THE STANDING SENATE COMMITTEE ON BANKING, COMMERCE AND THE ECONOMY
EVIDENCE
OTTAWA, Wednesday, February 15, 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 in the room with us or online. This is a meeting of the Standing Senate Committee on Banking, Commerce and the Economy. My name is Pamela Wallin. I am the chair of this committee.
I am going to ask many of you to bear with us just for a moment before we begin our formal hearings today, because we have a thank you and a goodbye and a welcome that we would like to deal with.
We had just today tabled a report in the chamber called the State of the Canadian Economy and Inflation. It is now a public document and we have had our analysts working on this for a very long time and with some very tight deadlines. I want to say a big thank you to Adriane Yong and Édison Roy-César, who have been working with us on this and many other reports, for the miracle that had to happen, along with Karine Déquier, our clerk, to make it possible to table this today.
Also, Édison is leaving us and heading back to a job. We want you to tell us where you’re off to and then I’ll introduce your replacement. Don’t be shy. Don’t be shy. I knew if I told you before you wouldn’t do it.
Édison Roy-César, Library of Parliament Analyst: It is a bit unusual for an analyst to speak. I will go back to my job as manager so I will still be supporting the committee, but by managing the work of Mehrab and Adriane. Thank you.
The Chair: With the Library of Parliament?
Mr. Roy-César: Yes.
The Chair: That’s great. Thanks so much for all your work. Adriane is hanging in with us because she just can’t say goodbye. She loves writing every report we do.
I would also now like to welcome Mehrab Kiarsi, who will be joining us. I will invite you all to look up his own website. He is a professor in economics, a research scholar at Columbia and a professor at Concordia. It’s three or four pages here. I won’t read it all aloud. He will be working with us from here on in. Welcome, and we hope to keep you very busy.
Mehrab Kiarsi, Library of Parliament Analyst: Thank you so much. I’m very happy to be here.
The Chair: That’s wonderful. Thank you.
This is just a little bit of a look behind the curtains for those watching along today. This is how it works. We do our work, and we take testimony from witnesses, but these are the folks that do all the heavy lifting and help us prepare these reports, so it’s nice every once in a while to put them in the spotlight for just a moment.
So thank you again. We will return now to our business. I will introduce the members of the committee who are with us today: the deputy chair, Senator Deacon; Senator Bellemare is here; Senator Gignac; Senator Loffreda; Senator Marshall I don’t think is with us because Senator Wells is going to be here looking at this work today. We also have here Senator Ringuette, Senator Smith, Senator Marwah and Senator Yussuff. Welcome.
Today, we will continue our examination of Bill C-228, An Act to amend the Bankruptcy and Insolvency Act, the Companies’ Creditors Arrangement Act and the Pension Benefits Standards Act, 1985. We have heard from the sponsor of the bill in the other place, and we have heard from some of those with concerns. Today we carry on our discussion. On our first panel, representing the Canada Labour Congress, we have the pleasure to welcome President Bea Bruske; she is joining us virtually. And with us in person is Chris Roberts, National Director, Social and Economic Policy, Canadian Labour Congress. And joining virtually, we have Marty Warren, National Director, United Steelworkers Union and Meg Gingrich, Assistant to the National Director, United Steelworkers Union. We welcome you all. Thank you for joining us. We’ll begin with an opening statement from Ms. Bruske to be followed by Mr. Warren. The floor is yours.
Bea Bruske, President, Canadian Labour Congress: Good afternoon, chair, and thank you for the opportunity, and good afternoon committee members. I appreciate the opportunity to appear before you today.
My name is Bea Bruske. I am President of the Canadian Labour Congress, Canada’s largest central labour body. The CLC advocates on national issues on behalf of all workers from coast to coast to coast.
Our request to you is simple: pass Bill C-228 into law, without further amendment. This bill has been scrutinized and amended in the House. The amended bill was voted out of committee unanimously. Bill C-228 passed third reading in the Commons with unanimous support — 318 votes to 0. This bill is important to pensioners, working people and their elected government representatives. We urge honourable senators to now pass this bill, as well.
Pensions are essential to the financial security and well-being of working people. Next to their homes, pension savings are one of the most important pools of assets that workers accumulate over their lifetimes. It’s important to keep in mind that workplace pensions are not gifts from the employer. Defined pension benefits are, in fact, deferred wages. They are earned and paid for by workers.
Workers depend on that money being there for them when they retire. Employers are legally obligated to provide those pensions when a worker retires. It is frustrating and unjust that this legal obligation can be torn up when a company enters insolvency. When a company enters insolvency proceedings, workers and pensioners go to the back of the line. They are essentially treated like involuntary, unsecured creditors of the firm, behind the banks and secured creditors. No one asked plan members if they would consent to lending the value of their pension benefits to their employer. In fact, quite the opposite: plan members expect their employer will live up to the terms of the pension bargain.
Unlike commercial creditors, employees and pensioners are generally unable to protect themselves against the risk of their employer’s insolvency. If their previous employer enters bankruptcy, pensioners cannot easily return to work and find new and additional sources of income.
In 2018, we saw Sears Canada pensioners outside of Ontario learn their pension benefits would be reduced by 30%. One Sears retiree working in Calgary — who worked for 44 years — took a monthly pension cut of $800 a month. He had worked a lifetime only to have the pension he paid for slashed in retirement. Another retiree who worked for 35 years saw his monthly pension benefits drop $450. In anticipation of benefit reductions, that 72-year-old pensioner took a job at Home Depot as a greeter. For many others, taking a minimum-wage job to make up for pension reductions is not a realistic option.
The way pensions and benefits are treated in insolvency is honestly outrageous and unfair. Don’t let anyone tell you that Canada’s insolvency regime is fair, or that it strikes “. . . a delicate balance between the interests of employers and employees . . . .” That is contradicted by the evidence and the lived experience of workers and pensioners in insolvency.
Despite this unfairness, governments have not taken adequate steps to extend protections to pensioners and plan members. The federal government legislated changes in response to the Sears Canada debacle but they were woefully inadequate. This is especially frustrating, since the evidence shows that many companies with underfunded pension plans could eliminate the solvency deficiency in their plans by allocating just a portion of their shareholder payouts to the pension plan. Many firms consciously choose to reward shareholders and senior executives, boosting the stock price, rather than fully fund their pension obligations. That leaves pensioners and plan members at risk if the company becomes insolvent.
Over the years, the CLC has supported numerous NDP and Bloc Québécois private member’s bills on these issues. None of those bills have been allowed to proceed. Pensioners and workers are saying, “enough is enough.” The CLC supports swift passage of Bill C-228 without further amendment.
I’d be very happy to answer any questions you may have. Thank you.
The Chair: Thank you very much, Ms. Bruske, and my apologies for the mispronunciation of your name. I know better. Thank you for those remarks. We will go to Mr. Warren for your comments.
Marty Warren, National Director, United Steelworkers Union: Thank you, chair. And through you, thank you to the clerk and all members of the committee for the opportunity to join you here today.
I am the Canadian National Director for the United Steelworkers. The United Steelworkers Union is the largest private-sector union in North America. It includes 225,000 members who work in nearly every economic sector right across Canada, plus thousands upon thousands of retirees.
We are committed to ensuring that our members and all workers in Canada are treated with dignity, respect and fairness. We negotiate strong collective labour agreements for our members to have good wages, health and safety, and we make it a priority to negotiate good pension plans and benefits so that when workers retire they have financial stability. Pensions are bargained as deferred wages, and they are earned each day at work.
Bill C-228 is a long time coming. For two decades, versions of this bill have been tabled and debated. Meanwhile, thousands of workers have fallen through the cracks as victims as the Companies’ Creditors Arrangement Act puts workers at the back of the line. The most recent example for our members was in 2015 at Cliffs Natural Resources, formerly a Wabush Mine, when 1,700 retirees, former workers and surviving widows in Quebec and Newfoundland and Labrador had their financial security destroyed and their nest eggs decimated. Their pensions were cut by 21%, and their life insurance and drug coverage were gutted.
