the question, senator. Absolutely, the Bankruptcy Act will apply to all provincial situations as well. That’s where they’re bringing this concern, but the reality is it already does apply. My bill is not changing that, so there is no impact of this bill on the current situation.
Senator Arnot: Well, then.
The Chair: All right. I think we’re moving along here. Thank you, Senator Arnot.
Senator Massicotte: Thank you for being with us. Can I take you to Table 1? I’m trying to understand the fundamentals. I’m looking at Table 1, which is the priority a creditor obtains on bankruptcy and insolvency.
Given my background, I’ve dealt with this a little bit, but what you predominantly have are the secured creditors, which are largely banks. From my experience once they’re finished, there isn’t usually very much left. Where do they rank? In other words, you have the unpaid suppliers. Number one, trusts is a different issue. Number two is unpaid suppliers, but it’s only an exception. It’s only recent goods, so it’s never really a big number. Then you have super priorities — not a big number, but I’m trying to understand. What would be super priority? Again, it is exception in relation to CPP deductions off salary and so on.
Ms. Gladu: Excellent question. Let me take you through the table. In the first section called deemed trusts, that’s everybody’s source deductions that are unremitted, so CPP, Quebec Pension Plan, any income tax that’s payable, Employment Insurance premiums — all that stuff goes first.
Then there are unpaid suppliers. Anything they delivered 30 days before the bankruptcy, they can get back.
Then, in the super priorities, you have value of unpaid agricultural and aquaculture products delivered 15 days prior to bankruptcy. It’s kind of a little niche for these markets. Then there is the value of unpaid salaries and allowances up to a maximum of $2,000 per employee. This was the change that was made in 2005 to address the fact that many times in bankruptcy situations people have outstanding wages that they don’t get. The value of deducted salary contributions and employer contributions to the registered pension plan — that means they’re certainly not going to give out the pension benefit if everybody hasn’t paid their part into it fully. Then the decontamination of land is in there, and, honestly, I have no idea why that one is in there.
The next thing would be the pensioners, and then would come the secured claims — which, as you’ve correctly pointed out, is large sums of money — then the preferred claims and unsecured claims.
Senator Massicotte: Just to refresh my memory, all of this only applies to a bankruptcy, not to the Companies’ Creditors Arrangement Act.
Ms. Gladu: Correct, only in the case of bankruptcy.
Senator Massicotte: I don’t know what the percentage is, but most of the claims are probably under the Companies’ Creditors Arrangement Act. What percentage are the total insolvent companies that did default? The Companies’ Creditors Arrangement Act has been quite successful; I think it’s very high.
Ms. Gladu: Ms. Chabot is just correcting me in saying, no, it does apply to the two.
Senator Massicotte: It does not?
Ms. Gladu: She says it does.
Senator Massicotte: What applies to the two?
Ms. Gladu: You asked in your last question whether it applied to the Bankruptcy and Insolvency Act and the Companies’ Creditors Arrangement Act or just the bankruptcy act, and I said just bankruptcy. She said no.
Senator Massicotte: I thought the Companies’ Creditors Arrangement Act was a different issue because bankruptcy means you’re liquidating, but the Companies’ Creditors Arrangement Act means you’re coming to an agreement among all the interested parties.
[Translation]
Ms. Chabot: The Companies’ Creditors Arrangement Act applies to companies with debt in excess of $5 million.
Senator Massicotte: That’s the vast majority.
Ms. Chabot: The idea is to enable struggling companies to restructure their business rather than go bankrupt.
Senator Massicotte: In a restructuring, there are no set rules; it’s a negotiation with all the stakeholders at the table.
Ms. Chabot: Exactly.
Senator Massicotte: This does not apply to all companies governed by the Companies’ Creditors Arrangement Act; it is separate.
Ms. Chabot: Yes.
Senator Massicotte: If that’s the case — From memory, 40 % of Canadian companies have a pension fund — maybe 36 % or 37 % — and government accounts for more than half of that. So we’re talking about 16 % or 17 %. When a major problem arises, a large percentage of the solutions go through the Companies’ Creditors Arrangement Act and our concern is about 4 % or 5 % of the pension funds? That’s a question.
[English]
Ms. Gladu: Yes, I think your point is fair that there are a small number of actual entities that will be impacted by this bill. I think that’s a fair point.
Senator Massicotte: I’m trying to be very fair because I have empathy for the problem. But out of fairness, the couple hundred emails we all got say, “Well, the company promised me a pension plan. They promised me certain benefits when things go bad, and therefore I’m simply asking them to commit and render their obligations to me of what they promised me. So give me the money.”
But the problem with that argument is you have a bunch of suppliers. Every supplier has that argument. Every purchase has that argument. Therefore, there is a lineup of people who want that free money. Because it’s free money — there is no legal obligation. Now we’re going to increase the obligation. Why only the pension person who suffers? How about all the other suppliers whose families depend upon them for eating and being sheltered? What happens there? Why them and not the other guys?
Ms. Gladu: The difficulty is when you come to a situation where not everybody is going to get their money, the question is who can be the most resilient in that situation. I would say that companies that are suppliers are used to having situations where things come up that cost them unexpectedly. They are more likely to be resilient. Banks are hugely resilient. They’re likely to not go under because they’re making billions of dollars in profit. Therefore, the people who are the least resilient are those individuals who are counting on that money to live on for the rest of their lives.
