THE STANDING SENATE COMMITTEE ON BANKING, COMMERCE AND THE ECONOMY
EVIDENCE
OTTAWA, Thursday, February 16, 2023
The Standing Senate Committee on Banking, Commerce and the Economy met with videoconference this day at 11:30 a.m. [ET], to examine Bill C-228, An Act to amend the Bankruptcy and Insolvency Act, the Companies’ Creditors Arrangement Act and the Pension Benefits Standards Act, 1985; and, in camera, for the consideration of a draft report.
Senator Pamela Wallin (Chair) in the chair.
[English]
The Chair: Good morning, everyone. Welcome to this meeting of the Standing Senate Committee on Banking, Commerce and the Economy. My name is Pamela Wallin, and I am the chair of this committee.
I would like to introduce the members of the committee joining us today: Senator C. Deacon, Senator Bellemare, Senator Gignac, Senator Loffreda, Senator Wells, Senator Ringuette, Senator Smith and Senator Yussuff. Senator Marshall may or may not be here.
Today we 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.
Our structure will be the following: In the first hour today, we will hear from all of the witnesses, briefly pause and go into clause by clause, deal with observations and then we will come back for a final approval.
Our witnesses today will include Jean-Daniel Breton, Chair of the Board, Canadian Association of Insolvency and Restructuring Professionals, CAIRP; and Alex Morrison, Member, Canadian Association of Insolvency and Restructuring Professionals. A little bit later to answer a question from Senator Bellemare, we will hear from Michael Moraca, Treasurer and Investor Relations Officer, Algoma Steel Inc. Following that, we will have some final remarks from Michael Powell, President, Canadian Federation of Pensioners.
We will begin with Jean-Daniel Breton and Alex Morrison. Welcome, and thank you for joining us.
Jean-Daniel Breton, Chair of the Board, Canadian Association of Insolvency and Restructuring Professionals: Thank you and good morning, distinguished members of the committee. I’m Jean-Daniel Breton, and with me today is Alex Morrison. We are appearing on behalf of the Canadian Association of Insolvency and Restructuring Professionals, also known by the acronym CAIRP.
CAIRP is a national not-for-profit organization that represents approximately 1,400 members and associates dedicated to commercial and consumer insolvency and restructuring work. CAIRP members act in a variety of roles in insolvency files in Canada, including as bankruptcy trustees, proposal trustees, receivers and court-appointed monitors. By the nature of their work, licensed insolvency trustees do not represent any specific group or constituency but rather have a responsibility to administer insolvency mandates in accordance with the law and in the best interests of all stakeholders as court officers. CAIRP’s mission includes advocating for a fair, transparent and effective insolvency and restructuring system throughout Canada.
We have prepared submissions to this committee that outline our views on Bill C-228. Today, we’d like to outline our submission and engage in a discussion with you on the points raised therein.
Before we begin, we want to stress that pension benefits is a deferred compensation due to employees for work performed, that employees and retirees are a vulnerable class of creditors, and that exploring ways to minimize the loss is commendable exercise. Unfortunately, we believe that the process contemplated in Bill C-228 will not achieve that objective and may cause additional employment losses.
We caution that the distribution of proceeds in insolvency is a zero-sum game, and other claimants will also assert that they are vulnerable and have a right to recover their debt. The legislation must reflect policies that balance the interests of each stakeholder group to fairly allocate limited resources and optimize results. We do not opine on which group is more deserving in such an exercise, but stress that a process that enhances the priorities of one stakeholder group needs to take into consideration the impact on the others. An example of such a balancing exercise can be found in the report produced by your own committee in November 2003, titled Debtors and Creditors Sharing the Burden.
I will ask my colleague, Alex Morrison, to present our submission.
Alex Morrison, Member, Canadian Association of Insolvency and Restructuring Professionals: Thank you.
I would like to first correct a potential misunderstanding regarding the nature of the debt addressed by Bill C-228. It does not address amounts that the employer or employee is required to pay to the defined benefit or defined contribution pension plan as a regular contribution. Protections already exist in the Bankruptcy and Insolvency Act and the Companies’ Creditors Arrangement Act for these.
Bill C-228 intends to extend the protection to a particular debt that relates to a market change that causes the value of the pension plan assets to decrease —
The Chair: Just a moment. I’m sorry, Mr. Morrison. We’re going to have to stop you. We don’t have interpretation right now. For your information, we all have your presentation. We have your submission. If there are a couple of points you want to make, that would be fine. Let’s just see if we can resolve the translation issue.