Bernard Theriault retired in 2008. The pension he earned was slashed by $550 per month and he was forced to go back to work. He was not alone. Like some of his fellow retirees, many of them had to consider selling their family homes to make ends meet. That’s not right. Another retiree, René Richard, said:
It’s money that was stolen from us, money that we had put there, we had deprived ourselves of our salary to have a nice retirement until we died. We fought for it.
Now, you may be thinking that sometimes companies fall on hard times. That could be true, but retirees should not be the ones who pay. That is why this bill is so important. While these workers had their pensions stolen, the current law made sure other creditors got their money. At Cliffs Natural Resources, one of those major creditors was Cliffs itself — the parent company — and it got all its money out. At Sears, as mentioned before, it was the shareholders who infamously collected generous dividends while retirees had their pockets picked. In the case of Cliffs, the parent company is still doing very well and their spike in profit following the bankruptcy here would have been enough to cover the pensions of Canadian workers many times over.
This is another example of why we need greater protections for workers. Our union fought for our members. In Cliffs, we fought for members and we went to court, but it shouldn’t take massive lawsuits to protect pensions for workers who have earned them. We believe pension plan claims should have higher priority during bankruptcy proceedings. We also believe the same logic applies to health benefits, such as disability insurance, life insurance and other health insurance.
So, yes, we were disappointed to see some of the opposition amendments that have been agreed to be stripped away by the House of Commons. But I am here before you to say that we are not prepared to let the perfect be the enemy of the good. This is a good bill. It received all-party, unanimous support in the House. It will improve security for millions of workers across the country. Amendments and further delays put that security at risk. You have the opportunity to prevent any future tragedy experienced by our Cliffs employees and so many others.
I believe all retirees deserve this little bit of extra protection. I urge you to pass this without delay. Thank you.
The Chair: Thank you very much, Mr. Warren. We will go right to questions. We will begin with the deputy chair.
Senator C. Deacon: Thank you, witnesses, for being with us today. There has been a concern raised by those who manage smaller defined-benefit pension plans on the part of workers who are not part of a larger union or do not have union support, who could be harmed by this bill because of the way it’s written. It doesn’t protect those smaller pension plans that don’t require the company to backstop the pension plans, where the ones that you were talking about very much do.
I would expect that you would want to make sure this doesn’t cause harm to any pension holders and that it protects all pension holders. Would that be a fair estimation — not just those who are members of the plans you identified, but that we’re making sure we’re watching out for all? Thank you.
Ms. Bruske: We certainly don’t want to harm any pension holders, but right now we have a glaring hole for the vast majority of Canadians who are requiring or who are needing resolution to this particular issue and who are under defined-benefit pension plans and absolutely at risk right now. This bill goes a long way to filling that hole.
Mr. Warren: I would just add, as I stated at the end of my comments, we can’t allow the perfect to take away the good. This is a great step forward. It’s not perfect, but it’s a step forward, and it’s going to help protect so many Canadians. Thank you.
Senator C. Deacon: Thank you. I have a second question for both witnesses. Another concern that has been raised to us is that this will potentially limit options in restructuring a company. We have actually had that from a number of different employee groups who were part of restructurings of organizations that were in financial trouble and could potentially limit the ability of those organizations to emerge from bankruptcy.
Our job in the Senate is to look for the voices that might not have been heard in a debate. I think it’s really important to hear your perspective as it relates to some of the concerns that have been raised.
Ms. Bruske: Certainly, when it comes to an employer falling on hard times, it’s incumbent upon employees and employers to work together to see if there can be a salvageable solution to that particular problem. Having spent many years at the bargaining table and having sat across from many employers, I understand the need for us to come together and find solutions to difficult problems. But it can’t always be at the expense of an employee’s pension, especially when those employees are often close to retiring or have already retired and are now facing a significant shortfall. We’re all for trying to find solutions and we’re all for looking at restructuring opportunities, and those are things that are best done at a bargaining table between the parties.
Mr. Warren: That is the key to bring the people together. We have seen in our operations in the Sault, at Algoma and Stelco, and here in Hamilton, those were CCAA — the Companies’ Creditors Arrangement Act — situations where we worked together to bring them out of CCAA. I think it’s bringing the people to table to discuss it. Workers need the protection.
Senator Smith: Ms. Bruske, you have expressed your support for the legislation by saying that you’re glad that workers are being prioritized over banks and CEOs. I am sure we have all heard the concerns that the passage of this bill would penalize companies with higher interest rates or see a reduction in financing. Has the Canadian Labour Congress looked internationally at other jurisdictions that have implemented similar types of legislation, and is there data to suggest that banks and other lenders did, in fact, reduce lending to the affected companies?
Ms. Bruske: We have done that work. I’m going to ask Mr. Roberts, who is in the audience there, to provide you with a more fulsome answer to that detailed question.
Chris Roberts, National Director, Social and Economic Policy, Canadian Labour Congress: Other jurisdictions have pension insurance funds, like Ontario’s Pension Benefits Guarantee Fund — or PBGF — and the United States being a good example. There are jurisdictions that have different alternative methods of backstopping pensions.
In Canada, we have tried to get a conversation going on precisely that, but to no avail. We have looked at the order of priorities in insolvency statutes as the best way to address the absence of any national pension insurance fund in Canada. We think this is not at all going to prevent restructuring. It’s simply going to make it more difficult to restructure on the backs of pensioners and workers in every instance.
Senator Smith: I guess it’s the same for the Canadian Labour Congress. What I’m getting at is whether the big banks are bluffing, for lack of a better word. MP Gladu, when asked about this concern, noted that the banks have expressed similar statements in 2005 when salaries were moved up in priority in the Bankruptcy and Insolvency Act, but that nothing materialized after the fact. Who would like to comment on this?
Mr. Roberts: Of course the banks and secured creditors have a direct interest in being at the front of the queue in every instance. We’re here to say that’s not fair, and it’s also not necessary.
When banks and other secured creditors decide whether to lend to a company, they look at a whole range of factors, such as the potential risk, the potential return and the conditions under which they would lend. It’s far too simple to say that, by changing one dimension or one factor, lending is not going to be available, period, or it’s going to be prohibitively expensive. As you say, there just isn’t evidence to that effect.
Senator Smith: So in your experience, you haven’t seen that type of reaction from the banks?
Mr. Roberts: Well, no. We don’t have this kind of legislation in place, but there are covenants attached to loans that are very different from company to company and circumstance to circumstance. We just think now is the right time, with defined-benefit plans decently funded. Lots of sponsors will be looking to de-risk their plans anyway. We think this is the moment to put in place these kinds of protections, and lending will still go on. There is a competitive market amongst lenders to provide lending of this sort to good, well-managed companies.
Senator Smith: Thanks so much.
Senator Loffreda: Thank you to the panellists for being here. To continue on employers falling on hard times, I’ve been in the financial industry for 35 years and most of those years were in commercial banking, as a lender. I can tell you that unsecured lending was never easy, especially when you’re restructuring.
Are you now asking that Canadian lenders be more open to unsecured lending? Discussions always take place, obviously, but the numbers usually speak for themselves. If you have a deficit margin and you’re looking at an employer who is in difficulty, how will that not affect his ability to restructure?
Mr. Roberts: When banks have a stake in a company that they are lending to, they obviously take an interest in the management and the financial status of that firm. They don’t simply extend the loan, as you well know, and forget about it. We would expect that secured lenders, such as banks, would take an active interest in the administration and the funded status of the plan.
That’s not a bad thing. We have advocated for many years to improve the transparency and reporting to plan members and unions, but also to ensure that plans are well managed and prudently managed. Of course, banks will expect the same thing. So this isn’t at all, in our view, an adverse consequence to the bill.
Senator Loffreda: Well, it’s nice to say that banks will take that into account, but the way it’s done, as you know, there is a formula: 75% of receivables, 50% of inventory, less your advances, less the prior claims, and this is what we will give you as a margin.
