Hon. Brent Cotter: Would Senator Wells take a question?

Senator Wells: I would.

Hon. Pierre J. Dalphond: Would Senator Wells agree to take another question?

Senator Wells: Yes.

[English]

Hon. David M. Wells moved second reading of Bill C-228, An Act to amend the Bankruptcy and Insolvency Act, the Companies’ Creditors Arrangement Act and the Pension Benefits Standards Act, 1985.

He said: Honourable colleagues, today I am pleased to rise as the Senate sponsor of Bill C-228, An Act to amend the Bankruptcy and Insolvency Act, the Companies’ Creditors Arrangement Act and the Pension Benefits Standards Act, 1985.

This bill, known by its short title as the “Pension Protection Act,” has been a long time in the making. This bill has three simple elements: The first is a requirement for the Superintendent of Financial Institutions to provide a report to Parliament every year. The second is that people holding defined benefit pension plans move up the line of priority for payout if a company goes bankrupt. And the last is that companies be permitted to fund deficient pension plans without financial penalty.

Most of you will recall the collapse of Nortel in 2009. On January 14 of that year, Nortel filed for bankruptcy protection, leaving over 10,000 pensioners to face the prospect of suddenly having no pension. When the dust finally settled, Nortel pensioners received about 50 cents on the dollar.

This story played out again in 2017 when Sears Canada filed for bankruptcy protection. Once again, it was pensioners who were left holding the bag. Sears Canada’s defined benefit pension plan was underfunded by a quarter of a billion dollars, and in bankruptcy proceedings, the 16,000 former employees were lined up behind the banks, and other lenders, to collect their money. In the end, they saw their pensions cut by approximately 30%.

Colleagues, it has been estimated that over 100,000 Canadians have had their pensions slashed when firms went bankrupt. If you go back as far as 1982, the Canadian Federation of Pensioners suggests that number could be as high as 250,000. Colleagues, this is unacceptable.

During last Parliament’s committee hearings on Bill C-253, this bill’s predecessor, Ms. Laura Tamblyn Watts of CanAge relayed the story of a couple who had worked their whole lives, and contributed to their defined benefit pension plans. After the Sears bankruptcy, they lost their financial security. They asked, “How could it be possible that we both worked our whole lives, and contributed to our plans, and we now face poverty because we are last in line for our own money?”

The answer to that question, colleagues, is simple: It is possible because the law allows it. If a business goes bankrupt today, the assets currently get divided up in this order: The first are deemed trusts. This includes things like unremitted source deductions in relation to the Canada Pension Plan, or CPP, or the Quebec Pension Plan, or QPP, income taxes payable and Employment Insurance, or EI, contributions — basically, all those amounts that are deemed to be held in trust for the benefit of the Crown. In essence, colleagues, the government gets paid first.

After the government gets paid, there are unpaid suppliers. Suppliers have the right to repossess unpaid goods that were delivered 30 days prior to bankruptcy. Then those who are considered what is known as “super-priority” are paid out. This includes the value of unpaid agriculture and aquaculture products delivered 15 days prior to bankruptcy, the value of unpaid salaries and allowances up to a maximum of $2,000 per employee, the costs incurred by a government to decontaminate land included in the bankrupt assets and the value of deducted salary contributions and employer contributions to a registered pension plan.

Now, colleagues, don’t mistake that last item with pension benefits. It only covers the employee’s contributions to the plan that were deducted from their earnings — not the amount that they are owed from the pension plan itself. It only represents a fraction of their actual pension entitlement — it is essentially what they paid in.

After super-priorities, secured claims are paid out. After that, there are preferred claims. And then finally, pension plan liabilities are addressed, which get pro-rated along with the value of all other unsecured claims. In other words, the protection for an employee’s pension plan, which they may have paid into during their entire working life, falls to the end of the line. This needs to change. And, colleagues, that change is precisely what Bill C-228 will achieve.

Over the last 10 years, numerous attempts have been made to address this problem, beginning in 2010 with Bill C-501. Later, we had Bill C-405 in 2018; Bill C-253 and Bill C-269 in 2020; Bill C-225 in 2022; and finally, Bill C-228 which is before us today. All of these were private members’ bills, and consequently struggled to get through the other place.

Bloc Québécois MP Marilène Gill’s Bill C-253 made it the furthest, going through seven committee meetings before being reported back to the House with one amendment. However, it was unable to move any further before the general election was called in the summer of 2021.

Rather than trying to recreate the wheel, MP Marilyn Gladu, the sponsor of Bill C-228, pulled together portions of the previous bills that had support, and removed those elements which were contentious. In her second-reading speech, MP Gladu specifically mentioned drawing heavily from Bill C-405 and Bill C-253. As you may be aware, the current bill received unanimous support in the other place, but, as I’ve said many times here before, that should not move this chamber from doing its due diligence.

The purpose of the legislation is actually quite straightforward. It will help protect pension plan assets, and ensure the solvency of defined benefit pension plans by addressing three areas.

Number one is Bill C-228 amends the Bankruptcy and Insolvency Act and the Companies’ Creditors Arrangement Act to ensure that claims in respect of unfunded liabilities or solvency deficiencies of pension plans receive super-priority status in bankruptcy proceedings. Instead of being paid out an amount pro-rated with the other unsecured claims, pension funds will receive the same priority and protection as salaries and pension fund contributions. It moves these unsecured liabilities up the line of priorities.

Number two is clause 6 of the bill amends section 40 of the Pension Benefits Standards Act, 1985 to change the requirements of the annual report. Currently, there is a requirement for an annual report on the solvency of pension funds, but the report goes to the Superintendent of Financial Institutions.

