The Standing Senate Committee on National Finance met this day at 1:02 p.m.
to study Bill C-9, an Act to implement certain provisions of the budget tabled
in Parliament on March 4, 2010 and other measures (topic: Parts 9 and 24).
Senator Joseph A. Day (Chair) in the chair.
The Chair: I call to order this meeting of the Standing Senate
Committee on National Finance.
Honourable senators, this is the eighth meeting regarding Bill C-9, an Act to
implement certain provisions of the budget tabled in Parliament on March 4,
Last week, over seven meetings, this committee heard from the Minister of
Finance, as well as departmental officials, who explained the provisions of 20
of the 24 parts of Bill C-9. Today, over two meetings, we will be hearing from
departmental officials on the remaining four parts. These four parts had been
scheduled for meetings last week. However, due to time constraints, we were
forced to carry them over into this week.
I would like to thank all of the officials for their patience and
understanding, and especially those who have been here previously. We will be
focusing on Parts 9 and 24, which deal with pensions and employment insurance.
We will begin with Part 9, the Pension Benefits Standards Act.
We welcome from the Department of Finance, Mr. Tim Cleland, Senior Economist,
Payments, Financial Sector Policy Branch; Ms. Diane Lafleur, General Director;
and Mr. Jean-Claude Primeau, who is the Director Actuarial, Policy and
Approvals, Private Pension Plans Division, with the Office of the Superintendent
of Financial Institutions.
Ms. Lafleur, would you like to begin?
Diane Lafleur, General Director, Department of Finance Canada: It is a
pleasure to be back before the committee today. We are here to discuss Part 9 of
thebill, which proposes some amendments to the Pension Benefits Standards Act's
1985 legislation. I want to give you a little bit of history on these
amendments, as well as touch on some of the key provisions in the legislation.
First, I want to clarify that the Pension Benefits Standards Act applies to
only areas of federal jurisdiction. Those are areas such as banking,
interprovincial transportation and telecommunications. That amounts to about 7
per cent of the private pension plans in Canada, so it is relatively small.
To give you some history, in January 2009, as part of the budget, the
government had announced that it would enter into public consultations on
possible changes to the pension benefits standards legislation, which had not
been looked at for a number of years. There had been well-publicized pressure on
the funded status of defined benefit plans at that time, so there was a desire
to look at some key issues related to the regulatory framework.
A consultation paper was issued in January 2009, asking a number of questions
related to the regulatory framework. Pursuant to the release of that paper, the
Parliamentary Secretary to the Minister of Finance, Mr. Ted Menzies, held
consultations. He went right across Canada and held a variety of private and
public meetings with all interested stakeholders on the questions that were
raised in the consultation paper.
We received well over 200 submissions pursuant to the paper, the vast
majority of which ended up being posted on the Department of Finance website. I
believe they are still available there to this day to be consulted.
After having reviewed all of the submissions and the input we received in the
meetings, the government announced in October 2009 its intention to proceed with
a number of legislative and regulatory amendments to the legislation. There is a
press release, also on the Department of Finance website, that outlines the
policy intent and the direction the government had intended to take.
What you have before you, essentially, is the bulk of those measures that
came out of that consultation and which were announced last October. If the
package seems a little incomplete, that is because a number of the measures only
need regulations to be put into effect. Therefore, some of them are moving in
parallel with the legislation; others are awaiting the legislative authority
within this bill in order for the regulations to be developed. They will follow
in other cases.
I want to go through some of the key elements of the legislation.
The Chair: Are you at page 502?
Ms. Lafleur: That is where the section starts, but I would draw your
attention to page 508, clause 1794, which gives the Superintendent of Financial
Institutions the ability to replace an actuary of a pension plan if the
superintendent is of the opinion that is in the best interest of members and
The Chair: What does that mean?
Ms. Lafleur: It is an additional tool that is given to the
superintendent in delivering on her mandate to ensure that the plans are
properly funded and are able to meet their obligations to plan members.
The Chair: If a federally regulated company has an actuary, that
actuary will be working according to professional standards, and actuarial
standards would dictate. However, notwithstanding that, the minister can come in
and say get rid of that actuary, we want you to put another one in, is that
Ms. Lafleur: The superintendent could, under certain circumstances,
remove an actuary if it was deemed to be in the best interest of plan members.
It is not unlike in the banking provisions, where the superintendent has the
ability to remove directors if that is viewed to be in the best interest.
The Chair: Maybe we will get into that question later. I just wanted
to clarify what you were saying. Mr. Primeau is here and he will help us with
Ms. Lafleur: Next I want to draw your attention to clause 1795, page
509. This clause states that employers will be permitted to use letters of
credit to satisfy solvency funding obligations in respect of ongoing pension
plans. The letters of credit are contractual promises to pay, issued by a
financial institution, upon a pre-specified event of default. If the default
occurs, then the letter of credit will be called and the face value of the
letter will be paid directly into the pension fund. The employer would be liable
to repay the financial institution the face value amount, as if it was a loan.
Essentially this makes permanent something that has been part of our
temporary solvency funding relief regulations. It has been a temporary feature
to help plans meet their obligations in difficult times. We have twice done
temporary relief, and this makes the letter of credit a permanent feature of the
Clause 1804, page 514 states that pension plans will be allowed to pay
variable benefits from a defined contribution plan, similar to the payments from
a life income fund. Right now, when a member of a DC plan retires, he or she is
required to either transfer the balance to a financial institution or use the
balance to purchase an annuity. This would be essentially an additional option
that provides some additional flexibility.
The Chair: When you are referring to these various sections, could you
give us a little time to get there before you start talking.
Ms. Lafleur: I will move to clause 1805, page 516. This clause is
intended to better protect members' entitlements as the amendments provide for
immediate vesting of benefits for all plan members.
I will move to clause 1816(3), page 524. This provision eliminates the
possibility of an administrator declaring a partial termination. This has been
subject to some legal cases and this provision clarifies the intent of the act.
Clause 1816(5), page 526 is an important measure to protect members' benefits
as it requires that a solvency deficit at termination must be fully funded.
Currently, a plan sponsor can terminate a plan and walk away from any deficit
obligation to fully fund the benefits. This measure closes that gap and makes
that impossible going forward.
The next clause I draw to your attention is 1817, page 528. This brings into
place a new framework that we call the Distressed Pension Plan Workout Scheme.
This is new in the pension legislation. Under this framework, which is designed
to be used only in very limited circumstances, plan members, retirees and
sponsors can negotiate changes to the plan's funding requirement in order to
respond to situations where the regular rules might be detrimental to benefit
security. Ultimately, any agreement reached under the DPPWS would have to be
approved by the Minister of Finance. You may remember that when the minister was
before the committee last week he mentioned some one-off cases that had been
dealt with, namely, Air Canada. The funding obligations were such that it put
into question the viability of the company. This provision will address those
kinds of special cases where the funding obligations under the existing rules
make it difficult for the company to remain viable. It will provide some relief
to renegotiate the funding obligations with the agreement of all members.
Retirees, active members and management have to agree to a restructuring of the
obligation. Ultimately, as I said, the minister would have to approve any
agreement. However, clearly the intent of this provision is to keep the sponsor
viable, which we believe is the best benefit security that can be offered to
As I mentioned, regulations will be needed to implement a number of these
measures and will be forthcoming over the next months, although some have been
pre-published in the Canada Gazette in early May for public
consultations. With that, I will conclude my remarks and welcome any questions
you may have.
The Chair: Do any of the amendments to the act refer to regulatory
Ms. Lafleur: There are a number of them.
The Chair: Just so we know where the regulations are.
Ms. Lafleur: A number of detailed provisions for the mechanics of the
Distressed Pension Plan Workout Scheme will be spelled out in the regulations,
although the broad framework is in the legislation.
The Chair: Presumably, we will see in the various clauses and
subclauses that follow 1817 some comment on the regulations, and perhaps how
they are generated to do certain things?
Ms. Lafleur: Yes.
Tim Cleland, Senior Economist, Payments, Financial Sector Policy Branch,
Department of Finance Canada: Clause 1820, page 534 provides
regulation-making authority in respect of a number of these provisions.
The Chair: Is that the clause to which you referred, Ms. Lafleur?
There are others, presumably, that have similar regulating authority.
Ms. Lafleur: Yes. We could prepare a list for your easy reference.
The Chair: That would be helpful.
I would like to compliment you on the consultation process followed in
relation to this particular matter. Did you at any time have concerns that
because these measures are in a budget implementation bill, there might not be
any consultation beforehand?
Ms. Lafleur: As I said, the initial announcement of a coming
consultation was in Budget 2009. The publication of the consultation paper came
after that. The policy decisions were largely announced in October, so it was
all transparent and public. There was no question about the policy direction
because the government had announced that back in October.
The Chair: Was there any discussion at any time of having this in some
form of proposed legislation other than a budget implementation bill?
Ms. Lafleur: I am not privy to that information. I do not know whether
there were discussions at the political level to that effect.
Senator Eggleton: You mentioned Air Canada. Can you cite any other
cases that give rise to these changes?
Ms. Lafleur: We have done Air Canada twice. We did it as part of the
restructuring in 2003, I believe, when they were under the Companies' Creditors
Arrangement Act. Special regulations were done for Air Canada at that time to
facilitate their exit from the CCAA restructuring. In 2009, special regulations
were done for the Canadian Press.
Senator Eggleton: Were they under CCAA as well?
Ms. Lafleur: They were not under CCAA at that time.
Senator Eggleton: Are these provisions primarily for a company that
has solvency problems generally or solvency problems of their pension fund? Can
it be both?
Ms. Lafleur: It could be both. In the last several years, we have seen
that wild market fluctuations can have serious impact on pension plans and the
funding schedules. Some of the measures that have been put forward as part of
this package are intended to smooth out those fluctuations in the payment
obligations of the sponsors. However, we still recognize that significant shocks
can increase the funding obligations and eat up cash flow, which could make
things difficult for a sponsor.