Now, when a company is in difficulty, the profits are not there. There are losses. There are concerns over the viability of these companies going forward, and now you put in the unfunded pension portion. So this is more than just discussions and talk because, like I said, I have over three decades as a lender, and I can tell you, those were difficult discussions. But more than that, I would like to hear from you what we have as unfunded pension plans. How will this affect Canadian lenders? How will this affect the economy? The talk is not just, “Yes, discussions will occur and Canadian banks are great.” Obviously, they want all their clients to thrive, especially those in difficulty, and we all have workers in mind.
I’ll end with this: If we look at Statistics Canada data, in the year 2000, 21.3% of the plans in the private sector were defined-benefit pension plans. In 2020, only 9.6% were. One, I believe it’s going to increase the difficulty to restructure. Two, will it disincentivize future employers from creating defined-benefit pension plans? They have accountants, experts and specialists who will tell them this is going to be a prior claim if it’s unfunded. When the markets are great, everything is fine. But if we have a few years of recession, it might be difficult.
Mr. Roberts: We have had for decades an insolvency regime that puts pensioners and plan members at the back of the queue. None of that has prevented defined-benefit plan sponsors from winding up their plans, converting them to defined contribution arrangements and generally getting out of the defined-benefit pension business. They have done that without any concern about a change in the priority of claims in insolvency.
We find it a little bit rich to listen to some who will testify before this committee and say that this may disincentivize sponsors from creating new defined-benefit plans in the future when we’re doing everything we can just to get them to hold on to the plans that they already have. We think there are other forces at play.
The other thing I would say is that with the rise in interest rates, defined-benefit plans are better funded now than they have been in quite a long time. In part, that is because of all the benefit-level reductions and cuts that have been visited on these plans over time. But they are, in the current moment and likely in the immediate term, in much better condition in terms of their funded status than before.
We fully expect a lot of defined-benefit plan sponsors will take advantage of this moment to de-risk their plans, annuitize plan members and the like. We actually think this is a very good moment, when defined-benefit plans are in relatively good condition, to introduce this sort of change in the hierarchy of claims, which won’t prevent restructuring. It will simply prevent restructuring in which pensioners and plan members bear all the cost. It will force a conversation where there is much fairer distribution and sharing of the costs of restructuring.
Senator Wells: Thank you for your presentation. I have a question for Ms. Bruske and Mr. Roberts.
A concern has been expressed repeatedly — this follows on the question of my colleague Senator Loffreda — about this bill that it will incentivize employers to wind up their defined-benefit pension plans. The Association of Canadian Pension Management has said that if Bill C-228 is passed, it’s a near certainty that many of the remaining defined-benefit plan sponsors in Canada will wind up their plans and that the liabilities will be annuitized or otherwise offloaded from the corporate balance sheet.
Do you see any merit to this concern? Could you elaborate on that merit?
Ms. Bruske: Absolutely. I really do not see any merit to that concern, and I’ll tell you why.
The experience that we have in the private sector, sitting across from all types of employers, big and small, who have defined-benefit plans is that at 95% of those bargaining tables, the proposal to change those plans to a defined contribution plan is tabled every single time. I don’t expect that will change, and I don’t expect that will increase or decrease as a result of this particular bill going forward.
Senator Wells: The objection tends to pit existing defined-benefit pension plan members against future defined-benefit pension plan members who argue that if the plan is wrapped up, then future employees will only have access to a defined contribution plan and not a defined-benefit plan.
If this worst-case scenario were forced on members of your union, where they would have to choose between belonging to an unsecured defined-benefit plan or a fully funded defined contribution plan, what do you think they would choose, Ms. Bruske?
Ms. Bruske: These are already real conversations happening at bargaining tables currently when employers come forward with proposals to move employee groups or future new hires to a defined contribution plan versus a defined-benefit plan. In every single instance, unions push back against that because we still believe that the best vehicle for a good retirement is a current defined-benefit plan.
When those discussions happen at bargaining tables, difficult decisions have to be made by those members in that particular sector with that particular employer, taking all issues into account, including other priorities that may be tabled at that particular round of bargaining.
We continue to believe that defined-benefit plans are the best way to protect workers to have a good retirement that they can count on after many years of hard work. We know that at those bargaining tables workers make difficult decisions, often making decisions, as my colleague Mr. Warren said, to defer some of their wages and put additional wages, rather than taking that on their cheques, into those pension plans. Making sure that those deferred wages are protected is our priority.
Senator Wells: Thank you.
Mr. Warren: We believe the defined-benefit plan is still the best for any worker or member because that gives them financial security. We see when markets shift that people can’t retire. If you’re in a defined contribution plan, you’re open to every market swing possible. Again, at bargaining tables, as Ms. Bruske said, do we face challenges around employers coming at us with defined contribution plans and we push back? Absolutely, because we believe defined-benefit plans offer security, a little protection from the marketplace volatility and are better for retirees.
Senator Wells: Thank you.
Senator Yussuff: First, let me thank all the colleagues here today — friends, of course — for being here today.
I guess this is one of the things that never gets attention because too often when it happens we don’t see the victims to tell their stories. On average — and I’m sure someone has the data to present to us — when a company has gone bankrupt — and, of course, in the current legislation workers go to the back of the line — what’s the average they will receive in terms of cuts to their pension plans when those situations happen?
Ms. Bruske: I can give you the information with regard to Sears. With those workers, 17,000 of them across Canada ended up losing 30% of their accumulated pension. In the case of Nortel, it was 50 cents on the dollar in terms of what they were able to receive from their pension plan after seven years of legal wrangling to determine what they would be entitled to.
I think my colleague Mr. Roberts may have some more specific details for you with regard to the averages.
Mr. Roberts: One of the things that you will hear from witnesses on this bill is that the data collection is very poor. The data from insolvency proceedings is essentially privately held by the big monitoring firms and is not publicly available. I think what workers and others might report is that the distributions vary dramatically between companies. In the case of a woefully underfunded plan, the cuts can be very significant. In other circumstances, they may appear to us as being relatively modest. But of course, if you’re on a fixed income and you’re waiting five, seven or nine years for a resolve and you’re getting by with 15% less monthly income, which is already modest, the consequences for individuals and households are very significant. But I think it varies.
Senator Yussuff: Mr. Warren, with regard to companies that seek bankruptcy protection to restructure, your unit had tremendous experience with all of this with Algoma and Stelco. You have mentioned a number of them here. Can you outline for us the challenge that you face when you’re in this kind of predicament, but equally the efforts and the energy that’s put in to try to make the company solvent so you can get back to reality and hopefully get them to fund the pension plan?
Mr. Warren: Yes, I can share some stuff. First of all, one of the things that we have to do as a union is look for a buyer. We spend a lot of time. We knock on a lot of doors to find a buyer. We’ve experienced a lot of international companies where they structure themselves so that when they go bankrupt or claim CCAA in Canada, as I explained in the Cliffs situation, there is no harm to the parent company.
Once we are able to find a creditor, I’m going to tell you, if the business makes sense and somebody has run it into the ground, we’ve been very successful by — capital loves an opportunity. Capital is driven to places with opportunity. With the right investor, somebody that has experience in the steel industry that wants to be in the steel industry, that understands there are ups and downs in the steel industry and is willing to make those investments — it has been a struggle.
Let me tell you, during the Hamilton situation with Stelco when they went into CCAA with U.S. Steel, there was a period of time where our pensioners were cut and their benefits were cut off. Through bargaining, participation, finding a buyer, helping that buyer get financing and by getting a collective agreement that works, we’ve been able to restore those benefits. It is a lot of work, but well worth doing.
Senator Yussuff: In the legislation there is a requirement at the federal level at least for reporting on the health of pension plans going forward. Would this information be helpful to the bargaining units in terms of knowing what’s going on with their company workplace pension?
