Proceedings of the Standing Senate Committee on
National Finance

Issue 11 - Evidence - June 21, 2010 - Afternoon meeting


OTTAWA, Monday, June 21, 2010

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.

[Translation]

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, 2010.

[English]

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 retirees.

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 correct?

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 that.

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 funding landscape.

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 plan members.

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 power?

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 the delay.

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 specify.

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 cent?

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 that provision.

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.

[Translation]

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 retirement fund.

[English]

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 October 2009?

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 could respond.

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 list.

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 insolvency.

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 situation?

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 pay.

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 not exist.

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 pension fund.

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 annual basis?

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 up.

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 provisions.

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 contribution.

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 of credit.

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 deficit situation?

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 for it.

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:

[Translation]

Overall, the Canadian employer pension plans are undercapitalized by $50 billion.

[English]

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.

[Translation]

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 category.

[English]

The criteria they use are obviously the deficit in capitalization and the risk.

[Translation]

Therefore, our rating is based on only two factors: the funding deficit, percentage-wise, and the risk of the company going bankrupt.

[English]

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 referred to?

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 correct?

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 measure?

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 employees.

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.

[Translation]

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.

[English]

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 case?

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 rates.

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 billion.

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 the CRF.

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 economy?

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.

[Translation]

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 governance?

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 past?

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?

[English]

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 evidence.

[Translation]

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 expenditures.

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 comment.

[English]

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 considerations.

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 region?

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 forecasting.

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 employees.

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 deficit.

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 stated:

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 are there.

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 been recovered.

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 $2.33.

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 or take?

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 that correct?

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 monies.

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?

[Translation]

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.

[English]

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 EI benefits?

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.

[Translation]

Mr. Beauséjour: Now, all these programs are offered by provincial governments.

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 active measures.

Senator Murray: But the funding comes from the federal government.

Mr. Beauséjour: That is correct in the case of people collecting employment insurance.

Senator Murray: How much money are we talking about here?

[English]

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 about.

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 beginning.

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.

(The committee adjourned.)