Canadian Federation of Pensioners
to
Industry Canada
Marketplace Framework Policy Branch
May 28, 2013
Agenda
Canadian Federation of Pensioners
DB plans: financial resource and risk
Retirement income at risk
Mitigating the risk
Need for Reform
Public Consultation and Review Process
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1
Canadian Federation of Pensioners
• Advocates on behalf of all Defined Benefit retirees to achieve fair and
equitable pension security
• Members are retirees from major corporations including:
•
Air
Canada,
Bell
Canada,
Chrysler
Canada,
General
Motors
Canada,
Dupont/InvistaCanada, International Air Transport Association, Municipa lRetirees of
Ontario, Nortel, Algoma, Stelco, Energy Professionals of Ontario
• Over 250,000 retiree members with extended reach to 600,000
Canadians in their families
• Ready access to 70% of members through e-mail
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2
Defined Benefit Pension Plans (DBPP)
• Greatest source of income for retirees
•
Promised through lifetime of work
•
But at risk if plans are underfunded
• Significant source of investment in Canada
•
For domestic and non-domestic businesses
• Also, can be source of business risk
•
Which can be shed through restructure/bankruptcy
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3
Pensioners Facing Pension Reductions or Loss
DBPP
underfunding
is common,
and worsening
Source: InfoPensions 08, November 2012, OSFI
NEED ORiGINAL GRAPHIC.
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4
DBPP Rensioner Risks are increasing
Pensioner Risk = Windup Shortfall
·
25%
Pensioner exposure to risk of
pension loss increasing, and
20%
verysignificant
Source: “Report on the Funding of Defined
15%
Benefit Pension Plans in Ontario”, 2008 though
2012, FSCO
10%
NEED Original GRAPHIC.
5%
0%
2007 2008 2009 2010 2011
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5
Pensioners Risk Loss of Income - Ontario
Percent of Plans Underfunded
·
100
%
90%
Going
Concern
Solvency
SR<80%
plans have a
solvency
deficiency
80%
70%
9 of every 10
·
Half are
60%
underfunded on a
50%
going concern
40%
basis
30%
20%
·
Source: “Report on the Funding of
Defined Benefit Pension Plans in Ontario”,
2008 though 2012, FSCO
10%
0%
NEED Original GRAPHIC.
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6
Options to Correct
• Stronger funding rules would help
• So too would fixing the imbalance among creditors of company in
trouble
• CCAA and BIA give no priority to pension amounts
•
promised but not included in plan
• Among all investors, pensioners face the greatest of risks and severe
loss with no recourse to recoup pension losses
• Pensioners have little to no ability to earn replacement income or rebuild
savings when DBPP fail.
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7
Pensioner Protections in Canada Lag vs Progressive Countries
Many nations provide priority via various mechanisms
• Corporate insolvency
• Preferred status – Secured/unsecured
• Separate private insurance
• Government insurance
Source: Dr.Janis Sarra: A Comparative Study of 62 Jurisdictions
2008
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8
International Initiatives
Pension Trust Fund Treatment When Sponsor Insolvent
Country
G8/OECD
Sponsor
Specific Fund
Priority for
Fund Arrears
Priority for
Underfunded Fund
Guarantee/Insured/State
France
No (Industry)
Not Required
Not Required
Industry Insurance
Germany
No (Industry)
Unsecured
Not Required
Industry Insurance
Japan
U.K.
Yes
Yes
Unsecured
Up to 12 months
prior BIA
Secured (Priority)
Unsecured
U.S.
Canada
Yes
Yes
N.A.
Up to $2000,
Remainder
Unsecured
Unsecured
Unsecured
Limited to $48K
Norway
Yes
Secured
Secured
State Guarantee (Capped)
Sweden
Yes
Secured
Secured
Insurance
Switzerland
Yes
Secured
Secured
Insurance
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9
Scope of Retiree Quality & Security of Life
Quality/
Security
of Life
(1-5)
Groups Having Major Impact
5
4
Employer/Unions
3
2
Parents/Gov’t
/ Education
Parents
Pension/
Government
1
Longevit
y
(Years)
Government
0-10
10-20
20-30
3040
4050
50-60
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6070
7080
80+
10
Reforms needed for CCAA and BIA Acts
• Fairness calls for a rebalancing of the promised security needed by
pensioners, with the security of Hedge /Venture Funds, Debt Holders,
Bond
• Holders, Unsecured Lenders
•
There is an unsubstantiated concern that providing higher security status to
underfunded Pension Plans would increase cost of debt or hinder access to capital
• Has the government undertaken any study which would inform its
BIA/CCAA reform in this regard?
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11
CCAA and BIA Reforms
• Pension and Bankruptcy Legislation Lack Consistency
•
PBSA requires terminated Pension Funds be fully solvent (5 years) (Pension
Security)
•
CCAA leaves Pension Funding at discretion of CCAA Courts (Discretion No
Pension Security)
•
BIA places Pension Solvency at level of unsecured
Security).
creditor (No Pension
• Reform is needed to allow CCAA and BIA to deliver on the
objectives of the Pension Benefits Standards Act
• Help senior members of the Canadian community realize the
security they have been promised by their employers
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12
CCAA/BIA Review Opportunity
BIA/CCAA are in process of 5 year review.
Opportunity exists to engage interested parties in review of
Legislation and make submissions.
Effective Processes to assure fair and consistant participation
 Coordinated task force of interested parties.
 Appoint Deputy Minister to request and obtain submissions, as well as hold
nationwide community meetings
 Engage Parliamentary Committees to take depositions from interested parties.
Publish results and request comments
 Based on any or all of the above
 Share Government Analysis
 Prepare draft Legislation which would be commented on by interested parties.
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13
Need to Move Aggressively Now
• Industry Canada must move now.
• Assist Retirees to Obtain Fair and Equitable Treatment in their
Twilight Years
• Develop process to identify critical issues.
• Consult on solutions to critical issue
• Draft and implement appropriate legislation and regulations to
redress inequality in the treatment of senior citizens.
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14
Need a Summary of points and Ask
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15