Proceedings of the Standing Senate Committee on Banking, Trade and
Issue 3 - Evidence - November 4 sitting
OTTAWA, Tuesday, November 4, 1997
The Standing Senate Committee on Banking, Trade and Commerce, to which was
referred Bill S-3, to amend the Pension Benefits Standards Act, 1985 and the
Office of the Superintendent of Financial Institutions Act, met this day at
9:30 a.m. to give consideration to the bill.
Senator Michael Kirby (Chairman) in the Chair.
The Chairman: Honourable senators, before we begin, let me talk for a second
about the process today. Mr. Le Pan and his officials from OSFI have agreed to
respond to the comments made by senators and by the two witnesses from the
Multi-employers Benefit Plan Council of Canada and the International
Association of Machinists and Aerospace Workers, and I would ask them to remain
as witnesses when we talk about potential amendments.
First, let me tell senators what has transpired since last week. Our staff,
consisting of Gerry Goldstein, who is away this week, and June Dewetering, who
has been handling the issue, have been working with officials from OSFI to
develop amendments to respond to all of the issues. They have agreed on a set
of amendments that meet the concerns raised at the committee and that are also
acceptable to OSFI. Those amendments have also been reviewed by the Department
of Justice and are acceptable to them. The amendments themselves were actually
drafted by the law clerk of the Senate. You have received a copy those
amendments, and we will deal with them in a few minutes.
First, I would suggest that Mr. Le Pan respond to the various points that were
made. We should then go, one by one, through each of the six amendments that
are before us to ensure that they successfully address the issues. If we are in
agreement, we can then finish with the bill as amended, the amendments being
the set of six amendments here, and approve the bill as amended.
Incidentally, because the drafting was still taking place yesterday, I do not
have a formal report, but, if we approve the bill as amended, then tomorrow I
will have an actual report that incorporates the amendments.
That is the process that I should like to follow. If that is acceptable to
everyone, I would ask Mr. Le Pan to take us through the overall response. We
will then address the specific issues that were raised in the amendments.
Senator Angus: Will there be an opportunity to ask some general questions?
The Chairman: Yes, before we move into the details of the amendments. If there
are other issues that we want to raise, we will do that before we move into the
Mr. Nick Le Pan, Deputy Superintendent, Operations Sector, Office of the
Superintendent of Financial Institutions: With me today from OSFI are Ms Patty
Evanoff, Director of Policy Initiatives and Communications, who has been
overseeing this process, and Ms Carol Taraschuk, Legal Counsel from the
Department of Justice, who has been part of the team working on this bill in
great detail and has a history of involvement from a legal perspective in our
pension plan supervisory matters.
I should like to cover broadly three or four areas and then take questions,
because there may be some points that were raised in testimony that I will not
address in my initial remarks.
First, the committee has asked that we provide information on regulations and
guidelines. Since I was last here we have provided to the committee a copy of
our guide to intervention and the draft regulation vis-à-vis surplus.
Within days you can expect to receive a draft of our guideline on disclosure,
and our guideline on governance should be available in draft form before
Christmas. I have written to the committee formally to indicate that we will be
providing those guidelines as they become available. We would be more than
happy to come back and talk about them. They will be subject to consultation
with various stakeholders and we will, of course, be happy to accept views from
Senator Angus: Since Mr. Le Pan has said that he would be willing to come back
to discuss the governance guidelines, perhaps we should have this letter dated
November 4 made a formal part of these proceedings. Perhaps he will discuss
other guidelines as well.
Did you say that there were other documents produced to us since last Tuesday?
Mr. Le Pan: I believe so.
Senator Angus: I have not seen those. There were two or three things you
referred to at the outset of your remarks.
Mr. Le Pan: There is a guide to intervention which is now in place. It tracks
the guide to our intervention for other regulated financial institutions. It
gives some sense of when institutions move from being no problem to being a
minimal problem, and to next steps and what we do. It is just information about
how we operate, if you will. It is out in the public domain and it parallels
what we did 18 months to two years ago for other financial institutions. There
will be some other regulations in draft form that will be coming to the
committee at large as soon as they are available.
Mr. Chairman, I should like to respond in general on the amendments and we can
come back to them in detail later. Several areas were touched on in the
committee's questions last week. We have worked with staff on where we think
amendments would be appropriate and I should like to indicate those areas
broadly, and then get into the details when we go through the amendments in a
First, a general point was raised about the need to clean up language around the
issue of whether employers were entitled to surplus if they used the
arbitration procedure; there was a view that we ought to use different language
there. We have done that to distinguish between what might be called an
entitlement that already exists by virtue of the plan agreement versus a claim
that may be established through an arbitration procedure.