Sears was what got all this going. I had a neighbour who lived across the street who worked for Sears, and they got 70 cents on the dollar. She ended up not being able to retire as she was planning to and had to go back to work. There are real consequences for those individuals.
Senator Massicotte: We have more sympathy for who should win that beauty contest.
Ms. Gladu: I’m on the side of the pensioners, clearly.
Senator Cardozo: Congratulations, Ms. Gladu, on getting this bill this far. It has been a long time, as Senator Ringuette pointed out. She and others have worked on it over the long haul.
I also want to add my congratulations to Ms. Chabot for being here and working across party lines.
I do want to shout out to my colleague Senator Wells for being the sponsor in this place because that’s how the whole thing works, when you have somebody who is going to stand up for you and he’s doing a good job twisting our arms on this.
The question I see here is how we keep people’s benefits safe.
My question is a bit beyond the scope of this bill, but have people thought about rather than having the money being kept by the company, companies keep the money with an agency such as CPP. That would be a more secure way. Some people don’t think the government is a safe place to leave money, but let’s say we could find a way to shelter it somewhere in government, such as CPP, so that the contributions that employers and employees make could be kept in a government vault somewhere. When we draw on it, we would draw on it the way we do with CPP and other pension plans.
Ms. Gladu: I would be fearful of putting pensioners’ money in the government vault because it’s pretty wide open right now.
The benefits question came up before. I think it was a former NDP MP named Scott Duvall who brought a bill forward and wanted pensions included in the whole pension priority situation. The problem was trying to figure out how much the benefits really cost because they change over time as people age and how sick they are. It’s hard to cost out. That’s why it didn’t fly with some of the parties, but I think there is a mood to go and invest in these organizations like HOOPP and CAAT where you’ve got them managing the fund and if something happens to you, the employees are protected. I think that’s why those organizations are growing rapidly. Some provinces, like Saskatchewan, have put it in their provincial legislation to allow for everybody to participate in those kinds of arrangements.
I think that is a very good idea.
Senator Massicotte: I thought you were going to say that the amount of money that was to be retained from salaries for the sake of the pension plans becomes trust money and therefore no one can touch it. Is that not the case?
Ms. Gladu: Well, for sure, when it goes into the pension plan, the company is not allowed to withdraw it and use it for general revenue. It’s separate already. The question is how best to protect it. I think the specific question was about benefits which is different than pensions. A pension is a benefit.
Senator Massicotte: If you fool with that money, it’s fraud. That’s very serious. I don’t think there are many problems with that, I suspect.
Ms. Gladu: I’m not sure if I’m getting what you’re asking.
Senator Massicotte: If you withdraw the money from the salary, the money comes out and then the pension manager — it could be a third party — puts it in a separate account. It’s no longer in the account of the company. I thought the answer would have been, “No. Don’t worry about these people. They are fully protected. There’s not an issue there.”
Ms. Gladu: Perhaps I misunderstood the senator’s question, but I thought he was talking about benefits, for example, medical benefits and all these other things that are also lost when a company goes bankrupt. With Eaton’s, for example, everybody lost all their health care, all their dental, all their everything. I thought that was his question and I was responding based on that.
The Chair: Senator Cardozo, are you —
Senator Cardozo: I’m done. My question was about both benefits and pensions.
The Chair: I want to follow up on that distinction between the benefits and the pensions. With the statistics that we have, if the defined benefit plans in the private sector have decreased from 21% to less than 10% in 10 years, that really puts the numbers down. This is a decreasing pool of people, as we’ve discussed, that will be impacted by this.
What are you hearing from the younger generation? Are they really as interested in pensions versus benefits or maybe more lifestyle issues such as the shorter workweek or working from home? Was any of that evidence discussed?
Ms. Gladu: It was not discussed this time around when it went to committee because all of these elements had previously been studied at other committees. They didn’t ask those questions. I’m 60, so I’m not sure I’m qualified to answer as a young person. I couldn’t really say.
The Chair: Okay. That’s great. It’s just interesting data because I think what they’re looking for is very different.
Senator C. Deacon: Thank you for the energy that is not evident of a 60-year-old on this topic. I really appreciate that.
I think the absence of this act arguably makes pensioners involuntary, unsecured creditors in a bankruptcy. They’re investors whether they want to be or not. They don’t have a choice.
Ms. Gladu: They’re certainly at the bottom of the pile today.
Senator C. Deacon: I think that is what you’re trying to get at. I’ve been appreciative of the debate among colleagues and Senator Massicotte in that regard. Thank you again for your work.
Ms. Gladu: Thank you. If I can say one more thing, there has been a migration over time. From the beginning when these pension bills started to come forward, even my own party, at one point in time, was not supportive of this priority. There has been a migration. I think people are generally recognizing that it is a deferred wage. It is part of the contract when you take on a job and when you’ve worked your whole life, you can’t be the last in line.
The Chair: Thank you for those comments.
[Translation]
Senator Bellemare: Thank you for looking out for the interests of retirees and workers who invest in a retirement plan.
There are many ways to protect workers in the future. This bill will do just that in terms of protecting existing pension plans and retirees. However, many countries have opted for insurance funds, and private plans — be they defined contribution or defined benefit plans — are backed by those funds.
I don’t know the mechanics of these plans, but I have seen in search tables that England and the United States have these kinds of funds. I am very familiar with Sweden. Its public plan is quite generous, but employees are encouraged to buy into pension plans. Four funds exist — two for defined benefit plans and two for contribution plans for both private and public sectors.