Mr. Morrison: Okay.
The Chair: We’re just going to have to come back and make sure that your ear pieces are working. If not, we’ll just have to proceed with Mr. Breton. We’ll just give this a moment or two.
While we try to resolve this, if anybody has specific questions for Mr. Breton, we could begin with that.
Mr. Breton: If I may, senator, the point that Alex was making is a point that is not specifically addressed in our submission. It’s something that came up in various interviews that were conducted before. We just want to clarify the nature of the debt that we’re looking at now.
The Chair: I understand. The issue is really a technical one. Do you have access yourself to present that material?
Mr. Breton: I can. We have developed this material together.
The Chair: Okay. That’s fine, then. You are familiar with it. We got his original point, but we can’t proceed with his testimony if we do not have translation. If you have the ability to do that, that would be a way to go.
Mr. Breton: Yes, I can.
The misunderstanding that we have seen is regarding the nature of the debt that is being considered by Bill C-228. Bill C-228 does not address the amounts that the employer needs to pay into a pension plan, either a defined benefit pension plan or defined contribution plan. It also does not address the amounts that the employee has to contribute to a defined benefit or a defined contribution pension plan. Those are already provided for in the BIA and the CCAA. There are already protections built in for those amounts.
Bill C-228 intends to extend the protection to a particular debt that relates to a market change that causes the value of the plan assets to decrease, the performance of the investments to be insufficient, or a change in the discount rate that is used to estimate the DB plan’s liabilities. It does not come from a failure of an employer to pay what was contracted under the plan. It comes from factors that are outside of the employer’s control that create an obligation for the employer to contribute additional amounts to ensure that the employee receives a predetermined pension amount in a DB plan. This amount changes from time to time, up or down, based on market changes.
Turning now to CAIRP’s submission, we consider that the measures contemplated in the bill are likely to be ineffective and, in fact, may lead to a deterioration in the position of workers in general for the following reasons.
One, the super-priority contemplated in Bill C-228 provides an illusion of protection without any real benefit. Our experience tells us that the assets available in a liquidation process are not sufficient to provide a significant recovery. The OSB reports that the dividends paid on files that were closed in 2021, for instance, were less than 2% of the amounts due to the creditors.
Two, the super-priority will likely cause a gradual elimination of remaining DB plans because of the challenges in raising secure debt financing.
Three, the changes contemplated in Bill C-228 are likely to affect restructuring proceedings under the insolvency legislation by having a chilling effect on interim financing necessary to explore a restructuring process or exit financing to complete the process. A decrease in restructuring activity would likely result in a loss of employment and a loss of value for the stakeholders in general. If a restructuring proceeds, we expect that the bill would likely cause pressure to wind down the pension plans rather than preserve them. We know that restructuring activity is extremely important, because if you look at the plans that got preserved and that are now still in operation, it is all in the context of enterprises that have continued and have not been liquidated.
Finally —
The Chair: Can you make a quick point? We have well exceeded the time.
Mr. Breton: Yes, it will be a very quick point.
The transitional rules that are built into the legislation as is are likely to create problems with the administration of estates. Typically, insolvency legislation changes are applied to debtors that enter an insolvency proceeding on or after a certain date. The bill contemplates a single implementation date that is set four years ahead, which means that the rules would come into effect partway through an administration, and that is very difficult to manage. It also frustrates the necessity in insolvency legislation to have fairness and transparency for everyone. The way the rules are written now, you could have a company that enters a proceeding under one set of rules and exits the proceeding under another set of rules, which is unworkable.
The Chair: Thank you very much for those remarks.
I am going to ask everyone to be as brief as they can. We have a lot of witnesses.
Senator C. Deacon: Thank you, Mr. Breton.
I think employers who are agreeing to provide a backstop in a defined benefit plan understand this risk up front, that they are taking on that obligation of making sure that the defined benefits are achieved, and market risk is part of that challenge.
Did you present these questions in the House of Commons’ examination of this bill?
Mr. Breton: We did forward a submission to the House. We don’t know if it was considered or not because we were not invited to appear in front of the House.
Senator C. Deacon: The other point you made is that this is employee-deferred compensation. We entirely agree with that. Your question was really about where they should stand as creditors.
The federal government takes a very clear position that part of the compensation that goes towards paying taxes is actually a liability of directors to pay if it’s not directed to be remitted to the Government of Canada. They have already made a pretty clear stance as it relates to order of priority of certain elements of employment income and the resulting obligations. I think that’s a political question that has been certainly addressed by the House of Commons voting on this bill unanimously. I don’t know exactly what we can do other than make the observation.