Mr. Roberts: More information is always better. Pensions under federal jurisdiction, but also provincial jurisdiction, typically have obligations to communicate funded status or at least the position of the plans to plan members and even retirees. We think more transparency in reporting is always better. Yes, to the extent that the whole community — creditors, plan members, et cetera — knows how the plan is being managed and has more opportunities to intervene before there is trouble, the better.
[Translation]
Senator Bellemare: There has been some testimony from companies such as Algoma Steel Inc. and other organizations such as the Council on Aging, for example, who are concerned about the impact of Bill C-228 on Ontario’s defined benefit pension plans, which are covered by special provisions and are administered by the Pension Benefits Guarantee Fund.
In your view, will the bill interfere with these plans?
[English]
Mr. Roberts: I don’t think so. The PBGF will continue to provide additional support for a plan member whose sponsor enters insolvency with insufficient assets to pay out terminal obligations and the liabilities in the plan. For Ontario members, the PBGF will continue to be relevant and necessary. We wish every province and jurisdiction in Canada had that kind of backstop as well. Unfortunately, we don’t.
[Translation]
Senator Bellemare: The passage of Bill C-228 will provide protection for retirees and those currently contributing to a defined benefit pension plan.
However, in the future, if people are trying to reduce the number of defined benefit plans, and therefore trying to provide, as you rightly said, protections like those that exist in the United States and the United Kingdom, for example, do you think that that should come from provincial insurance plans, or should it come from a federal plan? Which would be more effective for the future?
[English]
Mr. Roberts: Well, we know that two in five plans in Canada are registered in Ontario. Quebec also has a significant chunk of the country’s plans. The challenge, of course, in a federation like Canada is that pension standards legislation and insurance of that sort is likely to be in provincial jurisdiction.
We’ve called on the federal government to lead a national discussion with provinces to arrive at a national pooled fund that could provide what the PBGF does in Ontario. There is a lot of resistance to that idea, as you can imagine. We simply haven’t been able to get that sort of conversation or even have an exploratory study performed. The best avenue in front of us is the one in front of you now.
Senator Bellemare: Yes, but one doesn’t preclude the other. I hope you will continue to work on that side to have protection for each province or a federal one. You will see what’s better. Thank you.
The Chair: On that point, we heard some questions raised on the constitutionality, namely, that there may be jurisdictional fights here. Some people were saying absolutely not, it’s clearly defined; others were saying it’s a problem. What’s your take, Mr. Roberts?
Mr. Roberts: I’m not a pension lawyer, but the lawyers I have spoken to feel there is no constitutional question here at all. It is a routine practice of insolvency proceedings that provincial debts that are created are assessed under federal insolvency statutes in terms of the hierarchy of claims that are set out in those acts. That is a customary characteristic of those proceedings with no constitutional grey areas or murkiness.
The Chair: Thank you for that.
Senator Marwah: Thank you to the witnesses. The question I had is a broader issue. Are there any aspects of this bill that concerned you? Mr. Warren, you mentioned amendments were made in the House that you were disappointed about. Would you elaborate on that? I heard you say that perfect is not the enemy of the good. What would be perfect, in your view?
Mr. Warren: Thanks for the question. Perfect would be if retiree benefits were engrained in legislation, not only the pension but also the retiree benefits — that is, the prescription drug coverage and some of the eyeglass protection. Benefits as a whole is one of the biggest issues. Severance and termination were also taken out of it. There were a number of things that we would have wished for, but we’re at the point where retirees and workers deserve some protection. When you see somebody on a fixed income lose 20%, 10% or 30% after years of working, that’s not the Canada that I think we are. I think we need to step up and provide this legislation as a layer of protection.
Senator Marwah: I have another public policy question. I think my colleagues Senator Loffreda and Senator Wells have alluded to it. There is no doubt that defined-benefit plans are for the benefit of workers. I think we all agree on that.
Having said that, aren’t you worried this is legislation that kills the golden goose in the sense that defined-benefit plans have been on the decline for decades and continue to drop? They now represent a small portion of pension plans out there. This change, in fact, would accelerate that decline. You’re putting in legislation to protect you that in the end harms you. Aren’t you worried about that at all?
Ms. Bruske: In my experience, most private sector employers have been pushing for an end to defined-benefit plans for many years already. That push is going to continue. At this moment in time, when we’re in a situation of high interest rates and better pension plan valuations, we’re in a better position to try to hang on to those defined-benefit plans than we have been in a long period of time. This is an ongoing struggle that unions and their members face at every single bargaining table. I don’t expect that this legislation will change that.
Mr. Warren: I want to be hopeful and think that it’s not going to stop us in mineral extraction and in all the green economy that we’re going to be challenged with. There is a lot of money in mining companies and steel and for us to hit the bargaining table and have their profits where they’re at and our ability to negotiate three collective agreements, I’m hopeful that we can change the curve and get back to defined-benefit plans. But again, I don’t think it stops the employer from hitting the table with it or for us to put it on the table as well.
Senator Ringuette: Thank you for being with us today. I got the impression at our meeting last week that we are concentrating and talking a lot about the issue of defined benefits being the big winner here. I would also venture to say that this piece of legislation also provides some protection for a defined contribution, because as of yet no one has talked to us about a deficit in defined contribution because, from my understanding, the employee contribution is directly removed from the paycheque, but there is no legal provision for the employer to put their contribution in the defined contribution plan. We have still not talked about that debt. Do you have any information that you could share with us?
The Deputy Chair: Mr. Roberts, is that your ballpark?
Mr. Roberts: Possibly. Defined-benefit plans are unique, in the sense that the sponsor enters into a covenant with respect to the benefits. There is a benefit level that the employer is required to fund, regardless of plan experience or investment returns, and so on. That is an agreement that’s struck between employees and the employer, and it’s protected in law.
A defined contribution benefit is not a funded benefit. There is not an obligation to pay a certain benefit, but there is an obligation to make certain contributions to the plan. So the status is slightly different. I know that the insolvency statutes require that deducted pension contributions that have not been remitted to the plan have a certain super priority charge, so that may cover defined contribution plans.
I really agree with your point that it is necessary to examine the protections for plan members in a variety of different plan designs, not simply defined benefit. However, defined benefit has a unique status in pensions, I think. Unions bargain defined-benefit plans on behalf of their members for good reason: It is because of the predictability and the security that it provides. I think Bill C-228 will finally put the last piece in that puzzle of ensuring benefit security for plan members.
[Translation]
Senator Gignac: I’d like to welcome the witnesses.
I had an experience with the White Birch Paper Company in Quebec when I was Minister of Economic Development, Innovation and Export Trade. At the time, I met with the company’s retirees, who had seen their pension benefits decrease by 40%.
From the outset, I can tell you that I will be voting in favour of this bill; there is no doubt about that.
I also want to mention that I too believe that a defined benefit pension plan is much better than a defined contribution pension plan for workers.
That said, I was surprised to hear, in response to Senator Wells’ question, the response of the Canadian Labour Congress representatives; they said that they would systematically refuse any request from employers to introduce a defined contribution plan for new employees.
I would like reassurance from the representatives, as I have a concern with respect to Canadian companies operating on both sides of the border; will this not introduce an additional incentive for Canadian companies to invest more in their plants in the U.S. instead of making those investments in Canada, as new employees would not have defined benefit pension plans? Can you reassure me in this regard?
[English]
Mr. Roberts: I apologize if there was some miscommunication. I don’t think I intended to suggest that —
Senator Gignac: I will repeat it in English. Basically, my concern with this one is I totally agree that the defined benefits are better than defined contribution plans. I have talked about the White Birch experience when I was Minister of Economic Development, Innovation and Export Trade.
But my concern right now, following a question that Senator Wells had mentioned, is that if companies suggest that, after the adoption of this bill at the next negotiation, “You know what? We have investments to make here, and we can create a lot of jobs. Are you open-minded that we will have two regimes?” We keep the current regime for the current employees, but the new employees will have the other regime. Otherwise, my concern will be that this investment would be made in U.S. subsidies rather than in Canada. Would you assure me?