This provision is to be used seldom. The sponsor has to declare that they are
in financial difficulty, which I presume most companies do not like to do, and
to do so publicly before they could enter the DPPWS. It is intended for extreme
cases, not for companies to use generally. There will be limitations on how
often a sponsor could avail themselves of this kind of workout scheme, because
we do not want companies to come back every year to renegotiate.
Senator Eggleton: If Nortel were a federally regulated agency, how
would this provision affect them?
Ms. Lafleur: It is difficult for me to say because I do not have the
inside look on Nortel. However, had this provision been in place and had the
pension obligations been the factor that was creating difficulties for them,
there could have been a possibility of renegotiating those pension obligations
with their members and retirees. That is truly speculation on my part because I
do not know the ins and outs of the Nortel case.
Senator Eggleton: One provision in here is that they could provide a
letter of credit. If they are in financial difficulty, what are the
possibilities of obtaining a letter of credit?
Ms. Lafleur: The market decides. It is the cost of the letter of
credit. Obviously, the healthier you are, the lower the cost of the letter of
credit. The letter of credit is included in part because of the trapped capital
problem, whereby they put lots of money into the pension plan when it is
underfunded. Then, if things turn around, markets come back and interest rates
rise, they can find themselves in an overfunded situation fairly quickly. Yet,
the money that has been put into the pension plan cannot be taken out. Once the
money is in, it stays in. The letter of credit affords a certain amount of
flexibility to avoid that cash being trapped.
Senator Eggleton: One of the issues in the Nortel case, in addition to
pensions, was long-term disability. There is no provision in here relevant to
long-term disability plans being underfunded.
Ms. Lafleur: This applies just to pension plans.
Senator Eggleton: Is there any active consideration of that issue in
terms of the federally regulated industries?
Ms. Lafleur: As far as I know, the Speech from the Throne indicated
that the government was looking at options for dealing with priorities of
long-term disability benefits when a sponsor faces financial difficulty, but
there is nothing here that deals with long-term disability.
Senator Marshall: Ms. Lafleur, you mentioned public consultations,
what was the impetus for the public consultations that led to these amendments?
Ms. Lafleur: Because of market circumstances, in 2006 the government
implemented temporary solvency funding relief regulations to address what were
seen at the time as unique circumstances. Funding obligations were going up
quite quickly as a result of long-term low-interest rates, changing actuarial
standards, difficult market circumstances. However, in 2008, we quickly found
ourselves in another unique financial circumstance and saw that plans were again
having quite challenging times meeting their funding obligations. In November
2008, as part of that fall economic update, the government announced more
temporary relief. It was felt that if you have to provide temporary relief twice
in three years, you should look at the framework to ensure it is up to date and
meeting the needs of plan sponsors and members.
Having done that, the government felt it was worth looking at the framework
more broadly and asking ourselves some fundamental questions.
Senator Marshall: The changes that we have here in the legislation are
more geared towards protection of the members and preservation of members'
benefits; is that correct?
Ms. Lafleur: There are a number of objectives to the measures.
Protection of members' benefits is one of the keys.
Senator Marshall: Would that be the primary one?
Ms. Lafleur: It is certainly one of the top two or three. Another is
to give more predictability to sponsors in terms of their obligations. I spoke
of funding rules that help to smooth out market fluctuations. At the end of the
day, if it is easier for the sponsor to meet their obligations and to plan
financially long term, not to have too many surprises, ultimately that is to the
benefit of plan members because a healthy sponsor is the best security.
Senator Marshall: Is the effective date the day that Bill C-9 passes,
or is another effective date anticipated?
Ms. Lafleur: Some of the measures require regulations, so they cannot
be brought into effect until those regulations are in place.
Senator Marshall: Could you give me some idea as to the status of the
regulations? Are they drafted now?
Mr. Cleland: We are working on developing those regulations at the
moment, but we cannot pre-publish them until Bill C-9 is passed. After Bill C-9
is passed, the regulations will be pre-published for public comment, and there
will be a 30-day comment period to which stakeholders will be able to make
comments as to the appropriateness of the drafted regulations. Following that
interval, they could come into full effect.
Senator Marshall: My understanding of what you are saying is that,
once the bill is passed and the regulations are published for comment, the
30-day period, the provisions would become effective within probably a couple of
months after the bill passed?
Ms. Lafleur: That depends on the comments received during the
consultation period. If there are few comments or they are just technical in
nature, that can go fairly expeditiously, but if there are extensive comments
that require a rethink, it lengthens the process.
Senator Marshall: You do not anticipate any significant delay, do you?
Ms. Lafleur: I do not have a crystal ball, and I am not good at
predicting these things. However, the extent of consultations so far and because
these measures have been public for quite some time, hopefully will help limit
Senator Marshall: With regard to replacement of the actuary in certain
circumstances, could you give me an example where that would be required?
Jean-Claude Primeau, Director, Actuarial, Policy and Approvals, Private
Pension Plans Division, Office of the Superintendent of Financial Institutions
Canada: This power is a new tool that would be used in extenuating
circumstances. It is difficult to predict exactly what circumstance might lead
us to take that step. We have a number of other tools that we can use prior.
This would be a serious decision and not taken lightly by the Superintendent of
Financial Institutions. Typically, in its role as supervisor for pension plans,
the Office of the Superintendent of Financial Institutions would review some
actuarial reports and have discussions and correspondence with the plan
actuaries to raise issues or concern we may have with the details of the
reports. If they are not resolved satisfactorily, we can direct the plan
administrator to file the report, again with certain modifications that we may
This power of replacing the actuary would occur when all other tools have
failed and we are concerned about the security of the benefits. It is somewhat
similar to the power that exists for insurance companies, for the preparation of
insurance companies' actuarial reports, so there is a precedent in that way.
Senator Marshall: How often is an actuarial report required? Is it
once every three years, or what is the requirement?
Mr. Primeau: The minimum is every three years. Currently, any pension
plan that is underfunded requires an annual report on its solvency position.
That is part of the current framework. As part of the announcements the
government made last October, the intention is that, going forward, virtually
all reports will be annual. The superintendent may have some limited exceptions
to that rule, but the general rule going forward will be annual.
Senator Marshall: One last question. The amendments you went through,
in my opinion, are good amendments. There was one there I do not think you
mentioned, the increase in the surplus threshold. Could you go over that and
indicate why it was raised from 10 per cent to 25 per cent?
Mr. Cleland: The reason you did not see it in these amendments is that
it is under the Income Tax Act. Under the present 10 per cent limit, if a
pension plan is overfunded and reaches that level, the Income Tax Act requires
the sponsor to stop making its normal cost contributions to the plan. That is
called a contribution holiday. It, in effect, forces a contribution holiday if
the plan has a surplus of 10 per cent. The fact that it is being raised to 25
per cent allows for the possibility of a higher cushion or surplus in the plan.
Senator Marshall: This provision must be as a result of the financial
problems pension plans found themselves in with the downturn in the economy?
Mr. Cleland: A higher level of surplus in a plan provides more of a
cushion to absorb any decrease in equity values or interest rates.
Senator Marshall: There is no holiday unless you are over the 25 per
Mr. Cleland: There is no forced holiday. You can still take a
contribution holiday, provided that you are above a 5 per cent surplus amount,
and that was announced in the package of October 2009.
The Chair: If the employer has paid into the pension plan up to 5 per
cent in excess of the amount to meet contingent liabilities, can they stop
paying in with approval of the superintendent?
Mr. Cleland: Yes.
Mr. Primeau: It does not require the approval of the superintendent.
The regulations have been pre-published and contain all the rules relating to
The Chair: When you get up to 25 per cent above the liability, there
is a forced hiatus. You cannot go above that.
Mr. Cleland: Yes.
The Chair: When a company pays into the plan the purposes of meeting
contingent liabilities, are they eligible for a tax deduction?
Mr. Cleland: That is correct.
The Chair: Can they meet that contingent liability with the letters of
credit and then take the holiday, or does that money have to be tucked away in
some sort of a program?
Mr. Primeau: The regulations on how the letters of credit will factor
into the valuations of the plans have not been developed yet. However, the
general intent is that an amount obtained as a letter of credit has the same
value as a cash contribution.
The Chair: Is that because they are paying for it?
Mr. Primeau: Yes, and the security behind the letters of credit from
the financial institution is equivalent to a cash contribution because it can be
called in certain circumstances that will be outlined in the regulations.
Senator Poulin: Ms. Lafleur, your presentation was truly excellent and
very clear. You mentioned that in Canada, only 7 per cent of pension plans are
under federal jurisdiction. You also said that prior to amending the existing
legislation, you consulted many entities. Did you consult the provinces?
Ms. Lafleur: We did discuss our suggestions and the content of our
consultation paper with the provinces. We have put together federal-provincial
working groups where we can discuss these issues. You will not be surprised to
hear that a number of provinces are faced with the same challenges as us, and
they have also conducted their own consultations. Provinces like Quebec and
Ontario have implemented legislative and regulatory reforms, many of which are
similar in nature to the measures implemented on a federal level.
Senator Poulin: Pensions have become an extremely important concern,
not only when it comes to pension plan solvency, but also when it comes to
transferring pension credits.
Today, the number of jobs in Canada is much higher than it was 25 years ago.
Have the modifications related to pension credit transfers made it easier to
transfer pension credits from one plan to another when a person changes jobs?
Mr. Primeau: The current legislation already contains provisions under
which participants can transfer their pension credits in case of termination of
employment. This option is already available. Participants can transfer the
value of their pension benefits to an individual registered retirement savings
plan at a fixed rate, or to their new employer's retirement plan. They can also
use their pension credits to buy an annuity from an insurance company. There are
no changes in this respect.
