Hon. Hassan Yussuff: Honourable senators, I rise today to speak to Bill C-228, the pension protection act.

This is a day that many pensioners, advocates, workers and union activists have worked tirelessly and selflessly for decades to make a reality. Today is about them and their efforts in achieving something historic for workers and pensioners.

Colleagues, you can play an integral role in writing an end to this story by supporting this legislation today without amendment.

When people ask me what Bill C-228 is about, my answer is simple: It is about fairness, respect for workers’ contributions and a commitment to their employers and about the right for all of us to enjoy a dignified retirement.

Senators, I would like to first recognize and thank Senator Wells for sponsoring the bill. He is a great colleague to work with. I want to also thank my colleagues on the Senate Banking Committee for their incredible work, Senator Wallin for chairing that committee and all members of the committee for the very important work we did in bringing the bill back to the Senate.

I believe the committee members understand the inherent injustice that pensioners across this country have endured because of our current bankruptcy laws. I know that although this might not be a perfect solution, it is the best solution available to us right now to protect the retirement futures of workers and pensioners.

Colleagues, the critics of the bill base their arguments in the potential unintended consequences should it become law. They say the bill might make it harder to access capital, it may increase the borrowing costs or it could lead to fewer defined benefit plans — could, may or might. Those are the words that have little value compared to the certainties of what current bankruptcy laws have cost workers and pensioners whose companies have gone bankrupt with a pension deficit.

Our current laws place those workers’ dignity and respect for their lifetimes of work at the back of the line.

Colleagues, it is those known inherent and harmful consequences of our bankruptcy laws that I ask you to fix for the benefit of workers who, in good faith with their employer, agreed to deferred wages today for a more secure retirement tomorrow.

Senators might ask what makes a defined benefit plan so special that it deserves a super-priority in bankruptcy if there is a deficit. It depends upon how much you value the trust and importance of keeping a promise when it comes to a company’s most important assets: its workers. Employer-sponsored defined benefit plans are part of the collective bargaining and employment agreement process. They are negotiated and agreed to in the same way as wages.

Workers will often agree to lower their wages today, preferring that the money goes into a pension plan to provide them with a more secured retirement tomorrow — in essence, a deferred wage. This negotiated agreement is based upon a promise by their employer to make the necessary contributions to their employees’ pension plan and the trust by those employees in the employer to do so.

Workers’ retirement futures are premised on the promise being kept and the trust being respected. For most employer-sponsored pension plans, the promise is kept, and the trust is proven to be well placed; however, for some plans, the employer has broken their promise and betrayed a trust that was placed in them. We know their names: Nortel, Sears, Eaton’s, Massey Ferguson, Cliffs Natural Resources and many more. The consequences of this can be devastating for the pensioners and their families, who work a lifetime on the belief that the promise will be kept, and the trust respected.

I want to take a moment to talk about what it means for pensioners when the promise is broken and the trust is shattered by sharing some of the stories of pensioners who have been affected by the unintended consequences of our current bankruptcy law.

Ron, Audrey and Attilio are 3 of over 1,600 former Sears employees who had to deal with the reality that their pension would be cut by almost 15%. Here are excerpts from the Sears Canada Retiree Group’s submission on this bill. Ron Husk from Mount Pearl, Newfoundland, who worked for Sears for 35 years, said, “It’s terrible. I stayed awake at night thinking about it and I don’t know what to do.”

That is what the 77-year-old former appliance salesman said. Ron had to return to work to supplement the loss in his pension benefit.

Audrey of Beaver Dam, New Brunswick, worked for 50 years for Sears. She stayed until the last day the store was open. She just could not believe that the pension she had paid into and that was promised to her for her lifetime of work could now drop by 20%. “It is just so unfair,” she said.

Attilio from Alberta had to consider returning to work in sales to make up for the lost income. That was something he was not looking forward to doing. “Who the hell’s going to hire a 73-year-old guy?” he said. “I can only stay on my feet for so many hours. I have arthritis.” Attilio worked for Sears for 44 years.