We also think it is totally appropriate that we make clear that the
superintendent should not have a view on the desirability of an employer's
claim purely because of a view about what is the appropriate division of
surplus between the parties; that is not the superintendent's purview. The
superintendent's purview is, as I said earlier, solvency issues or procedural
issues -- in other words, making sure that the process has been adequately
followed, that disclosure has been made to all people, and so forth. We are
prepared to support an amendment that makes it clearer that the superintendent
is not going to withhold his approval because of a view about the desirability
of the employer claim from a fairness or equity point of view.
Third, there was considerable discussion about the situation of a bankruptcy and
the need to have an expedited system so that we avoid what has happened in some
cases, where, for example, litigation about division of surplus has gone on for
The Chairman: That is the point Senator Kelleher raised.
Mr. Le Pan: We agree that that would be desirable and there will be amendments
before the committee soon on that point.
I will cover a couple of other questions that were raised in the committee last
week and then I will come back to points raised by other witnesses.
In the committee last week a question was also raised about the use of group
insurance arrangements to offset benefits under pension plans to surviving
spouses, which is part of section 26(3) of the act. This is not something that
this bill would change, but a question was raised about how this works. First,
I can confirm that this offset only applies to the extent that the employer has
paid the premiums for the group life insurance benefits. Then employers can use
those benefits as a full or partial offset for the requirement to ensure that a
minimum pension is provided to surviving spouses.
We have checked the legislative history on this. This was something that was
agreed to, when the PBSA 1985 was passed, to allow employers to use benefits
that they were paying for in another form to count against requirements under
the PBSA in order to keep the costs of pension plans reasonable. However, it
only applies to the employer-pay portion and, to the extent that that has
happened and the benefit is there, it seems to me reasonable that that be
allowed to count as a benefit going to a surviving spouse.
The Chairman: I want to ensure that I understand what you are saying. My
understanding from what was presented to us by the spokesperson for the
Association of Machinists and Aerospace Workers was incorrect. It was presented
to us as a benefit for life insurance that employees have paid for and a
benefit for pension that they have paid for and, if the individual died, the
life insurance benefit was going to be used essentially to pay part of the
survivor's portion of the pension plan.
You are saying that that is incorrect, that this section of the act, which is
not new in any event, deals with a case where the employer has, in effect,
decided to buy a life insurance plan as a means of ultimately paying the
survivor's benefits and that the employer has, in a sense, paid for the plan
fully, that it has not been paid for by the employee, and the employer ought to
be entitled to pay the survivor's benefits in any way he wishes to, provided
that it is his money he is using. That is essentially the case?
Mr. Le Pan: That is correct, and the statute specifically requires that it be
the portion that can reasonably be considered to be the employer-paid premium.
If I may, I will shift to some of the points that were raised later last week by
two of the other witnesses who were before the committee. As I read it, there
were two main points and some subsidiary points. One of the main points was
around the proposed new section of the PBSA that would allow the superintendent
to require the calling of an annual meeting. There were concerns that this could
be unduly costly.
Certainly we will take cost into account very seriously before we require a
meeting to be held. We do not intend to use this provision frivolously. Also,
the provision does not stipulate the form of the meeting and we anticipate that
using electronic communications would be permissible. We intend to use this
authority in extraordinary circumstances.
We have thought about whether it is possible to write into the statute "to
be used only in an extraordinary circumstance," but quite frankly I do not
know what that really does.
We are very cognizant of the points that were raised. They were raised to us
during the consultation process on the bill. You have our commitment that we do
not intend to be at all frivolous in our requirement of this. On the other
hand, we believe that it is desirable, because we have encountered
circumstances, particularly when governance of plans was broadly not where we
would like it, where the efforts made to explain to members what was happening
and why were not adequate. Therefore, we believe that it is desirable to have
this authority, albeit to used it sparingly.
The Chairman: The authority is "may" and not "shall"?
Mr. Le Pan: That is correct.
The Chairman: It is at OSFI's discretion and not something you must do.
Secondly, you would use that discretion sensibly. The example the aerospace
workers gave us was of people scattered from St. John's, Newfoundland, to
Victoria. In such a case it is not practical to call a meeting.
Mr. Le Pan: Yes.