Earlier, Ms. Lafleur alluded to an option that was added. I am talking about
what we call defined contribution plans. Certain plans could now offer their
customers the option of continuing to manage their money even after retirement.
People would no longer have to transfer their money to a personal RRSP; they
would have the option of leaving it in the plan, in the retirement fund. The
arrangement would be akin to setting up a Life Income Fund, but within a
Senator Callbeck: My understanding is that some of the amendments to
this act were expected by the pension fund industry and that others came as a
complete surprise. You say you have had consultations, but are there clauses in
the bill that you did not have consultations about?
Ms. Lafleur: I am a little surprised to hear that comment, to be
honest. My best guess is that perhaps there was some surprise back in October
when we announced the pension workout scheme because that had not been part of
our consultation paper. It is something that we developed as we were going
through the consultations, listening to stakeholders, going through yet another
experience with Air Canada and developing the Canadian Press regulations last
year. We needed some additional flexibility. We announced in October of last
year that that was the intent, so when the amendments showed up in the budget
implementation bill, they had already been out for a number of months, and it
should not have been a surprise at that point.
Senator Callbeck: Is there anything in here that was not announced in
Ms. Lafleur: We did not add to this legislative package from what was
announced in 2009.
Senator Callbeck: Are these all the reforms, or will there be more?
Ms. Lafleur: A number of measures need to be developed through
regulatory amendments that will follow in the summer and fall months. They
require either regulation or the legislative authority that is in here to make
them. A couple of the more technical aspects did not get in because of the time
constraints. Perhaps Mr. Cleland could mention them.
Mr. Cleland: A couple of the major ones are the provision to allow for
electronic communication between plan members and the plan sponsor as well as a
provision regarding the supervision of multi-jurisdictional pension plans. That
is with respect to how the supervisors regulate that pension plan if it has
members residing in two different jurisdictions.
Senator Callbeck: Will those two things require legislation?
Mr. Cleland: Yes, they will.
Senator Callbeck: Are those the only two?
Mr. Cleland: There are other minor technicalities. Perhaps Mr. Primeau
Mr. Primeau: I believe there were some issues of consistency between
the French and English versions of the existing act. There is nothing major.
Ms. Lafleur: All the big pieces are here, but we want to get back to
you on the regulation-making authority, so maybe we could draw up an exhaustive
The Chair: That would be handy information. Please submit it to the
clerk, and he will distribute it to all of us. If you could provide it in both
official languages, that would be appreciated.
Senator Callbeck: I wanted to address this distressed workout scheme
proposed here. That means that companies that are facing cash flow pressures,
except those already in bankruptcy or being wound up, simply announce they do
not anticipate being able to make the payments required. Then there is a
negotiation between the company, the employer representatives and the retired
representatives. Is that right?
Ms. Lafleur: That is correct.
Senator Callbeck: When that negotiation is going on, is it possible
that some of the money that should be going to the pension fund will be paid in
bonuses to executives?
Mr. Cleland: During the negotiation period, there is no requirement to
make special payments to the pension fund. That requirement is delayed until the
end of the negotiation period. We cannot speculate on the behaviour of the
company at that time. I would point out, though, that monies that do not go into
the pension fund during the negotiation period are subject to a deemed trust,
which separates them from the assets of the employer such that, in a bankruptcy
proceeding, they would have an enhanced priority.
Senator Callbeck: What exactly are you saying? Negotiations are going
on over six months. The superintendent cannot interfere in those negotiations
between the company and the representatives of the employees and the retirees?
Mr. Cleland: That is correct.
Senator Callbeck: Business is carried on as usual?
Mr. Cleland: That is correct.
Senator Callbeck: Is it possible that a company could take some money
and give hefty bonuses to their top people?
Ms. Lafleur: As Mr. Cleland said, the obligation to pay the funds does
not go away. The money is still owed to the pension plan, and it is subject to a
deemed trust. Putting yourself in a situation where you actually do not have the
money to meet obligations at the end of the negotiation period would be
negotiating in bad faith and would clearly be to the detriment to the plan
members, who have to ultimately give their consent to the deal at the end of the
day. One would think that the pension plan members and retirees would have
certain reservations about giving their consent if they saw that funds were
being used in this way.
Senator Callbeck: What happens if they cannot reach an agreement?
Ms. Lafleur: It depends very much on the situation of the company and
whether it goes into bankruptcy protection. However, as Mr. Cleland mentioned,
if that is the case and the company cannot survive, then the deemed trust
provisions will help protect the assets owed to the pension plan. That pension
plan is very much separate and apart legally from the assets of the company, so
they are not available to the other creditors of the company, should there be an
Senator Callbeck: I still have a concern.
I would like to know the precise meaning of the new section 9.14(4) on page
510. The ultimate result of this seems to be that, in the case of a bankruptcy
of a sponsor of the plan, the pension plan is guaranteed to obtain an amount
equal to the value of the letter of credit. Is that right?
Mr. Primeau: If an amount is owed due to a letter of credit, that
provision would ensure that it could not be used for anything other than the
obligation to the pension plan. It could not be used for satisfying other claims
in the bankruptcy.
Senator Callbeck: That is once it goes into bankruptcy?
Mr. Primeau: Yes.
Senator Callbeck: It is that period when negotiations are going on
that concerns me.
Another new section I want to ask about is on page 509, section 9.11(3):
The employer may not obtain a letter of credit in respect of an amount
that it has deducted from members' remuneration.
It states the employer may not obtain a letter of credit in respect of an
amount that it has deducted from members' remuneration. Who monitors this
Mr. Primeau: The amounts deducted from members' remuneration would be
the contributions to the pension plan by employees. There is an obligation under
the act to remit any contributions to the pension fund by employees within 30
days. It would not be within the spirit of the letter of credit to affect those
monies paid by employees. The intention of the letter of credit is to provide
flexibility to the employer for the amount that they owe, not what the employees
Senator Callbeck: Is anyone in charge of monitoring this process?
Mr. Primeau: The superintendent is in charge of monitoring the pension
plans. As far as making contributions to the pension plan, the custodian of the
pension plan also has some duty. If an amount that was supposed to be paid has
not been paid in time, within 30 days, I believe, the custodian must advise the
superintendent that an amount that was due has not been paid. That allows the
superintendent to intervene and take action to ensure that those amounts are
paid into the pension fund.
The Chair: Who is the custodian?
Mr. Primeau: The custodian would typically be an insurance or trust
company that is responsible for holding the funds of the pension fund. The
pension funds are always separate and apart from the operations of a company.
The Chair: Could that be the administrator as referred to in the act?
Mr. Primeau: It is not the administrator. The administrator is
normally the employer.
The Chair: Ms. Lafleur referred to a sponsor. We have many terms
floating around. Are the administrator and sponsor synonymous?
Mr. Primeau: In some cases, it could be a different body. It could be
a committee, for instance. Some pension plans are sponsored by employers and
unions jointly, and typically they would set up a committee or a board of
trustees that would be the administrator under the act. In effect, the
administrator has the duty of ensuring that they comply with all aspects of the
legislation. It is the body that has the ultimate responsibility for observing
all the rules and laws.
The custodian is not the administrator, but is a corporation such as an
insurance company or a trust company that holds the funds and ensures that those
funds are kept separate and apart from the operations of the sponsor. They also
have some duties under the act to ensure that moneys are contributed when they
are supposed to be.
The Chair: Perhaps it is the office of the superintendent that
determines this through inspections, but how do you ensure that a company that
has a pension plan held in trust has put in enough money to satisfy the
obligations when something happens? When something happens, you cannot say, "Hey, we need more money now." It is too late.
Mr. Primeau: Right. There will continue to be the requirement to
perform actuarial valuations every year, and the actuarial valuation establishes
the assets and liabilities of the plan and what contributions need to be made by
the sponsor to satisfy those obligations.
In the case of a bankruptcy, typically the pension plan would be terminated.
There is a requirement to prepare a report to establish the assets and
liabilities of the plan at that time. Under this bill, if there is a deficit,
the employer is required to make up that deficit. Currently, that provision does
The Chair: This is in the case of an employer in bankruptcy.
Mr. Primeau: Yes. Even within a bankruptcy, there would be a claim to
the pension fund. Anything that is covered under a deemed trust has a super
priority over other claims. For anything in addition, such as a deficit that was
not already due, the employer would be obligated to pay it. Whether that claim
would be satisfied would depend on the assets available in the bankruptcy, but
that is an added provision of the bill.
The Chair: Thank you.
Senator Callbeck: My question is on clause 1788.(2)(3) on page 505.
The French version refers to section 9.2(10) of the Pension Benefits Standards
Act, 1985, and the English version does not make that reference. Why is that?
Mr. Primeau: I believe that is to do with the styles of drafting in
English and French. Sometimes there are references to a particular section,
which might be the case in French but not in English. It depends on the
structure of the sentence, but the meaning of these provisions is the same.
Senator Callbeck: The meaning is the same in French and in English.
Mr. Primeau: Yes.
Senator Ringuette: Ms. Lafleur, you said that during the consultation
period you received 200 submissions. How many of these submissions were related
directly to the proposed legislation?
Ms. Lafleur: The vast majority were relevant. I do not have a number
for you, but they were in response to the consultation paper and the questions
contained therein. There might have been others in related pension issues but
not directly answering the questions.
Senator Ringuette: I want to ensure that when you indicated there was
consultation and 200 submissions were received, you are talking about
consultations on the federal organization that has 7 per cent of the private
Ms. Lafleur: Right. The consultation paper dealt strictly with the
Pension Benefits Standards Act, 1985, at the federal level. It did not touch on
the Canada Pension Plan or other plans. We invited comments on this act, and the
vast majority were on topic. Some were not entirely on topic. It was the same
with the public consultation discussions that Mr. Menzies held across the
country. The public was invited to present and speak to these questions. The
vast majority were on topic, but some strayed off topic. It was mainly about
these amendments to the PBSA, 1985.