From the United Steelworkers’ brief that spoke about the 1,700 pensioners at Cliffs Natural Resources that went bankrupt in 2015: for Rose and Aurelien, Cliffs’ bankruptcy meant a loss of $400 a month. “At our age, we can’t say that we’re going back to work. We have to live with what we have left,” they explained.

White Birch Paper’s Stadacona pensioners faced a 47% cut to their pension in December 2012. In the end, after making some gains, they must live for the rest of their lives with a 30% reduction or cut to their pension. All of them were affected in some way — health, family, recreation, et cetera. Many must now live below the poverty line. Some are going back to work at the age of 70 or older, if they are healthy enough to do so.

Honourable senators, this bill is about ensuring there will be no other pensioners who will have to suffer the same fate as the pensioners of the past bankruptcies. Commercial creditors like banks and financial institutions are sophisticated lenders who can take steps to protect their investments against the risks of default. They can scrutinize their loans, transferring risk to the investor. They can expect companies to fully fund their pensions, benefit plans and prudently manage the risk. They can also require increased disclosure about the funded status of their pension plan.

Pensioners, however, are unable to protect their pension and benefits against the risk of default. They don’t have multiple private pension plans and savings to make up the loss, and they have no power over their former employer to keep their pension fully funded.

I would like to return to the issue I mentioned earlier of unintended consequences, something we heard critics talk about often and, in particular, how this bill may affect a company’s ability to access capital. Honourable senators, I would argue this issue is not whether a company may not have access to capital. This issue is about the consequences of the financial choices a company makes when there is a pension fund deficit. The only unintended consequence of this bill is that the financial choices a company makes will now include, of course, pensioners’ interests, something the current bankruptcy laws have purposely intended not to consider. I believe, like many, that by changing the rules, companies will change their behaviour.

Do I believe that this change in behaviour will be encouraged by lenders who will be more vigilant in ensuring companies they lend to have a healthy pension plan? Yes, I do. Will that mean companies would not be able to pay a dividend or purchase shares back before their deficit is addressed? Very likely.

Honourable senators, don’t you think that this would be a good outcome if it means pensioners would be less likely to lose a significant portion of their retirement future?

Before I conclude, I want to thank and recognize, of course, the many people who have made today possible. First, I want to start with the parliamentarians who began proposing private members’ bills and public bills going back over 15 years. Two of them were right here in this chamber in the past. Our current speaker, of course, is one of those people, and Senator Art Eggleton is one of those people who retired from the Senate. Their efforts made the path easier for MP Marilyn Gladu, working with all parties in the other place, to achieve this unanimous support for this bill.

I also want to recognize the work of labour groups such as Unifor, United Steelworkers and the Canadian Labour Congress, who never let the issue die on behalf of their members and pensioners.

I would also like to thank the pensioners who have taken the time to call, email and write letters not just to me, but to every senator in this chamber. Many of those people will not benefit from Bill C-228, but they nevertheless shared their heartfelt stories of stress, struggle and hard work with all of us.

Finally, I want to especially recognize the pension advocates and their tireless and selfless efforts fighting for a fairer future for pensioners across this country. I want to recognize and thank groups like the Canadian Federation of Pensioners, Yellow Pages Pensioners’ Group, Air Canada Pionairs, CanAge, CARP, the Canadian Network for the Prevention of Elder Abuse, Réseau FADOQ, the Congress of Union Retirees of Canada and the National Pensioners Federation. They have fought, not for their benefit, but for the benefit of the next generation of pensioners in this country. All of these people and groups are why this bill is before us today.

They are looking to us to take the final step to ensure a fair and dignified retirement for pensioners like themselves.

In conclusion, honourable senators, what we have before us is a bill that is about fixing unjust bankruptcy laws. Laws that have kept people’s dignity and respect for their lifetime of work far too long at the back of the line in bankruptcies they had no part in causing in the first place.