The Chair: Just to be clear, when you make a submission, it is treated as evidence. Whether or not you were called to testify is a decision of the House, but we have many presentations that we have received, and it’s considered evidence.
Senator Loffreda: Thank you to our panellists for being here.
My question is for the Canadian Association of Insolvency and Restructuring Professionals. We all believe and support the fact that workers need their protection. I support, as you do, such an exercise, but there is major concern from many, including the Insolvency Institute of Canada and yourselves, as I hear this morning, that Bill C-228 will make it more difficult for companies with defined benefit pension plans to obtain the financing needed, keep operations ongoing during a restructuring and limit its ability to maintain jobs and restructure as a viable business. Do you have any additional thoughts on these concerns? What do you feel will be the short-term and long-term consequences on our economy and such plans that are very advantageous to workers, the defined benefit pension plans?
Mr. Breton: I agree with the assessment that you have presented regarding the difficulties that would be presented if this law is adopted as is, but the way that I see things developing is that, over time, there will be pressure from the lending community. Anytime that a lender has an ability to decide whether or not to extend credit, they will take into consideration the amount of risk that is perceived with regard to the enterprise. The fact that there is a pension plan that, depending on the movements in the market or the changes in discount rates, could end up in a surplus position or a deficit position essentially overnight is something that is a risk that they can’t really quantify and predict with any great accuracy.
I would see that there is likely going to be a lot of pressure from the lending community to cause the enterprises to move away from these DB plans and certainly not to enter into any new DB plans if they can exert any kind of control over the borrower. That would cause, in my view, a likely further decrease in the plans. We have already seen that there has been an ongoing decrease in DB plans. We’re dealing with a dwindling population, but I think that this will likely accelerate that decrease in plans.
Mr. Morrison: The other risk is as a company is going through a restructuring and gets into financial difficulty and is trying to turn around the business and save it, save the jobs, save the infrastructure in local communities, it’s critical to have interim financing to buy time to allow that restructuring to occur. If we have lenders who specialize in doing that interim financing, they are going to be very reluctant to lend into a situation where there is a large potential priority claim on a defined benefit pension plan that will rank ahead of their loan. So you won’t get new participants into the capital structure to allow for buying time to restructure a business.
[Translation]
Senator Gignac: Thank you to our witnesses. My question is for Mr. Breton. As an aside, I want to say that I find it unfortunate that you were not invited to appear before the House of Commons committee to share your point of view because, in my opinion, the parliamentarians would have benefited from your expertise. I also share the concerns that you voiced at the beginning of your presentation when you said that the percentage of workers covered by a defined benefit pension plan, which dropped from 21% in 2000 to less than 10% at this time, will likely accelerate with the passage of this bill. I share the concerns of my colleague, Senator Loffreda.
When I was the Quebec Minister of Economic Development, I was involved in the restructuring of AbitibiBowater, where pension fund deficits were an important issue. Were you involved in these files and can you tell us about it? At the time of restructuring, it was very clear that compromises had to be made with the retirees and with regard to the workers’ collective agreements. The Government of Quebec was flexible in extending the period for covering the actuarial deficit to get through the 2008-09 financial crisis. Did I understand correctly that, if this bill is passed, as we believe it will be, it could make restructuring much more difficult and could cause more job losses and more plant closures or relocations to the United States?
Mr. Breton: I share your concerns in that regard. I did not work on the AbitibiBowater file, so I cannot speak to that.
We noticed that, in all of the cases we are talking about where the plan was restructured and is now still in effect, a restructuring process occurred in accordance with the Companies’ Creditors Arrangement Act, or CCAA, and operations were able to continue.
Over time, this continuity and maintenance of operations ensures market changes. The tide will turn and shares will be brought back into line so that the company has enough assets to pay pension fund debts in the future. If there are too many concerns at the beginning of the restructuring process under insolvency laws, if there are too many concerns about whether the restructuring will work, then there will not be any lenders to provide the necessary funding, undertake the restructuring process and get through the crisis. That could then lead to business shortfalls or bankruptcy or liquidation for companies that otherwise could have been restructured.
In some cases, the acceptable way to restructure a company with a significant actuarial deficit is to defer solvency payments and amortize them over a longer period to give the company some breathing room and give the pension fund time to recover.