Senator Ringuette: How much consulting was done with OSFI, which is
responsible for oversight?
Ms. Lafleur: We work hand in glove with the Office of the
Superintendent of Financial Institutions. In fact, they probably get tired of
seeing us. The reality is that you would never want to design a regulatory
framework that cannot be administered effectively. You need the regulatory
presence at the table with you every step of the way. We had people from OSFI go
to the public consultations so they could hear the concerns and priorities first
hand of Canadians and stakeholders. OSFI was in on it all the way through and
helped us to develop the consultation paper in the first instance.
Senator Ringuette: Will the report to OSFI now be prepared on an
Mr. Primeau: Yes. Currently, many plans have to perform annual
valuations because our rule is such that any underfunded plan must provide
annual valutions. Going forward, most plans will have to prepare their
valuations annually. The ones not currently governed are those that have a
surplus, but all those with a deficit must provide annual valuations.
Senator Ringuette: How many plans would be in a deficit situation?
Mr. Primeau: At the moment, our latest estimate is close to 75 per
cent of the plans would have been in deficit at the end of 2009. We must stress
that it is allowed under the regulations to have a deficit at any time. The
legislation and regulations provide that minimum payments be made toward these
deficits so that within a reasonable period of time, the deficit will be made
Senator Ringuette: Of the 75 per cent of federal plans in deficit,
what is the total amount of that deficit? Do you have that figure?
Mr. Primeau: The total deficit?
Senator Ringuette: Yes.
Mr. Primeau: I do not have that information with me, but we could
undertake to get that number.
Senator Ringuette: Do you know roughly how much it is?
Mr. Primeau: This is an estimate only because at the moment, we do not
receive annual actuarial reports for all the plans and also when they come in
varies. At OSFI we perform estimates twice a year to follow the situation so
that we can intervene, in some cases, and request an actuarial valuation sooner
than anticipated. These are estimates only.
Senator Ringuette: How much is the last estimate that you have?
Mr. Primeau: We did an estimate at the end of 2009. We found that the
average position was 90 per cent funded. On average, a plan would have assets
sufficient to cover 90 per cent of the liabilities if all plans were
terminating. Keep in mind that these calculations are done assuming that all
plans are terminating, whereas the plans generally continue. As long as the
plans continue to operate and payments are made toward the deficit, then there
is no immediate danger to the members.
Senator Ringuette: I find that this legislation provides an
opportunity to this group of employers — the 75 per cent that are in deficit —
an open door to renegotiate the terms and conditions of those pensions.
Ms. Lafleur: The door is not very wide open. In order to go into the
DPPWS, a company must publicly declare itself in financial distress and be
prepared to take the consequences of that declaration. Frankly, there are
serious consequences when you tell the marketplace that you are in financial
distress. Such a declaration has its associated costs.
The provision is not designed to be an attractive option for a sponsor.
We have tried to build the incentives in a way that an employer would only
take such action if it thought that meeting its pension obligations might push
it over the tipping point, but absent that situation, it would not choose this
as an option. Because the employer needs the buy-in of the retirees and members,
who will benefit from court- appointed representation in this process, this is a
very serious endeavour. At the end of the day, the Minister of Finance has to
approve the negotiated deals. There are safeguards built into the process.
Senator Ringuette: It says here less than one third, I think I read.
Ms. Lafleur: It starts on page 528.
Senator Ringuette: On page 532, clause 1817, proposed subsection
29.3(2) under the Distressed Pension Plan Workout Scheme reads:
The request for approval of the funding schedule may be submitted to the
Minister only if less than one third of the members and less than one third
of the beneficiaries object . . . .
Ms. Lafleur: That is correct. That is what we call the buy-in process.
This process has been used in a number of circumstances before, both in the
special cases that we have had, the companies that I have talked about, but also
in the temporary relief measures of 2006 and 2008. One of the options was for
sponsors to benefit from a longer payment schedule provided they got employee
and retiree buy-in. These buy-in provisions, if you will, have been well used
and well tested and we are comfortable that they work. With the added
court-appointed representation that is built into this distress workout scheme,
we are confident that we can make it quite effective.
Senator Ringuette: This says if less than one third, so 30 per cent of
the members and 30 per cent of the retirees.
Ms. Lafleur: Any one group can trump. If all the members agree but 33
per cent of the retirees object, it does not go forward.
Senator Ringuette: Yes, because it says "and."
Ms. Lafleur: Right. Both groups have to agree or not disagree.
Senator Ringuette: I like that idea of current members and retirees.
When you talk about consent, what is the percentage number for consent? Is it
66 per cent, 64 per cent?
Ms. Lafleur: It is two thirds.
Senator Ringuette: It would be 66.6 per cent?
Ms. Lafleur: Yes.
Senator Ringuette: You said earlier in your comments that the
provinces were looking at enacting similar provincial legislation.
Ms. Lafleur: Yes, and some have done similar things. For example,
Alberta was the first mover on letters of credit provisions. Since then, a
number of other provinces have put in similar provisions. Many of the temporary
relief provisions have been mimicked by the provinces. There are areas where we
are catching up. The provision that says that you cannot terminate a plan in an
underfunded situation is actually a bit of a gap that has existed for a long
time in federal legislation that does not exist in provincial legislation. In
that respect, we are moving to catch up.
Senator Ringuette: The provinces are not responsible for the
Bankruptcy and Insolvency Act; the federal government is. What will you do with
regard to the Bankruptcy and Insolvency Act and underfunded pensions?
Ms. Lafleur: The Bankruptcy and Insolvency Act is under the
responsibility of the Department of Industry, so I am afraid I am not in a
position to comment.
Senator Ringuette: I am sure the questionnaire to which you received
200 submissions included the issue of bankruptcy.
Ms. Lafleur: They were more issues about how to ensure that you have
proper funding in the plan to begin with. It was pretty clear that we were
dealing with the Pension Benefits Standards Act. I will not say no one mentioned
the bankruptcy provisions, but the focus of the consultation was about this act
and not the bankruptcy statutes.
Senator Ringuette: My last series of questions is with regard to page
511. Why should Crown corporations, be under this legislation given that the
federal government is the stakeholder? All these Crown corporation pension plans
should be fully funded.
Ms. Lafleur: A number of Crown corporations do sponsor defined benefit
pension plans, and, like other sponsors, the funded status of their defined
benefit pension plans is affected by movements in interest rates and market
returns. They too, from time to time, face deficit situations and are therefore
subject to the same rules as other sponsors in terms of having to make up any
deficit according to time periods, special payment schedules, et cetera.
Given that we are giving private-sector sponsors the ability to issue letters
of credit, we asked ourselves if Crown corporations should also have the ability
to make up part of their funding through letters of credit. We recognized,
however, that Crown corporations would benefit from the preferential cost of
borrowing fees available to them, having the full backing of the Government of
Canada. That normally makes your cost of funds cheaper. We wanted to level the
playing field for Crown corporations so that they would have to pay a little
extra to secure a letter of credit in order to not be at a comparative advantage
versus private-sector companies that need to get a letter of credit and stand on
their own without the backing of the government. These are provisions to balance
that playing field, which are essentially replicated from the temporary solvency
funding regulations that we had in the past two instances with similar
Senator Ringuette: Here it says something else. I want to read this
aloud for my colleagues, because this is very important. Page 511 under the
title of "Crown Corporations" says:
If the employer is a Crown corporation, a payment that it is required to
make under subsection 9(1.1) may be reduced —
So the payment may be reduced.
— provided the payment does not relate to any amount that the employer
has reduced from members' remuneration. . . .
By this article, you are accepting that Crown corporations may reduce their
Mr. Primeau: It also talks about the prescribed conditions.
Regulations will be made to support this provision, and there will be conditions
in the regulations. Of course, the regulations have not been published yet
because we have to wait for the bill to be passed. However, there is precedent
in the funding relief regulations of 2006 and 2009. In those regulations, the
condition for Crown corporations was that they had to have the agreement of
their minister, the minister responsible for the Crown corporation, as well as
the agreement of the Minister of Finance. For the Minister of Finance to give
agreement, they had to agree to pay a charge equivalent to the cost of a letter
Crown corporations I believe are not able to obtain a letter of credit,
generally, by their charters. Some can, but not all. It is meant to be
equivalent to the letter of credit mechanism, but conditions will be attached.
It will not be just any payment; there will be some regulatory conditions.
Senator Ringuette: You are saying that a federally incorporated Crown
corporation can reduce the amount of payment that it is contractually required
to put into their employees' pension plan, without anyone having any say, except
that the minister of that Crown corporation can say, "Okay"?
Mr. Primeau: The mechanism for the Crown corporation is equivalent to
the government issuing a letter of credit instead of a financial institution.
Senator Ringuette: That is not what it says here.
Mr. Primeau: No, but it refers to prescribed conditions. Similarly, on
letters of credit, there is also a need for regulations. Not all the conditions
are in the act. There will be conditions, for instance, on what acceptable
credit rating a financial institution must have to offer a letter of credit, and
all sorts of conditions that will be in regulations. For the Crown corporation,
the intention is similar; it is just that the government is acting as the
guarantor rather than a financial institution. However, it is a similar spirit.
Ms. Lafleur: The Crown corporation has to pay a fee as if it were
going to a financial institution to get a letter of credit.
Senator Ringuette: How many Crown corporations have pension plans that
are in deficit situations?
Ms. Lafleur: I do not have that number with me.
Mr. Primeau: We would not be able to give information on particular
institutions, but the number of Crown corporations that have pension plans is
fairly limited. Many of the Crown corporations are covered under the Public
Service Superannuation Act for the civil service at large. However, some
corporations have their own pension plans, and those pension plans are subject
to all the same rules and regulations as every other pension plan.