The second major area that received some discussion was an issue we talked about
last Tuesday. It concerns the new requirement in this bill that benefit
improvements not occur where the plan has a solvency deficiency. I understand
some of the concerns that were raised in that this provision may hamper
flexibility. On the other hand, I believe that our primary responsibility has to
be to protect current and former members of plans and people who are retirees
and so forth. I believe that as a result, if a plan has a solvency deficiency,
the priority ought to be to deal with that deficiency rather than to improve
plan benefits and make that deficiency worse. Fundamentally, that fits in with
the proposed safety and soundness mandate for our organization in this bill
and, indeed, what it is reasonable for pensioners and prospective retirees to
There is some degree of flexibility as to how this provision will work in the
legislation. There is reference to regulations which would set out the kind of
solvency thresholds that we have in mind. We anticipate that any solvency
thresholds to trigger this provision will be scaled in over a significant
number of years. Our current suggestion, which will be out in draft form for
consultation, will be that we would start with, for example, an 80 per cent
solvency ratio. With regard to a plan that is down 20 per cent on a solvency
basis, it would be scaled up to 100 per cent or 105 per cent over a period of 15
years and prorated, for example, so that there would be a significant period of
transition and phase-in. In that way, existing plans, collective agreements and
ways of operating would not be adversely affected.
There was also a concern about people not really knowing what the situation is.
There is a requirement that plans with a solvency deficiency must file an
annual actuarial report. Therefore, it should not be the case that people do
not know the situation they are in. Indeed, if a plan is in that position, the
need to have that kind of valuation information regularly and to provide an
indication to members as to how one is getting out of that situation is highly
My main points are, then: First, we think this measure is very important.
Second, there is some reasonable degree of flexibility in the provision and the
transitional phase-in. Third, we are prepared to consult on the details of how
this is phased in, which will be part of the regulations that will be provided
in draft form to the committee. We would be happy to come back and have further
discussion about that with this committee.
There were several other minor comments raised by one of the other witnesses who
appeared on this bill. I will just mention a few of those in passing, and I can
come back to any on which members would particularly like to focus. For
example, there were concerns about possible disclosure requirements being too
costly. Again, there is very little in this bill on disclosure requirements that
are required formally. Much more of it will be contained in a guideline, which
will have flexibility in it and about which we will consult. Certainly, the
requirement that people be told when there is a solvency deficiency and that
there be a plan as to how that solvency deficiency is to be rectified is the
absolute minimum that people who have their money tied up in these plans ought
There were a couple of other comments about the requirement that custodians
notify us when adequate funds have not been remitted into plans. We have
reviewed the testimony of last week and looked at that provision. If members
wish, I can go into this matter in more detail, but I am satisfied that a
number of the technical comments that were raised about the practicality of this
are already accommodated in the bill that is before you. For example, it does
not have minimum requirements as to when this notification has to occur. Those
kinds of things have been addressed.
Broadly, that is what I would like to say at this point, Mr. Chairman. However,
I can respond to any further questions you or members of the committee may
Senator Angus: First, let me say that I am sorry I could not be here last
Tuesday. However, I do have a few thoughts that I would like to explore with
you. As I looked through the transcript, although perhaps not as carefully as I
should have, it seemed to me that you did not focus very much on the safety and
soundness issues, which, to me at least, were the main focus in the government's
original announcement about this legislation. I do not disagree with the focus
that was placed last Tuesday on the surplus issue, because I think that that is
important, but could you explain a little more about the state of some of these
1,100 private plans? We have heard that many of them are in trouble. Do you
have any specific data in that regard?
Mr. Le Pan: Certainly, it would be wrong to say that many of them are in
trouble. Included in the 1,100 plans are everything from very small, single
member plans to very large plans for widespread organizations, such as Crown
corporations, et cetera. Of the 1,100 some 350 are plans for native peoples,
which were set up under the Band Employee Benefits Program which is run by the
Department of Indian Affairs and Northern Development.
Senator Angus: Are they included in the 1,100?
Mr. Le Pan: Yes. Currently, there is some lag in plans providing actuarial
information on a current basis. The normal requirement for a plan that is not
in a solvency deficiency situation is to have an actuarial valuation every
three years. There is some degree of slack, if you will, in standards of
valuation. They are an art and not a science. Work is going on to enhance
standards for valuation, including work with the Canadian Institute of
Actuaries. With that caveat, however, at any one period of time there is a
relatively small number of plans that actually have a deficiency. When I say "relatively
small number", I may not be talking about three or four, but it is not 100.
A number of those will be technical deficiencies involving very small amounts.
The number of plans that have had serious enough difficulties that they have had
either significantly to restructure contributions or benefits is much smaller.
However, that situation is different from what it was five, eight or ten years
ago. If I had been here five, eight or ten years ago I would not have been
talking about the possibility of plans at all having to restructure their
benefits or terminate for safety and soundness reasons. That would not have
been part of the focus, if you will.
Senator Angus: Why not?
Mr. Le Pan: As I indicated before, essentially, we have a regime in which plans
are not required on a current basis to have a margin of assets over their
liabilities, as is the case for financial institutions. Plans under the rules
federally, and plans under similar rules provincially, are allowed to run with a
deficiency. If this were not the case for defined benefit plans, it would be
much less attractive to operate those kinds of plans.