[English]
Senator Ringuette: Mr. Breton, you said that proceedings that you enter into would have one set of rules, and with the transition, you may have to change the set of rules within the process of restructuring or closing operations. Please explain that to me, because I have always understood that the date that a certain legal process starts, it also starts with the rules and the legislation upon that date. Please clarify for me.
[Translation]
Mr. Breton: If you compare the transition rules as they are set out in this bill and the transition rules that were set out in other bills, such as those that made changes in 2005 and 2007 and came into effect in 2009, all of those changes dealt with procedures that started after a certain date. The reason is this: When the law is applied, it is applied as it stands that day. If the law completely changes that day, then there may be different rules from one company to another or even within the same administration file, which is unworkable. We therefore need to change the text so that the law strictly applies to procedures that begin in the future.
For example, if you decide to keep a four-year transition rule, then you need to state that the law, as amended, applies to any insolvency file that is dealt with four years later. We identified two major problems with the transition rules. First, a file that starts in three and a half years could start under a law and rules that exist today, but if the distribution occurs six months later, then the rules will have changed. That is rather problematic in terms of procedural transparency and predictability.
Also, the law, as it is written, must give a four-year period for the rules to take effect. That means that they would apply right away to a company that does not currently have a defined benefit pension plan but that will have one the day after the law is passed because the rules apply to companies only prospectively. I think that this problem is a bit theoretical because I do not see very many companies starting a new defined benefit pension plan after the date that this bill comes into force.
[English]
The Chair: Thank you for making that last point.
Senator Yussuff: Thank you for being here this morning.
What you have said so far is interesting. I understand you have a strong opinion, but it’s not based on any evidence. Supposedly all of these things could happen. Supposedly they also could not happen.
To be fair, in the context of history, when bankruptcy occurs, worker pensions are not fully funded as at the date of bankruptcy, and for the most part, throughout history, they have had to stand in a line and wait to see what may be left of the assets when, of course, the secure creditors have been taken care of. Certainly, if you look at the law currently from a pensioner’s perspective, they would argue that the law has been unfair in regard to how they have been treated under current bankruptcy protection.
For all the decades that I and others have been involved in this situation, I don’t think there is one particular example you can point to that has been more balanced and fair to pensioners who, of course, have had to take a significant reduction in their pension as a result of the current legislation. It would be useful for this committee to hear that. Whether it’s Sears Canada or Nortel, certainly the evidence has been very clear for pensioners in those situations. They would argue that the law certainly was not fair in regard to how the proceedings ended up treating them at the end of the bankruptcy. Maybe you can elaborate.
I do recognize that you have very strong opinions of what could happen in the future, but certainly it’s fair to say that employers and those who are negotiating defined benefit plans will be very cognizant of the fact of this change. Hopefully, they will take the necessary steps to try to do as much as they can to ensure their pension plans are fully funded as they are moving forward, recognizing market forces could change that. But maybe you want to offer some comments.
Mr. Breton: Thank you, Senator Yussuff, for this question.
Yes, I do have a very strong opinion on this draft bill, but I will disclose that I’m much closer to retirement than I would want to be. It is actually imminent, and therefore I do have very strong affinities, understanding and sympathy to retirees who suffer a decrease in their pension.
Now, the entirety of your question was based on fairness, and that is really the only thing that I’m interested in when we’re dealing with an insolvency process. I cannot define which group needs to be treated better than the other. That is a policy decision for the legislator.
I would point out that when you are dealing with fairness in the process, fairness is not a black and white thing. There are varying degrees of fairness. If you’re looking at the restructuring process, for instance — and I’ll give you an example of the White Birch file, in which I was involved — the process went on for a fairly long period of time. During this whole process, the retirees were drawing 100% of their pension until the pension plan was wound up. In effect, that creates a difference of equilibrium between various members of the pension plan. Some members who are younger end up subsidizing the pensions of the retirees who are older. Some people might consider that that is unfair.
If you’re dealing with the employee and retiree group as a whole, it is true that it is unfair that they lose money in a bankruptcy situation. Unfortunately, everybody loses money in a bankruptcy situation. We wish it were not so, but it is a fact of life. It is unfair that everybody loses money in the bankruptcy process. I cannot allocate a greater unfairness to one group or another. That is the job of the legislator to do.
When we’re dealing with the fairness issue, pension plans are definitely a deferred compensation, and so is the deferred compensation that would be done through a direct contribution pension plan. In a direct contribution pension plan, the movement of the market that causes an actuarial deficit in a defined benefit pension plan is suffered by each individual employee. If there is a drop in the market just before they retire, they have less money to retire on. That is not the bargain that they hoped for, and that is unfair.