Senator Ringuette: How many Crown corporation pension plans are in a
Mr. Primeau: We are talking about a fairly small number of plans, so
it would not be possible to give information at that level of detail. It is
information that is filed with OSFI on a confidential basis. Members do have
access to their actuarial reports, as a right under the legislation, but, as a
regulator, we would not typically provide information on specific institutions
because it is not part of our mandate to do that. We provide information on a
broad perspective of the plans we regulate.
Senator Ringuette: I want to read something here. Is there a mistake
here? I am still referring to page 511. It says "required to make under
subsection 9(1.1)." Would that be the designation of actuary?
Mr. Primeau: No, subsection 9(1.1) is the provision that requires
minimum funding requirements for all pension plans. Subsection 9(1.1) is on page
508 at the top.
Senator Ringuette: It is not under this clause?
Mr. Primeau: No. This is saying that all pension plans must respect
the minimum funding standards that are in the regulations, which specify how the
employer contributions must be calculated.
Senator Ringuette: I still find that the provisions are providing to
75 per cent of the employers that are in a deficit situation an open door to
renegotiate the terms and conditions of the pension plans that they have with
their employees. You mentioned Air Canada. I can also look at Canada Post under
your Crown corporation section. The ex-CEO of Canada Post was before this
committee a month and a half ago saying their pension fund was in a deficit
situation. She did not say she was firing a lot of people to try to compensate
I still believe that these changes will provide an open door to change
agreed-upon benefit plans at a time when there is a lot of attrition in all
those Crown corporations or the private sector. My only hope is that OSFI will
continue its annual actuarial supervision to ensure that the contributions to
these plans are made. That is the only thing I see that may save all these
employees' pension funds.
Ms. Lafleur: It is important to note that when a plan goes into
deficit, there are rules that are set out to make up for the deficit. One of the
things that was the subject of much debate during the consultations was whether,
on a winding- up basis, we should extend the amount of time that sponsors have
to make up for a deficit situation. It is currently five years. We had a lot of
representations to say that it should be 10 or 15 years. In fact, the government
stayed with the five-year rule.
Senator Ringuette: It should be three.
Ms. Lafleur: It is important that you balance the interests of getting
as much money into the plan as quickly as possible with allowing the sponsor to
manage cash flow to remain viable and being able to grow and compete. It is a
balancing act, but overall, the government decided to stay with the five years.
Senator Ringuette: Pensions are deferred remuneration. Remuneration
includes salary and benefits, and benefits include a pension plan. This is
already deferred income, based on the contract of employment.
You can defer employee income for just so long. By putting forth this
legislation, you are opening the door to changing the rules of the game and
giving a lot more power to the employer. The only salvation in here is OSFI. I
hope that next year this committee will call OSFI to appear to learn about what
supervision they have done and the result of it. Are 75 per cent of pension
plans still underfunded, or are we down to 50 per cent? Hopefully, two years
from now, you will come before this committee and say that no pension funds are
underfunded. I do not see in here any means for you to order a company to pay
the deficit. Do you have that power under OSFI?
Mr. Primeau: As mentioned, the act and the regulations provide for the
minimum funding requirements. As Ms. Lafleur said, it is a question of balance.
When you have a deficit, you have to pay it back over so many years. The
monitoring is to ensure that those payments are made. We do not have the power
to order a company to pay more than what the legislation calls for.
Senator Ringuette: Exactly. The only thing you can do is supervise and
provide some statistics, but you have no regulatory power to order these
companies, which might be putting money elsewhere without meeting their
contractual obligation for the pension plan.
Mr. Primeau: We have the power of issuing direction of compliance. For
instance, if the company is doing something that is against the act, is not
following the act, or if they are not investing the plans in accordance with
their fiduciary duties and investing the money prudently, we can make
interventions. We can also order a valuation report to be done sooner than
required. We do have a number of regulatory tools, but not the particular one
that you mentioned.
Senator Murray: My interest was in the consistency or otherwise of the
regulatory regimes from one province to the next and their comparability to the
federal regime. You have touched on that pretty fully, unless there is something
you want to add to it.
Did you see that article in L'actualité a couple of months ago? I
referred to it the other day when the minister was here. They looked at 181
plans. I recognize that most of them are probably under the provincial
jurisdiction. Mr. Flaherty said that less than 10 per cent of the private plans
are in our jurisdiction. They said:
Overall, the Canadian employer pension plans are undercapitalized by $50
Is that as serious as this layman thinks it is, $50 billion
undercapitalization of these things?
Ms. Lafleur: As I said, I have not seen the article.
Senator Murray: Then something caught my attention further.
In the article, they provide an extensive list of Canadian companies. They
rated the companies' retirement plans based on how solid their foundations are.
As in the case of chartered banks, the companies are rated as either companies
to watch or companies at risk. Companies such as Bombardier, CCL Industries,
Cogeco Cable, Emera (with its branch, Nova Scotia Power) fell into the latter
The criteria they use are obviously the deficit in capitalization and the
Therefore, our rating is based on only two factors: the funding deficit,
percentage-wise, and the risk of the company going bankrupt.
It seems quite serious to me, with $50 billion total and some of the big,
reputable companies whose plans are rated by these people. It is a reputable
magazine we are talking about here.
Ms. Lafleur: I cannot speak to the methodology and the study itself.
Most of the companies you named are not federally regulated. The important thing
is essentially to have good rules in place and to ensure the special payments
are being made. Yes, it is not desirable to be in deficit, but the rules do
provide for it, accepting that market conditions can turn, that interest rates
can move and that actuarial standards can change, which sometimes creates
deficits. At the end of the day, when there is a deficit, are the sponsors
making the special payments in order to correct that situation? That is what is
really important. That is where OSFI is very important following up, making sure
those payments are being made, to get the plan back into balance.
Senator Murray: I do not know how to ask this diplomatically, and
perhaps you do not know how to answer diplomatically, but are you confident that
the provincial regimes across the board are strong enough to be able to deal
with problems of this kind?
Ms. Lafleur: I frankly am not in a position to answer that question
with any credibility because I cannot speak to the operations of the provincial
regulatory authorities. I am not an expert on the provincial legislation.
Senator Murray: I just wondered about the level of discussion or
consultation. Those are big numbers and big companies. It would be of concern to
a federal government, regardless of whether they were in our jurisdiction. When
Mr. Menzies was here — he has done a lot of work on this issue for the
government — his preoccupation, understandably enough, was with the zillions of
Canadians who do not have any plan and Canadians who are working for small
employers and ways of grouping them together into multiple employer plans. I did
not get to ask him just what level of consultation is taking place about the
kind of undercapitalization problem that seems to exist in so many of these
companies, if I can rely on this article, and I think I can.
Ms. Lafleur: It is a question for each of the provincial regulators,
because they would only have information related to their own jurisdictions. In
Ontario, for example, the big Arthurs commission that did quite a study, and
some measures have been announced, and the Ontario government has signalled they
have future reforms coming.
Senator Murray: I will give you some reading material to take home.
Ms. Lafleur: Thank you.
The Chair: Are you passing Ms. Lafleur the magazine article that you
Senator Murray: Yes.
Senator Marshall: I wanted to address some of the concerns that
Senator Ringuette mentioned earlier. My interpretation of the amendments is that
all of the amendments are in the best interests of plan members and future
retirees. Ms. Lafleur went through a number of the benefits. Solvency deficit at
termination must be fully funded. The amendments will permit the Superintendent
of Financial Institutions to replace an actuary if the superintendent is of the
opinion that it is in the best interests of members or retirees. The amendments
eliminate the possibility of an administrator declaring a plan to be partially
terminated. It provides for the immediate vesting of members' benefits, and it
also requires the administrator to make additional information available to plan
members and retirees following the termination of a pension plan.
Is there anything in this proposed legislation that would be to the detriment
of plan members or retirees? My interpretation is that all of the amendments are
furthering the interests of the plan members and future retirees. Is that
Ms. Lafleur: Certainly, the objective is to protect member benefits.
We have categorized them in a couple of different ways. In addition to enhancing
member security, we also wanted to make it easier for sponsors to plan long term
with regard to their funding obligations. We have made some changes to the
funding rules to smooth out some of the sharp market fluctuations we have seen
in recent years. That, too, is with a view to having a more robust pension plan
down the road.
Senator Marshall: Tightening it up.
Ms. Lafleur: Yes.
Senator Callbeck: I wanted to clarify two or three things. Clause 1794
allows the superintendent to designate an actuary, if he believes it is in the
best interests of the members of the plan. Am I right in saying that the
superintendent cannot do so while they are in negotiations?
Ms. Lafleur: This is outside the pension workout scheme.
Mr. Primeau: The two are not related.
Senator Callbeck: If there are discussions about a workout scheme
proposal between the company and the employers and representatives of the
retirees, why is this not related?
Mr. Primeau: Even if the plan is in negotiations, the power of the
superintendent would still exist.
Senator Callbeck: That was the question I asked.
Ms. Lafleur: It need not be linked to the workout scheme. It could
happen independently from a negotiation.
Mr. Primeau: That is what I meant.
Senator Callbeck: I know that; however, my understanding when I first
asked questions was that the superintendent could not designate an actuary
during that negotiation period. Am I wrong?
Ms. Lafleur: The power is still there.
Mr. Primeau: Yes, the power is still there.
Senator Callbeck: You mentioned about provinces using the letter of
credit. What has been the experience with the provinces?
Ms. Lafleur: I know it has been on the books in a number of provinces.
Mr. Cleland: It has been adopted in Alberta for a few years, as well
as Quebec, and British Columbia has also adopted it recently. To my knowledge,
there have been no significant drawbacks to it — none that have been raised.
Senator Callbeck: The other question I had is on this distressed
workout scheme proposal. Is there any other country that is using this exact
Mr. Cleland: I am not aware of any other country or jurisdiction that
employs such a mechanism.
