Hon. David M. Wells: Honourable senators, I am pleased to rise once again to speak at third reading 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.

Before I begin, I want to thank the Standing Senate Committee on Banking, Commerce and the Economy and its chair, Senator Wallin, for the expert work on this bill. The committee held three meetings, heard from 16 witnesses and received 27 briefs. We had extensive discussions with the witnesses, and ultimately agreed that Bill C-228 should be passed without amendment.

I also want to thank my colleague Senator Yussuff, who has been a strong advocate for this legislation and the best critic that a sponsor could hope for. It has been gratifying to be able to work together on advancing a bill that is long overdue — and Senator Yussuff’s collaboration attests to the importance of this legislation, and the urgent need to see it become law.

Lastly, I wish to give credit to the author of this important legislation, Marilyn Gladu, the Member of Parliament for Sarnia—Lambton. She has created legislation that directly helps Canadians in an area that has a significant effect on their retirement and quality of life. MP Gladu appeared at committee to defend the bill, and her skill and commitment were impressive.

Colleagues, as I mentioned in my second reading speech, this bill has three simple elements: The first is that people holding defined benefit pension plans move up the line of priority for payout if a company goes bankrupt. Bill C-228 will finally ensure that, in the case of insolvency, pensions get paid ahead of large creditors and executive bonuses.

Second, this legislation will provide a mechanism to transfer funds into a pension fund in order to restore it to solvency.

Lastly, it will require that the Superintendent of Financial Institutions provide an annual report to Parliament that details:

 . . . the success of pension plans in meeting the funding requirements . . . and the corrective measures taken or directed to be taken to deal with any pension plans that are not meeting the funding requirements.

All three of these are critical changes that will help secure the deferred income of employees who participate in private defined benefit plans.

Before going further, I would like to take a moment to correct the record from my second reading speech. During the questions that followed my speech, Senator Dalphond asked whether the Pension Benefits Standards Act applies only to federal pension funds, or if it also applies to those that are regulated by the provinces. I mistakenly said that it did apply to provincial pension plans, but it does not — not entirely. I’ll explain.

Bill C-228 amends three separate statutes. One of these is the Pension Benefits Standards Act, 1985. This legislation only impacts federally regulated pension plans. Bill C-228’s amendment to the Pension Benefits Standards Act simply creates the requirement for a detailed annual report on federally regulated plans. It does not create any requirement for reports on provincially regulated plans and, thus, does not encroach on provincial jurisdiction. I believe this was Senator Dalphond’s concern, and he is correct.

The other two acts being amended by Bill C-228 are the Bankruptcy and Insolvency Act and the Companies’ Creditors Arrangement Act. Both of these acts are national in scope and impact the bankruptcy and insolvency proceedings of all corporations in Canada, whether federally or provincially incorporated. That is what I was referring to when I answered his question.

While the amendments to the Pension Benefits Standards Act, or PBSA, create the reporting requirement, everything else in Bill C-228, including establishing a new order of priority — which is the key element to this bill — is created by amendments to the Bankruptcy and Insolvency Act and the Companies’ Creditors Arrangement Act.

Colleagues, pensioners’ groups have been calling for this legislation for a long time, and they appeared at committee to give us their wholehearted endorsement. They noted that Bill C-228 will finally provide a much-needed increase in protection for millions of Canadian seniors and their families who rely on defined benefit pensions for their financial security in retirement.

As I noted earlier, Bill C-228 does this by placing the interests of people before banks. Currently, if a company with a defined benefit plan becomes insolvent or declares bankruptcy, as we’ve seen in Canada’s recent history, pension plan holders have no seat at the table. When it comes to collecting what is owed to them, they fall to the end of the line with all of the other unsecured creditors. Bill C-228 addresses this by moving them up to what has been termed “super-priority status.” This is the status already given to outstanding salaries and allowances owed to employees, along with any employee or employer contributions to a registered pension plan. This legislation now puts pension benefits in the same category. And since pension benefits are deferred income, this change makes perfect sense.

However, colleagues, I want to point out that this does not guarantee that pension plan benefits will always be paid in full in the event of insolvency or bankruptcy. There could be cases where in spite of pensioners’ having super-priority, the assets of the bankrupt company are still not sufficient to cover all of the super-priority claims. However, what the bill does do is push pensioners to the front of the line instead of leaving them at the back.

Furthermore, by creating an annual reporting requirement, the amendments brought by Bill C-228 will result in greater accountability and transparency, which will help ensure that the pension plans are fully monitored and funded.

These simple objectives explain why Bill C-228 received unanimous support in the other place. All 318 members of Parliament present for the third-reading vote on November 23 voted in favour of the bill, including the Prime Minister; the Minister of Finance; the Minister of Innovation, Science and Industry; the Minister of Justice; and 31 other ministers. With that kind of support behind a private member’s bill, it is difficult for anyone to muster a case against it. But some still tried.

A number of associations, including pension managers along with financial and business interests, expressed their concerns about the bill, and the committee considered them carefully. Since you may have heard these concerns but did not have the opportunity to be part of the committee hearings, I’d like to take a few moments to address the main ones.

The first concern, which was heard repeatedly by the committee, was that Bill C-228 will actually hurt pensioners if it passes because it will cause employers to discontinue their defined benefit plans and leave them with inferior defined contribution plans.

Colleagues, let me say, first of all, that even if this claim were true, a secure defined contribution pension plan is more valuable than an unsecured defined benefit plan. Pension benefits that can be cut by 10%, 20%, 30% or even 50% in the event of bankruptcy do not provide much security. If this is the biggest threat that opponents of Bill C-228 can come up with, it doesn’t carry much weight with pensioners.