The implication is that the validity of the promises and the ability to deliver
on them depends on the willingness of some combination of employers and
employees to put the money in over a time period to ensure that the promises
are met. With the best of intentions, sometimes that does not work out.
Industries restructure. Investment returns turn out to be not what people
thought. People have expected benefits that may have been legally discretionary
under the plan, and yet they have been granted sufficiently often that people
have come to expect that they will be there even though they are not
necessarily required to be there all the time.
As a result, when plans run into difficulty for one reason or another, they must
make some difficult choices about whether they want to put more money in or
whether they want to restructure the benefits. Those are difficult choices. As
I say, that is a handful of plans at the moment. I do not believe we have a
looming crisis of some form or other, but we are in a world in which those kinds
of things can happen.
In that kind of environment, we believed, and the government believed, that it
was not sufficient to have a statute that contained only the bare minimum of
supervisory tools, thus requiring that the superintendent spend a significant
amount of time worrying about amendments to plans that might not have any
relevance from a safety and soundness point of view. We believed that we needed
to focus more on safety and soundness matters, that we needed more tools to be
able to push them, prod them, cajole them, or whatever, just as we do with the
plans of financial institutions in order to enhance their performance.
Over the past year and a half, partly in anticipation of this legislation, we
have engaged in a change in our mind-set and attitude towards the supervisory
approach in order to bring it much more in line with what we do with other
financial institutions and other entities we supervise and regulate and which
have Canadian savings entrusted to them.
However, I expect that we will continue to see a handful of situations in which
there are difficulties on an ongoing basis. I would suggest that a handful is
less than 10, although I would not want to be pinned down to a number; but I am
not talking about quadruple digit numbers. Nevertheless, a handful of
difficulties on an ongoing basis will continue to happen. I do not think that is
necessarily bad, particularly if there is enhanced disclosure to members about
what is going on and what the options are. Compared to some of the
alternatives, a situation in which there is that disclosure and the possibility
of members through various governance mechanisms influencing the ability of
plans to get out of trouble is a better world.
The philosophy in this bill still leaves much of the arrangements for what
happens in those cases in the hands of the people who set up the plan. This is
ultimately a contractual relationship between the various people who set up the
plan. Other jurisdictions treat this differently. For example, as I indicated
last Tuesday, for multi-employer plans, some jurisdictions allow of no
possibility for a deficit on termination. There is no question there of "ifs",
"ands" or "buts". The legislation requires that the
benefits be reduced if the plan terminates, and that is what happens, for
example, in the Province of Ontario and in Quebec. That is a "my way or
the highway" way of doing things, and it certainly eliminates the
possibility that any multi-employer plan would ever have a loss in a technical
kind of sense, but we would rather have a softer version that allows the parties
to work these things out.
That is a rather long-winded answer, senator, but it gives a little tour
d'horizon of the universe.
Senator Angus: You certainly expanded on the safety and soundness aspects.
However, under the present law and before this particular bill comes into
effect with all of the regulations and guidelines you have mentioned, am I to
understand that there could be many plans with deficiencies which you simply
would not know about? That is what I was getting to when I asked about specific
Mr. Le Pan: Are there many plans out there that we do not know about? There is
not a requirement currently, nor will there be as a result of this bill, for
every plan to have an absolute, up-to-date actuarial report on an annual basis.
Senator Angus: I wondered about that. Is that a problem?
Mr. Le Pan: If a plan's last actuarial valuation on conservative assumptions
showed they had a significant surplus, I do not believe things would change
significantly over a three-year period. We have the ability under this
legislation to require more up-to-date valuations and, of course, as I said,
plans which have solvency deficiencies must have one annually. Under this bill,
we will have broader authority to influence standards of accounting and
actuarial practice, and we will use that authority with respect to other
Would I guarantee that there are never any surprises? Of course not. Do I have a
much better feeling that we are more on top of what is going on than we were
five years ago? Yes. Will we end up being more on top of things six months from
now than we are now? Yes.
Senator Angus: Is that because of this legislation?
Mr. Le Pan: Yes, and because of our attitude, our mandate, and the direction
Senator Angus: The guidelines on governance of the plans which you were going to
table and discuss with us are key, are they not? They are basic to this whole
Mr. Le Pan: Yes.
Senator Angus: On the soundness issue?
Mr. Le Pan: Absolutely. One of the biggest issues we find with some plans is the
matter of governance. I am not surprised. It is not really a matter of blaming
people; we have, as I said, everything from small to big. We have people who
are part-time, running things as part-time trustees and doing the best they
can, and part of the problem is that they need help and direction.