Mr. Roberts: I will do my best. As you know, there are a whole range of considerations that shape where multinational firms invest and it couldn’t possibly be laid at the doorstep of this issue. That couldn’t be the determining factor. We very much support defined-benefit plans and try to bargain them wherever we can, as you’ve heard.
In a tight labour market, going forward, given the demographics and the competition for talent and skilled workers and the like, there is going to be more opportunities for unions to bring defined-benefit plan proposals to the bargaining table and have employers consider them. We know that workers, even young workers, prioritize and place high value on retirement security. They know about defined-benefit plans and they know the value of them. We think there is a real opportunity to continue to press and push for these plans and will continue to do so. I think the idea of two-tier arrangements where defined-benefit plans are closed to new entrants and new entrants go into an inferior plan design, I think many unions also feel that is not an avenue we want to go down. I do want to reassure you. I think there will be continuing pressure to negotiate very good benefits for all workers.
The Chair: I think the point is whether this bill would then become a disincentive. If a company is deciding whether to invest in Canada or the U.S., is this somehow going to sway them.
Ms. Bruske: At the bargaining table, where proposals are made to move new hires to a defined contribution plan as opposed to leaving them on a defined-benefit plan, there are normally many other issues that are in the mix in terms of those kinds of conversations that happen at bargaining tables, and as to why the employer may want to have savings on the pension side in order to reinvest. At that stage, it’s up to the union, the employees and employer to sit down and navigate that as best as possible in the context of what may be happening in that sector and what’s happening in our economy at that moment in time.
Senator Gignac: It’s not about saving operating costs. That’s not the point. If you have to request $100 million to the bank on the capital market or the corporate bond market, it’s probably not the same pricing if suddenly you have to factor in. We don’t talk about operating costs; we talk about the funding available for huge investments to be made. It’s a possibility that the lenders will have two scenarios regarding the cost of lending if you make that investment in Canada versus if you make the investment in the U.S. That was my point.
Senator C. Deacon: Thanks to the witnesses and my colleagues for great questions. I want to drill in a little bit more to my first question. I found the data. I was searching for it in my brain and I couldn’t find it and I found the piece of paper that had it. In Ontario, 1.5 million pensioners, or 60% of all defined-benefit pension members, are members of jointly sponsored or multi-employer pension plans that are not backstopped. The employer has no backstop obligation. The worry is that the broad wording in Bill C-228 could capture them in a situation where they are obliged and where they fall under this act. We’ve certainly heard a strong perspective from the sponsor of this bill, MP Gladu, that they fall outside of the bill in her impression.
But I really want to get clarity from you and through your perspective on your members. The intention here is to do no harm. That’s the intention. It’s to prevent harm. I have to believe that you would want to make sure harm wouldn’t come to the 60% of defined-benefit pension holders who happen to be sole contractors and small employers — very different from the single-employer pension plans where there is an employer backstop. You would want to make sure there wasn’t harm brought to them through this bill.
Mr. Roberts: The jointly sponsored pension plans, or JSPPs, are very large public sector plans which have the Ontario government, for instance, as one of the sponsors of the plan. These are plans that are very unlikely to go into insolvency proceedings. To the extent that public sector defined-benefit plans are likely to avail themselves of insolvency proceedings, it would be like the single employer instances like Laurentian University that would need to be addressed. There we would argue that it’s precisely that instance where there needs to be protection for plan members and pensioners. JSPPs are unlikely to get into the kind of insolvency situation that we’re discussing here.
The same goes with target plans — multi-employer plans — which by law can address an unfunded liability by benefit level reductions. In large part, they’re able to do that because they are jointly governed. That is, unions have a seat and a voice at the table and these are often collectively bargained plans as well. So that provides an additional level of protection when the plan is in difficulty. There can be a negotiated workout.
The problem we’ve got here is that with single-employer defined-benefit plans in the private sector, they’re typically not jointly governed. The unions don’t have a seat at the table in terms of being a plan administrator, so they don’t call the shots. They don’t have a direct role ahead of time in avoiding insolvency. Then when they get into insolvency, of course, they form the back of the queue as unsecured debt.
Senator C. Deacon: Just for clarity on that, you do think that these fall outside of this obligation from your standpoint?
Mr. Roberts: For the reasons I’ve articulated.
Senator C. Deacon: Thank you.
Senator Loffreda: I want to continue with my previous question. Always with workers in mind, I repeat the deferred benefit pension plans in the private sector went from 21.3% in 2000 to 9.6% in 2020. We talked about corporations restructuring and we talked about insolvency in detail. Let me discuss ongoing growing companies, undercapitalized companies as they’re growing; this prior claim now needs to be calculated in their margining, and the variability of the value of the unfunded pension liability will change the risk profile of these companies. So we’re all for workers, but are you not concerned that it will impede these companies from growing or disincentivize the defined-benefit pension plans altogether going forward?
The Chair: Let’s have a very quick answer. Thank you.
Mr. Roberts: Defined-benefit plans may be sponsored by very profitable, attractive companies for other reasons, and they may be very well-managed plans that are in surplus. We can’t assume there are deficits in defined-benefit plans going into the future. The same goes for plans that are growing. There are a whole series of reasons why lenders would look at a company and they currently do lend significantly to defined-benefit sponsors in the private sector in Canada. I think we should take lessons from that.
The Chair: Thank you very much. I want to thank all of our witnesses here today: Bea Bruske, Chris Roberts, Marty Warren and Meg Gingrich. Thank you for being with us and answering our questions.
We have our second panel joining us today for comments and questions on Bill C-228. We welcome Michael MacIsaac, who is President of the Congress of Union Retirees of Canada; and representing Unifor, we have Les MacDonald, Chair of the Retired Workers Council Executive; and with us virtually is Sandeep Kakan, Director, Pensions and Benefits department at Unifor. Welcome.
We will begin with an opening statement from Mr. MacIsaac, to be followed by a statement from Mr. MacDonald.
Michael MacIsaac, President, Congress of Union Retirees of Canada: Thank you. As mentioned, I’m the recently elected President of the Congress of Union Retirees of Canada. Thank you for this opportunity to speak to the committee on this critical legislation, Bill C-228.
First, let me briefly describe our organization. The Congress of Union Retirees of Canada is a national organization founded in 1993. We are celebrating 30 years since our founding convention. We speak on behalf of 500,000 union retirees. We are an affiliated body of hundreds of local union retiree chapters across the country, and we also have an individual membership base. Our structure includes a small executive governing body, and we have provincial federations in every province, which together make up a council that carries out our policies and our programs. We support area councils in many communities, in every nook and cranny of the country, and they get together on a regular basis for social and other activities.
The entire structure is run by union retirees. We don’t have paid staff. Our greatest asset is the skills and experiences of our members, which they have gained over their lifetime of work and activism. Our organization looks forward to this bill passing and moving quickly through the Senate to become law.
In prepping for my presentation today, I couldn’t help but think about the Sears and Nortel workers and others whom I’ve met throughout my career. I’m sure many of you have heard the stories over the years as well: middle-aged workers who not only lost their careers when their employers filed for bankruptcy but lost their pensions as well — pensions they earned and paid for.
I met a worker at a charity dinner once who described two occasions in his working life where his pension savings were negatively impacted by the employer’s bankruptcy and closure. At the time, he was in his early 50s and hoping he could still have enough time to make the money necessary to enjoy retirement. Thousands of workers over many decades have told of similar situations. Their stories evoke feelings of concern and sometimes anger at the system that doesn’t stand up and protect workers’ pensions and savings.
The author of the bill has talked about her motivation for tabling this private member’s bill. She describes a neighbour who lost her pension savings, stating it was unfair and shouldn’t be allowed to happen. You will hear from supporters and opponents of this legislation. The supporters have evidence and stories about families and real people who are victims of an unfair system. They have testified before numerous committees both in the House of Commons and here in the Senate. They have held rallies, written letters and published opinion pieces detailing the impact their employers’ bankruptcies have had on their lives. They watched secured creditors get paid first while they fell to the bottom of the list. Time after time, more stories and more victims are brought forward, and every time, they lose.