There is such unfairness throughout the entire system. Our job is to try to make it fairer; however, unfortunately, we will never be able to make it perfectly fair for everybody.
Senator Yussuff: Let me deal with the point —
The Chair: Very quickly.
Senator Yussuff: It’s not a one-sided conversation here, but so far it has been.
Let me deal with the question that you just alluded to, namely, that it is for the legislator to decide.
For one section in this process, the legislator already made that decision. If you’re here to comment about the legislator making the decision, that’s what we are also engaged in. Ultimately, we, as the Senate, will make a decision, as the House has done. Ultimately, that will be the law that will have to govern how pension plans at the federal level, but also the provincial level, will oblige themselves of how we deal with bankruptcy.
I understand that you have a strong bias, and so do I, as a senator. But for the men and women of this country who contribute so much to the success of their company, I think it’s only fair that they have a better system than the one we currently have on the books in our legislation across this country.
Senator Woo: I would like to pick up on your point about how this bill will affect different classes of pensioners. There are those who are already retired and drawing a pension, and there are those who are still working and accumulating their pension, hoping to benefit down the road when they do retire. Is it your contention that this bill could preclude the option of saving the company, thus giving a disproportionate return to those who are already retired and therefore drawing a pension? They will get a haircut, but it will be less of a haircut because they have senior priority. But the bigger haircut will be borne by the workers, because they will not have had the chance to have the company restructured and to preserve their jobs.
Mr. Breton: Thank you for your question.
Yes, I do have a concern that if the bill affects restructuring activities, it will also affect people who presently have a defined benefit pension plan and who, if the company enters a restructuring proceeding, could get relief through an extension of time and a better timeline to pay for the deficit or let the market catch up. For those people, the opportunity to restructure might disappear. However, that is something we cannot know for sure, because there is lack of clarity as to what would happen with the implementation of this bill. But we do see a strong possibility that it could affect restructuring activity. Affecting restructuring activity would be really bad for the economy, in general, and for the retirees, in particular.
I will let Alex chime in on this issue.
Mr. Morrison: Thank you.
I think you have to look at the success stories of companies that have been able to restructure and save their pension plans, such as Algoma and Stelco and AbitibiBowater, referred to earlier. It’s critical, when these pension plans are in deficit positions, if you can save an organization to buy time to allow the pension plan to be fixed through future contributions, through market changes and so on. That’s what saves the pensioners from ultimately incurring a deficit or a reduction in their pension obligations. There are unfortunate stories with companies like Sears, where they were liquidated and pensioners incurred a shortfall. But we have to be careful that we don’t create a structure where we cannot save companies going forward, such as Abitibi, so that the pension plans can ultimately be fixed and the pensioners saved from any reduction.
Senator Wells: Thank you, Mr. Breton and Mr. Morrison.
Mr. Breton, in your opening statement you said that your job is to try to gain fairness and transparency for everyone. Make no mistake that this bill is designed to be fair to one group, and that’s the pensioners who currently, in circumstances of bankruptcy, are further down the line and may suffer the shortfall. While I understand the objectives of your group, it’s not the objective of the bill. I don’t necessarily align with that in this objective.
It’s important to remember — and this is part of the question — that there are only three simple elements to this bill: for a report to Parliament concerning the health of federally regulated pensions; to allow those who have paid for something — in this case, pensioners — not to maximize but to simply get what they paid for; and, finally, to move them up the line as people who have helped to support the company — not just in their efforts, for which they were paid, but also the credit they have paid into, in this case a pension.
This is what I wanted to ask you: It’s almost like you’re saying the sky is falling. I wrote down your quote: “There won’t be any lenders.” I think there will still be lenders. If it’s maybe a little more difficult for a company to gain the services of a bank, that may be more restrictive. Well, that will be reflected in the lender or borrower conditions. Am I seeing this incorrectly? We’re not trying to be fair to everyone; we’re trying to be fair to pensioners who have been unfairly treated in the past, and we all know the examples of that.
Mr. Breton: We can’t know for sure. It would require a crystal ball to determine whether there will be lenders that will lend or not lend. Perhaps the question would be best addressed to lenders as to how they perceive the lending market once this bill is put in place. We cannot predict whether there will or will not be.