In the corporate world, as this committee well knows, we have had an immense
amount of activity over the last seven or eight years, with various entities
producing guides to governance such that a number of directors think we may
have gone too far. There was a great deal of material out there to help people
who had producer responsibilities to understand what those responsibilities
were. There is not much in the pension world, and part of our guide to
governance is to help. Many people out there would like to do a better job and
are saying, "Give us a sense of what you are expectations are." That
Senator Angus: You are aware of the study we are about to do on institutional
investors and the governance there, and I take it this whole process you are
describing related to Bill S-3 is relevant to that study, especially in regard
to the big plans. You indicated in your earlier remarks that this applies
equally to all plans; it would apply in the same way to a private plan with one
member as it would to the Air Canada plan for all the IAM workers who were
represented here last week.
Mr. Le Pan: Yes. As I understand it, the study that this committee is
undertaking is at least in part focused on the role of institutional investors
in the governance of the entities in which they invest. To that extent, some of
the things that we are doing may be only tangentially relevant. However, to the
extent that we are trying to set up a broad indicative framework for governance
of plans and responsibilities of fiduciaries and to the extent that we will be
promoting or proposing investment guidelines, they will be relevant, if not at
the core, at least relevant to the deliberations in your governance study.
Senator Angus: I was intrigued when I read, under your heading of greater
disclosure, the reference to photocopied material. Obviously, it is a problem
you are trying to rectify. I would be curious to hear about that.
Mr. Le Pan: Certainly, when we deal with situations that may be difficult, from
time to time interesting arguments are put.
Senator Angus: By lawyers representing the plans or the employers?
Mr. Le Pan: By various people representing plans. It is not a professional
issue. It is a matter of public record that we made a court application within
the past year and a half, when one plan refused to give us documents based on
the argument that the current wording of a certain section did not allow us to
When you come down to the examination of a plan, if you have any sense of an
audit mentality, the refusal of documents is absolutely the first "no-no".
That applies to any auditor looking at anything. We ultimately ended up working
out our problems with that plan. We negotiated an adequate arrangement which
protected their confidentiality. All of this material is confidential under the
statute and will, indeed, remain so. We got access to the documents, but, quite
frankly, I do not want to go through that again because it was pointless.
Senator Angus: This is not a case where the originals were also available? It is
where the photocopies were the best evidence in the circumstances? Is that it?
Ms Carol Taraschuk, Legal Counsel, Department of Justice: Our examiner needed to
take photocopies to support the conclusions in his examination report. The
administrator was refusing to allow photocopying of the documents.
Senator Angus: This is really a provision which you are introducing in this bill
to meet that particular case.
Mr. Le Pan: We do not just focus on photocopies here; we are ensuring that the
superintendent's access to books and records is unlimited for purposes of doing
an examination. That provision is especially important because, as I said last
week, we do not examine every plan every year. We need continuity in order to
do a thorough job with the few we do examine every year.
Senator Oliver: I have a question arising from comments on the annual meeting
and the costs.
You said you did not plan to bring in any amendment. Would this sort of phrase
work: "We will use electronic telecommunications where possible and where
feasible in the interests of natural justice, fairness and costs."
That describes your discretion and it takes away some of the anguish from those
who fear that having an annual meeting will be costly when they have people
from Newfoundland to Victoria. Why would some language like that not suffice?
The Chairman: And could that not be achieved in your regulations? The intent of
the provision is exactly as Senator Oliver phrased it. Could that kind of
general, modest constraint on your unfettered freedom to make a decision work
in the regulations, as opposed to necessarily amending the act in this way? The
intent of modestly constraining your unfettered discretion has some appeal here.
Mr. Le Pan: In a situation in which someone does not want to tell people things
and does not want to hold a meeting, we could spend six months arguing about
what is natural justice, or we could just decide to order a meeting.
The question is who comes first here? Do you trust us and are we accountable? I
am happy to be accountable for every one of these circumstances. I am happy to
come back and talk to people about how we have used this provision.
We have seen unpleasant circumstances in which there are different interests
within a plan, interests which are not aligned. That is the way things work.
There are sometimes different interests between the various parties, between
the current and retired members and so forth.
I understand the committee's concern, but, if we start to modify this, we may
essentially end up with a provision that is not worth a candle. I may have to
go to court and argue that my examiners have a right to make photocopies to
support their examination findings. Sometimes our world is like that; it is
less than pleasant at times. The people who would go to those extremes are also
prepared to use a provision such as you described to say that, effectively, we
cannot ever require that a meeting be held. I would rather not have the
I do not want to make a technical argument, but if I could figure out a way to
do this which would get the required result without causing some kind of stymie
problem in cases that require action, then I would be prepared to do that. I
cannot figure that out. Perhaps I am not creative enough here; however, in this
role I have met with some characters and had some interesting discussions.