Recently, I was recognized by my union, the International Association of Machinists and Aerospace Workers, for 50 years of membership — I don’t look that old. Three weeks into my first job as a machinist, I participated in an 11-week strike. I was assigned a picket schedule and a location. It was a new experience for me. I was walking with people who I was meeting for the first time. We walked the line for wages, health and safety, and pensions.
I was young at the time and wasn’t really thinking about retirement, but spending time walking and talking every day, I learned that pensions are essential and that they must be protected. I have kept that lesson with me my entire life. I remember all the people who talked about it and were getting to the age where they were thinking about it.
Pensions are deferred wages. Those workers who walked that line understood it was wages that were being deferred by that employer — compensation earned during working years but paid out during retirement. By offering a pension plan, employers are deferring that portion of an employee’s compensation to a later time in exchange for the promise of a reliable source of retirement income. Their deferred wages must be protected in the event of bankruptcy. Those wages are owed to those workers for their years of service. Pension plans are a critical component of the social safety net, and protecting them makes good economic sense.
We all know that sometimes legislation moves quickly and other times there seem to be delays. Similar bills have been in this place previously but have died before they became law. With a minority Parliament, we can’t take any risks. We have decades of evidence in the form of testimony and reviews, and we have spent decades trying to end this injustice. You have before you a good piece of legislation that will finally recognize workers’ pensions as a priority in the event of bankruptcy.
I have to repeat what has been said earlier here: The House Standing Committee on Finance — FINA — voted 11-0 on this bill. They discussed it and reviewed it. At third reading, the House of Commons voted 318 to 0. So on behalf of the Congress of Union Retirees, I ask that you pass this bill quickly so that we may finally have some justice.
The Chair: Thank you very much, Mr. MacIsaac.
Les MacDonald, Chair of the Retired Workers Council Executive, Unifor: Thank you, Madam Chair and esteemed senators, for your invitation to this panel and on the important bill that is near and dear to the hearts of our Unifor workers, our retiree chapters and the broader labour organization.
I am Unifor’s national executive board representative for retirees. I am here on behalf of Unifor, which represents 315,000 active members and tens of thousands more retirees living in all regions across Canada and working in every major sector of the economy.
As a private-sector union, we advocate for all working people and carry out the work to bargain collective agreements that lead to fair working conditions, wages and good pensions for thousands of workers. In bargaining, pensions are a large portion of monetary conversations. Members end up making immediate sacrifices to their present wages in order to earn long-term, guaranteed retirement benefits.
However, the current BIA — Bankruptcy and Insolvency Act — and CCAA — the Companies’ Creditors Arrangement Act — statutes do not offer any protections that can provide peace of mind at retirement for a pension that is being drawn, particularly from a single-employer defined-benefit pension plan. The statutes enable and encourage financial engineering behind closed boardrooms, where the fate of an average worker gets decided long before the company declares bankruptcy or enters restructuring.
Nortel Networks, a Unifor-represented employer, reported 6,225 retirees with an average annual pension of $12,430 by year-end 2006. The corporate entity had $7.3 billion U.S. in escrow during bankruptcy, and the Nortel pension fund wind-up liability deficit was $1.34 billion. If the laws offered super priority to the pension fund back in 2017 when the final settlement was announced, the entire pension wind-up deficit could easily have been extinguished. Nevertheless, Nortel retirees were thrown a deal to accept 40 cents on the dollar, and with the application of the $287 million from Ontario Pension Benefits Guarantee Fund, or PBGF, their pensions improved to only 60 cents on the dollar.
White Birch Paper, a Unifor-represented employer, had a pension deficit of $250 million in the company-sponsored defined-benefit plan by 2010; however, the plan sponsor negotiated a pension plan wind-up resulting in a haircut of up to 50% to individual pensions as the corporate entity entered restructuring.
Eddie Lampert, Sears Canada’s largest shareholder, landlord and supplier doled out $6 billion to buy back shares and dividends from 2005 onwards to profit himself, yet the company continued to carry a $260-million pension deficit that would have been extinguished easily had Bill C-228 been the law in 2017. By the end of December 2015, Sears reported 14,015 retirees with an average annual lifetime pension of only $5,141 Canadian — literally $428 per month. While Unifor wasted no effort in representing our Sears retirees in insolvency, they were forced to settle with a 30% cut to these already low benefits.
These events continue to happen unchecked because the current statutes do not prioritize the commitments made to Canadian workers. Retirees earn their pensions during their working career. These deferred wages must especially be guaranteed.
Unifor is in full support of the current form of Bill C-228 that offers priority to payments required to extinguish pension deficits ahead of secured creditors and banks. We are extremely pleased that the bill has passed unanimously with multi-party support and look forward to our senators seeing this bill through proclamation into law.
Once again, I am grateful for the invitation to speak and happy to respond to any questions.
The Chair: Thank you very much for that. We appreciate it.
Senator C. Deacon: Thank you to you both for being here. You’re both compelling speakers, so it’s no wonder you were voted into the roles and the responsibilities that you have.
Our job is to look for unintended consequences. Our job is to look and make that sure all issues and voices are being heard in the consideration of legislation. I think you saw that in the previous panel. They were quite confident that all issues related to this bill could be addressed at the bargaining table.
I want you to reach back to those early days when you were first a union member and consider the effects of this legislation on younger workers, those who are just starting their career. Have you thought about what effects it might have on them, positively or negatively, so that we can understand that we’re not just looking at this from the perspective of retired workers? Where are they starting out at the very beginning?
Mr. MacIsaac: I use the example of the fellow I met at dinner where he had been through two processes and he had lost those processes. He moved his family from Brantford to Niagara Falls because of what happened. I’m hoping that he would be around retirement age right now. I hope he was able to get something put away for that.
When workers start out, they don’t think about retirement. I didn’t think of it, but I sure learned because of the stories I heard about people being nervous when they got to a certain age that they wouldn’t have enough money to survive. I knew why I was walking the picket line. So, I walked the picket line for those 11 weeks.
Sandeep Kakan, Director, Pensions and Benefits department, Unifor: Thank you. I want to submit to the Senate panel that not every pension plan is facing a deficit. As my esteemed and expert colleagues before me have indicated, the higher interest rates have actually created the situation of surpluses. The timing is right, in fact, to bring this bill into law.
To your question, Senator Deacon, about younger workers, I think the comment has already been made. As you are probably aware through the media, we’re actually experiencing a tight labour market. In fact, the single-employer defined-benefit pension plan, or defined-benefit pension plans in general — even MEPPs, or management employee pension plans, as was mentioned earlier, and target benefit plans and jointly sponsored pension plans — can be extremely valuable retention tools.
Senator C. Deacon: Thank you very much.
Senator Gignac: Thank you to our witnesses. As with the previous panel, I will tell you I will support the bill without an amendment, but we think about the consequences that it will have. The time that I dealt with White Birch as a minister of economic development, indeed was with your former colleague at Unifor, Renaud Gagné, whom I knew very well. He had my cellular phone number when I was minister.
Usually retirees are not around the negotiation table. There is the firm and the union — but retirees? Not necessarily. They have arbitration to make between the retirees and the current workers, possibly when you have a restructuring, because is it more cuts for retirees or cuts to wages? Basically, because in paper, for example, with AbitibiBowater, the alternative was to switch activity to the U.S. and close the Canadian plant, so it was something.
I expressed this concern to the previous panel. Is it a possibility with this kind of bill that a paper company, for example, operating on both sides of the border, will make new investments on the U.S. side? If you no longer invest in the Canadian plant, it is a recipe for closing the plant down the road. You will save retirement costs and the retirees, but you will close the plant and the workers will lose their jobs down the road. It’s not immediate, but when you have an economic downturn, that could happen. Do you have any reaction to that possible scenario?