What are your thoughts on a strategy that could, in the short and medium term, be implemented through this type of fund?
[English]
Ms. Gladu: That is a good question. I had this great idea when I first drafted the bill. I thought that you ought to be able to get insurance for the insolvent portion of a pension fund. So I put that mechanism in. That was my own creation that I didn’t cherry-pick. Sadly, it was hated by all — especially by the NDP. A lot of the labour movement really hated it and wanted it taken out. Therefore that was removed at committee. I still think it’s not a bad idea. Insurance companies are in the business of insuring risk. It’s something they do.
Although I don’t have a crystal ball for the future, I would expect that these organizations like HOOPP and CAAT are going to grow over time because they’re such an effective way of protecting the pensioners and growing the funds. Most that have presented to me grow the funds five fold more than you could do yourself individually if you were investing. I think that’s the future.
[Translation]
Senator Bellemare: I have another question.
What is the most cost-efficient method for those who contribute to a retirement plan?
Contributions are high enough to guarantee defined benefits. This represents 12 % of salaries on average for the workers and 12 % for the company. The company guarantees the risk, but at a fairly high rate. Yet, perhaps broader funds would make insurance more cost-effective.
[English]
Ms. Gladu: I think that’s the advantage of having a pension fund where you have, for example, 500 companies partaking in it. You’re spreading your risk and I think that’s better for the fund.
The Chair: Thank you. We’ve got several more questioners, but not that much time.
Senator Massicotte: I think it’s beyond the scope of your legislation. If you look at the big picture, one could be convinced quite easily that it’s important to our society to adequately protect our pensioners. Also, if you’re looking at the experience in China, 20 years ago they were saving far too much because they didn’t have a secured pension system.
I think there is a lot of merit to it, but I understand we’re quite limited in the type of legislation we can do. We can’t spend any money. You have to find some kind of pigeonhole to get where you want to go, but it may be not that obvious given the limitations.
Ms. Gladu: Obviously, for myself, I think putting pensioners ahead in the line doesn’t cost extra money to the federal government, and it really does protect them. So that’s why I think the measures that are in here, while they’re not everything you’d want to do to a pension system, what I would say is it’s better to get this over the line at this point in time than spend another 20 years and still not have any protection for the pensioners. That would be my recommendation.
Senator Woo: This bill assigns super priority to pensioners in the same way that salary earners already have super priority, but the two cohorts are not the same, of course. Many pensioners will have left the workforce already and would benefit from this act, but so would the salary earners because of the pensions to come to which they do not yet have access. Who would get super priority over the other, the salary earners or the pensioners?
Ms. Gladu: It’s the salary earners. If you look into the table, you can see that the line on the salaries up to $2,000 per employee from section 81.2 of the Bankruptcy and Insolvency Act would come before this updated section.
Senator Wells: It’s not really a question, it’s more of an observation. When I think about the discussion from my colleagues Senator Cardozo and Senator Bellemare about the government backstopping — and I don’t think the government should be backstopping. Then I think about the lenders who might not like this so much, but when I think of Canadian banks, they have the ultimate backstop in the federal government under the Canada Deposit Insurance Corporation, or CDIC, of $100,000 per account. I think it’s more than curious that lenders might be concerned about a self-funded backstop when they themselves are backstopped by the federal government to a tune of over a trillion dollars.
Ms. Gladu: I think your point is well taken. The banks are certainly not suffering, and they are protected. I would say that the government has also come to the rescue, if you remember the General Motors bailout that was done. I think there are lots of protection for banks, but there is currently no protection for people who work their whole lives.
Senator Ringuette: Actually, it is a follow-up. When I did the research on the issue in regard to the U.S., the U.S. government charges 1% of contributions to their pension system, which are quarters, and that fund is a backstop for deficiency in case of bankruptcy. But we don’t want to go there. I think this is a very balanced and reasonable approach. Thank you again.
Ms. Gladu: Thank you, senators.
The Chair: Thank you very much, Member of Parliament for Sarnia—Lambton Marilyn Gladu, and joined today spontaneously by Louise Chabot, a Bloc member of Parliament who worked alongside Marilyn Gladu on this bill. We thank you for your very direct summation of your bill and your case for it. We may even be back to you later on in our discussions as we look at this after we hear from other witnesses. This is our first session. Thank you very much.
Welcome to our witnesses. This is our second panel today on the issue of pensions, Bill C-228.
We have with us and are pleased to welcome Mr. Peter Gorham, Actuary at JDM Actuarial Expert Services Inc. From the Association of Canadian Pension Management, or ACPM, Todd Saulnier, President of the Board of Directors, and Andrea Boctor, Past Chair of the ACPM Federal Council.
We will begin with an opening statement from Mr. Gorham to be followed by Mr. Saulnier. Go ahead.
Peter Gorham, Actuary, JDM Actuarial Expert Services Inc.: Good afternoon. I am an actuary who has provided consulting services to Canadian pension plans for 45 years. I am here representing myself today. I am concerned that two of the comments that have been presented by some opponents of Bill C-228 do not provide a full picture.
While there are many pension plans in Canada, it is only the defined benefit type of plan that is affected by this bill, other than possibly plans with unremitted contributions that are due to the pension fund. Only defined benefit plans can develop unfunded liabilities.