Either we have the power or we do not. I am happy to be accountable for how we
use that power. I am happy to indicate publicly our general policy stance in
our interpretation bulletins and in our PBSA updates. People can hold us
accountable against that standard. If we are doing something crazy, they can
complain to ministers or committees. I do not know how to fetter the discretion
here without leading to problems.
Senator Stewart: Mr. Le Pan keeps personalizing this. The problem is his
successor and his successor's successor. That is always the problem with this
kind of discretionary power. Another person may one day take the office which
he now occupies and act as unreasonably as the kind of people who have been
frustrating Mr. Le Pan with regard to photocopies.
In situations where the superintendent proposes to call a meeting, can those who
feel that the meeting is unjustified file an objection and state their reasons?
Would that be a possibility? Perhaps that has already been covered. That could
act as a little bit of a brake on the heavy-handed bureaucrat.
Mr. Le Pan: Let me first say, senator, that I apologize if I am personalizing
this situation, but I was trying to describe the situation we sometimes face.
I want to make three points about pre-notification. As set out in our guide, we
will pre-notify. No plan administrator will receive a section 7.5 meeting
notice out of the blue. The question then is whether we would be prepared to
have pre-notification built into the statute, given that we intend to operate in
that way, and should we include some right to representation? How complicated
does this provision need to be? I do not have a strong view one way or the
other. To the extent that we make quasi-formal rules on pre-notification and
representation rights, we could end up with an edifice that is larger in some
cases than the problem that needs to be addressed.
A third possibility, which I raised earlier in my comments, would be for us to
undertake to be more transparent -- without naming names, but it will be a
matter of public record -- about how we have used this provision. That would
allow there to be some degree of experience. If there is a problem, we are then
accountable to this committee, or more broadly, as to how we are using this
I do not have a strong view about formally putting pre-notification in proposed
section 7.5, though I am often reluctant to draft on the fly.
The Chairman: To avoid the problem of drafting on the fly, is there a way the
pre-notification issue can be dealt with in the regulations, in which case we
could proceed to deal with the bill?
Mr. Le Pan: There is no regulation here.
The Chairman: It does not say there cannot be one.
What I am attempting to do is find a way to solve the problem while dealing with
the bill and the issue in regulations, and not have to do it in terms of
drafting an amendment on the fly.
Mr. Le Pan: I hear you, Mr. Chairman.
The Chairman: Does legal counsel have any solution?
Senator Angus: Perhaps this is a case where it is not that complicated to draft
on the fly.
Ms Taraschuk: We can add a provision in section 39 of the act, the
regulation-making authority. However with respect to pre-notification, I would
caution you that this power is intended to be used only in extraordinary
circumstances where everything else fails. There is the authority in the
superintendent to ask that information be provided to members. It is mostly used
where there is a question of governance in a pension plan, if it is being badly
administered and the actuary has to answer some concerns. With pre-notification
and notice of objection, this thing could be bogged down in weeks and weeks of
delay when a crisis situation must be addressed right away. For example, a
reduction in benefits may be about to occur, or there may be problems with
governance as a whole.
Senator Stewart: Did I understand Mr. Le Pan correctly that instances where the
power to convoke these meetings has been used are a matter of public record?
Mr. Le Pan: All I meant is that there is a meeting, and anywhere between 30 and
150 people come to it.
Senator Stewart: Is that a public record? I am not a lawyer.
Mr. Le Pan: I mean that it will not be secret. "Public record" may be
too strong a phrase.
Ms Taraschuk: It will be public knowledge.
Mr. Le Pan: Perhaps I should have said "public knowledge".
Senator Stewart: I am attempting to see if there is some way of avoiding
Senator Angus: I do not see the need for it in these circumstances as described.
Sufficient activity will have gone on before that it is implicit.
Senator Stewart: If there is a possibility of the development of a reliable
record of conduct under the provision so as to be able to evaluate the
bureaucrat's conduct, then that is probably all we need.
The Chairman: Given your reference to accountability, it requires -- to use
Senator Stewart's words -- that there be a reasonably accurate record of what
the bureaucrat has done in order to determine whether the accountability has
been properly exercised. That is the basis of Senator Stewart's question
whether there is a public record. The real issue is how do we know, after the
fact and applying your own accountability test, how the official behaved in a
particular circumstance so someone can make a conclusion as to whether it was
Mr. Le Pan: I understand the question. I think, ultimately, the question is
whether we are prepared to come and indicate, first, how many times we have
used this provision and, second, whether there has been some form of advance
notice to people that we were considering this.
I have not thought through whether we can name names. That was part of my
reference to the fact that ultimately this will be public. If we could name
names, you would be in the position to at least understand if what we were
saying about the fact that we had given advance warning was true by going back
to the people and asking them.
I have not worked through the "naming names" issue, but that problem
will exist even if you put the issue of pre-notification in here.