Workers and pensioners should not be written off as expendable in insolvency proceedings, as has been in the cases of the Nortel, Sears, Massey Ferguson and White Birch Paper Company bankruptcies, along with many other companies. Companies can fully fund their pension plans, but they choose not to since current legislation allows them to underfund their plans, with the unintended consequence that no one gets hurt except the workers and pensioners. Today, colleagues, you can right the wrong and restore fairness for workers and pensioners in our bankruptcy laws to ensure that their work is placed at the front of the line, not in the back.

The question, of course, you need to consider is whether, after a lifetime of hard work, anybody should have to struggle to make ends meet in their retirement because of an unjust law. Honourable senators, I believe the answer is no, and I would urge you, of course, to support pensioners’ rights to a dignified retirement by adopting this bill.

On a personal level, I have waited 30 years to give this speech. I thought one day the law would finally change. I never expected to be in this chamber when it would happen.

I have to say that how we got here is not quite normal. I want to thank MP Marilyn Gladu for her openness to collaborate with me. I contacted her and asked her about her bill. She said, “Absolutely.” I said, “I have some suggestions. Would you like to consider them?” She said, “Okay.” We talked, we collaborated and more importantly, of course, was her openness to work with other parties in the other house to achieve the same objectives. I cannot begin to tell you how monumental a task that was to get people here.

In closing, colleagues, there are many sad stories that I can continue to tell you, but I know that for the men and women who would have loved to be here tonight to join us in this discussion and witness this debate — because of the timing of the bill, they are not here — but I know for certain they will have a toast to thank us for doing the right thing. I know you will join my colleagues and I and hopefully vote to support this bill as is, without any amendments, and truly create history for working people in this country.

Thank you.

Hon. Tony Loffreda: Honourable senators, I rise today at third reading to speak in support of Bill C-228, the pension protection act, introduced in the other place by our colleague, Conservative MP Marilyn Gladu, and skillfully sponsored here by Senator Wells. I thank them both for their work and commitment in getting this bill through Parliament to protect the pensions of Canadian workers.

As you know, Bill C-228 seeks to amend the Bankruptcy and Insolvency Act and the Companies’ Creditors Arrangement Act to give pensioners super priority status when companies are undergoing bankruptcy or insolvency proceedings. This is a welcome change, and it has been a long time in the making.

During our committee deliberations, we were often reminded that Bill C-228 passed with unanimous support in the other place: 318 votes in favour; 0 votes against. If our inboxes are any indication, hundreds — if not thousands — of Canadians have sent us emails asking that we adopt this bill as soon as possible.

I agree with them. This is a good bill. Its intentions are worthy, and it should be adopted as soon as possible — tonight, if possible.

Most of us can probably get behind the idea of giving pension entitlements and benefits a super priority status in insolvency proceedings. Workers have spent their lives working hard and contributing to their pensions, and we need to protect them. It is only fair to do so. I agree with what Senator Yussuff just said: that a company’s most valuable assets are their workers.

I always used to have the magic triangle where you have the client on top, the shareholders and the workers. Without the workers, the client won’t be happy.

However, I want to share some concerns that must be monitored going forward for the benefit of all future workers. I have always said, “Businesses create jobs. If businesses thrive, clients prosper, communities prosper and workers prosper.” I want to bring those arguments forward, as well as what we heard in committee.

Some stakeholders shared concerns that giving pension liabilities priority over the interest of secured creditors may make it increasingly more difficult to obtain financing and it may make the DB, or defined benefit, pension plans less attractive and less popular.

At present, employer pension liabilities only have superpriority under Bankruptcy and Insolvency Act and the Companies’ Creditors Arrangement Act to the extent that they are, one, unpaid amounts deducted from employee remuneration for contribution to the pension fund or, two, unpaid normal costs or other unpaid amounts that the employer was required to contribute to the pension fund or administrator under a defined contribution provision or registered pension plan, respectively.