Within the private sector, the most recent data from Statistics Canada shows that 9.6% of private sector workers are members of a defined benefit plan. There is additional background information in my brief.
It is likely that lenders will impose additional financial conditions on companies due to increased risks arising from this bill. Opponents say that could make it very difficult or impossible to secure financing without paying a premium over current costs.
While we do not know what these conditions might be or how burdensome they might be, those opposed to the bill suggest that companies may terminate their defined benefit plans to avoid those conditions or to reduce borrowing costs.
First, many with defined benefit plans are subject to collective bargaining, and it is unlikely that companies will be able to terminate those plans without further bargaining.
Second, if a company did terminate a defined benefit pension plan, the company is obligated to fund fully any shortfalls. The act of terminating a plan virtually ensures that all plan members will receive their full entitlement. However, going forward, employees may find that their future pension is replaced with a less costly type of plan.
Third, current estimates are that most defined benefit pension plans in Canada would be in a surplus position if they were wound up. There are a few that are in a deficit position and a very few that are in a serious deficit position. This is a huge improvement over the last couple of years.
Following the enactment of Bill C-228, companies with a pension plan in a healthy financial position will likely find few, if any, additional conditions from lenders other than a requirement to maintain their pension plan in a fully funded position. That will also benefit workers.
Opponents say the Stelco pension plan termination process is a viable alternative to Bill C-228. All of Stelco’s legacy pension plans were underfunded when the company emerged from Companies’ Creditors Arrangement Act protection in 2017. An arrangement was negotiated to postpone the final settlement of the benefits in hopes the plan could be brought to a fully funded position. By mid-2022, two of those five plans reached that goal. A great success story.
But the Stelco success is due to a combination of three factors. Plan assets were invested with a view to providing returns that exceeded what was required to pay the pensions. There was no guarantee this would work. Investment losses could have happened. And even larger unfunded liabilities evolve. As a condition of purchase, the purchaser, Bedrock Industries, was required to contribute to the pension funds. The basic contributions were relatively minimal, but additional contributions that were tied to various performance metrics would provide a significant boost to assets. Thirdly, the purchase by Bedrock Industries was made possible by the Ontario government providing guarantees to backstop the company and to take away liabilities that Bedrock Industries did not have to assume. Those guarantees were a key ingredient to the overall success of the package.
In my opinion, if the conditions are right for a similar arrangement in other insolvencies, it is likely worth implementing. But that requires government guarantees, a purchaser willing to contribute future revenues to the pension plan, members willing to take the risk that they might get less rather than more and favourable investment outcomes — an unlikely scenario in many insolvencies and bankruptcies.
I hope this information will help you to more fully understand some of the consequences that are being discussed with respect to this bill. To conclude, the bottom line, from my perspective, is that we are finally protecting those who are unable to protect themselves rather than continuing to protect those who are able to protect themselves. Thank you.
The Chair: Thank you very much, we’ll move next to Mr. Saulnier, president of the board of directors. Go ahead, please.
Todd Saulnier, President, ACPM Board of Directors (Mercer), Association of Canadian Pension Management: Thank you Madam Chair and Mr. Deputy Chair. We would like to thank you for the opportunity to share our thoughts on the bill being studied in this esteemed chamber.
[Translation]
I chair the board of directors of the ACPM, the Association of Canadian Pension Management. The ACPM is a non-profit advocacy organization. I am an actuary and investment consultant with over 30 years of experience.
[English]
My role outside the ACPM is to support sponsors with the creation, design, implementation and good governance of effective pension plans and other retirement income solutions.
The ACPM’s vision, in fact, is to be the leading advocate for pension plan sponsors and administrators in the pursuit of a balanced, effective and sustainable Canadian retirement income system. Our membership includes some of the largest public and private sector defined benefit pension plans in Canada that collectively manage plans over trillions of dollars in assets and covering millions of plan members.
In our brief that we submitted, you may notice we included a copy of our submission to the House committee that studied Bill C-228. In that briefing, we did raise some concerns about some potential serious consequences of the approach being taken by the bill. We certainly agree with the intention of the bill — to protect pensioners. But we did suggest some alternatives which we believe would be more effective in protecting both current pensioners and future pensioners, which we have concerns about, to avoid those negative consequences.
Given the House has unanimously endorsed this somewhat unique approach, in our research, the only country we can find that had a similar, super priority approach was South Korea — at least in the developed world.
We’ve limited our remarks in this particular briefing to the Senate committee to a number of drafting issues with the current legislation and it’s our hope the Senate will study these issues and potentially suggest some amendments that would enable the legislation to be enforceable, thus achieving the aims of the bill in the House on this particular matter.
I’d like to have Ms. Boctor continue our comments. She’s the lawyer on our committee.
Andrea Boctor, Past Chair, ACPM Federal Council (Osler, Hoskin & Harcourt LLP), Association of Canadian Pension Management: Pension lawyer. Thank you, Mr. Saulnier, Madam Chair and Mr. Deputy Chair.
The ACPM strongly believes that every pensioner should get every dollar of pension benefit to which they are entitled whether their employer is solvent or insolvent. That is our mission. We are tireless advocates for a sustainable Canadian pension system. The ACPM also strongly believes that a priority for deficits is not the best way to accomplish this goal. Rather, we believe a priority for pension deficits will cause many of the remaining defined benefit plans to close, be they bargained or not.