Senator Stewart: You mentioned the problem of naming names. That, of course,
excites interest. In a general way, can you explain the problem with naming
Mr. Le Pan: I was thinking on my feet, senator. Let me just refresh my memory.
I do not believe there is a general confidentiality provision here, as there is
in other cases. Indeed, we would not want to hide behind the fact that we
required a meeting, although quite often the plan would want to blame us. I am
quite prepared to be blamed. My anticipation is that we would be able to name
names, but I will just take 30 seconds to confirm. I was also thinking about
single member plans. There are privacy issues there. For some reason, there may
be a small number of members. There might be a threshold that I would have to
report on, only above which I would actually name names. Above that threshold
for privacy reasons, I do not have a problem naming names.
The Chairman: I think we can leave that issue. I would like you to reflect on
the amendments now. There are six amendments, numbers (a) through (f). There is
a seventh amendment, the purpose of which is simply to renumber everything
else. I want to go through these one at a time. There is a typo on the top of
the page that will have to be fixed up.
Mr. Le Pan: It is a cross-reference typo.
The Chairman: Perhaps we should go through these one at a time, and we can have
some comments as we go.
The first amendment, (a), suggests that clause 9 be amended.
Mr. Le Pan: This amendment splits the possible access to surplus into two cases.
The Chairman: You are amending proposed section 9.2(1)(a) of the bill; is that
Mr. Le Pan: Correct.
The Chairman: Last Tuesday, Senator Tkachuk raised the point that under proposed
section 9.2(1)(a), the word "entitled" should not really apply to the
second part of 9.2(1)(a). It should read that the employer establishes that he
is entitled to the surplus, which is point one, or that under the procedures of
this act, he establishes that he has the right to certain things. Senator
Tkachuk objected to the word "entitled" being applied to the second
part. His objection was supported by several other members of the committee. It
is my understanding that amendment (a) addresses that issue directly.
Mr. Le Pan: That is correct.
The Chairman: It addresses that issue in the sense that it leaves "entitled"
in the first part of the proposed section and establishes a claim to the
surplus under the second part.
Mr. Le Pan: Yes, under the section that is the arbitration feature.
The Chairman: That is a direct response to the issue that Senator Tkachuk
Any objections to that, senators? Can we accept that amendment?
Hon. Senators: Agreed.
The Chairman: Carried. Next, paragraph (b).
Mr. Le Pan: Paragraph (b) is directly related to the point that several senators
raised, namely, that the superintendent should not withhold his consent because
of a view about the appropriateness of the employer claim on some kind of broad
fairness or equity grounds.
This amendment is linked to the previous amendment, because the superintendent
only has to consent to the refund. This indicates that the superintendent shall
recognize the claim. He is required to recognize the determination of the claim
-- in other words, the right that was referred to earlier -- that arises from
the process. For example, he may not consent to a full refund of the claim on
solvency grounds. He might decide to string it out, and so on, but he is not
permitted to have some kind of independent view from the arbitrators about what
is appropriate division.
The Chairman: Again, that was raised originally by Senators Oliver and Kelleher.
If the two sides agree and you get the two-thirds vote, provided it does not
hurt the solvency of the plan, whether or not the superintendent thinks that
both sides should have agreed to that is none of his business. In other words,
the superintendent should not be allowed to second guess either the negotiation
process or the arbitration process except on solvency grounds.
Mr. Le Pan: That is what paragraph (b) does.
Senator Angus: Why would you add it as subclause (2) rather than as an
additional sentence in paragraph (c)?
The Chairman: We now have lawyers doing collective drafting here and that always
Mr. Le Pan: The preamble to subclause (1) begins by saying that you cannot get
the surplus unless this occurs and then subclause (2) is a constraint on
subclause (1). It must be a separate subclause (2) rather than being an
amendment to paragraph (c).
The Chairman: That sounds all right to me.
Senator Angus: You could argue it the other way, too. It is still related to the
superintendent's consent anyway.
Mr. Le Pan: I think it has the same affect.
The Chairman: Is that agreed for paragraph (b)?
Hon. Senators: Agreed.
The Chairman: Carried. Next is paragraph (c).
Mr. Le Pan: Paragraph (c) is related to the previous subclause (2) because we
have now renumbered it. We have a new subclause (2) so that subclause (2)
becomes subclause (3).
This is consequential to the first thing that we talked about under paragraph
(a), where paragraph (a) set up this notion of a claim. We must make a
consequential amendment to the previous subclause (2), which talked about
entitlement to surplus. We are now talking about claim, so it is a technical
consequential amendment to subclause (a) in your amendments.
The Chairman: Again, that maintains the distinction between "being entitled
to" and "making a claim to"."Making a claim to"
relates to the process and "being entitled to" is used in a different
Senator Angus: You are just changing the words "is entitled to make a claim".