Mr. Kakan: At this time, in tighter labour markets and such, and through industry regulations becoming much easier, there are many more solutions to situations like you are expressing, senator, specifically with the White Birch story, where after the wind-up the employer negotiated a target benefit plan. There are other retirement arrangements that are available, which doesn’t mean that the single-employer defined-benefit pension plan retirees have to endure any further suffering.
This bill actually provides protection and makes sure that the retiree is made whole, at least in our view. At a minimum, the bill provides more discretionary powers to the regulatory bodies to exercise their prudential regulations so they can intervene in cases where it is found that the corporate entity does have cash flow, and for instance, is prioritizing shareholder dividends, corporate bonuses and share buybacks while carrying pension fund deficits, as you already heard in the Sears case.
Senator Bellemare: I have a question about the effect of this bill at the negotiation table. I think the bill will pass. There is not much worry about that, but we want to understand the pros and cons around the bill.
With the bill being voted into law, what kind of incentive effect will it have at the bargaining table when you negotiate pension plans?
Mr. MacIsaac: We’re retirees; we’re not in bargaining anymore.
Mr. Kakan: There may not be a direct monetary benefit, but what it does offer is the leverage that the fear will be taken away. When members arrive at the bargaining table, many times, on many occasions, employers have dangled the situation that if you do not take this devastating cut now, take further concessions or enter into the defined contribution pension plans that were already mentioned, we will have to go into restructuring or the company will become insolvent. So that fear will be taken away, because the bill would be proclaimed into law, and any unfunded liabilities would have been taken care of. Thank you.
Senator Bellemare: When you negotiate, do you look at the financial health of the pension plan if there is a deficit or not? Do you intervene while you negotiate to promote a healthy financial stature of the pension plans? Will the bill have an effect on the way you act at the table?
Mr. Kakan: That is absolutely right. We do try and obtain the most current information we can. In many jurisdictions that is not possible. Some of the valuations are triannual. But yes, we do try to get the most current financial health of a pension plan fund as possible before we enter into bargaining.
However, as mentioned in the earlier panel, single-employer defined pension plans do not offer governance opportunities, a seat or even a voice. The most that we can get is a pension information committee, where we are able to understand what the employer’s intent or actions have been in the past. But we’re not able to dictate or even ask for a change of course or corrective action at the moment.
Senator Wells: Thank you, panel. I have a comment first about the other chamber passing it 318 to 0. We hear it all the time. Ms. Gladu, the sponsor, said, “I’ll tell them it passed 318 to 0, and that will take it over the line.” I told her not to say that. She ended up saying it, but what that tells me is that there maybe wasn’t enough scrutiny to the bill, and that something like this needs scrutiny. And I’m the sponsor in the Senate.
So I support it unamended, however, if one of my colleagues here or in the chamber came up with an amendment that I thought was a good idea, I would be happy to consider that. The fact that the other place passed it 318 to 0 doesn’t move me at all. I’ll mention that because a lot of people do bring that up.
My question is this: Critics of Bill C-228 say employers will be forced to go with the defined contribution plan in order to avoid higher borrowing costs. But in doing so, I think they ignore other defined-benefit pension options such as multi-employer pension plans.
Would you agree that the argument is not as polarized as some people make it sound, because multi-employer plans, which we are familiar with, will continue to provide an attractive and viable path forward for any employer, especially the smaller employers, who would like to offer a defined-benefit plan to their employees?
Mr. Kakan: This question has been raised previously as well in terms of the lending costs. If I may first address that, senator, with respect, I submit that while the secured creditors and bankers may have innumerable ways to measure their impact on lending costs, some of them are already built-in in terms of bad debt ratios and default risks.
The impact on a pension retiree, however, of their company going insolvent with the pension plan that was attached to that company is immeasurable, particularly when you come across the Eddie Lamperts of the industry, who deliberately decided to profit themselves and kept their pension funds deliberately underfunded.
Now, in response to the question around other solutions — and, in fact, in other situations like restructuring, as Mr. Warren from the United Steelworkers said — the trade unions do their best to arrive at restructuring decisions to come, work and collaborate with the employer in terms of finding or offering consent mechanisms — which is enshrined within the prescribed legislation — to offer solvency relief to the corporate entity, so we’re not averse to those discussions.
What we are basically trying to address is this huge, gaping hole which does not offer protection to the retiree who has worked his 30- to 40-year career to earn this pension, and who finds himself destitute and helpless just because the employer shut the doors on them. There is no advocacy for them behind the closed boardroom doors. Thank you.
Senator Wells: Thank you. Gentlemen, do you have any comment on that?
Mr. MacIsaac: On the 318 votes, I want to make a comment. I have seen it discussed for years. I have seen all arguments. I have heard them, and they have been debated and reviewed and everything. I don’t know, but it might be the first time that a private member’s bill had unanimous consent and all-party support. I don’t know, but I never heard of it before. That’s a pretty big step on this issue for a lot of people out there. They are cheering it.
Senator Wells: Thank you.
Senator Yussuff: First of all, let me thank some of my friends for being here, and more importantly for the important work that they are doing.
Mr. MacIsaac, I want to start with you. Quite often, people don’t understand the reality of life. You are here as a retiree, and you’re advocating for a bill that will have no impact on the lives and the members you represent because they are already retired. Why are you doing it?
Mr. MacIsaac: In the labour movement, I learned early that you listen and you try and find solutions. There are a lot of people out there who have a lot of problems over the years. In 50 years I have maybe talked to 300,000 people about problems. I have no degree in social work or anything but I try to find solutions. That’s what I’ve learned in the labour movement. We try and find solutions. This is a solution to a problem that has been there for 30 years. That has been a tough one.
I look at the society that we have, and we have 25% of our population either there now or going to be there. We’ve got to find a solution to help these people with these kinds of situations. That’s what the focus should be on, not who — I say the worker has to be at the top of the list. In what kind of society do we say somebody who has everything gets to the top of the list? It’s someone who needs it that goes to the top of the list. That’s where I’m at.
Senator Yussuff: How many times have you been on the Hill advocating for legislation of this form that’s before you here today?
Mr. MacIsaac: Since I first heard about the problem. I keep talking about it and educating people and moving it through the system. As a retiree that found a voluntary position now, I’m going to keep doing it, and there are lots of people with me.
Senator Yussuff: Maybe I can maybe direct a couple of questions to you. Clearly, the regulations about funding pensions are a critical part of insolvency legislation in this country. If employers are meeting their obligations under respective regulations at a provincial level, we shouldn’t have a challenge in regard to insolvency of pensions to a large extent. There are always going to be some fluctuations. Are the regulations that are currently on the books that you are aware of — and they vary across the country — adequate enough to ensure that the employers meet their obligations to fund their pension plans in a way that could avoid some of the pitfalls we’re seeing when a plan becomes totally insolvent when a company goes bankrupt?
Mr. Kakan: Thank you, Senator Yussuff, for that question. Currently, the provincial legislation lacks the capacity — there are deemed trust provisions, but the paramountcy of the federal statutes in BIA and CCAA do not offer the guarantee or the protection that needs to be extended to retirees. Because any time an employer declares bankruptcy or goes into restructuring and they happen to have a wind-up deficit, unfortunately the provincial legislation is not able to offer the protection that is required. Thank you.
Senator Yussuff: On the Ontario arrangement — and I use the Sears workers as an example — if you lived in Ontario and you were a Sears worker, you would have been in a much better position. Am I right to assume that at the end of the bankruptcy of Sears?
Mr. Kakan: You’re absolutely right, Senator Yussuff, on that one as well. There is an insurance scheme that exists, the Pension Benefits Guarantee Fund, or PBGF, which unfortunately does not exist nationwide. Yes, there is a huge demand and pressure on the PBGF itself, but I will say this much: Currently, the timing is perfect in terms of implementation of this bill because it does not invite a huge risk on the pension fund either. We have figures for the federal pension plans as well as Ontario. If you’re willing, we’re happy to share them with you. Very few pension plans are actually funded below 80%. As of 2021, we have data for that.