It is not clear what, if any, actions are taken as a result of the generation or the receipt of this report.

Bill C-228 would require that an annual report on solvency of pension funds be tabled in both houses of Parliament. This would then provide it with the opportunity for greater oversight. This is a public tabling that ensures transparency and awareness.

Thirdly, colleagues, Bill C-228 will provide a mechanism to transfer funds to a pension fund without negative tax implications in order to help restore a pension fund to solvency. Together, these three changes will help ensure Canadians no longer find their pensions and their retirements in jeopardy.

Over the course of committee hearings for Bill C-228 and the earlier version, Bill C-253, three concerns were raised over this legislation, which I would like to address. The first is that if the bill is adopted, it will result in employers moving away from defined benefit pension plans. Colleagues, this is already happening.

Over the last 22 years, the percentage of defined benefit, or DB, plans has dropped from 21.3% in the year 2000 to 9.6% today. As noted by Mr. Brett Book, Policy Officer for CanAge, in his June 8, 2021, testimony at the House of Commons Standing Committee on Industry, Science and Technology, defined benefit plans are no longer being created.

He said:

In Ontario, DB plans fell by more than 10% between 2017 and 2019, even after the Ontario government lowered funding requirements for solvency from 100% to 85%.

The lowering of funding requirements did nothing to encourage more corporations to establish defined benefit plans. Instead, as stated by Mr. Book, “The only changes that happened were that there are fewer DB plans, not more, and corporations saved billions.”

The second objection which has been raised is the assertion that corporations with defined benefit plans will end up being subject to higher interest rates on their borrowing, which will make them uncompetitive and lead to more insolvencies. The Pension Investment Association of Canada and the Canadian Association of Insolvency and Restructuring Professionals brought this concern up at committee hearings on this bill. Their contention is that if pensioners are given priority, companies with insolvent funds will have to pay higher interest rates to obtain credit and will be less likely to apply for credit. This could, in turn, accelerate the rate of insolvencies.

Colleagues, this bill gives corporations four years to deal with any unfunded liabilities present in their defined benefit pension plans. As pointed out by the sponsor of this bill, MP Marilyn Gladu:

. . . if a company cannot restore the solvency of its fund after a period of five years, it should indeed pay a higher interest rate to obtain credit, because it really does present a higher risk.

The third argument, colleagues, is that giving super priority to pension plan assets could end up making it harder for insolvent companies to restructure and avoid bankruptcy. Quite frankly, as noted again by Mr. Book in his testimony:

This is simply not the case. Companies have the financial ability to fund pension requirements, but instead choose to use their cash for bonuses to corporate executives, dividends and share buybacks. Corporations do not have the legal requirement to protect pensions, so they don’t.

Furthermore, as pointed out by Mr. Michael Powell, President of the Canadian Federation of Pensioners, this same concern was raised in 2005, when the Wage Earner Protection Program Act was passed. This WEPP Act gave super priority to unpaid wages, unpaid expenses and a few other things. Mr. Powell noted at the time that the Insolvency Institute of Canada was raising the very same warning, saying that giving super priority status to wages could create:

. . . a significant negative impact on Canadian productivity and employment since businesses . . . will have a tougher time getting financing, and their costs could rise dramatically.

As Mr. Powell pointed out, it never happened. He noted that:

. . . nobody has provided any data that anything bad happened after WEPP. If it was that draconian, if the financial armageddon was going to occur, we should have data. These are things that people monitor.

Colleagues, the question could be asked: “Why couldn’t this legislation also include protection for severance and termination obligations?” It’s a fair question. In principle, it makes sense. Why would we protect wages and pensions but not severance? In fact, this amendment was proposed in committee, and the bill’s sponsor, MP Marilyn Gladu, fully supported it. However, the amendment was challenged and ruled out of scope by the Speaker of the other place. Colleagues, if we include it here, it will suffer the same fate when returned for review.

I look forward to hearing from stakeholders on all sides of these issues at committee. It is important that we do our due diligence, as I said. As we do, it is essential that we do not lose sight of the goal of the legislation before us, which is to find a way to protect the pensions of workers who, after working and contributing to a pension, are faced with the news that a company holding their pension assets has gone bankrupt, and they’re at the back of the line, behind all other creditors and executives.

As stated at committee by Bill VanGorder, the COO of the Canadian Association of Retired Persons:

Most older Canadians have fixed incomes but face rising costs, growing inflation, an unpredictable economy and retirement savings that suffer as a result. The Canadian Association of Retired Persons (CARP) believes it is vital that the Federal Government protect pensioners by giving them “priority” status . . . . This proposal would go a long way in making that happen.

Colleagues, I concur with Mr. VanGorder. This legislation makes the necessary changes which will significantly advance protection for the pension plans of hard-working Canadians who have literally paid their dues.

In The Hill Times article last week, Michael Powell of the Canadian Federation of Pensioners summed it up this way:

Under current insolvency law, banks eat first. When the assets of a failed company are divided as secured creditors, banks receive the first payouts.

Actually, colleagues, governments receive the first payouts, but he said, “banks receive the first payouts.” He went on to say:

Pensioners have no rights or status in insolvency. Super priority means that pensioners would move nearer to the front of the line, improving their likelihood of receiving their full pension.

The passage of this landmark bill marks the closest Canadian pensioners have come to meaningful pension protection.

Colleagues, I look forward to examining the bill in greater detail at committee and welcome your support in moving it forward.

Thank you.

Hon. Pierre J. Dalphond: Would Senator Wells agree to take another question?

Senator Wells: Yes.

[English]