The Chair: Can we assume that apart from this new scheme of the
workout and the letters of credit provisions, that the rest of the amendments
together are designed to avoid a continuance of having 75 per cent of the plans
in deficit? Are you trying to protect the potential beneficiaries, the employees
who are looking for and expecting to get a pension? Are all these amendments in
an effort to improve their situation?
Ms. Lafleur: The letter of credit, too, can be used to help that
situation. It is another way that the sponsor can make a contribution to the
plan and help the funded status of the plan. That, too, is with a view to
helping secure the benefits of members.
The Chair: Did you not have provisions dealing with money that was
intended to go for future pensions? Was trust money not there before?
Ms. Lafleur: The trust arrangement was there before and continues.
Money put into the pension plan is separate and apart from the assets of the
company. If there is a bankruptcy, it does not form part of the assets that
other creditors can access.
The Chair: Why is it necessary to have the proposed section at the top
of page 507, which talks about this "deemed to be in trust," if that scheme
was already in existence previously?
Mr. Cleland: Deemed trust provisions refer to monies that are due but
have not yet been remitted. The legislation sets out a series of payments that
must be made; and if the employer has not made those payments, they are
considered to be due but unremitted.
At that point, the legislation deems them to be separate, even if they have
not been made to the separate trust fund. That is how you can get an enhanced
priority in bankruptcy for those amounts.
The Chair: That is helpful. I understand the approach you are taking.
That is not inconsistent with immediate vesting in the case of insolvency,
because there are two separate amounts of money.
Mr. Cleland: Yes.
The Chair: Are there any questions that flow from that?
On behalf of all honourable senators, I would like to thank the
representatives from the Department of Finance and the Office of the
Superintendent of Financial Institutions Canada for appearing. We appreciate the
work you are doing for us in keeping a watch on these things and protecting
Honourable senators may want to look next at Part 24, page 715.
We have with us this afternoon Mr. Louis Beauséjour and Mr. Mark Hodgson to
help us through amendments to the Employment Insurance Act and the establishment
of the employment insurance operating account. I will ask the both witnesses to
provide the committee with an overview and then refer to specific clauses and
proposed sections that will achieve the government's intent.
Louis Beauséjour, Director General, Employment Insurance Policy, Skills
and Employment Branch, Human Resources and Skills Development Canada: Mr.
Chair, pursuant to Budget 2008, Part 24 is essentially meant to improve the
transparency and effectiveness of Employment Insurance financing. In fact, we
could say that the Act is mainly focussed on the following three considerations:
amending the Employment Insurance Act to establish a new employment insurance
operating account; closing the existing Employment Insurance Account; and
removing it from the accounts of Canada.
This amendment's primary purpose is to ensure that the newly established
account, pursuant to Part 24, takes into consideration all appropriations and
expenditures related to employment insurance as of January 1, 2009, when the
Employment Insurance Financing Board became responsible for ensuring that a
balance exists between income and expenditures related to employment insurance.
Clauses 2185 and 2186 deal with these considerations.
Another purpose of the amendment is to clarify how contribution rates are
determined. By eliminating the Employment Insurance Account, we will be making
some changes to how contribution rates are set. Once again, we are clarifying
the Board's responsibility when it comes to setting the rates. The Board will be
responsible for establishing contribution rates so as to maintain a balance
between income and expenditures as of January 1. It will also be responsible for
maintaining the reserve at the same level. Clause 2204 deals with this topic.
The third purpose is to clarify how transactions will be made between
Employment Insurance Operating Account and the Employment Insurance Financing
Board's reserve. This matter will be covered in clause 2205.
There are also a number of other clauses that are interrelated and will
result in some minor technical amendments.
The Chair: Is that all?
Mr. Beauséjour: It is.
Senator Finley: I understand that this part of the bill, apart from
doing a recalculation of the contributions, is to close down what was a notional
account. I say "notional" because the previous government completely wiped out
the EI account of nearly $60 billion in notional surplus. Professor Thomas
Courchene from Queen's University said that the Liberals siphoned off somewhere
in the neighbourhood of $5 billion to $6 billion annually from the EI surplus.
The accumulated EI surplus that the Liberals brought into the Consolidated
Revenue Fund reached a staggering $60 billion.
I understand that the purpose of this bill is to close down that existing
notional account and create one that is measurable and transparent. Is this the
Mark Hodgson, Senior Policy Analyst, Labour Markets/Employment/Learning,
Social Policy, Department of Finance Canada: It does two things: It proposes
to close the existing Employment Insurance Account and creates an EI operating
account that will take effect from January 1, 2009, the date from which the
Canada Employment Insurance Financing Board is responsible for setting premium
The EI operating account will also be a notional account. It will track
premium revenues and expenditures. It will start at zero with the new
rate-setting mechanism, which requires premiums to balance program expenditures
over time. The difference is the addition of the CEIFB having a reserve fund. In
future years, surpluses, should they occur, will be transferred in cash from the
government's Consolidated Revenue Fund to the CEIFB for the board to invest
until they are returned to premium payers either to pay for benefits or for
lower-than-break-even premiums to ensure that break-even over time.
Senator Finley: How will the independent CEIFB be formed? Who will be
on the board?
Mr. Hodgson: It is an arm's length Crown corporation and a board of
directors has been appointed. They have hired an executive director who
currently performs the functions of a CEO. He is beginning to put in place the
operational structure of the board. As the 2010 Budget Plan mentioned, the board
will be responsible for setting the 2011 premium rate this fall.
Senator Finley: Will the board, its oversight function and the new
operating account prevent the current or future governments from raiding the
notional or real surpluses from the EI account and putting them into the
Consolidated Revenue Fund? I understand you to say that it is the other way
around in that you will take the surpluses out of the CRF and put them into the
Employment Insurance operating account.
Mr. Hodgson: The Employment Insurance operating account will continue
to track premium revenues and expenditures. Should a surplus be recorded, the
cash will be transferred from the Consolidated Revenue Fund to the CEIFB for
them to invest. Yes, in future, if surpluses occur, the cash will be taken from
the CRF and held by the CEIFB so that it can be used only for the EI program.
Senator Finley: What would happen in the case of a negative surplus,
if there is such a thing?
Mr. Hodgson: Currently, we are experiencing that. The board is
responsible for breaking even over time from January 1, 2009 onwards. The EI
legislation requires that benefits be paid. The benefits are paid from the CRF
and premium revenues are deposited to the CRF. Currently, the EI operating
account would record, by the end of 2010-11, a deficit of approximately $11.5
Senator Finley: It would have been useful to have that $60 billion,
had it not been taken out of the fund in the first place.
The Chair: I am not hearing your question, Senator Finley.
Senator Finley: There was $11 billion in deficit this year. It would
have been useful to still have the $60 billion that was siphoned into the
Consolidated Revenue Fund to help us through this recent problem with employment
insurance and deficits.
Mr. Hodgson: The legislation has always required that premiums be
deposited to the Consolidated Revenue Fund and that benefits be paid from the
CRF. The EI account was a notional account. I believe that the Auditor General
has described it as a tracking account. It has been used for premium
rate-setting purposes and provides an historic record of premiums and program
expenditures in a given year and the cumulative total over time. It has not
represented cash that could have been used for anything; the cash was already in
Senator Finley: It was not made available to the Employment Insurance
fund, however, because it was not there.
Mr. Hodgson: The Employment Insurance account has tracked the premium
revenues and the expenditures, nothing more. It provides an accounting of cash
in and cash out. Over the years, it has recorded a cumulative surplus. Before
the surplus started to be recorded in the late 1990s, it also recorded a
cumulative deficit during the recession of the 1990s.
Senator Murray: I follow Senator Finley, all right, and I have the
numbers here that are available from the annual budget, the revenues to the EI
fund and the expenditures on benefits going out. Professor Courchene is probably
right. From 1994 through to 2011, the fund accumulated about $56 billion in
surplus. Is there still an actuary involved with the fund?
Mr. Hodgson: Yes.
Senator Murray: Will the actuary indicate to the board and, one
assumes, to the public, what level of premiums will be necessary going forward
in terms of the expected demands on the fund?
Mr. Hodgson: The board will be hiring their own actuary, and he will
be responsible for providing a report to the board of directors. It will be the
board that will determine the premium rate and provide a public report on why it
chose that premium rate and all of the factors considered.
Senator Murray: Will he also, as he did in the past, indicate what
size of surplus it is necessary to maintain against a possible downturn in the
Mr. Hodgson: That is not a requirement of his function.
Senator Murray: He did in the past.
Mr. Hodgson: There was a time in the 1990s when the EI actuary, within
HRSD did estimate the size of the reserve.
Senator Murray: It was $15 billion to $20 billion at a time when we
were reaching for $40 billion or $50 billion or more in surplus, as I recall it.
Mr. Hodgson: I recall it was $10 billion to $15 billion. He estimated
that that would be a sufficient reserve to allow for premium rates to remain
stable at the long-run, break-even rate through a recession, which assumes that
the funding, that $10 billion to $15 billion, would be set aside in cash and
would allow you, should you be able to estimate a long-run, break-even rate, to
effectively set the premium rate at that level and leave it unchanged over time.
Senator Murray: That looks to me like the right way to go. That being
said, there is no justification whatsoever for increasing premiums, which is
what the government is doing, given the history that Senator Finley has just
recited and I will not repeat.
Senator Poulin: It is obvious that all income and expenditures are
examined as part of a country's financial governance. Proceeding in this way is
akin to running the largest company in the country in a healthy and balanced
way. What is the advantage of creating a new account for the country's financial
Mr. Beauséjour: This is done in order to create more clarity. In 2008,
a decision was made to establish a new employment insurance financing board that
would set future contribution rates, taking into account all income and
expenditures as of January 1, 2009. The legislation makes provision for a new
account. We are creating an instrument that will help us monitor all income and
expenditures from this date onwards.