We have outlined these concerns in our letter to the House of Commons standing committee, which, as Mr. Saulnier mentioned, is appended to the letter we wrote to this committee. We implore this committee to consider those alternate policy choices to implement this laudable goal.
In our letter to this committee, we also discussed the technical concerns as Mr. Saulnier mentioned. Our technical concerns fall into four main categories. First is the constitutionality of it. In an insolvency scenario, effectively this bill would have us reimagine every provincially regulated pension plan as a federally regulated plan, apply the funding regime of the federal Pension Benefits Standards Act to that plan and create a priority for that amount. That amount may not be owing under provincial legislation. In that regard, this bill has the potential to create a debt and apply a priority to it. We all know the federal government is surely capable of doing the latter. It’s the former that we are concerned may not be constitutional — creation of the debt itself that would not otherwise be owing under provincial legislation.
We’ve also heard from the sponsor of this bill, Ms. Gladu, and many others, that one of the aims of this bill is to change behaviour for employers as they fund their pension plans in an ongoing scenario. Provinces have made the very deliberate choice from a policy perspective to only require 85% solvency funding, as in Ontario, for example, or no solvency funding as in the Quebec funding regime. They’ve made these deliberate policy choices in order to stem the tide of the wind up of the single employer defined pension plan. Because these things have value, there are 9.6% of Canadians covered by these plans.
This bill is intended to have the effect to require employers to put more into their plan and we think that would also be an incursion into provincial rights to legislate in the area of pensions. It also makes no mention of the guarantee scheme that Ontario has enacted. In the case of insolvency, the Pension Benefits Guarantee Fund, or PBGF, is a fully functioning regime in the event of employer insolvency. This regime is not at all mentioned in Bill C-228 and for that reason as well we have concerns about its constitutionality.
The second is that the net it casts is simply too broad. The current drafting of the bill could establish a priority when pensions haven’t even been cut because of the way the amount is calibrated.
For federally regulated plans, again, the amount is miscalibrated. As Ms. Gladu mentioned, this bill has been floating around in one iteration or another for the last 15 to 20 years. Pension legislation has evolved in that time. Pension funding has evolved in that time, including at the federal level, and the language in the bill has just not kept pace.
Fourth, again, with respect to provincially regulated plans, it’s really unclear how, as a practical matter, we would actually calculate the amount that is subject to that priority. We come to you as industry experts unable to read and apply this bill as it relates to provincially regulated plans and with serious concerns regarding the fallout that may ensue.
We also come to you with solutions, including policy solutions and drafting solutions if this is, indeed, the policy choice that is made, and those are outlined in our letter. We would be happy to discuss those in greater detail.
The Chair: Thank you all for your opening comments.
Senator C. Deacon: Thank you for your opening comments.
I wouldn’t mind you addressing the specific issue that has been raised to some of us about jointly sponsored pension plans, as referenced by MP Gladu. The concern is that they’re developed where the employer and the employee equally share the risk and that the employer is not the only backstop, but all of a sudden this makes them the only backstop.
Can you speak to that concern that’s been raised to some of us? I just want to understand what your thoughts are relative to MP Gladu’s.
Mr. Saulnier: I guess from an actuarial perspective, an employer that exits one of those jointly sponsored plans, if it’s multiple — like in the CAAT situation — there may be a deficit at the time of the exit, and so I don’t know from a legal perspective — and you, Ms. Boctor, should answer that part of it — whether that deficit would have to be funded in a bankruptcy situation, if that employer has gone bankrupt. Does that create a debt that would then top up the plan? That I don’t know.
Ms. Boctor: Jointly sponsored pension plans, or JSPPs, are a great idea. They should be allowed at the federal level. We’re big supporters of those. They’re currently not allowed at the federal level under the Pension Benefits Standards Act. There’s no legislation to support their existence.
The way the bill works is it reimagines the plan as a federally regulated plan, and if it doesn’t fit within the box of defined benefit, defined contribution or negotiated contribution at the federal level, it’s not really clear how we apply this bill to that plan and to that employer’s insolvency. That’s where the concern arises.
Senator C. Deacon: Absolutely. The impression I got from MP Gladu is that they fall absolutely outside of this, but you’re not as certain?
Ms. Boctor: The way the legislation is drafted, it is not clear.
Senator C. Deacon: Mr. Gorham?
Mr. Gorham: I believe it would really come down to the plan terms. Some of these plans have a built-in mechanism whereby if there’s a shortfall in the assets, the benefits are adjusted. In other words, they’re built on the premise that once the contributions are made by an employer or by the employees, that is the end of their obligation for pensions that have been earned to date. You make your contributions that are required today, and there will be no more with respect to unfunded liabilities.
There are some plans around where they do attribute deficits in the plan back to participating employers, and those are ones where you would need to look to how the act might apply if one of those employers went bankrupt with a deficit.
I’m not a bankruptcy expert by any stretch of the imagination, but I would assume that that employer’s obligation would fall under this act and that the trustee in bankruptcy would have to pay those contributions to the pension fund.
Senator C. Deacon: Just drilling down a little bit further, you make the point that this is a federal act that creates a liability, potentially, under provincially regulated pension plans, and the constitutional challenge of that.
Have you had that examined by a constitutional expert? Have you gone to that step? Do you have anybody who has looked at it beyond your suspicion of that challenge of that issue?