However, we do know that if you’re dealing with a company that has financial difficulties and has a pension plan with a large deficit, it will be difficult to convince an interim lender — a DIP lender, to speak colloquially in the language that people understand — to lend money in a situation where you don’t know in advance whether the restructuring will or will not work, not knowing if those funds will be recovered.
It is the same with an exit financing. Perhaps it might be a bit easier with an exit financing because by that time, once you get to the exit financing, maybe there is a plan to deal with the deficit. So perhaps there is a way to do it.
What we can predict is that it will involve a higher degree of risk for the lenders, and once you have a higher degree of risk for the lenders, lenders tend to act very prudently, so they slow down. We cannot tell you by how much they will slow down and what the exact impact of that legislation will be, but we can see the potential problem.
Senator Wells: Any risk will be reflected in the lender borrowing marketplace. If it’s a low risk, that will be reflected; if it’s a high risk, that will also be reflected. The marketplace will take care of that.
You mentioned the crystal ball and that we don’t have one. You did say in your statement that there won’t be any lenders, and I would disagree with that. This is a simple bill that helps those who were disadvantaged in the past.
Mr. Breton: I’m not sure that I said it that bluntly, that there will not be any lenders. If I did, I apologize. I usually tend not to be so categorical on everything. Like I said, a lot of what we do has to do with a great deal of zones of grey. But to the extent that lenders can apply pressure, we can see the possibility of pressure to dispose of the DB plans and convert them into direct contribution plans, which we find unfortunate because we think that the DB plans end up with a better outcome for pensioners in general, but we see that there is a trend right now towards DC plans.
The Chair: Yes, many have made that point.
Thank you both very much. Our apologies to Mr. Morrison for having to bring you in late into the discussion. Jean-Daniel Breton, Chair of the Board, Canadian Association of Insolvency and Restructuring Professionals, and Alex Morrison, Member, Canadian Association of Insolvency and Restructuring Professionals, thank you very much for your contributions here today and for the document you forwarded to us with your concerns. Thanks for joining us.
Mr. Breton: Thank you.
Mr. Morrison: Thank you.
The Chair: We are doing something a little different here at the request of Senator Bellemare, at the last minute, so we’re hoping this works. Senator Bellemare had a couple of questions for Algoma Steel, and we have attempted to connect virtually with Michael Moraca, Treasurer and Investor Relations Officer, Algoma Steel Inc.
Senator Bellemare: I will try in English, and if I see that I’m not being quite precise, I will switch to French.
I had a conversation with you, Mr. Moraca, this morning, and you explained to us that there was a problem in Algoma Steel with this bill, but you are in favour of the bill and would like to have an exemption put on record so that companies such as yours could be exempted if there is a guaranteed plan of the pension and if, at the same time, this exemption is agreed to by the union or the employee if there is no union, and the retiree, the pensioner, of the company.
Could you explain that a bit? We won’t amend the bill — I don’t think that’s the way we will proceed — but we could put in an observation for regulation purposes. I would like you to explain this issue, if you are okay with that kind of approach.
Michael Moraca, Treasurer and Investor Relations Officer, Algoma Steel Inc.: Thank you very much for the opportunity to be here today and to speak on behalf of Algoma Steel.
Yes, the condition we’re speaking of is very pertinent to the discussion from Mr. Breton and Mr. Morrison. It came from Algoma Steel’s exit from the CCAA in 2018.
At that point in time, the Ontario legislature granted Algoma Steel certain regulatory exemptions from the Ontario Pension Benefits Act, which included the regular funding regime and what we call the deemed trust provisions of the Pension Benefits Act. Those exemptions were granted to Algoma Steel from a highly negotiated process. We gained support from Algoma Steel’s union, the USW — we have two chapters in Sault Ste. Marie — and retirees and were ultimately sanctioned by the Ontario Superior Court.
This deemed trust legislation, in essence, limits the fact of a solvency deficit priming the lenders, which is really the exemption that is most important to Algoma Steel. The priming of that solvency deficit, just to give some numbers, is about a $250 million liability today. That is only on a solvency basis. If you look at Algoma Steel from a going concern perspective, our pension plan is fully funded, meaning if we continue to make contributions to the plan and we continue to operate the plan and act as a going concern entity, the pension plan will be fully funded.
This is only the hypothetical windup situation where a solvency calculation shows that we have a $250 million shortfall in that plan, and in cases where this legislation would be put in — like Bill C-228 — it would, in essence, have us have to provide that $250 million as a reserve for any lending. We today have an asset-based loan that is about $250 million U.S. that we would not have access to if the hypothetical solvency deficit was priming that loan.