Senator Poulin: Did our system not have this kind of clarity in the
Mr. Beauséjour: Once the government had made the decision to adopt a
new approach after a given date, it would have been difficult to properly keep
track of all the transactions had a new account not been created. The existing
Employment Insurance Account would have continued tracking all the transactions
that took place before January 1, 2009.
Senator Poulin: Senator Finley alluded to a study that I have not read
conducted by Professor Courchesne. Have you not read the study either? Are we
talking about a study or an article?
Senator Finley: If I remember correctly, it was an article in
Policy Options. I do not have it in front of me, but I am pretty sure that
is what it was.
The Chair: The witness is not familiar with it, you do not have it
before you, and they did not agree to it, so we can give it that weight of
Senator Poulin: Discussing financial governance is always easier
thanks to what I call hindsight. The only thing I remember about the 1990s when
it comes to financial governance is that we succeeded not only in reducing the
debt, but also in restoring a financial balance between our income and our
I remember very well that Prime Minister Jean Chrétien made some very
difficult decisions that led to program cuts. The reason Canada enjoys such a
good reputation today in terms of achieving financial balance is probably
because of difficult decisions made in the 1990s. This concludes my political
The Chair: You do not wish to comment on that? No, I would not either.
We are here to try to gather some evidence and information and understand these
bills, but periodically we get off into policy issues.
Senator Murray: Professor Courchene would be a very good witness, not
only on this, but on many other matters in which he has considerable expertise,
if you want to consider him.
The Chair: We will make note of that.
Senator Callbeck: You mentioned that the board has already been
appointed. How many people are on the board, and is there regional
representation on that board?
Mr. Hodgson: The board of directors has been appointed. I could give
you the names of the members of the board.
Senator Callbeck: I am wondering about regional representation. Do you
know whether that is considered at all?
Mr. Hodgson: I am not sure whether that was one of the minister's
Senator Callbeck: Could you find out and get back to the clerk,
please? I would like to know that.
Senator Murray: How many on are it?
Mr. Hodgson: There are seven members.
The Chair: Do you have the provinces of each of the members? That
would help us if you had that information.
Mr. Hodgson: Their bios do not provide their province of residence:
Mr. David A Brown, Former Chairman and CEO of the Ontario Securities Commission;
Elaine Noel-Bentley was Senior Director of Total Compensation at Petro- Canada;
Janet Pau is a chartered financial analyst, who has 11 years' experience with
Canfor Corporation; Pankaj Puri was a senior executive with CIBC, TD Bank and
Coopers and Lybrand, and is currently President of Independent Internal Audit
Services Inc.; and there is Tim O'Neill. Everyone knows who he is. Jacques
LeBlanc has 41 years as a certified accountant, 13 years as a fellow of the
Ordre des comptables agréés du Québec, and Gilles Bernier is professor of
finance and insurance in the Faculty of Business Administration at Laval
University. Those are the members.
Senator Callbeck: There is no one on the board from the Atlantic
Senator Murray: Mr. O'Neill is a Cape Bretoner, whose father was the
head of the United Steel Workers Union years ago. He has been an economist with
the Bank of Montreal and did a study for your government some time ago on fiscal
Senator Callbeck: It says that the board has to manage the account and
establish premiums so EI revenue and expenditures break even over time. What
period of time are we talking about?
Mr. Hodgson: That is open-ended. There is a limit on how much premium
rates can change from year to year to provide some stability to employers and
Senator Callbeck: What is that limit?
Mr. Hodgson: The limit is 15 cents per year per $100 of insurable
earnings. The current premium is $1.73.
Senator Callbeck: When this account is set up, what will be the
balance in it?
Mr. Hodgson: They will effectively open a trust account. There is
authority in the existing legislation for the Minister of Finance to transfer $2
billion to that account as the base of their reserve.
Senator Callbeck: What about this deficit that you are talking about?
I think you said that for 2010-11, it will be $10 billion or $11 billion?
Mr. Hodgson: There is a problem with fiscal and calendar years. The
CEIFB and the EI programs operate on a calendar year basis, and they are
responsible for setting premium rates to recover deficits from January 1, 2009
onwards. The current forecast for the sum of 2009 and 2010 is an $11.2 billion
Senator Callbeck: Will that sum be transferred into this account?
Mr. Hodgson: They will be responsible for setting rates so as to
recover that deficit. It will not be transferred to their bank account, but it
will be recorded in the new EI operating account.
Senator Callbeck: You are starting with $2 billion, and this deficit
of $11 billion will be transferred.
Mr. Hodgson: The $2 billion reserve would go towards that. It is not a
loan; it is a contribution, a transfer to the CEIFB.
Senator Callbeck: In other words, they are starting out $8 billion or
$9 billion in the hole?
Mr. Hodgson: Yes.
Senator Callbeck: The board will set the rates for 2011-12; right?
Mr. Hodgson: They will set it year by year. This fall, they will set
the rate for 2011.
Senator Callbeck: They cannot go above that 15 cents?
Mr. Hodgson: That is correct.
Senator Callbeck: Clause 2187 of Bill C-9 repeals section 76, which
The Minister of Finance may authorize the payment of interest on the
balance in the Employment Insurance Account in accordance with such terms
and conditions and at such rates as the Minister of Finance may establish
and the interest shall be credited to the Employment Insurance Account and
charged to the Consolidated Revenue Fund.
Was interest ever paid on that balance?
Mr. Hodgson: Interest has been credited on the balance annually and
makes up around 25 per cent of the current cumulative surpluses accounted for by
interest credits and interest on interest.
Senator Callbeck: This section is being repealed, so what will happen
with this new account?
Mr. Hodgson: The new account will not have interest credited to it
because, should surpluses occur, the cash will be transferred to the board to be
invested in the financial market.
Senator Callbeck: You said that. It has been indicated that the
government will raise employment insurance premiums by 35 per cent over the next
four years. That is entirely up to the board, is it not?
Mr. Hodgson: Yes, it is. There is a common misconception that the
government will be setting rates and that it has set rates in the past. It was
previously the responsibility of the EI commission to set premium rates
according to the legislation in place, and it will be the responsibility of the
CEIFB to set premium rates going forward, should BIA 2010 be passed.
Senator Campbell: This is one of those rare occasions that Senator
Finley and I actually agree, and I know it scares both of us when that happens.
Certainly the idea that the EI account was notional has always bothered me, and
this idea that there is money that is not really there that you can borrow
against, but you do not ever have to pay back.
However, I would be remiss if I did not point out that the surplus that was
spent, be it notional or real, by the Liberal government was because previous
Liberal and Conservative governments left Canada in the position of being a
Third World country financially. Hard choices had to be made. If it was notional
money, then where did that $60 million come from and where did it go, or was it
just a matter of air?
When we start in the hole, and we do not know what it will actually be, what
will be the effect on that EI account if the government continues to stay in a
deficit position? How do you fund it if the government is continually going into
debt? I am not saying they will; I am just saying this is where we find
ourselves now. What happens to that EI account? Does it just continue to go
deeper and deeper into deficit?
Mr. Hodgson: That is what would happen. The benefits are paid from the
CRF, regardless of the extent of the benefits. It is a statutory right if you
qualify to receive EI benefits. The program costs whatever it costs. Premium
revenue depends on the state of the economy and the premium rate. It is expected
that, for at least one more year, premium revenue will remain below program
expenditures, so the account will go further into deficit.
Senator Murray: After that year what will happen?
Mr. Hodgson: Then premium rates will be above break even, and we will
recover the deficit.
Senator Murray: It projects to 2014-15 in the budget, and the numbers
Senator Campbell: With all due respect, projections are just that. If
the EI rates do go up 35 per cent, what happens? Will that then cover the
deficit? Will you then be breaking even?
Mr. Hodgson: The current projection is that by the end of 2014, the
new EI operating account will be at a zero balance and the deficits will have
Senator Campbell: How much will we have to start charging? What is the
percentage increase to get to that point?
Mr. Hodgson: The current forecast is that premium rates will rise to
Senator Campbell: From?
Mr. Hodgson: It is now $1.73. It is worth keeping in mind that $1.73
is also the lowest premium rate since 1982 and that it was held there in 2010 by
the government to provide some fiscal relief during the recession.
Senator Campbell: That would in fact be a 30 per cent increase, give
Mr. Hodgson: Roughly, yes.
Senator Campbell: Let us say we continue in a recessionary mode and
the government is not able to recoup for the budget, the deficit that keeps
growing in the EI account is in fact the government's deficit; correct? They are
responsible for that money?
Mr. Hodgson: The net transactions in the EI operating account for that
year are consolidated with the government's finances and go directly to the
bottom line. To the extent the EI account or the EI operating account records a
deficit in a year, that deficit is added to the government's bottom line. When
the government is in deficit, it makes the deficit larger.
Senator Campbell: Does the EI have to pay back that debt the
government is picking up?
Mr. Hodgson: That is the basis for this funding mechanism — that
premiums and program costs must break even over time.
Senator Campbell: Let us just say, for instance, that it takes us four
years to get to zero, that it comes out to $20 billion in the hole and then you
are even in 2014. Any surpluses up to $20 billion go back to the government; is
Mr. Hodgson: Once you have reached zero in the EI operating account,
you have had years of deficits and of offsetting surpluses.
Senator Campbell: No, you will not have any years of offsetting
surpluses between now and 2014.
Mr. Hodgson: Yes, you will. That is the current forecast.
Senator Campbell: You told me it would be zero in 2014.
Mr. Hodgson: After dipping to minus $13 billion.
Senator Campbell: So you will have paid everything off?
Mr. Hodgson: Yes, that is the forecast.
Senator Campbell: How much do you plan on paying off?
Mr. Hodgson: The current forecast shows a maximum deficit of $13.2
billion at the end of 2011.
Senator Campbell: And at the end of 2012?
Mr. Hodgson: A cumulative deficit of $11.8 billion; 2013 is minus $7.3
billion; and 2014 is zero.