Ms. Boctor: It is something that we have looked at, but it’s something we would urge this Senate committee to study given its importance.
If this bill doesn’t apply to provincially regulated plans, it does not accomplish its goal.
Senator C. Deacon: Yes. Thank you.
Senator Wells: Of course, the federal government should, with respect to jurisdiction, always stay in its lane. That’s one thing that I strongly believe in, but I recognize that not every person in the federal system believes that.
Mr. Gorham, thank you for your presentation. You’ve expressed concern that if Bill C-228 passes, it will result in defined benefit pensions being terminated or certainly reduced. I note that that seems to be the trend, even without the legislation.
Your brief seems to counter or at least minimize the concern. You note that, one, many defined benefit plans are subject to collective bargaining, and it is unlikely that companies will be able to terminate them without re-entering that bargaining process.
Of course, when the collective bargaining term ends, then everything is on the table. I recognize that.
Two, that if a company did terminate a defined benefit plan, they’re obligated to fully fund any shortfalls and have currently five years — and under the legislation four years — to do so.
Third, as of today, there are few companies with a pension plan in financial deficit. We’ve all seen the numbers on that.
Am I understanding correctly that you don’t see this bill as incentivizing employers to terminate their defined benefit pension plans?
Mr. Gorham: That’s a correct statement. I don’t see this bill triggering plan terminations, and my statement was that opponents of the bill have said companies will wind up their pension plans. I don’t see that happening, personally.
There are a lot of other reasons why companies are winding up their pension plans and getting out of that area.
Senator Wells: When other companies do wind up their pension plans, are they offering a replacement or just saying, “This isn’t on offer anymore,” given the previous panel that says that this is now an incentive for bringing on employees or attracting employees?
Mr. Gorham: Many companies would replace it with what’s called a defined contribution type of plan or a group registered retirement savings plan, or RRSP. Basically, defined contribution plans work much like an RRSP. It’s money accumulation.
Senator Wells: Right. And there’s not a downside to that, other than what the plan might look like?
Ms. Boctor, you’re anxious to speak?
Ms. Boctor: There can be significant downsides to a defined contribution pension plan.
The Healthcare of Ontario Pension Plan did a study not long ago on the benefit of a good pension — I think that’s the name of the study that is referenced in our materials. It estimated that for every dollar put in a defined contribution plan, it yields about two and a half dollars of retirement savings. For every dollar put in a single employer defined benefit plan, about four and a half.
Senator Wells: In the case of a bankruptcy, which is what we’re talking about now, it could be any multiple of $1? It doesn’t matter because there’s a bankruptcy and you would have the pensioner further in the back of the line. So we’d actually be talking about fractions of the dollar, not multiples of the dollar?
Ms. Boctor: Well, in a bankruptcy scenario, we would have a pension worth four and a half dollars and say that pension is only 80% funded at the time of the insolvency, they’d get 80% of four and a half dollars, which is still better than two and a half.
I think that’s the policy decision that many provinces have made. They’ve said, “A cut in your great defined benefit is better than the alternatives — a defined contribution or a group RRSP.”
Mr. Saulnier: 85% of a defined benefit is better than a defined contribution.
Senator Wells: All right.
Senator Massicotte: Thank you for being with us.
I’m still at first base because you’ve got all this stuff and it sounds good. But if it is accurate that this is going to scare the banks away, I’m quite concerned about the impact on the economy and on small businesses, predominantly. It is going to be significant.
How do we get a grasp of that because you’ve got all kinds of accusations and stipulations. How do we find out what reality looks like? Can we look elsewhere to another country, especially the United States?
Mr. Saulnier: I can take that. As the ACPM, our primary mission is to support pension plans, so we’re very concerned with that.
We dug through the statistics a little bit, and Statistics Canada does give us some great insight as to what is happening with those trends.
Mr. Gorham, you had it in your paper — and it was in ours as well — less than 10% now of corporate-sponsored pension plans —
Senator Massicotte: Less than 10%?
Mr. Saulnier: Less than 10% of Canadians in the corporate sector have access to a defined benefit pension plan.
Senator Massicotte: To a defined benefit, not a defined contribution.
Mr. Saulnier: Yes, to a defined benefit.
I think the criticisms and our concerns — certainly with respect to our organizational members — with this trend, which was happening anyway, as Ms. Gladu pointed out, this would be one additional argument for why that could continue. Plans are well funded today with the rise in interest rates. Until 2022, there were really good returns, so pensions are well funded today. But that’s today. Solvency-funded positions can change rapidly from one year to the next. Although a plan doesn’t have a deficit today, a lender may say, “This is a high risk, so I’m going to attribute that risk assessment in your lending agreement.”
Senator Massicotte: Is it reasonable? I would argue that maybe it is because the earlier witness said 12% to 15% of one’s cheque would be their contribution under a pension plan. So you’ve increased the cost to the company by 12% of the labour cost. That’s pretty significant especially given that every good excuse is good. But they probably want to get out of that defined benefit program. It’s too risky, and the history has shown that they want to get out of there.
Mr. Saulnier: Yes. You make a good point. Canada is not the only country that has gone through this evolution. Australia, the U.S. and the U.K. have gone through this evolution where there used to be a lot more defined benefit plans. However, in Australia, there’s none. In other countries, the number of defined benefit plans has rapidly declined as a result.