Bill C-228 proposes to expand the list of pension liabilities that have superpriority to include, first, special payments that the employer is required to pay to the fund to liquidate an unfunded liability or solvency deficiency and, second, any amount required to liquidate any other unfunded liability or solvency deficiency of the fund.

When we refer to a pension plan’s unfunded liabilities, this usually represents the additional amount that needs to be added to the fund’s assets to enable the fund to continually pay benefits as they come due if the fund were to operate indefinitely. The solvency deficiency is the additional amount that the fund needs to meet its obligations if the fund were to be wound up.

Unfunded liabilities and solvency deficiency do not have a fixed value as they fluctuate from time to time and can only be assessed by actuaries at a certain point in time. This can be problematic in cases that involve defined benefit pension plans.

For greater clarity, a defined benefit pension plan, as defined by Statistics Canada, is a type of pension plan in which an employer or sponsor promises a specified pension payment, lump sum or combination thereof on retirement. The employer is responsible for managing the plan’s investments and risk.

We know that membership in a DB plan accounts for two thirds of the total membership in registered pension plans in Canada, which represents 4.4 million Canadians. We also know that in the private sector we’ve witnessed a sharp decline in DB plans. According to Statistics Canada, 21.3% of private sector plans were DB plans in 2000. That number dropped to 9.6% in 2020. We were reminded in committee that there is also a growing trend among employers, big or small, who have defined benefit plans to switch to defined contribution plans, which, of course, is not the ideal scenario for Canadian workers. For instance, defined contribution plans, along with composite plans and hybrid models, have increased from 6.8% in 2000 to 14.5% in 2020.

I strongly believe that a DB pension plan still has numerous benefits when properly funded. The problem is, the unfunded liabilities are not always intentional. There is so much uncertainty involved in funding those pension plans. So they must be properly funded, and there are many solutions to have them be properly funded. However, given the uncertain value of unfunded liabilities and solvency deficiency in DB plans, lenders will be unable to determine the quantum of any potential pension liability in the event of a future bankruptcy — as I mentioned, uncertainty. This inability to reliably measure the risk will likely constrain lenders in granting credit and increase the cost of borrowing for borrowers with DB plans, especially in an insolvency workout scenario, and, ironically, this could potentially heighten the risk of bankruptcy.

As I said, I do support the plan. I agree with it. But these risks must be monitored going forward. As a former banker, I can attest to the fact that bankers do not like uncertainty or risks they are unable to identify or mitigate. Lenders lend on margin formulas, which are exact, and precisely reduce prior claims in order to determine borrowing margins. These margins may be reduced with the passage of the bill, especially in situations of insolvency, and it may have the counter effect of making company restructurings more difficult.

Ultimately, it is likely that Bill C-228 may cause or even accelerate a shift by employers from defined benefit pension plans to defined contribution plans. Effectively, although the bill is intended to protect pension plans, a potential result may be that employers use the four-year transitional period to move away from DB plans.

Randy Bauslaugh from McCarthy Tétrault recently wrote for the C.D. Howe Institute that the passage of Bill C-228 would likely transfer financial risks to creditors, shareholders and financial partners. In turn, lenders:

. . . will impose additional conditions on loans or capital. This will include increased security guarantees to rank ahead or equal with the pension liabilities, imposition of higher borrowing costs, insistence on full, rather than provisional funding of accruing liabilities, and many will just require the employer to give up its defined benefit pension plan.

He even suggests that lenders and other financial players are already being advised to review and modify documents to ensure debtors or partners do not have or do not set up defined benefit plans. If this reflection is correct, it may foreshadow what is to come.

Industry leaders from the banking and pension sectors, in a joint letter, echoed Mr. Bauslaugh’s comment and cautioned that “. . . Bill C-228 would fundamentally alter the risk profile that is assessed by creditors . . .” who would likely respond to adjust for the increased risk profile that would stem from the potential of not having a loan repaid.

The Canadian Association of Insolvency and Restructuring Professionals also told our committee that they fear:

. . . the super-priority will likely cause a gradual elimination of remaining DB plans because of the challenges in raising secure debt financing.