I don’t know if that answers your question, but we can certainly extend it.
The Chair: Are you satisfied, Senator Bellemare?
Senator Bellemare: Yes.
The Chair: Thank you very much. We appreciate you joining in at the last minute. I know your flights were cancelled yesterday. We appreciate that. Our thanks to Michael Moraca, Treasurer and Investor Relations Officer, Algoma Steel Inc. for putting that comment on the record.
Now we have a guest with us in person, Mr. Michael Powell, President, Canadian Federation of Pensioners. He has some overall comments on the bill. I think this is something you have been working on for quite some time. We’ll just invite you to make some comments. Thank you.
Michael Powell, President, Canadian Federation of Pensioners: Thank you for the opportunity to speak on behalf of millions of people who are often overlooked in discussions and consultations about pension protection: Canadian pensioners.
Bill C-228 protects Canadian pensioners who are the beneficiaries of private sector single-employer defined benefit plans. This kind of plan accounts for a very small fraction of all defined benefit plans in Canada.
This legislation addresses a critical unfairness in our laws. Current insolvency law does not treat pensioners fairly. Unlike creditors, pensioners cannot automatically negotiate their terms when assets are divided. They aren’t even allocated a seat at the table unless the court grants them one. That means that when the pensions are underfunded, pensioners are shortchanged.
We estimate that over 250,000 Canadian pensioners have been impacted by insolvency since 1982. This is what happened to pensioners at Nortel, Sears, White Birch, who all happened to be members of the CFP, and others, which had underfunded pensions when those companies went bankrupt.
I would like to use my time today to debunk six myths you have heard about the impact of Bill C-228.
First, some opponents argue that Bill C-228 will result in nationwide financial consequences if it’s put into law. This fearmongering is surprisingly similar to the objections raised in opposition to the Wage Earner Protection Program, which Parliament passed in 2005. Proponents of Bill C-228 cannot provide examples of Canadian companies forced into liquidation because of increased borrowing costs or the inability to raise capital due to WEPP. In fact, there is no data showing that in Canadian productivity and employment, like that of competitor nations, due to WEPP.
Second, Bill C-228 will not lead to the disappearance of private sector single-employer defined benefit pension plans. These plans are already disappearing, not only in Canada but worldwide. It is not because they are costly. It’s because they no longer are an incentive to new hires. A person must work at the same company for 30 or more years to receive the full benefit. That’s not how workers of today see their careers. A single employer plan doesn’t entice workers to come work for you.
Third, Canada’s insolvency regime is neither fair nor balanced. Pensioners are the only stakeholders who have had their rights to manage their risk taken away by current legislation. Bill C-228 and super-priority partly addresses this inequality.
Fourth, if Bill C-228 passes, companies will not wind up their pension because they can’t afford to fully fund them. That’s false. To wind up a pension, it must first be fully funded, and all obligation to retirees and active members of that plan must be met. If the plan is fully funded, companies could choose to de-risk the pension to reduce or eliminate any risk to the lenders.
Fifth, C-228 does not infringe on provincial jurisdiction. Insolvency legislation has always enjoyed paramountcy over pension legislation. If we have time, I can talk about Indalex. Bill C-228 does not compel any pension jurisdiction to make any changes.
Finally, and most importantly, there are no viable alternatives to super-priority as conferred under C-228. MP Pat Martin first introduced super-priority as a solution in 2004. In 19 years, there has been no credible alternative super-priority proposed. All alternatives proposed by those opposed to pension protection, and you have seen them, are based on unilaterally transferring risk from companies that knowingly and willingly have accepted that risk to the individual plan members, essentially increasing the risk to the future financial well-being of seniors without their informed consent. That’s the core of the definition of elder financial abuse. That should never be the foundational element of pension policy.
We have had 19 years with no credible alternatives. For 19 years, Canadian legislators have taken no action, leaving vulnerable Canadian seniors as acceptable collateral damage in insolvency. You have the opportunity to change this. CFP encourages this committee to act decisively and refer C-228 to the Senate with no amendments for swift passage.
Thank you. If there is time, I will take any questions.
The Chair: Thank you very much for your comments. We will have a couple of very brief questions.
Senator Loffreda: Thank you for being here.
How often do pension plan members see their pensions being reduced as a result of the insolvency of their current or former employers? On average, what portion of their unfunded pension liabilities is recovered or have been recovered through insolvency proceedings? Last, what percentage or portion of their pension have they lost, based on your experiences?