But as it turns out, this threat is easily dismissed. As pointed out by numerous witnesses, private defined benefit pension plans have already been in decline for more than 20 years. In the year 2000, 21.3% of private sector pension plans were defined benefit plans. By 2020, that number had dropped to 9.6%. And it’s even lower now, colleagues.

The reasons for this decline in defined benefit plans have not been fully documented, but one contributing factor, which was pointed out at committee, is that single-employer defined benefit plans no longer entice employees like they used to. To maximize your benefits from single-employer defined benefit plans, you need to work for the same employer for 25 or 30 years. The problem is that most people no longer see that as a probable career path. Single-employer defined benefit plans have been fading out of use for decades. It is an empty threat to suggest that Bill C-228 is going to somehow create what is already happening and has been happening for a generation.

But, colleagues, in addition to this, there are at least three other reasons why Bill C-228 is not a threat to existing defined benefit plans and the pensions of the more than 1.2 million Canadians who continue to participate in them. First of all, in the event that Bill C-228 did spook an employer to terminate their defined benefit plan, many of these plans are subject to collective bargaining. As noted by one witness, these companies are unlikely to be able to terminate their plan without finding agreement at the bargaining table.

Secondly, even if they are successful at negotiating the termination of a defined benefit pension plan, that plan cannot be wound up until it is fully funded. This means that every employee who is currently drawing a pension under that fund or has accumulated future pension benefits would be protected. Under the existing law, if you wrap up a defined benefit pension plan, the company must fully fund any shortfall within five years.

Thirdly, if an employer has any concerns about the impact of Bill C-228 but wants to offer a single-employer defined benefit plan to their employees, they still have the option of participating in a multi-employer pension plan. These plans are going strong and seeing significant growth in numbers, in part because they offer employees the ability to have one pension plan even if they change jobs among participating employers.

In addition, because their pension funds are pooled across multiple employers, a member’s pension is not impacted if their employer goes into bankruptcy. Their plan remains intact because it is part of a much larger fund that is not just dependent on one employer. In fact, one of the witnesses who appeared at committee was from the CAAT Pension Plan, which expressed its concern that employers might mistakenly think their multi-employer pension plan would be subject to Bill C-228.

However, CAAT acknowledged in its brief that this perception would be inaccurate. They noted that:

Across Canada there are multiemployer pension plan types . . . where the employer, by legislation, does not have any obligation to fund amounts beyond their monthly contributions.

They went on to say:

We recognize that the Bankruptcy and Insolvency Act cannot create a debt where one doesn’t exist and thus shared-risk multiemployer plans are likely not covered by Bill C-228.

In this they are correct. Bill C-228 does not create liabilities in the event of insolvency or bankruptcy. It merely ensures that where liabilities exist, those belonging to employee pension plans get their proper priority, along with any wages and salaries that are owed.

The committee’s report to the Senate on Bill C-228 contained an observation noting this fact that multi-employer pension plans:

. . . fall outside the scope of the bill and that only employers who are legally responsible to backstop a pension plan fund are liable to provide due payment to their employees upon bankruptcy.

That was a clarification, colleagues, that we decided to put in the observations.

Another concern that the committee heard about with Bill C-228 was that giving super-priority status to employees’ pension plans would carry a high risk of hampering the company’s access to credit. This, colleagues, is a curious objection to the bill. At its core, it is arguing that it is the employees who should carry the risk associated with their pension plans, not the employers. It is arguing that if you make employers carry the responsibility to follow through on the commitment they make to their employees, that this is unfair to employers and will somehow threaten the viability of their business.

Not only is this a strange position to take, but it should be noted that, first of all, if a company can demonstrate that their defined benefit plan is fully funded, as it should be, then there would be no such risk.

Secondly, Bill C-228 is going to give employers four years to make sure their plans are solvent and will incentivize them to keep them solvent. And if a company cannot get their plans to a position of solvency within four years, then they obviously are a higher risk, so perhaps they should be paying higher interest rates.

To suggest that the law should not protect employees’ pension plans just so employers can have access to cheaper credit is astonishingly self-serving. It suggests that it is the employees who should carry the business risk. The committee did not buy this argument.

The committee was also presented with the concern that in the event of insolvency, Bill C-228 could prevent a company from restructuring or allow a buyer to purchase the business and assume the liabilities of the pension plan in order to keep it whole. The implication is that the act of moving pension plan liabilities to super-priority status will somehow remove options for restructuring that would otherwise be present.

That is incorrect. What Bill C-228 will do in the event of insolvency is ensure that pensioners have a seat at the table in that restructuring process. As noted by the Canadian Labour Congress:

Without super-priority status for the pension plan deficit, pensioners and plan members are put in a very difficult and unfair situation. In order to avoid a windup of their pension plan — and truly catastrophic cuts to pensions and benefits in a liquidation, plan members are pressured to “voluntarily” agree to draconian cuts to pensions and benefits in CCAA proceedings. Typically, workers and plan members are pressured early in the proceedings to agree to massive cuts, with the threat of even more devastating cuts if they resist.

Since they currently have no protections in the event of bankruptcy and liquidation, they are threatened with losing everything, unless they agree to deep pension and benefit reductions . . . .

Colleagues, Bill C-228 does not increase the risk for pensioners; it decreases it. In the event of restructuring, it gives them a loud voice and a much stronger bargaining position instead of punting them to the back of the line. Bill C-228 is much needed and long overdue. On behalf of workers across our nation, I’m asking that we pass this legislation expeditiously and give workers the protection they deserve. Thank you.