The association believes that C-228 is:

. . . likely to affect restructuring proceedings under the insolvency legislation by having a chilling effect on interim financing necessary to explore a restructuring process or exit financing to complete the process.

And it would save jobs for the workers.

Jean-Daniel Breton, the Chair of the Association, noted that:

Anytime that a lender has an ability to decide whether or not to extend credit, they will take into consideration the amount of risk that is perceived with regard to the enterprise.

His colleague Alexander Morrison added that when a company is going through a restructuring process and gets into financial difficulty:

. . . it’s critical to have interim financing to buy time to allow that restructuring to occur. If we have lenders who specialize in doing that interim financing, they are going to be very reluctant to lend into a situation where there is a large potential priority claim on a defined benefit pension plan that will rank ahead of their loan.

To counter what some of the industry players have said, we were told in committee that banks will find ways to adapt and to protect themselves and to work through the system. I agree that banks will adjust. They will re-evaluate their margin formulas, which may make it more difficult for companies to access financing if the calculations lead to a negative number. However, the issue is not so much with the bank or only with the bank, but with the employer who wants to set up a DB pension plan knowing the banks will consider the prior claim. Banks will assess the risks and could ultimately charge more to access capital or simply reduce its lending capacity. We may, in fact, see a further decline in DB plans due to this legislation, and yet, we should be encouraging employers to adopt DB plans. I believe they have many benefits over defined contribution plans.

On the contrary, with today’s tight labour market, maybe employers will feel the added pressure to adopt DB plans as a way of attracting and retaining employees. This argument was made in committee, and I hope it will be the case. Like I said before, when businesses and employers thrive, communities and employees prosper and jobs are created.

Honourable senators, in light of what I just said, I want to reiterate my support for this bill. I do support it. It is pivotal that we protect the pensions of hard-working Canadians who have contributed to and rely on their pensions for a well-earned retirement. However, I felt it was important to address and monitor some of the possible unintended consequences of this bill and some of the shifting dynamics that may affect the relationship between businesses, lenders and workers with the passage of Bill C-228.

I certainly don’t want to come across as an alarmist, but I contend that creditors or banks will adjust their approach to lending, and it may make it increasingly more difficult for struggling companies to restructure. The case of Algoma Steel in Sault Ste. Marie is one such recent example we heard about in committee. I heard many times about when cheques were being paid, bonuses or dividends — I monitored many companies in my early banking career that were insolvent, and I would never approve a bonus, cheque or dividend in an insolvency. Those cheques would never be approved. In that case, the bank works with the company to keep it viable, alive and going forward. Those cheques are never approved in the case of restructuring.

Like the Canadian Chamber of Commerce, I feel that:

Struggling companies would have greater difficulty securing loans, thereby undermining a core objective of insolvency legislation – to encourage successful restructurings that allow companies to continue employing Canadians . . .

As senators, I believe we have the luxury of taking the long view on issues, and I am concerned that Bill C-228 may not necessarily achieve its intended objectives of always benefiting future workers and putting them first. It would be a shame if Bill C-228 does not do that.

Some might even argue that Bill C-228 may be benefiting current workers and pensions, but it may negatively impact future workers and pensioners, those who have yet to join the workforce and who may end up with no pensions at all or less favourable plans.

I hope that defined benefit pension plans will not continue their downward trend with the passage of this bill. Defined benefit plans offer greater security to pensioners, and, as we were told in committee, they also offer protection from marketplace volatility. We want to encourage employers to adopt these plans. It will be important to monitor the situation and gather data in the coming years to accurately reflect the changing landscape in the pension plan environment, particularly during the four-year transitional period.

I urge us to adopt the bill as-is today. Canadian workers and pensioners are relying on us to do so. However, I call upon us to monitor the situation and evaluate if the bill has any unintended consequences for current and future pensioners. Hopefully it won’t. Thank you.