Canadian Federation of Pensioners to Industry Canada Marketplace Framework Policy Branch May 28, 2013

Canadian Federation of Pensioners

to

Industry Canada

Marketplace Framework Policy Branch

May 28, 2013

CONFIDENTIAL. © 2013 Tirna Partners Inc. All rights reserved. 2

Agenda


DB plans: financial resource and risk

Retirement income at risk

Mitigating the risk

Need for Reform

Public Consultation and Review Process



• 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


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


Pensioners Facing Pension Reductions or Loss

DBPP

underfunding

is common,

and worsening

Source: InfoPensions 08, November 2012, OSFI NEED ORiGINAL GRAPHIC.


DBPP Rensioner Risks are increasing

Pensioner Risk = Windup Shortfall 25%

20%

15%

10%

5 %

0 %

2007 2008 2009 2010 2011

·Pensioner exposure to risk

of

pension loss increasing, and

very significant

Source: “Report on the Funding of Defined

Benefit Pension Plans in Ontario”, 2008 though

2012, FSCO NEED Original GRAPHIC.


Pensioners Risk Loss of Income - Ontario

1 0 0

%

9 0 %

8 0 %

7 0 %

6 0 %

5 0 %

4 0 %

3 0 %

2 0 %

1 0 %

0 %

Percent of Plans Underfunded

·9 of every 10

plans have a

solvency

deficiency

·Half are

underfunded on a

going concern

basis

·Source: “Report on the Funding of Defined Benefit Pension Plans in Ontario”, 2008 though 2012, FSCO

Going Concern Solvency SR<80%

NEED Original GRAPHIC.


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.


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


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 Yes Unsecured Secured (Priority)

U.K. Yes Up to 12 months prior BIA

Unsecured

U.S. Yes N.A. Unsecured Limited to $48K Canada Yes Up to $2000,

Remainder Unsecured

Unsecured

Norway Yes Secured Secured State Guarantee (Capped)

Sweden Yes Secured Secured Insurance

Switzerland Yes Secured Secured Insurance


Scope of Retiree Quality & Security of Life

Quality/ Security of Life (1-5)

Groups Having Major Impact

5

4 Employer/Unions

3 Parents/Gov’t/ Education

2 Parents Pension/Government

1 Government

Longevity(Years)

0-10 10-20 20-30 30-40 40-50

50-60 60-70

70-80

80+


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?


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 creditor (No Pension Security).

• 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


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 participationCoordinated 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.


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.


Need a Summary of points and Ask

Documents

Canadian Federation of Pensioners to Industry Canada Marketplace Framework Policy Branch May 28, 2013