Mr. Powell: For one thing, there is a dearth of good, granular data about seniors in general and pensions in particular. It just simply isn’t tracked.
What we have seen in my organization is that the loss tends to be between 20% and 40% as a loss. I have never heard of an insolvency with a defined benefit plan where people didn’t lose. There may have been some, but again, there is no data.
I’m sorry, but I forgot your third question.
Senator Loffreda: Through insolvency proceedings, what percentage or portion or pension has been lost. You answered that. What portion is recovered if recovered? You have answered that portion. And how often do you see it?
Mr. Powell: It’s not that often, partially because there are very few plans left that are single-employer defined benefit plans. They have been disappearing for 20 years. That rate of disappearance is increasing despite the fact that the groups here that have been arguing against Bill C-228 have lobbied very effectively to eliminate or reduce solvency funding to reduce the cost of pensions using the argument, those jurisdictions, that if you reduce the cost, you will preserve the plans. That’s turned out to be false. They have reduced the costs, saved companies billions of dollars, and the plans are disappearing at a faster rate now than they did before. It’s not a cost issue, getting rid of the plans. The opportunity is there, and again, single-employer plans don’t entice new workers. It’s not an attraction. Today, my kids they don’t see themselves working for the same company for 30 years. I worked for GM for 34 years. That doesn’t happen often anymore.
Senator Loffreda: Thank you.
The Chair: I think that’s an excellent point. We’re all seeing it in our lives.
Senator Yussuff: I won’t take a lot of your time. We want to get on with our work in terms of your recommendation.
More importantly, I know the significant passion that you and your members have put into this bill. I really want to thank you, because I know that you see this is a moment in history where we can do something to try to deal with an issue that you have been struggling with. As a former GM employee myself, I know very much what you’re talking about. So we have something in common. But thank you so much for taking the time. Thank you for your advocacy and thank you for the work you have done, of course, in the other place to try to help shepherd this along.
Senator C. Deacon: On behalf of the committee, Mr. Powell, thank you for your long-time effort to help others. There is no question that you have had the interests of a lot of folks who were not at the table at heart, and you want to get them to the table where they can get an equitable solution. Thank you for your work.
The Chair: Thank you very much, Mr. Powell, for being with us today, the President of the Canadian Federation of Pensioners.
We are going to pause briefly and then begin our clause-by-clause. Thank you.
(The committee suspended.)
We are back in public discussion. What will follow now is we will do the clause-by-clause. We will, at the end of that process, go in camera for discussion of observations, because I know people have language. Once those are agreed to, then we will return to open session.
I’ll just read through the notes here. We are proceeding to clause-by-clause consideration 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.
If any senator is not clear where we are in the process, please ask. I want to ensure we all are on the same page. If a senator is opposed to an entire clause, I would remind you that, in committee, the proper process is to vote against the clause as standing as part of the bill.
It would be useful for this process if a senator moving an amendment could identify to the committee other clauses in this bill where the amendment would have an effect.
Finally, I would like to remind senators that if there is any uncertainty as to the result of a voice vote or show of hands, the most effective route is to request a roll call vote, which provides unambiguous results. Senators are aware that any tied vote negates the motion in question.
Are there any questions there at all? Standard procedure. Okay. Thank you.
Senators, is it agreed that the committee proceed to clause-by-clause consideration 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?
Hon. Senators: Agreed.
The Chair: Shall the title stand postponed?
Hon. Senators: Agreed.
The Chair: Agreed. Shall clause 1, which contains the short title, stand postponed?
Hon. Senators: Agreed.
The Chair: All right. Shall clause 2 carry?
Hon. Senators: Agreed.
The Chair: Agreed. Shall clause 3 carry?
Hon. Senators: Agreed.
The Chair: Shall clause 4 carry?
Hon. Senators: Agreed.
The Chair: Shall clause 5 carry?
Hon. Senators: Agreed.
The Chair: Shall clause 6 carry?
Hon. Senators: Agreed.
The Chair: Shall clause 7 Carry?
Hon. Senators: Agreed.
The Chair: Shall clause 1, which contains the short title, carry?
Hon. Senators: Agreed.
The Chair: Shall the title carry?
Hon. Senators: Agreed.
The Chair: Shall the bill unamended carry?
Hon. Senators: Agreed.
The Chair: We will now proceed in camera to continue our discussion on possible observations.
(The committee continued in camera.)