Senator Yussuff: Thank you.
The Chair: That would be helpful. You can send that along to the clerk.
Senator Loffreda: Thank you to our panellists for being here. These are touching stories; thank you very much. I think workers need protection, and the best protection for retirement is a defined-benefit pension plan.
We discussed deliberate underfunding and I agree the workers need to be protected. I think what is already there has to be funded and workers need to be protected. But my concern, if you heard the previous panel, is to look at the trend we’ve had in the defined-benefit pension plans from 2000 to today, going from 21.3% to 9.6% today, over the last two decades. I’m afraid that with this bill the trend may continue. Why? Just looking forward, if you look not only at insolvency and restructuring, but you look at the sales and equity of companies that are growing and are undercapitalized, the hole gets bigger. The bank kind of fills that hole as the company goes forward. I think it will be a disincentive to go to a defined-benefit pension plan knowing the consequences that now the variability of the unfunded portion has to be calculated and brought into the calculation.
It will change the risk profile. I do agree the timing with the increasing interest rates may be fine, but obtaining accurate information is also very difficult, we’ve heard. This information, if there is unfunded liability, has to be taken into consideration in the margin calculations that the banks are putting forward. The banks always want communities to thrive and they want to protect workers as much as we do.
But what I’m afraid of is, maybe in 5 or 10 years with this bill, we will not only see the plan having gone from 21.3% in 2000 to 9.6% in 2020, but maybe to 3.2% in 2030, because it will disincentivize many from getting into such a plan. You can’t put a bill together for deliberate underfunding. That’s not why bills are done. This is to protect workers. I think Senator Marwah said it well. Are we not killing the goose that lays the golden egg here?
Mr. MacIsaac: The thing is banks have done pretty well over this period of time. Over my 50 years, the banks did well from the first time they loaned me money for a car until now. They’re going to change when the legislation changes. They’ll find ways to adapt and to protect themselves and to work through the system. They’re going to be here. They’re doing well today; they’ll do well tomorrow.
Senator Loffreda: It’s not only about the banks. It’s about the employers wanting to set up defined-benefit pension plans knowing the banks will consider the prior claim.
Mr. MacIsaac: If you look at when defined-benefit plans were coming up, it was when things were good and we were able to negotiate them at the bargaining table. Now things are good too. You have cycles and ups and down. I would say if I was looking for work today, I would find a place that had a defined plan and I knew down the road I was going to get it. If that employer has that, I’m going to be there. When I was starting out, I could walk across the street and get a job anywhere down that industrial park. It’s coming back. It’s there now, and there are going to be negotiations to bring back defined-benefit plans because people are going to be looking for it. They want a guarantee.
Senator Loffreda: I hope you’re right.
Mr. MacIsaac: They want to put their money away and be able to know they will have it after, and they want to know that it’s guaranteed at a certain level too. It’s going to come back. The banks will adjust; everybody will adjust. The people who will benefit are those who are at the bottom of the list now.
Senator Loffreda: I hope you’re right.
Are there any comments from the other panellists?
Mr. Kakan: Thank you. The other piece to the whole discussion here is also the important balance that has been struck by different jurisdictions in terms of the requirements to fund a pension plan on a solvency basis. For example, Ontario and Nova Scotia have amended their regulations to fund up to only 85%. Back to your question about whether it is becoming more onerous to have a defined-benefit pension plan, I would submit to you, senator, that it has actually become easier to not only have a defined-benefit pension plan, but also to maintain it for a long term.
We all know that people in the pension and benefits industry would know very easily that if you have an open defined-benefit pension plan, it’s much better than a closed defined-benefit pension plan. Thank you.
Senator Smith: This is just a point that MP Gladu brought up when she came to see us as the sponsor of the bill. She stressed that the bill is a preventative measure and the four-year coming-into-force provision provides an opportunity for companies with problems with their pension funds to get their books in order and ensure their pension funds are fully solvent. I’m not trying to be unrealistic — and I guess we have a couple of bankers in here — but would this coming into force give companies in negative situations in terms of their funding the balance of the pensions the opportunity to get themselves organized or cleaned up so they could move forward? Or is that an unrealistic expectation?
Maybe we could have comment from you fellows and maybe Mr. Kakan will give us a thought on that.
Mr. Kakan: I think that’s the recommended approach right now. With respect to the jurisdictions, for example, in Ontario, if your pension plan is funded up to 85%, they require you to submit a valuation report every three years. Particularly if your pension plan is doing well and you’ve got a dedicated, in-house team that is managing the pension plan — they’re expert in doing this — they have no problems to worry about.
As you mentioned, senator, if you have an underfunded pension plan, you have plenty of time to actually bring your house into fiscal order. I think four years is a lot of time. Right now, the discount rates are higher and the value of the liabilities are lower, so this is the perfect time as well.
Senator Smith: Is there a measurement that shows the number of companies that are underfunded? How many of them are there? This could possibly be an opportunity for them, if they seriously looked at it, to do something positive.
Mr. Kakan: Yes, I have statistics to the end of December 31, 2021, and I’m happy to share that with the team. I’ll send it to the procedural clerk. It is for both Ontario as well as the federal jurisdiction.
Senator Smith: That would be appreciated, just so we have a sense of exactly where some of the companies are.
Mr. Kakan: Absolutely.
Senator Marwah: Mr. MacIsaac, you made a very interesting point that counteracts my concern that having this change in legislation will, in fact, accelerate the decline in defined-benefit plans. The point you made was that in a tight labour market, having defined-benefit plans that were more guaranteed in the hierarchy of a bankruptcy could really act as an incentive for employees to join the companies that have guaranteed defined-benefit plans.
Have you got any evidence on that? Have you done any research on whether that, in fact, could be an incentive? That way, employers would start offering more defined-benefit plans because they’re guaranteed, and in a tight labour market, it would attract workers as opposed to an employer who doesn’t offer a defined-benefit plan.
Mr. MacIsaac: If I use myself as an example, that’s what I would look for.
Senator Marwah: But that’s not empirical evidence.
Mr. MacIsaac: Well, it’s the start of the statistic.
Senator Marwah: Okay.
Mr. MacIsaac: The thing is that everybody looks for a workplace where they will maximize their benefits and wages during their time at that workplace. If one workplace is not giving you the benefits that another workplace is, you’re probably going to go to where the benefits are.
So I see that we’re probably going to have a turnaround. Right now, you just have to look at everybody talking about the shortages of workers. There are a lot of workers looking to see where the best place is, and they will find it. Employers are going to look at how they can attract employees.
Senator Marwah: Do you have any evidence on how the younger generation thinks about joining the labour market as opposed to others? Do they really value defined-benefit plans? I remember when I was working, people didn’t really understand defined-benefit plans. To them, it just wasn’t important.
Mr. MacIsaac: Not to say too much about myself, but I’ve raised seven children, and I think every one of them has always looked at where the best place to work is where they will have savings for when they retire. That’s from 45 years old down to 27. They have all looked at where the best place is to work to get the best opportunities for their retirement.
Senator Marwah: I would strongly encourage you to raise with employers that this could be a very important attraction for employees joining. At least when I was in the workforce, we never thought about that. Boy, that’s quite a change.
Mr. MacIsaac: We heard it in the earlier panel. The people out there bargaining today are probably discussing it at every table. Pensions are at every table all the time.
Senator Marwah: Thank you.
The Chair: Thank you very much to our witnesses and to the senators. We appreciate all your contributions and comments. I know you’ll be following up with sending us some additional information.
I am going to ask our committee members to stay. We’re going to go into a brief in camera session here, if we could. Again, thank you to our witnesses. You can take your leave. We will bring this portion of the meeting to a close and continue in camera.
(The committee continued in camera.)