Senator Massicotte: We’re in hot water, but we’ve got no choice so you’ve got to bear with it and, hopefully, we won’t cook the goose.
The Chair: I want to clarify. If we’re now talking about defined benefit pension plans being under 10% and that that’s a trend that’s going down already, this legislation is not going to speed up that. It’s already a trend. It seems to be the way the world is going.
Mr. Saulnier: It may speed it up. I think it was probably happening anyway. I think you’re absolutely right. It’s happening anyway, but this may be one additional reason why it goes from 9% down to 1 more rapidly than it otherwise would have.
Senator Ringuette: Thank you for your presentation. I truly appreciate it.
But I’m puzzled, and I hope you can clarify your statement in regards to the constitutionality of this bill.
The Bankruptcy and Insolvency Act is probably older than I am. Its last revision, in 1985, was 37 years ago. It covers federal and provincial small and medium-sized enterprises, corporations, utilities, universities, you name it. In the last 37 years, nobody has argued the constitutionality of the act.
Even though these entities are regulated by the provincial government — whether through the provincial small business act, the Salaries Act or all of the above — I cannot understand why you’re saying that the pension fund, contrary to the salaries and all the lists contained within it, is not constitutional. Explain that to me because I’ve been looking at constitutional issues in this chamber for 20 years. This is a puzzle to me. Clarify it.
Ms. Boctor: It would be for two reasons. First, the Bankruptcy and Insolvency Act is there to prioritize the debts of the debtor — the bankrupt — and to distribute the remaining assets in an equitable manner among its creditors. This bill, as it relates to provincially regulated plans, could create a debt —
Senator Ringuette: No. Listen, in 2005, we added the salaries.
Ms. Boctor: Yes.
Senator Ringuette: That was 17 years ago. The constitutionality of that has never been questioned.
Ms. Boctor: The wages are $2,000 per employee, but it’s “up to” $2,000 per employee. Therefore it has to be actually owing to the employee, and then they’ll get that amount up to $2,000. Here, we’ll be creating an obligation of the employer to fund the plan where, otherwise, there wasn’t one under provincial legislation.
Senator Ringuette: I’m sorry, but I don’t agree with your arguments. Let’s just leave it at that.
Senator Woo: Staying on the question of provincial jurisdiction, and setting aside the constitutionality question, are there other ways in which provinces might respond if this bill became law?
For example, would Ontario get rid of its guaranteed plan — whatever it’s called — because they would say it’s not needed anymore so take it off their shoulders? Would other provinces change things that they’re currently doing such as target benefit plans? Would it change their calculation?
Would we see a transfer of responsibility away from the provinces to the act, essentially, and federal involvement — again, setting aside constitutionality? They may be happy for this. It takes the responsibility off. Either of you, please.
Mr. Gorham: I don’t see any way in which a province would change anything it’s doing because of this other than possibly you raised the issue of the Pension Benefits Guarantee Fund in Ontario. While it’s likely not going to have to pay out as much in the future, this act does not guarantee that every pension fund is going to receive all the money that is needed to pay everybody 100 cents on the dollar. If there’s a bankruptcy with very few assets available, we could still have situations where the Ontario guarantee fund comes into play and becomes useful.
One of the consequences of this would be the guarantee fund in Ontario won’t need as much money in the future and employers will no longer have to contribute as much to it, which will be a savings to employers.
Senator Woo: Should Ontario pay first before this plan kicks in?
Mr. Gorham: I’m going to skip that one by saying I believe that’s a policy issue.
Ms. Boctor: It should be clear in the bill because the Pension Benefits Guarantee Fund is intended to apply in an insolvency and it’s not.
Senator Woo: We don’t know who will pay for this.
Senator Ringuette: An insolvency organization will solve that in the difference in areas.
Mr. Saulnier: Will pension legislators change the way they fund pension plans? They did go through an exercise to deliberately change the funding target. Will they see this as overriding their policy decisions? I don’t know whether they would make a challenge as a result of that. I’m speculating on that.
Senator Woo: To follow up on the previous issue, I take it our colleagues from the association disagree with Ms. Gladu about the impact that this bill will have on defined benefit plans. Both you and Ms. Gladu feel that there will not be a diminution of defined benefit plans for a variety of reasons, but isn’t it accurate to say that companies that don’t yet have pension plans — and companies that may not even exist today, but will come on stream — will be highly disincentivized to come up with defined benefit plans? Isn’t that an accurate assessment?
Mr. Saulnier: Absolutely. That’s why many other solutions are being investigated to produce something like a pension plan.
Mr. Gorham: If I may, that is the current situation with or without this bill. There are very few new defined benefit plans being established. They’re a rarity.
The Chair: With or without — that’s the point.
Senator Arnot: On the constitutional issue, I have to agree to disagree with you on that. I understand what you’re saying: It’s creating pension debt, and it’s giving it a priority inside a provincially regulated employer or business. I have a better question.
This is to the association. The bill has been kicking around in various forms for 15 years or 20 years. There are four years to adjust to the changes, and you’re proposing alternatives. Can you identify or speak to the idea? Have you spoken to union groups, pension groups, government departments or agencies about this to try and get buy-in for proposed alternatives? If so, has that gone as expected? Because it doesn’t seem that there is buy-in from others.
Mr. Saulnier: When we develop our positions and policies, we work with a national policy committee that includes many plan sponsors, including CAAT and HOOPP, as well as actuaries, lawyers and service providers. We do get a cross-section of many different points of view in developing our research.