Senator Campbell: That is good. I have never collected from this fund
and I have been paying for 44 years. I think I will stick around for four years
so I can be here and call you back to see how we have done.
The Chair: Is that projection of the reduced deficits and reduced
accumulated debt based on an increase of 15 cents, or is that limit of 15 cents
only for two years?
Mr. Hodgson: That is 15 cents per year for four years.
The Chair: The board that we have created does not have a lot to do.
They will not have any surplus to invest and they will not set the rates,
because they have already been determined for the next three years.
Mr. Hodgson: This is the current projection. They will be responsible
for setting rates according to their chief actuary's forecast, taking into
account updated economic projections from the Minister of Finance and
projections of program benefit costs from the minister of HRSD.
The Chair: Was there not a legislated increase of 15 cents per year
for at least two years?
Mr. Hodgson: No; no rate increase has been legislated.
The Chair: If there anything directed or announced that there will not
be an increase of more than 15 cents over the next two years?
Mr. Hodgson: That is a provision of the legislation that limits
premium rate changes from year to year, whether up or down, to 15 cents maximum.
The Chair: That is the point I was just making. You said the board
will determine what they should charge, but there is a legislative cap on that
of 15 cents; it will not be more than that.
Mr. Hodgson: That is correct.
Senator Ringuette: Is the EI program subject to the program review?
Mr. Hodgson: The statutory benefits part is not. As far as I know, no
statutory program benefits are subject to strategic review.
Mr. Beauséjour: However, the operation is subject to the review — how
we operate and ensuring that we basically administer efficiently the payment of
Senator Ringuette: If my memory is correct, the cost of the
administrative portion of the program in this year's estimates is roughly $230
million. Do you know what the current administration cost is?
Mr. Beauséjour: No, I do not have that information.
Senator Ringuette: I think it is roughly $230 or $260 million.
Mr. Hodgson: I do not have the number in front of me, but I recall it
is roughly $2 billion this year.
Senator Ringuette: In administration?
Mr. Hodgson: Yes. In the budget notes, where they set out
expenditures, is a footnote that says the EI benefits represent 90 per cent of
total EI program expenses. The remaining EI costs relate mainly to
administration costs. EI benefits for 2009-10 and 2010-11 are forecast to be
roughly $22.5 billion; 10 per cent of that would be $2.2 billion.
Senator Ringuette: Does this new account provide for inclusion of the
$2 billion in the administration of the program?
Mr. Hodgson: Yes; administration costs have always been charged to the
EI account. The legislation prescribes what can be charged to the EI account; it
is essentially limited to benefits and the cost of administering those benefits.
Senator Ringuette: Included in the accumulated deficit is the
administration cost of $2 to $2.5 billion?
Mr. Hodgson: That is correct. The administration costs are included.
Senator Ringuette: Is this the only program that the federal
government administers where the administration part is subject to user fees?
Mr. Hodgson: The costs of administering the Canada Pension Plan are
also charged to the Canada Pension Plan account. It is the only other one I am
aware of that is similar to EI, where there is a dedicated account for the
program to which all operational and administration costs are charged.
Senator Ringuette: I know you cannot comment on policy issues;
however, sometimes government makes policy decisions that have an impact on the
EI program, whether it is by increasing or decreasing benefits. Is there any
measure in this legislation that, for the next four years, prohibits any kind of
increase or decrease in benefits?
Mr. Hodgson: No, this is strictly related to the financing of the
program. It has nothing to do with the benefit structure.
Senator Ringuette: There is currently no policy to say that the
current government will reduce or maintain the level of contribution to balance
the deficit by reducing the benefits to employees, is that right?
Mr. Beauséjour: The decision to increase or reduce benefits has
nothing to do with this bill, or with the decision of the actuary or of the
Canada Employment Insurance Financing Board. The latter is responsible for
setting the rates when the government makes decisions related to employment
insurance benefits. Nothing in this case is related to benefits.
Senator Ringuette: The maximum increase is set at 15 cents per year.
We know that in the coming years, programs will be in the red to the tune of
billions of dollars, and in order to "balance the books," the government might
reduce benefits payable. That policy has nothing to do with the actuary's
results, as you have said.
There is nothing in this bill that will stop the government from changing
policies and benefit regulations, be it to taxpayers' advantage or disadvantage.
Mr. Hodgson: Any of the changes that you mentioned would require
changing the Employment Insurance Act, with which Parliament would have to
concur. The government cannot change the parameters of the EI program, such as
benefit durations and amounts, without amending the EI Act.
Senator Ringuette: I have another line of questioning. At times, the
employer over contributes on a payroll basis. Over contributions are established
under the Income Tax Act. Do those over contributions go into the general
revenues or into the proposed EI operating account?
Mr. Hodgson: Any surplus, whether in the form of over contributions on
the part of employees or employers or ordinary premium revenues, is deemed
premium revenue and goes into the CRF and recorded in the EI operating account.
To the extent that there are so-called over contributions embedded in the
premium revenue and there is a surplus in that year, that surplus, including any
over contributions, will be transferred to the CEIFB to be invested until it can
be returned to premium payers.
Senator Ringuette: There are EI provisions in the Income Tax Act such
that if you have an annual income of $60,000 per year and you receive EI
benefits, a portion of the EI benefits has to be repaid. Is it returned to the
Consolidated Revenue Fund or is it returned to the EI operating account proposed
in Bill C-9?
Mr. Beauséjour: Are you referring to the repayment provisions in the
Income Tax Act? My understanding is that repayment of EI benefits is taken into
the EI account and the EI operating account.
Senator Ringuette: Could you verify that?
Mr. Beauséjour: Yes.
Senator Ringuette: The last time I inquired into that issue, the
Canada Revenue Agency had not been very active in that particular area. Could
you identify for us how much has been over paid and how much has been repaid in
Mr. Hodgson: It is recorded in the EI account. Benefit repayments
received from higher-income claimants are recorded in the cash flow of the EI
account for the year in which they are repaid.
Senator Ringuette: Could you give us an approximate amount?
Mr. Hodgson: I have a copy of the Public Accounts of Canada 2009,
which shows that the amount was $149.6 million in the context of an $18-billion
program that year.
Senator Ringuette: At the beginning of the year, a person might
collect EI and in May/June he lands a big contract for $150,000 per year. All
the EI he received at the beginning of the year has to be repaid.
Mr. Hodgson: Yes, that could occur.
Senator Murray: Am I correct in recalling that in the past, we used
the EI fund not only for cheques going out to unemployed people but also for
"positive" measures, such as training programs and the like?
Mr. Hodgson: Yes. Active employment measures are part of the EI
program. They include things like training, self- employment assistance and job
search assistance. Those have been a feature of the EI program for decades.
Senator Murray: Are there any other measures? I thought we added to
that list of measures.
Mr. Beauséjour: Now, all these programs are offered by provincial
Senator Murray: Who finances them?
Mr. Beauséjour: We have Labour Market Development Agreements with the
provinces. The financing comes from employment insurance, but the funds are
transferred to the provinces, which are now responsible for developing these
Senator Murray: But the funding comes from the federal government.
Mr. Beauséjour: That is correct in the case of people collecting
Senator Murray: How much money are we talking about here?
Mr. Hodgson: About $1.95 billion per year is transferred to the
provinces and territories for EI Part II measures.
Senator Murray: Part II measures are active employment measures.
Mr. Hodgson: Yes. They include benefit support measures.
Senator Murray: Is that amount for the total of them?
Mr. Hodgson: Yes, it is $1.95 billion for all of those measures.
The Chair: My recollection is that in last year's budget
implementation bill there were a number of short-term special programs, such as
the extra five weeks for the unemployed, which only went for a year and a half.
Was there not a provision for which the government estimated an additional cost
and an amount was to be determined and put into an account?
Mr. Hodgson: That is correct.
The Chair: That is in addition to the $2 billion that we have talked
Mr. Hodgson: That is right. I am sorry; I overlooked that. At the time
of Budget 2009, the economic action plan measures relating to EI were estimated
to cost $2.9 billion. The Budget Implementation Act 2009 provided the authority
for the Minister of Finance to credit the EI Act with an updated estimate of the
cost of those measures as of August 1, I believe. The additional short-term
economic action plan measures will not be recovered from future premiums.
The Chair: Your calculation of the amount of the accumulated deficit —
Mr. Hodgson: Is net of that amount.
Senator Finley: I quoted from a report earlier in this meeting but no
one seemed to have heard of it except my good colleague Senator Murray. I would
like to table it with the committee for clarification and education. As a bonus,
I have included a TD economic report that says the same thing.
The Chair: Professor Courchene's report. Did he do both?
Senator Finley: No. TD Economics did the second one.
The Chair: Two different people with the same opinion or the same
person and two different articles.
Senator Finley: Two different articles.
The Chair: We will look forward to receiving those.
Basically, you are explaining to us that the government wishes to start the
accounting over again in a new account called the Employment Insurance operating
account. It is still a notional account in the same way as the existing
Employment Insurance Account, which is being replaced by the Employment
Insurance operating account, to keep track of the expenses.
Could you tell me how long the Employment Insurance Account was in existence?
Mr. Hodgson: I am not certain. I could look into that and get back to
you. My recollection is that that method of accounting for the then Unemployment
Insurance Program started in 1972, when the program was significantly expanded,
enriched and fundamentally revamped. It is my understanding that that account
started in 1972. We could confirm that.
The Chair: Could you do that? Presumably, anyone doing an analysis of
the surplus or deficit of that account would go back to when it started.
Mr. Hodgson: Yes, because it is a cumulative account from the very
The Chair: Honourable senators, I would like to thank Mr. Louis
Beauséjour and Mr. Mark Hodgson for helping us with part 24.
We will adjourn now and return at six o'clock to deal with Part 15, the Post
Office, and part 20, the environmental assessment.