The Chairman: Yes, because we have had to make the change. Is it agreed?
Hon. Senators: Agreed.
The Chairman: Carried.Please continue, Mr. Le Pan.
Mr. Le Pan: In paragraph (d), the operative change is the phrase "Subject
to subsection (5)", which we will discuss later. This involves the
situation in which there is a bankruptcy of the employer. Under paragraph (e)
we will indicate that in that case, the minimum thresholds, 50 per cent, and so
on, do not apply.
The Chairman: Let us deal with paragraph (e) first.
Mr. Le Pan: Yes. Paragraph (d) is consequential on paragraph (e). Paragraph (e)
states that if the plan has terminated and the employer is in the process of
being liquidated, the arbitration procedure will commence within 18 months of
the termination of the plan, no matter what. That is to say, no thresholds
apply. If the parties cannot come to an agreement within 18 months of the
termination of the plan -- and it normally takes six to eight months to get an
actual valuation termination report -- it automatically goes to arbitration so
that we get certainty.
The Chairman: This issue arose because Senator Kelleher raised the following
problem. If the plan is in the process of being wound up, he does not want a
significant amount of the surplus frittered away by a process that would be
extremely expensive. Senator Kelleher said, "Can we not simplify the
process if the plan is being wound up so that we do not wind up paying a whole
pile of the surplus out on professional fees and a complicated process?"
The proposed amendment, paragraph (e), is designed to respond to that by saying
that after 18 months you can do away with the process and simply proceed
directly to a solution.
Mr. Le Pan: That is correct.
Senator Meighen: It is not "can".
Mr. Le Pan: It is "must".
Paragraph (f), which is closely related, gives the arbitrator the power to
impose a scheme of division -- in this case between the parties -- because it
is a different kind of situation. He may have absolutely nothing to look at.
Under the other kind of situation, at least a plan has been submitted to
members, 50 per cent or more of the people have voted on it, and the arbitrator
must decide where he wants to be. In this case you might have absolutely
nothing. Paragraph (f) addresses a situation where there is a related power to
the arbitrator to determine what an appropriate result is.
The Chairman: Paragraphs (d), (e) and (f) relate directly to dealing with the
winding up issue that Senator Kelleher raised last time.
Mr. Le Pan: That is correct.
The Chairman: Is it agreed that those three paragraphs be amended as indicated?
Hon. Senators: Yes.
The Chairman: Carried.
Paragraph (g) requires that you renumber everything because you have inserted
something higher up.
Mr. Le Pan: That is correct. Also, in paragraph(e) there is a cross-reference
error. Subclause (2) should be subclause (3), assuming the other amendments
The Chairman: Yes. May I then have a motion to dispense with clause-by-clause
study and to report the bill back as amended?
Senator Oliver: I so move.
Senator Meighen: Do I therefore conclude that no change is contemplated in the
two-thirds of each category provision?
Mr. Le Pan: Not at this point, no.
The Chairman: That is right. That was the one we debated. We all agreed that it
was a judgment number and we asked the government to reconsider it and I think
the answer was "No."
Senator Meighen: Some of us thought two-thirds was high.
Senator Oliver: Senator Meighen asked a lot of questions last time about past
and former employees. Are you now satisfied?
Senator Meighen: No.
The Chairman: He is not happy with the two-thirds provision.
Senator Meighen: No, but I have not quite decided how to express my unhappiness.
The Chairman: The government's view is that they made a judgment call on the
two-thirds and they want to try that. The process will come back to us if it
does not work, but it was a judgment call. Given the compromises we made on the
other issues, my view was that we should leave the two-thirds where it is.
Senator Oliver has moved that we report the bill back with these seven
amendments. Do I have support for that from the committee?
Hon. Senators: Agreed.
The Chairman: Carried.
I will then report the bill back to the Senate as amended, which completes
discussion of the main item of today.
May I remind senators that we meet on Thursday. That meeting will continue
through the lunch hour. We have two witnesses on Thursday. The first will be a
very short presentation from the financial executives institute on joint and
several. We will then have a longer presentation from Alison Manzer and the
president of the Canadian bar on behalf the Canadian Bar Association on the
issue of joint and several and then proceed to discuss our conclusions on the
issue of joint and several in the hope that our staff can proceed to draft a
report for us during the week we are away.
May I also remind you that the committee will meet on November 18, 19 and 20.
You already have a list for our first three sessions on institutional
investors. We have a good set of witnesses that week. Given the press interest
-- and I believe CPAC will be covering those also -- we need good attendance at
those meetings. They are issues that concern all of us.
I wish to thank you, Mr. Le Pan, and your staff. As usual, we enjoyed having you
here, but we did not let you get away entirely free.