From that perspective, we’ve definitely had a lot of input and support for what we’ve put together.
Senator Arnot: How about with unions?
Mr. Saulnier: Unions would be represented by the pension plans that we work with, but not the unions directly.
[Translation]
Senator Bellemare: I would be interested in learning more about the proposals you want to put forward.
However, I have a very specific question first. I’m really concerned about the fact that we have to take care of pensioners and future retirees in case of bankruptcy. We have a bill that is interesting. My question is for our three witnesses. Is the passing of a bill like this one — which makes retirees a priority in the event of bankruptcy — sufficient? Will retirees receive anything? Is what is being promised true, or is it a mirage? I’d like to hear Mr. Gorham, Mr. Saulnier and Ms. Boctor on this.
Mr. Saulnier: It is a good question to ask whether the money will really be given to retirees. In the case of a bankruptcy, it will depend on the circumstances of the bankruptcy. There have been bankruptcies in the past — at a time when this legislation did not exist — where pension plans continued to operate after the employer’s insolvency, as in the cases of Stelco, which was mentioned earlier, or Air Canada. There have been a number of such cases. Quebec even has a bill that provides a system for pension plans of companies that are bankrupt where pension funds continue to be distributed until there is enough money to buy the pensions of all retirees.
There are solutions out there, including one that we proposed in our letter: giving the option to continue paying out the pension fund, either with trustees or by joining another plan, such as CAAT, that can protect the plans. Does this answer your question?
Senator Bellemare: Yes, thank you. Mr. Gorham, do you have anything to add?
[English]
Mr. Gorham: The bill will give retirees — pensioners — their full pension provided that in bankruptcy there is enough money to meet that obligation.
Senator Bellemare: That’s my question.
Mr. Gorham: Under the current scenario, because the pensioners come after the secured creditors, there is rarely enough money. The administrator in bankruptcy is generally going to have to fight hard to try and get a portion of it. With this bill, it will make it easier for the pension plan and the administrator to get the money needed to pay everyone their full benefit, but it’s not guaranteed.
Senator Bellemare: It’s impractical, when you know about bankruptcy — I don’t know about bankruptcy — making it a priority, what is the probability it will give pensioners —
[Translation]
— give retirees what they are entitled to.
[English]
Mr. Gorham: As long as the bankrupt company has enough assets that can generate the money. If you think about a company that has real estate, plants and equipment that can be sold, there is a way to generate money. It just won’t generate enough to satisfy everybody, generally.
Senator Bellemare: Thank you.
The Chair: Is there something specific about the bill, Mr. Saulnier and Ms. Boctor? Do you want a different ordering of the recipients, a different allocation system or do you just not like the bill?
Mr. Saulnier: If we’re presuming the bill in its current form with the super priority, there are three or four amendments we would suggest that would still accomplish what it’s intending to accomplish. They would remove some of the things we found were unclear in trying to read the bill. They’re in our letter.
The Chair: What does that encompass if you can do a shorthand on this?
Ms. Boctor: Any priority would only apply to wound-up plans. It is only when the plan winds up that the benefits are cut. If the plan is ongoing, there should be no priority.
Number two would be for a clear, discernible amount similar to unpaid wages. There’s a fixed amount per employee. If there were something you could calculate, it would make it easier for companies to obtain financing because their lenders would more easily be able to assess the risk and wouldn’t overpenalize them for having a defined benefit pension plan.
Third, on the constitutionality issue, provincial pension legislation across the country has deemed trusts in it. It’s what the province says ought to be deemed to be held in trust for the benefit of pensioners. If there is going to be a super priority or a priority mezzanine — whatever level is put forward — it should be for the amount the provinces have decided that is or ought to be deemed to be held in trust. That is usually special payments and often the deficit, but some provinces have chosen a different regime.
Then contain exceptions where appropriate. So clearly exclude jointly sponsored pension plans and target benefit plans, and accommodate the Pension Benefits Guarantee Fund, or PBGF, so we know how to implement this and we’re not litigating it the first 10 times it comes to court.
The Chair: The same problem — it depends on how much money is left in the kitty for all of these things, whether it makes a whit of difference.
I saw Mr. Gorham shaking his head, so I’m sure you have a contrary view.
Mr. Gorham: On the recognizing the provincial deemed trusts, that will not provide enough money to pay every pensioner one hundred cents on the dollar. It is only a small portion of what would be required to fund it.
Frankly, in the past, because of the superiority of the Bankruptcy and Insolvency Act, these deemed trusts have effectively been of no value, and I would object to that particular amendment as being proposed.
I can see the other ones working, but I also see the bill can be handled as it is going forward.
The Chair: So you’re fine. It would work and with the diminishing participation in the marketplace.
I think we have exhausted the questions here. I thank you. Can you leave those proposed amendments with us if you haven’t already done so? We will take that into account.
Our thanks to Mr. Peter Gorham, actuary with JDM Actuarial Expert Services, who reminded us he was here today as an individual, but with many years of experience. Our thanks also to witnesses from the Association of Canadian Pension Management, Todd Saulnier, president of the board, and Andrea Boctor, past chair of the federal council.
Thank you for your participation. We are just beginning our study. We will take all of your comments under advisement as they say, and we’ll carry on.
That brings our meeting to a close and we will see members again tomorrow. Thank you.
(The committee adjourned.)